Denyse Bertrand
Senior Policy Analyst
Legislative Policy Directorate
Canada Revenue Agency
320 Queen Street,
Place de Ville, Tower A, 6th Floor
Ottawa, ON K1A 0L5
RE: Canada Gazette, Part I, Volume 153, Number 22, June 1, 2019
Disability Tax Credit Promoters Restrictions Regulations
On behalf of Baker Tilly Canada, please find our representations concerning the proposed Regulations under the Disability Tax Credit Promoters Restrictions Act (DTCPRA). There are seven areas that we would like to address, namely:
- Infringement on taxpayers’ rights;
- Medical practitioners are not legislatively excluded;
- Time frame for completing form;
- Medical practitioners should not be tax professionals;
- CRA mistakes and an overburdened appeal system;
- Clarification of promoter’s fees (application vs. appeal); and
- Use of the word promoter.
1. Infringement on taxpayers’ rights
The Taxpayer Bill of Rights describes and defines 16 rights that all taxpayers are entitled to when dealing with the Canada Revenue Agency (CRA). Most of the rights contained in the bill are not legally enforceable statutory rights but are intended to provide taxpayers with a level of professionalism, respect, integrity and collaboration that is to be expected in a relationship with the CRA.
Right #15 of the Taxpayer Bill of Rights states “you have the right to be represented by a person of your choice”. The guide to the Taxpayer Bill of Rights further expands upon this right by stating “you can choose a person to represent you and to get advice about your tax and benefit affairs”.
The creation of the DTCPRA and imposition of a maximum fee restriction is contradictory to this right. The $100 fee limit being proposed in the regulations is so low that many consultants will have to close their business or simply refrain from assisting disability tax credit (DTC) applicants, thus restricting the rights of taxpayers to be represented and to choose their representative.
The Taxpayer Bill of Rights is the foundation for proper administration of our tax system. Legislation that limits a taxpayer’s rights is detrimental to that foundation, erodes trust in the system and limits our ability to place faith in the Taxpayer Bill of Rights.
2. Medical practitioners are not legislatively excluded
The announcement on June 1, 2019 published in the Canada Gazette states that medical practitioners are not considered promoters for the purpose of the Act. This statement is not accurate. The DTCPRA defines promoter as “a person who, directly or indirectly, accepts or charges a fee in respect of a disability tax credit request”.
The legislation in the DTCPRA and the new proposed regulations do not contain any specific exclusions for medical practitioners, which means that medical practitioners are in fact considered a promoter and subject to the same restrictions.
The Disability Advisory Committee stated in their 2019 Annual Report that completing Form T2201 for applicants, especially when clarification letters are involved, imposes a significant burden of time on medical practitioners – time which is largely unremunerated. Our current health care system has a shortage of doctors resulting in a strain on the doctor’s time. If doctors cannot be appropriately compensated for the time required to properly complete form T2201 or respond to additional CRA inquiries, the potential result will be an increased denial of legitimate DTC claims resulting from the lack of information or clarification necessary.
3. Time frame for completing form
There is a misconception regarding the tax advising professional community that 100% of the time spent on any engagement is represented by the physical completion of a form. In actual fact, the time invested by tax professionals goes far beyond the actual completion of a particular form. A typical engagement assisting a client with completion of a DTC application would be as follows:
- Meeting with the client to gather particulars regarding the disability. This meeting would usually last about an hour as the DTC professional would ask necessary questions to gather the appropriate information to determine eligibility (1 hour).
- If the individual is not blind, then the DTC professional would have to review the situation and possibly need to conduct research to determine if the individual meets the definition of “markedly restricted” (see section 4 for discussion). This research could reasonably add another couple of hours (2 hours).
- Upon gathering information from the client and conducting the research, the DTC professional would assist the client with completing Part A of the form. The actual completion of Part A requires minimal activity (15 minutes).
- In some cases, the DTC professional might prepare a letter to provide information that assists the medical practitioner with reviewing the definition of “markedly restricted”. This is a very useful exercise given that our medical practitioners are not DTC professionals and do not have the time to complete the necessary research (1 hour).
- Once the medical practitioner completes Part B, the DTC professional usually provides a cover letter to the CRA providing sufficient information allowing an objective review of the application (1 hour).
- Sometimes the CRA may request additional clarification from the DTC professional or the medical practitioner resulting in additional time invested (1 hour).
Hourly rates for DTC professionals vary significantly and can be much higher than indicated in the original consultation report.1 If we assume, for the sake of argument, that the $35 to $130 hourly fee stated in the consultation report is representative, then the DTC professional fees for assisting this client could range from $218.75 to $812.50. This typical scenario results in fees in excess of the proposed $100 minimum fee. As you can see from the explanation of duties above, there is a misconception that a DTC professional only needs to be compensated for the mere completion of a form.
4. Medical practitioners should not be tax professionals
As a result of the DTCPRA and the proposed regulations, a medical practitioner must determine when an individual is “markedly restricted” (or equivalent) without the assistance of a DTC professional. This means that a medical practitioner must learn and understand subsections 118.3(1) and 118.4(1) of the Income Tax Act along with jurisprudence, CRA guidelines and other published commentary in order to properly complete the T2201 form.
“Markedly restricted” is a difficult term to define given the context of mental or physical infirmity. To make things worse, the terms used in the Income Tax Act to better define the concept of “markedly restricted” actually create further uncertainty by introducing other subjective terms, such as:
- All or substantially all – Defined by the CRA to represent at least 90 per cent, while the courts have concluded in certain cases that a percentage less than 90 per cent would still qualify.2
- Inordinate amount of time – The CRA has generally described an inordinate amount of time as being "three times the average time needed to complete the activity by a person who does not have the impairment"3 while the Federal Court of Appeal has described it as "an excessive amount of time, that is to say much longer than what is usually required by normal people. It requires a marked departure from normality."4
- Significantly restricted – The Income Tax Act does not contain any guidance on what constitutes a significant restriction.
We should not be redirecting the resources of medical practitioners from providing the absolute best health care to becoming tax specialists with regards to understanding the subjective nature of the DTC criteria. As a result of the DTCPRA, more reliance and pressure will be placed on medical practitioners further burdening the health care system.
As was quoted in the 2019 First Annual report of the Disability Advisory Committee:
"The criteria that are required to indicate whether or not someone is eligible are VERY vague. As a result, there is a great deal of confusion among practitioners and families, about who qualifies, particularly what markedly restricted means and what skills should be markedly restricted.”
5. CRA mistakes and an overburdened appeal system
According to the 2019 First Annual Report of the Disability Advisory Committee, enabling access to disability tax measures provides significant information about the difficulties faced by disability applicants requesting a review or filing an appeal for a denied DTC request. Any review or appeal would result in a significant delay to the applicant which could cause undue stress and hardship.
Please refer to the “Request a review/Appeal a decision” section of the report documenting the issues that could be faced with a denied DTC request. This report outlines that in recent years, approximately 10 per cent of the individuals who were disallowed the DTC filed an objection with an average success rate of 55 per cent. In the past five years, the CRA processed 139 cases related to a DTC claim resulting from an appeal with the Tax Court of Canada. Taxpayers were successful in claiming the DTC in 58 per cent of the cases.
These statistics only account for objections and appeals. Therefore, we don’t know how many denied DTC applicants decided to not file an objection or appeal resulting in further examples of misapplication of the law.
A restriction in fees eliminating the assistance of a DTC professionals will result in a reduction of relevant information being provided to the CRA. As a result, the CRA will either require additional resources to complete the due diligence process or the error rate of misapplication of the law may increase. Given that the Office of the Auditor General has already reported that the Agency was not meeting its mandate to provide a timely review of income tax objections, the potential elimination of DTC professionals could further exacerbate this problem.
6. Clarification of promoter’s fees (application vs. appeal)
The minimum fee restriction being imposed relates to fees in respect of a disability tax credit request. There is genuine concern that this restriction would also prevent DTC professionals from representing denied DTC applicants under the following situations:
- Providing additional information to the CRA, especially in areas requiring a subjective determination
- Filing a notice of objection with the CRA
- Filing a notice of appeal to the Tax Court of Canada
If the fee restriction also includes these situations, then the CRA’s administration of the DTC approval process will be left unchecked. Taxpayers would be forced to either accept the CRA’s decision or challenge it without any professional guidance or expertise. This would put denied DTC applicants in a precarious situation.
CRA very recently published on their website questions and answers related to these new regulations. In that document, CRA states in the answer to question #11 that the fee restriction would only apply to fees charged for assistance in making an application for determination of eligibility and not for assistance associated with appealing a determination. The legislation does not specifically exclude professional fees associated with appealing a determination; therefore, there is genuine concern that errors in interpretation could result in CRA applying penalties in error.
If we assume that the fee restriction will only apply to fees charged for assistance in making an application for determination of eligibility and not for assistance associated with appealing a determination, then the DTCPRA and its regulations are forcing taxpayer’s to wait for a denied DTC application before seeking advice from a DTC professional. The Disability Advisory Committee has already concluded that markedly restricted is a difficult term to understand and that more than 50% of the objections and appeals are in favor of the taxpayer. We also have statistics showing that individuals suffering from a mental infirmity have a lower acceptance rate. As a result, legitimate DTC claimants will be forced to wait a long-time before their claim can be resolved in their favor.
7. Use of the word promoter and its collateral damage
Based on the discussion period in the House of Commons,5 the purpose of the legislation is to restrict unnecessarily high fees being charged by individuals and organizations exploiting persons with disabilities.
During the discussion period in the House of Commons on February 5, 2013, Mrs. Cheryl Gallant moved that bill C-462, an act restricting the fees charged by promoters of the DTC be read the second time and referred to a committee. During this discussion period, there was agreement among the Members of Parliament that abusive fees should be prevented. There was also significant concern from various members that innocent parties could be equally affected and that the legislation should be carefully constructed to not cast everyone under the same light.
As the sponsor of the bill, Mrs. Gallant clearly stated in her opening speech that third party promoters needed to be separated from tax preparers and accountants. “We are looking at third-party promoters quite apart from the regular tax preparers and accountants. It is a new cottage industry that sprung up once the 10-year retroactive provision was made.”
Mr. Murray Rankin also commented, “We are not against all promoters. Some act as consultants to help people with disabilities obtain services and tax credits from the government, which they may otherwise not know how to obtain.”
The creation of the DTCPRA with the proposed regulation limiting the fee to a minimal $100 goes far beyond protecting individuals against exploitation. The use of the word promoter coupled with its broad definition encapsulates all persons trying to help, not just those trying to exploit.
It is also important to point out that the broadly defined term “promoter” in the DTCPRA is demeaning to many professionals who are legitimately advising their clients. As currently drafted, promoter also includes medical practitioners.
As a result of the DTCPRA and its proposed regulations, there will be significant collateral damage to legitimate advisors and persons with disabilities due to the overreaching restrictions now being put in place.
Summary
We respect and applaud the Government’s willingness to curtail abusive situations as they arise. Organizations charging excessive fees for simple DTC applications are taking advantage of vulnerable individuals. But most abusive situations are the exception to the norm and many DTC applications are not simple. It is wrong to take advantage of those less fortunate, but it is equally wrong to assume everyone is bad.
We implore the Government to be careful not to implement a solution that creates more problems than it solves.
We request that you reconsider the $100 minimum fee as proposed in the draft regulations of the DTCPRA and extend the consultation period in an attempt to develop a reasonable maximum fee that accomplishes Parliament’s objectives while minimizing foreseen problems.
We also request clarification related to the following:
- Does the definition of promoter include medical practitioners given the broadly defined term and no legislative carve-out?
- Does the minimum fee restriction violate Clause #15 of the Taxpayer Bill of Rights?
- Does the fee restriction also apply to advisors working with a denied DTC applicant under the following scenarios?
- Providing additional information
- Notice of objection
- Notice of appeal
- Providing additional information
We look forward to your response to our questions.
Yours truly,
Baker Tilly Canada
John F. Oakey, CPA, CA, TEP, CC
National Director of Tax Services
1 https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit/disability-tax-credit-public-consultations.html#wht_hrd
2 Keefe v. The Queen, 2003 TCC 791, at paragraphs 19-20 and 21-25.
3 CRA guide RC4064(E) Rev. 18, " Disability-Related Information 2018"
4 Robert C. Johnston v. The Queen, 98 DTC 6169
5 https://www.ourcommons.ca/DocumentViewer/en/41-1/house/sitting-204/hansard