2023-0996351I7 Disability tax credit - managing finances

Principal Issues: Whether an incapacity in decision-making specific to “managing finances” of a person under the care of a Public Guardian and Trustee, would be considered the same as a marked restriction in the mental functions necessary for everyday life, as defined in paragraphs 118.4(1)(b) and (c.1).

Position: Not necessarily. An individual’s inability/incapacity to make appropriate decisions and judgements in an isolated aspect of daily life, is not generally a determining factor, by itself, on whether the individual would be eligible for the DTC under the category of mental functions necessary for everyday life.

Reasons: An individual’s abilities and inabilities in the area of mental functions necessary for everyday life are generally considered as a whole, to determine whether overall, the individual is incapable of functioning independently and with reasonable competence in everyday life, as contemplated by the Legislator.

Author: El-Kadi, Randa
Section: 118.4(1)(b) and 118.4(1)(c.1)

                                                                                         May 4, 2024

        José D. Pomerleau                                                  Income Tax Rulings
        Legislation Section
        Benefit Partnerships and Services Division              Randa El-Kadi
        Benefit Programs Directorate
        Assessment, Benefit and Service Branch

                                                                                         2023-099635

Disability tax credit – Mental functions and the ability to manage one’s finances  

We are writing in response to your correspondence of October 27 2023, regarding the disability tax credit (DTC). More specifically you ask for our views on whether a person under the care of a Public Guardian and Trustee for an incapacity in decision-making specific to managing finances, would be considered to be markedly restricted in the mental functions necessary for everyday life.

Our comments

For purposes of the DTC, the basic activities of daily living (BADLs) are listed in paragraph 118.4(1)(c) of the Income Tax Act (the Act), and include mental functions necessary for everyday life. An individual’s ability to perform these functions is markedly restricted only where all or substantially all of the time, even with therapy and the use of appropriate devices and medication, the individual is unable, or requires an inordinate amount of time, to perform these functions.

Paragraph 118.4(1)(c.1) of the Act provides that the mental functions necessary for everyday life include:

i. attention,
ii. concentration,
iii. memory,
iv. judgement,
v. perception of reality,
vi. problem solving,
vii. goal setting,
viii. regulation of behaviour and emotions,
ix. verbal and non-verbal comprehension, and
x. adaptive functioning.

In determining an individual’s DTC eligibility under mental functions, the courts have generally been of the view that the impairment in mental functions must be of such severity that it renders the individual incapable of performing the necessary mental tasks required to live and function independently and competently in everyday life.

To better understand what is encompassed by “everyday life,” we turn to the provisions in paragraph 118.1(d) which stipulate that “for greater certainty, no other activity, including working, housekeeping or a social or recreational activity, shall be considered as a basic activity of daily living.” Given the general correlation between work and financial independence, the specific exclusion of work from the list of BADLs leads us to believe that an incapacity to function independently in the financial sphere may not, on its own, confer eligibility for the DTC.

While Parliament chose to exclude the activities listed in paragraph 118.1(d) from being considered as BADLs, we note that the Courts generally examine an individual’s ability to perform these kinds of activities, as it is often relevant in the overall assessment of the degree of impairment. Overall, in determining DTC eligibility, it is our view that an individual’s difficulties in mental functions are to be taken as a whole, by weighing all the particular facts in a given case.

The Department of Finance Technical Notes (the Technical Notes) for subsection 118.4(1), dated June 2022, seem to reiterate our understanding that “everyday life” needs only be considered at a very basic level for the purpose of determining DTC eligibility. Namely, the Technical Notes state that memory “refers to the ability to remember the following: simple instructions; basic personal information such as name and address; or material of importance or interest,” and adaptive functioning “refers to abilities related to self-care, health and safety, social skills and common, simple transactions.” The Technical Notes further clarify that “Consistent with the concept of a basic activity of daily living, the reference to goal setting is intended to capture short-term, daily goals rather than longer term life planning.”

In response to your question, we believe that managing one’s own financial affairs is a rather complex activity that often involves long-term planning and goal-setting. In our view, such an activity often extends beyond simple transactions and the rudimentary level at which the mental functions necessary for everyday life are to be assessed when determining DTC eligibility. Also, an incapacity in the financial sphere seems unlikely to be an indicator of one’s ability to live and function independently and competently in everyday life to the extent that is contemplated by the DTC provisions. Therefore, it is our view that lacking the level of mental functions to manage one’s own financial affairs would not, on its own, be sufficient to consider an individual to be markedly restricted in the mental functions necessary for everyday life.

We trust our comments will be of assistance.

Eric Wirag, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© His Majesty the King in Right of Canada, 2024

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté le Roi du Chef du Canada, 2024