[Recorded by Electronic Apparatus]
Tuesday, November 21, 1995
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[English]
The Chair: I would like to call the meeting to order. We welcome our two witnesses,Mr. Horner and Mr. Albert Wakkary, from the Department of Finance.
Mr. Horner.
Mr. Keith Horner (Acting Director, Personal Income Tax Division, Department of Finance): I'll make some introductory remarks and Albert can join in for things I've left out or for questions.
I'm acting director of the personal income tax division, so I look at all personal income tax issues. As one of his responsibilities, Albert looks after the tax measures that relate to people with disabilities.
I'll start by giving a little bit of background - broader than the tax system - on the disabled population and the other support programs that exist. The most recent information we have on the broad level of disability in the population comes from the 1991 Statistics Canada Health and Activity Limitations Survey, called HALS, which reported that about 4.2 million individuals reported some level of disability.
One of the very difficult things in designing programs to assist people with disabilities is that there's such a continuum, from mild disabilities to very severe ones. Making definitions and deciding that somebody is eligible for some benefits and somebody isn't is much more tricky than, for example, determining that somebody's under 18 years old and therefore eligible for child benefits.
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According to the HALS survey, a little over 800,000 of the people reporting some disability were ranked as having severe impairments, but as I will mention later, the tax system uses a different definition and a different sort of weighting of severity than the HALS survey does, so a tax measure applied to the same group applies to about 500,000 people.
It's important to distinguish between measures that provide direct income support to people with disabilities and measures in the tax system that generally have a different starting point. Their starting point is to provide fairness in taxation. They do provide assistance to the disabled, but they're really aimed at ensuring that the fact somebody has less ability to pay tax is recognized in the tax burden.
The main income support programs are: the disability component of the Canada-Quebec pension plans, the provincially run workers' compensation program, social assistance, of which people with disabilities make up about one-third of the clientele, and benefits under old age security and the guaranteed income supplement that target people over 65 and, in the case of the guaranteed income supplement, people with low earnings.
Looking at the Canada pension plan, there are now about 325,000 people receiving disability benefits. That was in 1994 and accounts for about $2.9 billion in benefits. It grew quite rapidly from under 200,000 people to over 325,000 and from under $1 billion to nearly $3 billion over the last eight years.
For workers' compensation, the last figure we have is for 1993. That year the benefits paid out were about $5.3 billion and went to about 600,000 individuals.
Mr. Albert Wakkary (Tax Policy Officer, Social Policy Section, Tax Policy Branch, Department of Finance): I'd like to add that people with disabilities receive about $500 million in income support through private, long-term disability plans. That gives a complete picture of the type of assistance that's available.
The Chair: Half a billion from the private -
Mr. Wakkary: Yes, that's our estimate. Maybe it's $1.5 billion.
Mr. Horner: These would usually be in programs where the employer pays a premium to an insurance company. That premium is deductible to the employer when it's paid; the benefit is paid to the person who leaves work with the disability and is taxed in that person's hands.
I'll now move on to the tax measures, and as I said, their starting point is not aimed at providing income support for people without other avenues, although they do serve that role as well. Their main aim is tax fairness.
The first measure is the disability tax credit. It's available to individuals with a severe and prolonged mental or physical impairment that markedly restricts their ability to perform basic activities of daily living, as certified by a qualified medical practitioner.
It's important to note that this is quite a different definition from that which qualifies somebody for Canada pension plan benefits. The Canada and Quebec pension plan benefits are aimed at people who can no longer work, who are unable to work at any job, whereas the disability tax credit may go to people who have never been in the labour force. A child can be eligible for this, or a senior, and so can somebody who is working.
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It derives from a measure that's been in the Income Tax Act for a long time. Before 1986 it applied only to people who were blind or confined to a bed or wheelchair. In 1986 it was broadened and the more modern concept of marked restriction in ability to perform activities of daily living was used to try to apply that credit equally to people with different kinds of disabilities.
The credit reduces federal tax by about $720. When you take into account that a reduction in federal tax leads to a reduction in provincial income tax, the total benefit is about $1,120, varying by the tax rate in the province.
I'll comment later about the relationship of the disability tax credit to another measure, the medical expense tax credit, but it is targeted to people who have a severe and prolonged disability. The basic activities of daily living the person must be markedly restricted in include perceiving, thinking, and remembering; feeding and dressing oneself; speaking, hearing; elimination functions; and walking. It doesn't encompass moderate restrictions or less than severe restrictions that might stop one from doing more complicated activities such as grocery shopping or accounts, or things like that, which are more complex than quite basic activities.
Mr. Wakkary: I guess the main idea behind the eligibility criteria is to extend to people with other types of disabilities the same type of tax assistance as somebody would get if they were blind or confined to a wheelchair.
Mr. Horner: Back in the mid-1980s, before the definition was broadened in 1986, the number of claimants was something in the order of 60,000. Once it was broadened the number of claimants grew in 1986 to 180,000. That number grew steadily and quite rapidly to 538,000 claimants in 1993.
There was an evaluation of this several years ago, and a question of whether the definition was being reasonably administered and so on. The main conclusion was that there was quite a learning curve as people learned about the availability of this to a broader group of people, and that explains most of why it grew from 180,000 to over 500,000 over the last nine years.
Mr. Wakkary: The key point there is that in 1986 the criteria were first broadened beyond being blind and confined to a wheelchair to include other types of disabilities. That's why we had that rapid growth. Then there was a learning curve, as Keith mentioned, as people got familiar with the eligibility criteria.
Mr. Horner: The federal tax cost in 1993, the last year for which we have detailed statistics, was $272 million. There would be a provincial tax cost of a little more than half that, again in lost provincial tax revenues.
I'll now move to the next major income tax measure, which is the medical expense tax credit.
This tax credit provides tax relief for extraordinary medical expenses by providing a tax credit for eligible medical expenses in excess of a certain percentage of net income. It doesn't just apply to people with disabilities; it's applicable to any family. It is aimed at covering not just the routine expenses, such as aspirins and so on, that a family might have, but expenses out of the ordinary. That is why there is a floor of 3% of net income up to a dollar amount before the expenses become subject to the credit.
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Mr. Wakkary: Again, the idea here is to recognize the effect on somebody's ability to pay. Where everybody has average medical expenses, we're trying to recognize the expenses that are above that and have an effect on their ability to pay tax.
Mr. Horner: The credit reduces federal tax of the claimant by 17% of the qualifying medical expenses above the floor of 3% of net income or a dollar floor of $1,614. That basically is equivalent to an exemption for anybody with earnings up to about $30,000. That's equivalent to a deduction because that 17% is the rate of federal tax up to that level.
The eligible expenses include a large variety of expenses that have grown over time. They include wheelchairs, seeing-eye dogs, hearing aids, modifications to a home to improve access for those confined to a wheelchair, and quite a long list of other measures.
Mr. Wakkary: I'd add that full-time attendant care is also included in that.
Mr. Horner: The number of claimants is now over 1,130,000. It's grown quite strongly over the last decade as well from about half that level in the mid-1980s. The federal cost in 1993 was $280 million. Again, I'd note that there's a corresponding provincial cost as well.
I might just quickly comment on two issues in relation to this. One is the 3% floor. As I indicated, that's to recognize expenses out of the ordinary. I'd note that in the United States they have a floor of 7.5%. Most other countries in Europe have floors that are 3% or more. That's quite a common structure of the credit.
The second issue is that one of the rationales for the disability tax credit for severely disabled people, which I went through before, is to provide for and offset a recognition of costs that cannot be covered under the medical expense tax credit. There are some kinds of things that are difficult to include in the medical expense tax credit. The disability tax credit provides a kind of arbitrary recognition of additional costs that aren't covered.
There's just one other technical point to bring out with regard to the medical expense tax credit. That is that in determining whether a new expense should be eligible, one of the things we have to do is decide whether that is an expense that really is limited to providing a medical need or if in fact it has a more general use.
There are certain kinds of equipment that are problematic in that case. TV equipment, for example, is useful to the household at large as well as having some special use for a disabled person in some cases. It would obviously be very costly if we started letting households at large write off computer and TV-type equipment.
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Another difficult one is air conditioners, which clearly have a special use for certain people with disabilities but also have a much broader use to other members of the household and other households and have a strong resale value.
Those are the two main tax measures. I'll just run through, if I could, some other tax measures that exist.
There's an infirm dependent credit, which may be claimed for mentally or physically infirm dependents, including children 19 or over, parents, grandparents, brothers, sisters, aunts, or uncles. The credit's available to somebody who supports the individual and who's financially dependent on them. It reduces the tax of the supporting individual by $270 and is reduced in accordance with the dependent's net income above a threshold amount of $2,690.
Mr. Wakkary: I'd like to add, in keeping with the theme of the infirm dependent credit, that there are tax measures that recognize people with disabilities are often supported by family. Both the disability tax credit and the medical expense tax credit can be transferred to supporting relatives where the person with a disability has a very low income, to the point where they're not taxable and so can't use the tax assistance that's available.
Mr. Horner: That's a good point. Just to elaborate on that, about the disability tax credit, of the 538,000 claims in 1993, just under 70% were claimed by the individual. About 16% were claimed on a transfer from a lower-income spouse, and another 15% were claimed as transfers from a non-spouse, which could be a parent or a child, for example.
To go back to the infirm dependent credit, in 1992 there were about 230,000 claims for that, and the federal revenue cost was about $40 million.
Another measure relates to child care expenses. There is a special additional maximum on the amount of child care expenses that may be claimed for children with severe and prolonged mental or physical impairment who qualify for the disability tax credit. For someone of age 7 to 14 the normal limit on child care expenses is $3,000, but for a severely disabled child the limit is raised from $2,000 to $5,000. Up to $3,000 in expenses may be deducted for children 14 years of age or older who meet the infirm qualification, whereas in general child care expenses cannot be claimed for a child over 14.
A number of tax measures are related to employment to help people with disabilities have an easier time at employment. One example is that employer-provided allowances for taxi fares, para-transport, parking, and attendant care are non-taxable for individuals eligible for the disability tax credit. They're provided by the employer, they're deductible to the employer, but they're not treated as other compensation. They're provided tax-free to the employee.
There's an immediate deduction rather than capital cost allowance treatment for costs to businesses to improve access to their place of business.
Mr. Wakkary: That would include modifications such as wheelchair ramps, mechanisms to make it easier to open and close doors for people with mobility impairment - that kind of thing.
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Mr. Horner: There's a deduction of up to $5,000 in part-time attendant care expenses. This can be deducted from the earnings of someone who is entitled to the disability tax credit. That was one of the kinds of things you were referring to, I think.
The education credit available to full-time students has been broadened to apply to part-time students who are studying part-time because of a disability.
The estimated total cost of these measures is about $20 million per year in our last estimate.
The final group of measures I'll mention are related to the GST. There are a number of ways in which assistance is provided through the GST.
A number of medical devices are zero-rated because they incorporate special features to assist persons with disabilities in the performance of daily activities. These include wheelchairs, toilet and bath devices to help in showering, and clothing specially designed for a person with disabilities.
Secondly, all institutional health care services are exempt from GST, including services provided by special homes for the disabled. Services for the disabled such as personal care services, transportation services and supervised recreational programs are exempt when they're provided by charities and other public sector bodies.
Many of the organizations - homes, for example - providing exempt services to persons with disabilities receive a partial rebate of the GST they pay on their inputs. So there is an extra benefit there. I'll leave that at that.
Just to summarize, it's difficult to get a full measure of the amount of spending on disability-related programs. For example, there are probably significant guaranteed income supplement costs for senior citizens that wouldn't be there if the person is on a low income because of having become disabled, perhaps prior to retirement. But it is impossible to figure out what proportion of the $20 billion of old age security and guaranteed income supplement costs are associated with disability.
The total benefits under the Canada pension plan and the Quebec pension plan, workers' compensation, social assistance and the main tax measures are about $15 billion. So I've indicated there's about $2.7 billion under the Canada pension plan and Quebec pension plan, $5.2 billion under workers' compensation, $4.5 billion under social assistance, and then another $0.75 billion under the various tax measures. So I think I'll leave it at that and open it to questions.
The Chair: Ian, would you like to start?
Mr. McClelland (Edmonton Southwest): Before we started our formal part of this particular session, I had asked questions relating to some of what you've answered in your comments. I wonder if you might like to answer my questions again. If you paraphrase the questions you're going to answer, they will be on the record.
Mr. Horner: You had mentioned two areas in which there is a concern about the need for more service and more assistance. One area is the question of caregivers looking after relatives, and we've indicated there is a credit for people looking after relatives who are financially dependent upon them, the infirm dependent credit.
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There's also a provision for respite.
Mr. Wakkary: Yes. You can also claim full-time attendant care under the medical expense tax credit. If you're only employing a part-time attendant, you can claim up to $5,000 in part-time attendant care.
In addition, if you're working and you have employment income, you can claim a deduction for up to $5,000 in attendant care.
Mr. McClelland: That is a deduction. It's not a credit and so it's a reduction of taxable income rather than taxes owing.
Mr. Wakkary: That's right. They're equivalent for people in the 17% bracket, people with under about $25,000 in income.
Mr. McClelland: So someone with a disability requiring, for example, $10,000 worth of attendant care in order to earn $10,000 would find that they wouldn't be nearly compensated for the cost of the attendant care. Therefore, they would have to earn $15,000.
Mr. Wakkary: If the attendant care is provided by the employer, that can be considered non-taxable.
Mr. McClelland: Yes, but we're talking about, for example, someone who comes into my business and tells me they are capable of providing this service. I would agree and say I'm going to pay $10,000 a year to have this service provided. I don't care whether you come in a helicopter or in a wheelchair; I'm paying $10,000. Someone disabled who has to have attendants is not going to be able to compete for that job.
I'm not making myself very clear and I understand that.
The Chair: I think you have made yourself clear.
Would you respond to that dilemma or concern?
Mr. Wakkary: I see what you're saying now.
Mr. McClelland: It should be a credit, not a deduction from....
Mr. Horner: I don't think the difference between a credit and a deduction is going to make a difference here.
For somebody with earnings of under $30,000, a 17% credit - the standard rate of credits and also the bottom tax rate - is equivalent to a deduction. A 17% credit of up to $5,000 would essentially exempt $5,000 of that person's income. The basic credit for all tax filers and the applied disability tax credit would effectively exempt an additional amount of income.
Mr. McClelland: I don't want to hang us up over this, but could I request the department at least give some thought to this particular problem. This is the problem identified by people most directly as a problem that affects them.
Now, you can't come up with an answer today. But from a tax point of view, we have already seen how many people have identified themselves as disabled. For a whole variety of reasons, the number of people who are going to be identifying themselves as disabled is probably going to grow exponentially as our population ages and as there are other reasons in our society for being disabled.
How do we go about making a distinction between people who are unable to earn income? This is the problem. You've already alluded to it. There are people who absolutely must have the help and there are others who would simply like to have the help.
How do you make that distinction? Is it possible to make the distinction so that people are being treated fairly? To be reasonable, we would want to say our tax system is going to have to be focused on those who need it rather than those who just merely like it or want it. Life isn't fair and it's not going to be fair here either. How can this be addressed?
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Mr. Horner: I don't think there's an easy answer to that. The tax system is a self-assessment system. People fill out their own tax forms and send them into Revenue Canada. Revenue Canada reviews them and audits some on a selective basis, but to a large extent depends on the information that's set out.
For something like a disability tax credit, there is a certification made by the person's doctor following the completion of a form that's evolved quite a bit over the years to try to make it as clear as possible. But it can never be perfect.
If you think of a person everybody would agree is disabled - somebody who is totally blind, for example - that person could work and could well have a high income. So, for example, could a paraplegic who's totally confined to a wheelchair. But there may be somebody else who, on the face of it, has a much less severe disability but who really has difficulty holding down a job.
I don't think there is an answer for that. The system is always going to be imperfect, and the tax system is probably less equipped to deal with that than the social assistance system, for example, where there are people there providing contact throughout the year and where there is a possibility of assessing special needs, transient problems and so on.
I think there has to be a recognition that there are some things the tax system won't be the right avenue for and services through programs having more direct delivery may be necessary.
I would just like to mention something under the disability tax credit, which is focused on the severely disabled. Of those 538,000 people, about 40% are over 65. I think that is about the right amount. About 40% of the remaining percentage, which consists of people of working age, actually do have employment income. So a substantial part of the disability tax credit's severely disabled population do have income.
I certainly take your point that we should be on the lookout for anything else we can find as a way of providing assistance for people. You mentioned the issue before of people taking a job and then having difficulty getting back on to social assistance if they lose that job. That's something to think more about.
Mr. McClelland: I can come back later.
The Chair: Thank you.
Mr. Valeri (Lincoln): Thanks for coming. I've got a couple of questions that for me have to do more with clarifying some of the statements you made. One is you referred to HALS, which is an acronym for something.
Mr. Horner: The Health and Activity Limitation Survey is a large-scale survey Statistics Canada has done twice. I think it was done first in 1986 and then again in 1991. They asked people to identify whether they had an impairment of any kind, what kind it was, and how severe it was. Then they asked a whole bunch of other questions about costs, about workforce activity and so on.
Mr. Valeri: That survey showed 800,000 individuals had a severe impairment. You continued to say the tax department had a different definition of severely impaired and ended up with 500,000 people counted as having a severe impairment. Why would the tax system have a different definition of severely impaired?
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Mr. Horner: The definition in this survey was done by statisticians just as a way of categorizing information. The development of the ``markedly restricted in activities of daily living'' definition came from a desire to take the level of severity represented by being blind or confined to a bed or a wheelchair, which was the existing definition in 1985, and to find other disabilities that were of equivalent severity, and those could be mental disabilities, profound deafness or other mobility disabilities. The HALS survey doesn't mesh with that exactly. Some people who would qualify as severe under the disability tax credit because they're profoundly deaf or blind might not quality under HALS, whereas some who have mobility impairments, but not very severe ones, would qualify for this ``severe'' definition under HALS, but not under the disability tax credits.
Mr. Valeri: I just don't understand why there are two different -
Mr. Horner: Our definition was developed by people at Health and Welfare, as it then was, who were involved with the Canada pension plan. They were not trying to recreate that definition, because there is no employment relationship. They were making the fairest definition they could come up with.
Mr. Valeri: The other point that was made mentioned the private plans that are out there, the long-term disability plans. You indicated there was $1.5 billion in claim payments made to disabled individuals. You also alluded to the fact that when an employer pays, those payments become taxable in the hands of the recipient and they then pay tax on it. Is the $1.5 billion the taxable amount? I ask because if an individual pays for the premium, it is non-taxable when received. I just wanted to make that clarification. Is this $1.5 billion the total amount that's paid out and that comes back into taxation, or is it the total amount in which you have some premiums paid by employees and for which, in effect, the benefit becomes non-taxable when received?
Mr. Wakkary: That's our estimate of the gross amount before tax.
Mr. Valeri: Of the total amount.
So that entire $1.5 billion does not necessarily come back into the tax system to be taxed.
Mr. Wakkary: Right.
Mr. Horner: We don't really have data on the amount that's employee-paid. It's a less important component.
Mr. Valeri: But when you're looking at the taxes that are coming back to us, then -
Mr. Horner: There is some tax out of that $1.5 billion. That's correct.
Mr. Valeri: And that comes back to us.
Mr. Horner: Yes.
The general tax principle is that you can give tax relief in two ways: if you make a premium deductible then the benefit should be taxed; otherwise you're giving a tax break twice.
Mr. Valeri: On both ends, yes.
Mr. McClelland: May I ask question?
This came up with the minister when he was here the other day. When an individual has a private disability insurance premium and the company pays off, they pay off net of receipts from the Canada pension plan. Why do we allow private insurance companies charging a premium for disability insurance to use the Canada pension plan as a prop for their insurance premiums?
Mr. Horner: That's really a question for the employer. The employer is free to structure any kind of insurance program that it wants and that it thinks the employees want. So if the employer would obviously find it cheaper to go out and buy a program that tops up the government programs instead of one that ignores the fact that the person might also qualify for the government program, at the time those employees are deciding on what package of benefits to have they are presumably looking at it from the standpoint that the more the employer is putting into this plan, the less he is putting into their pay cheque. The employees may therefore not choose the high level of insurer.
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Mr. McClelland: So it's not a question of the insurer ripping off the system.
Mr. Horner: No. The employer is free to buy whatever package he wants.
Mr. Valeri: It's a question of cost. I'm saying this only because this is the industry that I'm coming from, in essence - an employee benefits and pension company. When I'm out there consulting with my clients on a group benefit program, normally I counsel that the employees pay the premium for the long-term disability benefits so that when they receive benefits in the event of a disability, it is a reduced amount but they get it tax free. It's easier for them to pay the premium when they are in fact earning 100% of the money rather than paying the tax when they are getting sixty-six and two-thirds percent of what their pre-disability income was.
To go back to your comment, it's really a matter of what type of product is being offered. In the marketplace, when you're putting together a plan, it makes more sense to build on existing programs that the government offers, because the premium will ultimately be less. If you are on a private plan - and you can purchase a private disability plan that excludes the Canada pension plan disability benefit - it's in addition to that, but it's much greater in terms of costs. So it isn't a matter of insurance companies trying to use the benefit to any advantage that they have. In effect, they're providing a competitive product in the marketplace and one that people are willing to buy. They're just building on that.
I have one more question. I have had this a lot recently, and I hope you can comment on it for me. A number of constituents are coming in who have been audited. Their taxes have been reviewed and they have been disallowed for the disability tax credit. I'd say that of the seven or eight cases I have received in the last while, six of them had received the disability tax credit before. In fact, their prior tax years had been reassessed and they're now being required to pay back money. What's happened between this tax year and years gone by? What's changed so that now these people are being reassessed and are in fact being disqualified for a disability tax credit that they in fact received? I had one that went back three years.
The Chair: Mr. Horner, would you like to respond to that?
Mr. Horner: It's mostly an administrative issue, and again it just goes to show how difficult it is to administer the eligibility criteria for the credit.
Mr. Valeri: Has the definition changed in the last three years?
Mr. Horner: It changed in 1986; it broadened. I think that also partly reflects the fact that people initially weren't familiar with the eligibility criteria. They may not have been paying attention to what the criteria were, and they were perhaps giving the credit where it wasn't appropriate.
It's a normal function of Revenue Canada to audit tax returns. In some cases they've asked for additional information from people who got this credit and have realized there was a misunderstanding of what the eligibility criteria were.
Mr. Valeri: So if the eligibility criteria haven't changed, you're saying that from an administrative standpoint someone allowed that credit on first glance, it has now been re-audited and re-looked at, and it has been decided the eligibility isn't there so they have to go back.
Mr. Horner: Essentially, yes.
The Chair: But does it mean that when you go back, you apply the new set of criteria that were not there even two years before the new set was part of the regulations?
Mr. Wakkary: I think Revenue Canada is only going back three years.
Mr. Valeri: In this particular case.
Mr. Wakkary: The new eligibility criteria were introduced in 1986.
The Chair: So it was way beyond the capacity of Revenue Canada to go beyond that.
Mr. Wakkary: I don't think they're going back beyond 1986, no.
The Chair: In other words, there was no application of the new criteria to the time when it was not applicable.
Mr. Horner: No, but the new criteria are broader than they were before. I think what's happened in recent years isn't a question of any new criteria. It's a question more of an education process and a clarification process by Revenue Canada, and also dealing with the Canadian Medical Association.
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It recognized at some point that doctors were not really providing the correct information. They worked to communicate with doctors exactly what was meant and clarify any misunderstandings. Out of that process came a number of cases that, when they were reviewed, were found not to comply.
There has been no change in recent years to the eligibility criteria.
The Chair: On that point the chair would like to ask, since you indicated it was part of an educational process, is being part of an educational process a penalty? In other words, perhaps it was a true, honest mistake and there was reason to believe, on the part of the finance department, that it was an honest mistake. It was a case of not understanding fully. Having educated the taxpayers on the point, might it not be fair to say that henceforth, for the same reason, for the same condition, with no change in severity, you will be disallowed, without going back? How do you respond to that as a policy?
Mr. Horner: I have to disclaim for a moment. It's Revenue Canada that administers the act, so we're not really aware of these particular cases. It sets the policies on how it administers and deals with any kind of tax claim that's found not to be a correct one.
Mr. Valeri: Just so we're absolutely clear about what the chair is indicating - and I think what you've indicated - the error was on the part of Revenue Canada in the administration of that definition.
The individual I'm speaking about supplied information from his physician and was given that disability tax credit. Now he's faced with a liability to pay back. He is disabled so he's not out there working. He's now faced with having to pay back the money he has received over the past three years.
I would tend to agree that if it's a re-interpretation of that situation it wouldn't be retroactive. You would say that from this point on he no longer qualifies. If we're talking about hardship and disability, where is the fairness in having to go back?
Mr. Wakkary: Again, it's a Revenue Canada matter. It applies its discretion on a case-by-case basis.
Mr. Valeri: I just wanted to be clear on that.
The Chair: Mr. Scott.
Mr. Scott (Fredericton - York - Sunbury): Thank you very much, Mr. Chair. I apologize for being late. If I'm covering ground that has already been covered, I'm sure Ian will wink at me or something to let me know.
I'm interested in how the Department of Finance interacts with other departments in terms of using the tax system for social policy objectives. I'm curious how that relationship works. I know it's perhaps a general question.
I have to figure that out first before discussing the possibilities of other ways the Department of Finance can be a facilitator of social policy objectives. How does that work? Could you explain that to me?
Mr. Horner: I think it's such a big question because there are so many avenues. For example, the Department of Finance was quite heavily involved in looking at proposals and so on under the social security review that led to that paper. There were both expenditure proposals and tax proposals.
We discussed and met quite extensively with colleagues from Human Resources Development in developing those. For example, there are proposals relating to child benefits, and the basic child benefit that was provided under the family allowance program and a series of tax measures, child credits and so on, were amalgamated a few years ago under the child tax benefit.
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So the main assistance for families with children is now provided through the tax system.
That program is now really run jointly. It's in the Income Tax Act, but the Minister of Human Resources Development has a policy responsibility for it jointly with the Minister of Finance. So there's quite a close meeting on areas where the tax system's involved or where there are complementary activities.
Mr. Scott: Perhaps what I'm talking about already exists, and I'm going to reveal my profound ignorance, but I think not. As the government finds itself unable to provide services it has provided in the past because of fiscal imperatives, one of the ways it can continue to play a supportive role - although perhaps not at the same level - has to do with recognizing the activities of the volunteer sector in a more comprehensive way.
Very specifically, if I were to contribute time to the provision of a service - not individually in terms of the various deductions in an attendant care issue if I'm a family member, but more specifically through some community agency - my volunteered time could qualify me for some preferred tax treatment in some fashion.
What I'm trying to do is figure out who to hound on that. Do I hound the Department of Human Resource Development? Do I hound the Department of Finance? Or do I bother hounding anyone? Essentially there seem to be two specific benefits - there are more than two, actually - I'd like to point out. Then you can explain how I might pursue this one.
Particularly at this time of high unemployment, every Canadian could get up in the morning and do something the government would recognize with some kind of remuneration. Granted, it might be less than they would prefer, but the fact of the matter is I could get up in the morning and make a donation. I think it's probably about a 17% or 18% deduction, generally speaking - I don't know what the figure is, but you see my point. So if I wanted to get up in the morning and assist in some fashion at a voluntary agency, there would be some way I could get some tax treatment, and if I had no income it could be a credit or something. Is that something that would start with policy - I presume it would - and HRD and the finance committee would simply execute?
Mr. Horner: That is an area that has come to us. People have suggested in the past a tax credit for in-kind services provided to charities.
Let me just step back, though, and clarify one point you made about the structure of the charitable contributions credit for a money donation. There's a federal credit of 17% on the first $200, but then it's a 29% credit on the balance. But when you take into account surtaxes and provincial tax for amounts donated above $200, it's really a credit of over 50%. It's very widely misunderstood that this is a low-rate credit. It's the most generous credit that exists in the tax system.
Your point was about time donated, and we have had great concerns about that idea on the grounds of practicality and the potential revenue loss. It's very hard to measure the value of a service provided to a charitable organization - and there's a huge variety of charitable institutions. Does driving your child to hockey practice count as a donation to an amateur sports organization?
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There's a huge chance for the tax system to spend an enormous amount of money in paying people to do things for which they get personal benefit, which may also help other people. That has led us to see that as not being a practical idea at all.
Mr. Scott: I referred to the 17% rather than the 50% because I assume that it's easier to engage the Department of Finance in the discussion at that level.
Notwithstanding the administrative problems, the Department of Finance would allow me to deduct my kid's hockey school as child care. Having said that, there are other kinds of similar reasons not to do things that haven't got in the way of doing them.
You said that you've been engaged in this discussion before. Is it generally that you're pursued in terms of the policy matter, or is it generally that the Department of Finance would be pursued by another department in terms of their interest in a policy matter? Where's the entry level to this debate?
Mr. Horner: I can't remember if the suggestion has been made by the departments. It has been made repeatedly by volunteer sector organizations who write to the Minister of Finance or appear in pre-budget consultations and other avenues.
Mr. Scott: I ask the question because if it comes from non-governmental agencies, then it strikes me that it would be seen by the Department of Finance as an add-on. But if it comes from the Department of Human Resource Development, for example, they're already providing services, and this becomes a way of providing services differently from the way in which they're provided currently. It's not necessarily an add-on. I'm not saying I believe it would be, but it might be a more efficient way to deliver the same services, if those administrative weaknesses that you've mentioned could be attended to.
Mr. Horner: One of the big differences between providing a benefit of any kind through the tax system and through an expenditure department is that the expenditure department generally has controls, discretion, quotas to limit the financial exposure, whereas with a tax measure, once you've defined what it is, it's passive from then on and you're really exposed to whatever cost comes out. You have much less control. So if you were trying to say that certain activities that a department might be involved in could give rise to some benefits, it would make more sense that those benefits were provided directly through that department. The tax link wouldn't be an important one then.
Mr. Scott: In the budget the Minister of Finance actually recognized tax expenditures as expenditures and committed to having them treated in that way. Consequently, the notion that this is an open-ended expenditure has been challenged. In fact, I'm not sure that it couldn't be a useful social policy tool. At the same time, in some areas of tax expenditures it could also be a source of a considerable amount of revenue to the government. I wouldn't imagine those to be the same kinds of things, but in any case I think -
Mr. Horner: I take your point.
The Chair: In the general thrust of this review on the part of the committee, we are looking at the overall national strategy. It has been noted that the Department of Finance was not a participant in the national strategy, at least not in a formal way. From the department's perspective, do you see any merit in there being formal participation by the Department of Finance in some kind of a renewed national strategy?
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Mr. Horner: I'm not sure what it means to say the Department of Finance wasn't a participant in the national strategy. It's important to note that in recent years there's been quite a lot of activity through the tax system to try to improve assistance to people with disabilities and to promote integration. The department fully supports that strategy and actually has done quite a lot to further it.
I might just mention that the employer-provided allowances for taxi fares, para-transport, parking, and attendant care, which I mentioned before, were made non-taxable in 1991. The immediate deduction for businesses to improve access to their places of business was introduced in 1991 and broadened in 1992. The deduction for up to $5,000 in part-time attendant care expenses for workers with disabilities was introduced in 1989. The change to the education credit to allow it to part-time students who were part-time because of disability was introduced in 1992.
Finally, since 1984 more than twenty items have been added to the list of eligible expenses for the medical expense tax credits. Most of these were added because they promote employment and access. They include telephone devices for people with hearing impairment, optical scanners, Braille printers, and so on; power-operated lifts, devices to help people operate a vehicle; part-time attendant care and respite care; payments for training in lip-reading and sign language; and service animals.
These are all things that have been done in the last few years, during this time. So while there may not have been formal participation, there definitely has been a lot of activity by Ministers of Finance and by the finance department aimed at furthering those goals.
The Chair: Of course that is very laudable; the type of activities and initiatives that have been taken. But the question remains: is there any merit in formal participation, or would it be a waste of effort? The answer is really simple, just yes or no.
Mr. Horner: I'm sure it couldn't hurt.
The Chair: Thank you.
I would like to revisit a question of Mr. Valeri's, about definitions on a given issue or item of a policy or regulation or what have you; legislation of the government. It has been the history of many administrations of government that various departments would speak of this particular issue and adopt many definitions. From your perspective, do you see any problem with varying definitions on a given activity or a given issue or item?
Mr. Horner: No, I don't. For example, we do have quite a different definition of ``severe disability'' in the tax system from the one Canada pension plan does, because it has a different purpose.
The only qualification I would make is that as you move into more moderate levels of disability, the idea of making a definition a new eligibility line would become much harder, I think. It's very costly to do that. It's very easy to make a definition and say anybody over 65 qualifies for this, but when you're dealing with something so qualitative as a physical or mental condition it's very costly to make those definitions.
That's why in some ways it's easier for programs that rely on direct contact to make them. So making a second definition of level of severity within the income tax system would be something that wouldn't be gone into without a lot of thought.
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The Chair: I have a last question. Is there a handbook by government wherein a citizen can access and say ``okay'' about disability? When you have a question about it in relation to CPP or in relation to revenue, we have a consolidated handbook. To a citizen having heard a friend with a claim on CPP and then a disability with a claim on workers' compensation, a disability relating to tax credit, it can be a mountain of difference in terms of reaction. Do you see any merit in having a guiding handbook along the span of varying definitions, submitting that there is a rationale for such varying definitions?
Mr. Horner: I'm not sure whether there is anything like that. There definitely is within the area of tax. Revenue Canada has publications such as one called Tax Information for People with Disabilities, but that would focus on the tax measures. The Canada pension plan would have its own brochure. Whether there is any information that arches over both of those areas, I'm not sure.
Mr. Wakkary: I'm under the understanding that there's a national clearing-house on disability issues. I'm not sure if that was established under the national strategy or not, but I believe that would be a mechanism for the type of thing you're thinking of.
The Chair: Mr. McClelland.
Mr. McClelland: First I want to welcome our colleague to the table. We were informed you were in an automobile accident. I'm glad to see you're all right.
Mr. Allmand (Notre-Dame-de-Grâce): No, the car was, not me. It wasn't an accident; it was damages.
Thank you very much.
Mr. McClelland: I'm glad you're here.
I'd like to follow up very briefly with something Andy Scott raised. As our population ages, as we have more and more people requiring care, as the ability of the government to fund that declines, and as we have more people for one reason or another retired early or out of work, we could have a huge resource pool that could provide valuable service. It's one hand helping the other.
If criteria were established, such as the person had to be paid half the money by somebody, what you said earlier about policing this is absolutely important. It has to be at arm's length. If somebody is actually putting out real money, then that's a check and a balance to overuse. It would have to be paid to somebody who is already in receipt of either the medical benefit or the disability benefit. That could be an area where one hand can wash the other and we can do well on public policy. Good idea, Andy.
Going on from there, I've often wondered - and I'm told this is the case - whether in times of economic difficulty and downturn of the economy, workers' compensation claims rise, sometimes dramatically. I do know that very often before a looming shutdown in some facility, for instance, if people know there are going to be significant lay-offs, workers' compensation claims rise. It's human nature.
Why are workers' compensation payments not taxable? Can anybody tell me why workers' compensation payments are not taxable?
The Chair: How would you respond to that, Mr. Horner?
Mr. Horner: That's a good question. The workers' compensation payments have existed from very early days of the tax system and have never been taxable. I think that, by the same logic that makes private disability benefits taxable when there's a tax credit or a deduction provided for the premiums, workers' compensation payments should be taxable.
The reason they're not, I think, has to do with the transition that would be involved. First, you couldn't make it retroactive, and you'd also be forcing workers' comp boards to re-evaluate their benefit structures and their premium levels. It is my understanding that those boards are very stressed at this point. There's never a time when it seems to make sense to make that change.
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Mr. McClelland: If a recipient was earning $10,000 and paying tax on it and is now receiving $10,000 tax free through workers' compensation, it's kind of like winning the lottery. It tends to put people into a situation where they find that workers' compensation is a reasonable place to go, which in turn puts pressure on workers' compensation.
Mr. Horner: I agree with you. It's a concern. I note that the provinces generally set workers' compensation benefits with the knowledge that they're tax free. So they're not set dollar for dollar. There are situations where the employer may be topping up and you may get a situation where the individual is better off on disability than when working.
Mr. McClelland: I have one more brief question. With the changes wrought to society, particularly to people with disabilities, as a result of the Canada health and social transfer, and with combining everything - which I think is a good idea, a step in the right direction at any rate - is the Department of Finance consulting with the various provinces to harmonize what goes on?
More and more of the delivery of services to individuals with disabilities falls under the purview of the provinces because they are paying for it. They are paying 80%. Does the Department of Finance confer with the provincial departments of finance to see if there's some kind of harmonization or if we can work together on this?
Mr. Horner: The responsibility for the transfers under CAP that were replaced by the CHST were the responsibility of the Department of Human Resources Development. That's not a function of Finance. I am not in a position to comment on the developments that will occur with the CHST and....
Mr. McClelland: You recognize that all of these things are intertwined -
Mr. Horner: Yes.
Mr. McClelland: - because it's the ability to fund them provincially and federally. It doesn't matter what department is providing the service. Our taxation system has to extract the money from the citizens in order to pay for the service.
Mr. Horner: But that doesn't make it illogical to have a straightforward tax system. They're just trying to tax people on an ability-to-pay basis and then have the primary responsibility for the expenditure programs at a different level of government.
Mr. McClelland: Thank you very much.
The Chair: Are there any other questions?
Mr. Valeri: I have a quick question about the Canada pension. I don't know if we touched on it earlier. The review is going on. We're going to hear something about Canada pension plan and the possible changes. Can you anticipate what kind of implications there might be for the disability portion of the Canada pension plan?
The minister said that we'd look at the contribution side and the benefit side. I suspect that you're going to be participating in that review. Are you going to look at the changes in the context of all of the programs that have to do with people with disabilities?
Mr. Horner: The tax part of the Department of Finance doesn't really have any input into the question of reviewing the benefits under the Canada pension plan, so I can't give you much of an answer.
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I think the overall objective relates to the concern that the costs of the Canada pension plan, the payroll premiums necessary to finance it, will rise to a level that won't be sustainable. One has to look at all parts of the Canada pension plan to see what continues to make sense or what should be subject to modifications. I don't think there's any idea of targeting any particular part of the plan. I think it's a general review of the whole plan to see how it should be modified to make sure it's sustainable.
The Chair: Mr. Horner, is there any virtue in combining the disability tax credit with the medical expenses credit?
Mr. Horner: The medical expenses tax credit applies to a much broader population. Anybody could be subject to the medical expenses tax credit, whether they're a person with a disability or not. It's there to recognize the ordinary, yearly, medical expenses that make a person less able to pay tax. I think it does have a valuable role that goes beyond the community of people with disability, although there is a very strong overlap. I think it's important to preserve that other role.
The Chair: How does the Department of Finance define ``markedly restricted''?
Mr. Wakkary: It's essentially equivalent to being confined to a bed or to a wheelchair or being blind.
The Chair: Who makes the final determination? Who is the certifier of that? In other words, do you need a medical certificate for that?
Mr. Wakkary: Yes. The certifier would be the individual's physician.
The Chair: When was the last review of the list of eligible expenses for the disability tax credit?
Mr. Wakkary: There's only a list of eligible expenses for the medical expense tax credit and that's ongoing.
The Chair: Is it ongoing on a yearly basis?
Mr. Horner: We basically respond to suggestions as they come in from the community. With any new device that comes onto the market, an association of people with disabilities will usually find out about it and send it in to us or to Revenue Canada for consideration. We look at them as soon as they come in, as soon as we hear about them.
The Chair: Is that list available today?
Mr. Wakkary: It's available through the Income Tax Act. That's probably your best source. We have information here we could make available for copying.
The Chair: Are there any other questions from the committee?
If not, we thank you both for your presentation and for your time. It's been a valuable contribution to the committee.
We will suspend the meeting for a minute and then we will take up one item of business.
[Proceedings continue in camera]