Canada’s first national disability benefit, Bill C-22, received royal assent on June 22, 2023. The bill was reintroduced in 2022 after initially being tabled two years prior.
Bill C-22 remains short on details, but has two notable features. The first is that it will focus on poverty reduction and financial security for working-age persons with disabilities. The second is that it will be delivered through the tax system via changes to the Income Tax Act.
When the bill was reintroduced, then-Employment Minister Carla Qualtrough said the bill aimed to create a monthly benefit for working-age Canadians with disabilities modelled after the Guaranteed Income Supplement. Qualtrough also said the benefit is designed to fill a significant income security gap that leaves one in four adults with disabilities living below the poverty line.
The Guaranteed Income Supplement is a longstanding and popular refundable tax credit that provides income security to seniors.
This type of income assistance has also been used to offset GST and assist children and workers in low-income families. While this gives us a clue about the form of the Canada Disability Benefit, its ultimate impact on income security for those with disabilities will depend on the details.
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Disability tax credit
While Canada does have economic support already in place for persons with disabilities, they aren’t as wide-reaching as they need to be. Canadians with disabilities can apply for the federal disability tax credit on their income tax form if they have certification from a medical practitioner.
The current credit amount is $8,870 for those 18 and over and $5,174 for those 17 and younger. The credit is not refundable, but any unused amount may be transferred to a supporting family member.
However, while about 1.4 million Canadians had obtained a disability tax credit certificate as of 2020, less than 900,000 received any benefit.
This shortfall can be attributed largely to the non-refundable nature of the credit, which means it doesn’t provide benefits to persons with disabilities in families with insufficient taxable income. These are precisely the families that are targeted by Bill C-22.
Key questions remain
In a recent study, my late colleague Harvey Stevens and I found that half of those who were eligible for the disability tax credit, either for themselves or for a dependant, received no benefit. Hence, the current design of the disability tax credit doesn’t adequately help those with the greatest need for assistance, since the poorest adults with disabilities received very little benefit.
Rather than helping the poorest Canadians with disabilities, the credit becomes more beneficial to families as their incomes rise — the opposite of the intentions of the Canada Disability Benefit.
Our study simulated the effect of making the disability tax credit refundable. This would transfer the benefits to persons with disabilities living in families with the lowest, rather than the highest, incomes.
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For the same cost, the refundable credit would improve the incomes of the poorest families by an average of 20 per cent. It would also provide a framework for the provinces to convert their non-refundable disability tax credits to refundable tax credits, further increasing benefits for families most in need by about one-third.
A critical question is whether the Canada Disability Benefit will replace, complement or be integrated into the disability tax credit. The maximum impact of a refundable Canada Disability Benefit can only be achieved if the disability tax credit is eliminated.
A balancing act
Any refundable credit involves a trade-off between its maximum benefit and the rate at which benefits are reduced as family income rises. The Guaranteed Income Supplement reduces its payment by 50 cents for every dollar of income, ensuring the benefit primarily goes to seniors in lower-income families.
For example, if a senior and their spouse have an income above $27,984 (assuming the spouse receives a full Old Age Security pension), no benefit is paid. In contrast, the Canada Child Benefit has benefit reduction rates between three and 23 per cent and provides benefits to families with incomes as high as $200,000.
If the Canada Disability Benefit were to replace the disability tax credit while attempting to maintain most of the benefits currently available to higher income families, it would need to adopt low benefit reduction rates similar to the Canada Child Benefit.
However, this design choice would result in limited income security for the poorest Canadians with disabilities or a substantially more expensive program. Taking Bill C-22 at its word, the Canada Disability Benefit should provide a large maximum benefit with reduction rates of one-third or more to make sure the target is those with disabilities who are poor and economically insecure.
Wayne Simpson ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d’une organisation qui pourrait tirer profit de cet article, et n’a déclaré aucune autre affiliation que son organisme de recherche.
