The Disability Tax Credit: Why it Fails and How to Fix it

25 Pages Posted: 28 Sep 2016

See all articles by Wayne Simpson

Wayne Simpson

University of Manitoba - Department of Economics

Harvey L. Stevens

University of Manitoba

Date Written: June 23, 2016

Abstract

When the government establishes a social program whose primary purpose is to help provide support to low-income people with disabilities, its success should be measured on how well it achieves that purpose. Unfortunately, there are reasons to seriously question the usefulness of Canada’s disability tax credit since it is helping so very few of the people it is intended to support. In fact, the credit is helping only a small number of Canadians with disability who qualify for it, and least of all those in the poorest families who receive an average of only $29 annually.

The reason is not hard to see: Designing the support as a tax credit means that only those Canadians with disability who earn enough income to have them owing taxes can take advantage of it. Yet it is an unfortunate reality that people with disability are often at low incomes precisely because their disability leaves them unable to work in full-time, well paid jobs. Thus, the very people who need this support most are the ones least able to take advantage of it. In other words, the neediest disabled Canadians are receiving the least benefit. Far from being a successful policy, the results of the disability tax credit can only be described as disappointing.

There is an uncomplicated way to begin rectifying this: By making the disability tax credit refundable. Along the same lines as a guaranteed minimum income, or negative income tax, those low-income Canadians with disabilities who qualify for the credit but lack sufficient income to benefit from the credit could simply be made eligible for a refund of the amount they cannot claim. Simply doing that, turning this non-refundable credit into a refundable credit, would increase the average benefit for Canada’s poorest families with a disabled person from $29 to $511, increasing their total income by a meaningful 4.1 per cent. Just as importantly, where a meagre 0.2 per cent of these families now get any benefit at all from the credit, a refundable credit would now see a majority, 56.4 per cent, receiving benefits.

Keywords: Disability Tax Credit, Tax Creidt, Canada's Disability Tax Credit

Suggested Citation

Simpson, Wayne and Stevens, Harvey L., The Disability Tax Credit: Why it Fails and How to Fix it (June 23, 2016). SPP Research Papers, Vol. 9, Iss. 24, June 2016. Available at SSRN: https://ssrn.com/abstract=2844453

Wayne Simpson (Contact Author)

University of Manitoba - Department of Economics ( email )

Winnipeg, Manitoba R3T 5V5
Canada

Harvey L. Stevens

University of Manitoba ( email )

501 F.A. Bldg
Winnipeg R3T 5V4, Manitoba R3T 5V5
Canada

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