The Canada Disability Benefit A New Beginning For Family Tax, Estate And Financial Planning

On June 22, 2023, the Canada Disability Benefit Act received Royal Assent and became law. It was a very long journey which started with the first reading of Bill C-22 way back in June of 2022. The Act states in the summary that its purpose is to reduce poverty and to support the financial security of working-age persons with disabilities.

The legislation goes on to say that disability will have the same meaning as in section 2 of the Accessibility Canada Act, which reads as follows:

Disability means any impairment, including a physical, mental, intellectual, cognitive, learning, communication or sensory impairment – or a functional limitation – whether permanent, temporary or episodic in nature, or evident or not, that, in interaction with a barrier hinders a person’s full and equal participation in society.

That is a very broad definition of disability and much wider than definitions in provincial social security legislation or for the disability tax credit under the Income Tax Act. It seems to go beyond the classic definition of disability seen in most government programs and embraces vulnerability as well.

But the devil is in the details, most notably in the Regulations to the Act not yet drafted, which will cover the following areas in detail:

• Eligibility.
• Conditions to receive and continue to receive a benefit.
• Amount of the benefit.
• Payment periods and amount to be paid.
• Decisions by the Minister.
• Reviews and reconsiderations under the Act.
• Appeals.
• Retroactive payments to late applicants.
• Applications on behalf of persons who are incapable of managing their own affairs.
• Establishing penalties for false or misleading representations.

Section 11 (1.1) of the Act goes on to say that in making Regulations, the amount of the benefit must consider the Official Poverty Line as defined by the Poverty Reduction Act. The Act will go into force no later than the first anniversary of the day it receives Royal Assent (June 22, 2024).

Other Government Assistance

There are many ways that our Federal and Provincial governments provide financial assistance to individuals with disabilities. Many of these plans are for special purposes and consequently can be quite restrictive, but the Canadian Disability Benefit (CDB) seems to be less so.

The most common government programs for disability today are as follows:

• Provincial and territorial support programs such as Ontario Disability Support Plan (ODSP). 
• Federal Disability Tax Credit.
• Passport Program - Ontario.
• Attendant care and other non-refundable tax credits. 
• Guaranteed Income Supplement (for seniors 65 and older).
• Registered Disability Savings Plans.

Just like the plans mentioned above, the CDB will likely have its limitations.

The CDB is only available to working-age Canadians between ages 18 and 64. It essentially is a program much like the Guaranteed Income Supplement (GIS) for seniors, which gets clawed back by other income, subject to an exempt threshold on certain incomes. The federal government refused to insert a provision in the legislation to prevent provinces and insurance companies from clawing back other benefit payments because of constitutional concerns.

Given the fact that Old Age Security (OAS) and the GIS are about $1,700 a month in retirement, it seems likely that the CDB will be about $2,000 to also account for the extra costs of disability.

Family Funding for Disability

Beyond government support, the main sources of long-term funding by families for a loved one with a complex disability are as follows:

• Family gifts and bequests.
• Henson trusts - hopefully, a qualified disability trust when arising through a Will.
• Annuities.
• RRSP proceeds arising on death from transfer to a lifetime beneficiary trust or Registered Disability Savings Plan (RDSP).
• Registered pension plan transfers on death to a child.
• Informal trusts.

Family support needs to be coordinated with government funding to avoid benefit disqualification and to assure that family disability funding is sufficient and does not leave income gaps throughout the lifetime of your loved one. The new CDB will add a significant source of income to existing ones and will likely significantly change the estate planning of families for a loved one with a complex disability.

Vulnerable Individuals — Will They Really Be Included?

You will recall from earlier in this article that the Regulations will deal with applications on behalf of persons incapable of managing their own affairs. From experience with federal legislation, that is a worrisome area. For example, income tax rules still have not come to grips with the difficulties for challenged individuals to open an RDSP or allow wider flexibility for successor family plan holders to prevent RDSPs from eventually being turned over to the Public Guardian.

And what about individuals who have lost all family connections and are living alone in poverty— maybe on the streets? Will they be left out again? Who will help them get the CDB? Surely an ombudsperson arrangement is required to make sure they are not left out.

Guardianship And Control Of Disability Capital

The addition of around $2,000 of CDB monthly income (my estimate) to the existing income of an individual with a complex disability will have some issues. Ontario ODSP allows a family member to receive that income as an agent of the loved one with a disability. Now the total monthly income, including social assistance and the CDB, could be in the range of $3,000, assuming no clawbacks. That’s getting to be substantial and, depending on the rules, could attract the interest of the Public Guardian, especially if there is a buildup of disability capital from the larger annual income.

Perhaps families will be more persuaded to think about applying for personal guardianship to manage and control their loved one’s more complex financial affairs.

This improvement in the financial resources of a loved one with a disability adds to the list of reasons to change the handling of disability capital passed on to a loved one. Wills may require some updating because of the need for less financial support for a loved one with a disability. The CDB will make monumental changes to the way families will support loved ones with complex disabilities through their estate planning. It appears that the CDB rules envisage a much broader definition than under any other government programs and will include situations where an individual would be vulnerable but not have a disability in the classic sense that we envisage today.

March of Dimes Makes An Interesting Submission

 I recently read a submission to the federal government on the CDB by the March of Dimes, and it raises some interesting requests for the CDB Regulations yet to be drafted:

• Reduce the administrative burden on applicants.
• Any applicant who is a recipient of existing federal/provincial disability benefits should be considered for the CDB.
• Income testing should be based on individual income and not family or household income.
• The CDB should not be taxable.
• The CDB should be designed to incentivize employment through a high-income exemption.

The CDB has such potential to help individuals with disabilities have more adequate financial resources to pay the bills. A brief by the March of Dimes to the federal government stated what disabled individuals would do with the extra money.

  Live with dignity, having freedom of choice, gaining more independence, being able to afford required assistive devices, or service animals, pursuing education, pursuing relationships. And accessing housing and better food.

It couldn’t be said better.

Now, let’s wait and see where the government takes this spectacularly promising program in drafting the Regulations.

Ed Arbuckle CPA FCA, jea@personalwealthstrategies.net

www. disabilityestateandtaxplanning.ca