Mental Illness and the Disability Tax Credit

A recent case involving mental illness may have positive ramifications for future taxpayers claiming the Disability Tax Credit, in cases where those taxpayers have a mental impairment.

A taxpayer had been diagnosed by a psychiatrist as having severe social anxiety disorder, severe panic disorder with agoraphobia, and chronic and moderate to severe generalized anxiety disorder. A second psychiatrist had also diagnosed her with persistent depressive disorder.

She could perform many of her regular daily duties of care, such as meal preparation, bathing, and dressing, and she was able to maintain her own accommodations.

However, she was unable to sustain employment because her symptoms made it difficult for her to perform the necessary duties of any job she applied for.

In addition, her mother had to be involved in many of her other day to day duties, such as going to the bank and making medical and other appointments.

The taxpayer also had extreme difficulty participating in social and recreational activities.

The Canada Revenue Agency (CRA) had originally denied the Disability Tax Credit, arguing that the taxpayer did not qualify because she did not meet all three requirements necessary for claiming the credit.

They agreed that the taxpayer met the first two conditions, in that the impairment was expected to last for at least 12 months, and that it was present at least 90% of the time.

However, they argued that she did not meet the third requirement for claiming the credit, which states that “the effects of the impairment must markedly restrict the individual’s ability to perform a basic activity of daily living, all or substantially all of the time”. The Income Tax act specifically states that working, housekeeping, and social or recreational issues are not considered to be basic activities of daily living.

The taxpayer appealed her case to the Tax Court of Canada. The court stated that in order to determine whether a person’s mental impairment markedly restricts their ability to perform a basic activity, there are three issues that should be considered; the person’s memory, their adaptive functioning, and their problem solving, goal setting, and judgement when considered as a combined function.

The Court found that although the taxpayer’s memory was fine, her adaptive functioning was not, and therefore, she qualified for the tax credit.

The Court also commented that the taxpayer would have also qualified under the third issue as well.

This is a positive result for the taxpayer, and it will be interesting to see if this case will form a precedent for
other similar cases in the future.

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