Since 1978, when federal national Health and Welfare Minister Monique Begin announced the refundable Child Tax Benefit and elicited an agreement with Provinces and Territories to exempt it from social assistance (aka income assistance), every single major new federal income security benefit (until the CERB) was implemented in the form of an exempted refundable tax credit.
This includes the Canada Child Benefit (CCB), the Canada Workers Benefit (CWB), the Goods and services Tax Credit (GSTC), the Climate credit and in Ontario, the Trillium Benefit and the Ontario Child Benefit (OCB).
In the pandemic, 5 of 6 credit extensions directly to individuals were in the form of refundable tax credits or special payments to those already eligible for payments.
With the CERB, the federal government broke with that tradition and ended up with no end of problems in terms of application issues, appeals, and a tax court system literally clogged with hundreds upon hundreds of self represented clients seeking judicial review.
The new Canada Disability Benefit will lower other credits
Now the new Canada Disability Benefit (CDB) is following the retrograde step of setting its pedigree as a tax reportable benefit that can only lower other refundable credits – especially in the medium to longer term – with expected future CDB benefit increases.
Clawbacks and subsidized rental charges – even if specifically exempted here and there – will eventually result in ‘hidden’ offsets and clawbacks of provincial territorial and federal credits.
The time to call for a CDB as a refundable credit is now – before the federal government moves even further away from refundable credits as the preferred way of delivering new federal benefits. This is not the way to end 47 years of successful delivery of federal income security benefits (1978-2025).
But it appears that no lessons have been learned from the rollout of the CERB.
The new CDB ought to be a refundable credit and it should be automatic for many Canadians as opposed to forcing everyone to apply.
Presently, however, it is ultra-clear that the Regulations will go ahead as planned with perhaps some minor tinkering but we should all be holding out for the CDB income tax pedigree to follow recent tradition and be implemented as a refundable credit.
It would have been much easier to make the CDB a refundable credit that would have been automatically exempt from all income assistance) programs in Canada.
But from the planned regulations we now have, the CDB has a very different income tax pedigree that makes it the same as social assistance, GIS and Workers’ compensation on the personal income tax form.
This way it is MUCH more controllable with a separate application and all importantly, its own T slip where the federal government can monitor it much more closely and tie it to other taxable and non-taxable benefits and credits.
This is all about federal administration and making it easier for themselves while making it very difficult for recipients as well as provinces and territories.
It’s not clear from the RIAS (Regulatory Impact Analysis Statement) but it has been confirmed that the CDB will be tax reportable but untaxed just like income assistance, workers’ compensation and the federal GIS.
Each has an associated T-Slip
Worker Compensation has it’s own T4A
Social assistance has the T-5007 and GIS is reportable on the T4-OAS slip.
This means that each province and territory will have to specifically exempt the CDB by regulation which it would not have had to do if the CDB had been made a refundable credit – all of which are exempt automatically.
But this causes further policy problems as income assistance across Canada uniformly deducts both Workers Compensation and GIS (along with Veterans’ benefits) so now there will need to be a policy distinction between ‘claw-backable’ untaxed benefits vs. the CDB so as not to claw it back.
Advocates will have a spanking new advocacy point in that should provincial and territorial governments exempt the CDB that is not designed as a refundable credit, why not exempt workers’ compensation and Veterans’ benefits? Why not exempt CPP-D and EI as well?
This will give P/T (provinces/territories) indigestion but they will likely all still exempt the CDB.
Three problems
But we are not out of the woods. Here are 3 important problems:
1. Subsidized housing rules in P/T and according to CMHC guidelines, direct that 30% of non taxable but tax reportable benefits be charged as rent so we can expect to see RGI rents across the country go up by a maximum of $720. a year. All seniors RGI housing now take 30% of GIS and Workers’ compensation so it will be tough for housing authorities not to nab their 30% of the CDB without a lot of policy indigestion. This could have been avoided if the CDB had been made a refundable credit.
2. It’s also worth pointing out that AFNI (Adjusted Family Net Income) (line 23600) of the income tax form will be raised by the CDB. This means that some CDB recipients will get lower amounts of GSTC, CWB, CCB and Trillium benefits in Ontario. We need some modeling here. Again – if the CDB had been made a refundable credit in its own right, we would not be facing this. AFNI will likely be a huge sticking point with P/T that will see their own refundable tax benefits diminish especially when the CDB become more adequate. It is hard for me to overestimate the importance of the CDB being included in AFNI. This must change!
3. And what about income offsets of federal disability benefits? If a refundable credit, the CDB would float on top of Veterans’ benefits, CPP and EI
On another note, P/T which decide to augment the CDB will immediately create a two tier disability definition by only providing extra to those qualifying for the DTC. Newfoundland and Labrador may be planning this. This is something we all feared and something to watch out for.
Let’s call for something different!
So lets call for something different!
Not Just the CDB: Let’s exempt all forms of income from low social assistance rates
It seems that the issue of exemption of the CDB as income from social assistance is one that almost entirely revolves around the Canada Pension Plan (CPP-D and survivors).
Let me explain. The provinces and Territories (P/T) will worry greatly that the CDB has the same pedigree as other taxable and non-taxable sources that they currently deduct at 100%. They might also worry about earnings.
Approximately 40,000 earners with disabilities in Ontario have average earnings of slightly above $1,000 a month and Ontario has already moved to exempt the first $1,000 a month so at least in Ontario, the government wouldn’t see earnings clawbacks as a huge moneymaker.
So for the other sources of deductible income, the three big ones are OAS/GIS, Workers compensation and CPP.
CPP deductions save Ontario about $300M a year while all the other sources combined appear to be about $60 M total.
The deduction of CPP at 100% was at the insistence of the federal government in 1966 as a condition of Canada Assistance Plan (CAP) cost sharing at 50%. Since CAP is long gone (RIP 1996), one should doubt if the federal government cares whether CPP is deducted or not. .
If P/T decided to change the whole premise of income assistance and stop deducting other program incomes entirely, the big stumbling block would be CPP because of the huge program expenditures and a windfall to 40,000 CPP recipients who would no longer experience the deduction.
But they could then exempt the CDB without worry as the’ birds of a feather’ would all be exempt.
Since the CDB is going to be offsetting CPP in its entirety and preventing double deductions through the general exemption, it seems that there must be ways in the future to design a ‘joined at the hip’ CDB + income assistance that would allow P/T to exempt all forms of federal income security payments .
One blue sky approach would be to increase the Canada Social Transfer (CST) by about $600M to $700 M to get provinces to stop deducting federal incomes in their entirety – not just the CDB .
That way they could agree on the creation of much greater adequacy for federally funded people with disabilities, blunt the criticism of an inadequate CDB, keep the present CDB design and work with P/T to raise the floor for people without federal funds rather than P/T punishing the people who have federal dollars for reasons that became moot 25 years ago.
Clear as mud?
It’s a bit out of the box but rather than some P/T paralleling the CDB creating a true but problematic 2 tier set of disability benefits based on an unpopular definition, it would be much better to have some people keep more $$$ (mainly CPP recipients) and then work with P/T to boost base benefits for people with disabilities who don’t have other pensions and incomes.
Income assistance is already grossly inadequate. The end to all clawbacks would make it less so – at least for some.
And that’s progress.