8 September 2022 Internal T.I. 2022-0947811I7 - DTC transfer - meaning of dependent for support

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: The extent of support that is required for the purpose of determining a supporting individual's eligibility for the transfer of the unused portion of the disability amount from an eligible person with a disability (PWD).

Position: General comments and guidelines given. Namely, an individual’s contributions toward a PWD’s basic necessities of life (e.g., in the form of gifts or hosting the PWD during visits) would not, in and of themselves, constitute support or entitle that individual to the DTC transfer; the individual must be able to prove that the PWD must rely on these contributions for their subsistence because their income is insufficient to fully meet their basic needs.

Reasons: Previous positions and the jurisprudence.

     								      September 8, 2022  

Kelly Mahaney							HEADQUARTERS
Federal Partnerships and Legislation Section	      Income Tax  Rulings Directorate
Benefit Programs Directorate					Randa El-Kadi
Benefit Partnerships and Services Division
Assessment, Benefit, and Service Branch			

								      2022-094781

Disability tax credit transfer – dependence on support

This is in reply to your email of May 26, 2022 regarding the extent of support that is required for the purpose of allowing the transfer of the unused portion of a person with a disability’s (PWD) disability amount to a supporting person. More specifically, you ask for the meaning of the phrase “necessary maintenance” as it is used in paragraph 2.31 of Income Tax Folio S1-F1-C2, Disability Tax Credit (the Folio), and whether it encompasses the provision of some or all of the basic necessities of life. You also ask for guidance regarding the meaning of “non-financial” and “regular and consistent” support, and whether the requirement for such support would be met in various case scenarios. Finally, you enquire whether the last sentence in paragraph 2.31 of the Folio implies that a claimant must have access and good knowledge of a PWD’s finances, and whether Income Tax Folios in general would be considered a legal and enforceable extension of the Income Tax Act (the Act).

Our comments

Folios present the Canada Revenue Agency’s interpretation of tax law

The Supreme Court of Canada (footnote 1) (SCC) has taken the position that interpretation bulletins (which would also apply to Income Tax Folios) set out the position of the Minister of National Revenue with respect to how he or she is going to interpret a certain section of the Act. While it is the Court that decides the correct interpretation, the SCC stated that “Administrative policy and interpretation are not determinative but are entitled to weight and can be an ‘important factor’ in case of doubt about the meaning of the legislation.” (footnote 2) Similarly, in Perini v The Queen, 78 DTC 6080, the Federal Court Trial Division (FCTD) had referred to the principle set out in the case of Fred Padfield Limited v MNR, 76 DTC 1195, that general Interpretation Bulletins of various sections of the Act are not binding on the courts. However, the corollary to that principle is that “the tribunal is not precluded from applying what it contends to be a legally valid interpretation of a particular section of the Income Tax Act simply because it has also been put forward in a Department of National Revenue Interpretation Bulletin or in some other publication.”

We note that Folios are reviewed and updated when the Income Tax Rulings Directorate issues new or revised interpretations of the law. They are also reviewed when there are other major developments impacting the law, such as new case law or legislative amendments.

In the present case, and based on the various citations below, paragraph 2.31 of the Folio seems to be based for the most part on the jurisprudence.

Overview of the criteria to claim a DTC transfer

Subsection 118.3(2) of the Act provides the criteria for determining the entitlement of a supporting individual to claim the PWD’s unused portion of the disability amount. Generally, the disability tax credit (DTC) transfer to a supporting individual may only be made where the supporting individual claimed the eligible dependant credit (EDC) – under paragraph 118(1)(b) of the Act – or the Canada caregiver credit (CCC) – under paragraph 118(1)(d) of the Act – in respect of the PWD for the tax year.

A transfer of the unused DTC to the supporting individual is also allowed if the supporting individual “could have claimed” the EDC or the CCC in respect of the PWD “if”:

• the supporting individual was not married or in a common-law partnership (in the case of the EDC), and
• the PWD had no income for the year and was at least 18 years of age at the end of the year (in the case of the CCC).

The words “could have” and “if “suggest that an individual can claim the unused portion of a PWD’s disability amount even if that individual does not meet the requirements in paragraph 118(1)(b) of the Act with respect to marital status. The other criteria set out in subsection 118(1) however, must still be met. Similarly, if the PWD has not reached the age of 18 as per the requirements of paragraph 118(1)(d), but the other requirements are met to claim the CCC in respect of the PWD, then the wording used in subsection 118.3(2) could be relied upon to allow the DTC transfer.

In the case of the CCC, paragraph 118(1)(d) refers to the definition of “dependant” in subsection 118(6), which “means a person who at any time in the year is dependent on the individual for support” and is one of certain relations to the individual. Therefore, for the purposes of claiming the DTC transfer from a PWD, the latter must meet the definition of “dependant” in subsection 118(6) of the Act.

It is of note that subsection 118(6) requires that an individual be “dependent …for support,” which is a lower threshold than the “wholly dependent” requirement in paragraph 118(1)(b). Also, an individual with an infirmity (or a PWD) need not be exclusively reliant upon one person or entity in order to be considered a dependant of the individual within the meaning of subsection 118(6).

Given that in the context of the medical expense tax credit (METC), element D in the formula in subsection 118.2(1) refers to amounts in respect of a dependant of the individual “within the meaning assigned by subsection 118(6),” we have included in this document references and citations that relate to METC claims for a dependant, which would also apply for the purposes of the DTC transfer.

The requirement of financial dependence of the PWD

In Calek v. R., 2003 FCA 20 (a METC case), the Federal Court of Appeal (FCA) referred to the decision in The Queen v. Robichaud (1983), 37 DTC 5265, in which the FCTD had held that the word “support” (as it appeared in former sub-section 109(1) - now in subsection 118(6) of the Act) meant “being a source of subsistence, sustenance or living.”

Similarly, in paragraph [27] of the decision in Calek v. R., [2002] 2 C.T.C. 2857 (confirmed by the FCA), the Tax Court of Canada (TCC) quoted a statement from Robichaud (supra) in that a person who is totally or partially dependent on another “derives his or some of his means of subsistence from the other.” The TCC in Calek clarified that “to be dependent, we are talking about levels of subsistence not levels of maintenance of lifestyle.” It also commented in paragraph [43] that one would have to look at the relationship as a whole (e.g., between the claimant and the PWD) over the particular period during which support was provided, to determine whether the relationship as a whole (and throughout that period) was one of dependency.

In Fleury v. R., 2005 TCC 379, the TCC stated that “[…] it is settled law that to be a ‘personne à charge’ or ‘dependent upon somebody else’ one must financially support the impaired person.”

In Courser v The Queen, 2002 DTC 3929 (a DTC transfer case), the TCC considered the ordinary meanings of “support” and “dependent,” and concluded that support had to be expanded out of one’s own moneys toward the basic necessities of life (such as food, shelter and clothing). We retain the following comments in paragraphs [18] and [20] of that decision:

“[18] […] This Court is satisfied that it would be almost impossible to enforce the section of the Act or give any meaning to the section of the Act if it were to interpret the meaning of "support" or "dependent" so broadly that almost any type of ancillary service that a person provides would qualify that person to claim the other as a "dependent". There would be real ambiguity in deciding just how much one could claim. If there were more than one person who might qualify, how much could each claim? How would you value such services?”

“[20] The only reasonable interpretation to give to this section would be that what the Act is talking about is providing support in the form of necessities of life such as food, clothing and shelter. The Court is also of the opinion that in order to be able to claim such a credit one must have expended the monies out of one's own resources, and one would have to quantify as to what was actually expended. […]” (emphasis added)

Our longstanding position (footnote 3) is that the issue of what constitutes support or more specifically, what criteria must exist in order to make a finding that a particular individual is dependent upon another for support, is a question of fact to be determined in each case. Consideration should be given to whether or not the actions or contributions of the other individual vis-à-vis the PWD or the person with an infirmity (e.g., for the purpose of computing element D of the formula in subsection 118.2(1), or a tax credit under paragraph (d) of element B in the formula under subsection 118(1)) are of such a nature and degree that they could be said to constitute support of the particular individual, and that a relationship of factual dependency can be said to exist, that is, reliance on that support.

Therefore, for the purposes of the DTC transfer, a PWD must meet the definition of “dependant” of an individual (the DTC claimant), which means that they must not only be supported by that individual at some time during the year, but they must be dependent upon that individual for the support – that is, they must rely on that individual’s contributions toward the basic necessities of life. As such, and similar to what we stated in document E 2005-0163161E5 (in the context of the METC), we are of the view that a DTC claimant must be able to show that the PWD’s income was insufficient to fully meet their basic needs and that the PWD had to rely on the support provided by the claimant.

Claimant’s knowledge of the PWD’s finances

In our view, an individual seeking to claim the transfer of the unused portion of the DTC from a PWD is expected to have good knowledge of the PWD’s finances in order to show that the PWD’s income was insufficient to fully meet their basic needs. The claimant is also expected to know the extent to which the PWD can use the DTC to reduce their tax payable before they can transfer the unused portion to themself.

To that effect, we refer you to document E 2006-0198641I7 which addressed the question whether a supporting person could claim the DTC transfer from a PWD who did not file an income tax return. We opined that:

“[…] the dependent person is not obligated to file a T1 return if they have no taxes payable. However, the person seeking to claim the transferred amount has the responsibility to establish, when required, their entitlement to it including, if needed, the amount that the dependant could have claimed. In addition, in cases where the dependant is a non-resident, the person seeking to claim the transferred amount has the responsibility to establish when required how the relevant tax treaty may impact their entitlement to it.”

Similarly, in the decision in Calek (supra) – in the context of calculating element D of the formula in subsection 118.2(1) – the TCC stated the following at paragraphs [45] and [46]:

“[45] The appellant here has failed to act responsibly in terms of providing the respondent with any indication of what the daughter's income is.

[46] That is not acceptable. Taxpayers have to provide documentation and failure to provide documentation for application to a formula like this, is grounds in itself to dismiss the appeal.”

Reference to non-financial support in the Folio:

You ask us to clarify the statement in paragraph 2.31 of the Folio which refers to the PWD being in receipt of “social assistance or any other type of financial or non-financial support.” The term “financial support” involves providing money to acquire the basic necessities of life, whereas the term “non-financial support” in that context refers to directly providing such things as shelter, clothing and food. (footnote 4)

On the other hand, support that does not relate to providing the basic necessities of life, such as visiting the dependant each day and providing moral support, does not entitle an individual to the DTC transfer. (footnote 5)

Type of support that is contemplated in subsection 118(6):

We are of the view that in general terms, support involves the provision of the basic necessities of life such as food, shelter and clothing. (footnote 6) Our views regarding the meaning of support are also expressed in paragraphs 2.18 to 2.20 of Income Tax Folio S1-F4-C2, Basic Personal and Dependant Tax Credits.

As we previously mentioned, the FCTD in The Queen v. Robichaud (supra) held that “support” meant “being a source of subsistence, sustenance or living.” Based on the Merriam-Webster online dictionary, “maintenance” is one of the meanings given to the term “sustenance”:

Sustenance: “means of support, maintenance, or subsistence: living
[…]
a supplying or being supplied with the necessaries of life”

In Bartsch v. The Queen, [2001] 3 CTC 2680 (Informal procedure), the TCC allowed under paragraph 118.2(2)(e) the Appellant’s contributions that he paid to the province of Alberta toward the costs of maintaining his child at a provincially-funded secure treatment institution. The Minister argued that the contribution was more properly described as “maintenance or support payments rather than ‘an amount paid for the care, or the care and training’” of his child. The TCC determined that “maintenance” included medical treatment, based on a definition that was provided in paragraph [22] of the TCC decision in Barker v. The Queen, [1998] 1 CTC 2538, for the term “maintenance” in the context of subsections 56.1(2) and 60.1(2) of the Act. The term was defined as follows:

“Maintenance is defined in The Dictionary of Canadian Law, by Daphne A. Dukelow and Betsy Nuse, in part as follows: ‘Pecuniary support including support or alimony to be paid to someone who is not a spouse. [...] Includes shelter, clothing, nursing support, medical treatment, necessary training, instruction and transportation.’” (emphasis added)

Based on the foregoing, the conjunction “or” in the phrase “necessary maintenance, or the basic necessities of life (food, shelter and clothing)” that is referenced in paragraph 2.31 of the Folio, appears to take the meaning of “that is” or “i.e.;” as such, the terms “necessary maintenance” and “basic necessities of life” seem to be used interchangeably in that context.

We would also like to point out that the phrase between brackets “food, shelter and clothing” as it currently appears in the Folio, is meant to provide examples of what is considered basic necessities of life, as opposed to providing an exhaustive list of such necessities.

On a related note, we have previously opined in document E 2002-0173045 that payments for medical and hospital plan premiums for a PWD were considered to be an acceptable form of support toward the basic necessities of life. In that document, we stated the following:

“[…] a person may be confined to a hospital for all or substantially all of the year because of mental or physical infirmity and the cost of hospitalization is paid by a provincial government, board or commission under a provincial hospital plan. The latter fact, in itself, does not necessarily mean that the person was not supported by an individual. If expenses such as clothing, comforts, and medical and hospital plan premiums were paid by the individual or the individual supported that person on those occasions when the latter was able to be out of hospital, then, ordinarily, it is recognized that the individual supported that person.”

Characteristics of support for the purpose of subsection 118(6):

It has been our position that the type of support upon which an individual may be dependent must be found to be regular and consistent, as opposed to a single incident or sporadic incidents of assistance. (footnote 7)

It has also been our view that for the purposes of determining that an individual is dependent on another person for support, the evidence should indicate that the support was not given solely in the form of a gift or gifts from that person, but that the individual was dependent upon that person for the support given. (footnote 8)

To that effect, we reiterate paragraph [5] of the decision in Robichaud (supra), in which the FCTD clearly distinguished between “support” and the mere payment of some expenses:

“[5] It seems to me that the decision of the Board simply eludes the real question that has to be addressed which is whether or not the defendant has “supported” her husband within the meaning of the Act. It simply assumes that because the defendant has made some expenses for the mutual interest of the couple, she has supported her husband but this is a completely unjustified assumption. It is unjustified for the very reason that the words used must be given their meaning and effect. The deduction is for supporting a spouse not merely for making household expenses.”

Similarly, in the decision in Calek (supra) which was confirmed by the FCA, the TCC did not consider a parent’s contribution toward his daughter’s hospitalization to constitute support. The TCC stated at paragraph [44]:

“[44] […] This is not a case of providing funds for subsistence. And even though the particular medical expenses are necessary (and not readily affordable to the daughter without sacrifice), you have to look at the relationship as a whole over this period and the relationship as a whole (and throughout this period) was not one of dependency. The subject medical expenses were necessary expenses that, at that particular point in time, the daughter might well have required assistance from her parents to pay, but that alone, even in the context of this generous and giving relationship of father and daughter, (which I admire and which all parents should compliment) does not constitute dependency.”

Finally, the decision in Keyes v. M.N.R. 1989 D.T.C. 91, addressed the case of a taxpayer who claimed an amount for dependent children under former subparagraph 109(1)(d)(ii) for each of his children, based on the proportion of time they visited him. The Minister dismissed the claim on the basis that the children were not dependent on the appellant for support within the meaning of former paragraph 109(1)(d) of the Act. The TCC commented as follows, suggesting that providing food or shelter during visits is not sufficient to establish dependency:

“There was evidence that the children were fed and housed by the appellant during their visits with the appellant. There was no evidence that the appellant’s former spouse who had custody of the children as a result of the court order failed in any way to provide adequately for the needs of the children. As I see it the children could not be said to be dependant upon the appellant for support within the meaning of subsection 109(6). A state of dependency does not arise simply because of the existence of the relationship of parent and child. That relationship may point to dependency but is not conclusive of the existence of such a state. In this case the children, in relation to their father, appear to be persons in respect of whom a right of access was being exercised. Such persons are not, by reason only of the fact that food and shelter are provided during access, dependant on the parent who, in effect, acts as a host. […]” (emphasis added)

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer, where applicable.

We trust our comments will be of assistance.

Lita Krantz, CPA, CA
Manager
Tax Credits and Ministerial Issues Business and Employment Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 See Mattabi Mines Ltd. v. Ontario (Minister of Revenue) [[1988] 2 S.C.R. 175.

2 See paragraph [28] in Nowegijick v. The Queen, [1983] 1 S.C.R. 29.

3 See, for example, documents E 9725807, E 9413957, E 2012-0436431E5 and paragraph 2.31 of the DTC Folio.

4 See document E 2010-0381211I7 in which we opined that support included both financial and non-financial support, with the latter term being meant to refer to directly providing such things as shelter, clothing and food.

5 See also the TCC decision in Fleury v. R., 2005 TCC 379 (a DTC transfer case), where the Appellant’s appeal was dismissed - the Appellant provided moral support to his son but did not make any financial contribution.

6 See, for example, documents E 2019-0791601E5, E 2012-0443301E5, E 2012-0461521E5, E 2009-0326721I7, E 2005-0163161E5, and 2004-0092741E5.

7 See document E 9725807.

8 See documents E 9413957 and E 9315057 regarding gifts versus support.