Principal Issues: Whether a supporting person could claim an amount under subsection 118.3(2) of the Income Tax Act where the dependent person has not filed a return of income because they have no taxable income.
Position: Yes
Reasons: 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.
August 24, 2006
Sharon Yetts, Senior Programs Officer HEADQUARTERS Legislation and Partnership Section D Tiu Benefit Programs Directorate (613) 957-8961 Canada Post Building, East Tower, 750 Heron Road, 2006-019864
Disability Tax Credit
We are writing in response to your July 27th, 2006 inquiry on the above subject and our subsequent telephone discussions (Yetts/Maley). You inquired whether a supporting person could claim an amount under subsection 118.3(2) of the Income Tax Act (the "Act") where the dependent person has not filed a return of income because they have no taxable income.
Our Comments
Section 150 Of The Act
Section 150 provides for the filing by taxpayers of returns of their income. Every person who fails to make a return as and when required by section 150 is liable to a penalty as prescribed in sections 162 and 238. By virtue of subsection 150(1.1), an individual is not required to file a return in a taxation year unless:
- Tax is payable by the individual for the year,
- The individual has a taxable capital gain or disposes of capital property in the year (in the case of a resident individual),
- The individual has a taxable capital gain or disposes of a taxable Canadian property in the year (in the case of a non-resident individual), or
- The individual has an RRSP Home Buyers' Plan or Lifelong Learning Plan balance outstanding.
Under paragraph 150(1)(e) the Minister may, by notice in writing, specify that a person file a return where no return has been filed under paragraph 150(1)(a), 150(1)(b) or 150(1)(d). A notice in writing given under this provision will specify the time within which the return is to be filed. Under subsection 150(2) the Minister may, by registered letter or personal service demand that a return be filed. A person receiving such a demand will be liable to file a return whether or not he is liable to pay tax and whether or not he has already filed a return. A failure to file a return on demand constitutes an offence and the person guilty of such an offence is liable to a penalty under section 238.
Section 118.3 Of The Act
Pursuant to subsection 118.3(1), an individual may claim a disability tax credit if the individual has a severe and prolonged mental and/or physical impairment such that the individual's ability to perform a basic activity of daily living is markedly restricted or would be markedly restricted but for therapy that is essential to sustain a vital function of the individual.
Subsection 118.3(2) provides for the transfer to a taxpayer of all or part of a dependant's disability tax credit in certain circumstances. The person with the disability must have been resident in Canada at some time in the taxation year and dependent on the transferee for support (some or all of the basic necessities of life such as food, shelter, and clothing). The requirement that the dependant be resident in Canada may be varied by tax treaty. For instance, article XXV(3) of the Canada-US Treaty would entitle a taxpayer to claim in respect of a dependant resident in the US, the amount that would have been allowed had that dependant been resident in Canada.
The disability credit may be transferred:
- From a person for whom the taxpayer has claimed the amount for wholly dependent person under paragraph 118(1)(b) or, if the taxpayer is neither married nor a common-law partner, could have so claimed had the disabled person had no income for the year and was 18 years of age or more.
- From the child, grandchild, parent, grandparent, brother, sister, aunt, uncle, nephew or niece of the taxpayer or the spouse or common-law partner of the taxpayer for whom the taxpayer has claimed the caregiver amount under paragraph 118(1)(c.1) or the dependant amount under paragraph 118(1)(d) or could have so claimed had the disabled person had no income for the year and was 18 years of age or more.
- However, the disability credit may not be transferred:
- If the spouse or common-law partner of the disabled person has claimed a deduction under section 118 or 118.8 in respect of the disabled person or,
- If an amount has been paid for an attendant, or care in a nursing home (other than an amount described in paragraph 118.2(2)(b.1)), and included in computing a medical expense tax credit for the year under section 118.2 by the person with the disability or any other person.
Moreover, subsection 118.3(3) provides that if more than one taxpayer is entitled to claim the amount transferred under subsection 118.3(2), the amount claimed by the taxpayers cannot exceed the total available for transfer.
In our view, the filing requirement for a return of income of the person with the disability is as laid out in section 150. As noted above, 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.
Yours truly,
Robin Maley
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch