After months of criticism and accusations it lied to disability advocates, the Canada Revenue Agency is reverting to a previous interpretation of a tax credit used by diabetics and will review applications denied since May 2017.

Liberal MP Kamal Khera, the parliamentary secretary for the minister of national revenue, said the government is sorry for the confusion.

"When there's an apology due we do apologize," Khera told CBC News Network's Power & Politics.

When asked if something went wrong, she said yes.

Since the spring, people with Type 1 diabetes have complained that they have been turned down for the disability tax credit — even if they had been approved in previous years.

To qualify for the credit, the CRA requires adults with Type 1 diabetes to spend at least 14 hours a week on activities, specified by the agency, related to administering insulin.

A patient's physician must confirm those hours to the CRA.

Diabetes Canada and the Juvenile Diabetes Research Foundation obtained an internal CRA memo, dated May 2, 2017, that says: "Unless there are exceptional circumstances, adults with diabetes can generally manage their daily insulin therapy without taking 14 hours per week."

In a briefing with reporters Friday morning, officials said the CRA will return to using the pre-May 2017 clarification letter for disability tax applications, but reiterated that "no change has been made to the eligibility criteria."

It will also proactively review denied applications where the CRA relied on that revised clarification letter to determine eligibility.

The CRA says individuals do not need to submit new or additional information unless they are contacted by the agency.

In the meantime, a new disability committee will come up with recommendations going forward.

Advisory committee will advise CRA

Kimberley Hanson of Diabetes Canada said her group started asking questions and the CRA denied there were any substantial changes.

"I consider that the CRA lied to us in not admitting they sent this email May 2nd and pretending that they were shocked that there had been a change and that it was impacting so many people," she said.

On Friday, she said she welcomes the news and urged the government to act quickly to review the claims.

National Revenue Minister Diane Lebouthillier has faced questions recently in the House of Commons about the increase in denied applications. At the time, she said there has been no change in the criteria used to assess people with Type 1 diabetes

The opposition asked the minister about the advocacy groups' memo in question period earlier this week and accused her of misleading the House when she said nothing has changed.

Canada Revenue Minister Diane Lebouthillier has said in the House of Commons that the criteria have not changed for people with type 1 diabetes to get the disability tax credit. (Chris Wattie/Reuters)

In response, Lebouthillier reiterated her argument that the criteria haven't changed and that, in fact, approvals for the disability tax credit have increased 20 per cent between 2014 and 2016.

However, those numbers do not take into account the changes since May 2, 2017. Diabetes Canada says in 2017 so far, denials of the disability tax credit for the life-sustaining therapy category under which Type 1 diabetics fall, has spiked 70 per cent.

The government also fleshed out more details about its plans to set up a disability advisory committee. The panel will consult with stakeholders and advise the department on policies like the disability tax credit,

The committee, co-chaired by CRA assistant commissioner Frank Vermaeten and Dr. Karen Cohen, chief executive of the Canadian Psychological Association, will make recommendations, but it will be up to the minister and her team to decide to implement them or not.

It will meet three times a year and will publish routine public reports, said officials.

The other 12 voluntary members include: