Canada: Optimizing Medical Expenses Tax Credit Claim

Last Updated: June 5 2017

The Medical Expenses Tax Credit – Optimizing Your Claim – A Toronto Tax Lawyer Analysis – Part I

Part I: How the Medical Expenses Tax Credit Functions

The medical expenses tax credit is available for Canadian tax residents as a non-refundable credit. Essentially, taxpayers can claim as a tax credit in a year any eligible medical expenses the taxpayer, the taxpayer’s spouse or the taxpayer’s dependants incur over a 12 month period that ends in that year. Being a non-refundable credit, the medical expenses tax credit can only offset income taxes payable and will not result in a tax refund even where no tax is owed. This tax credit can be claimed for a wide range of medical expenses, from prescribed medical tests and drugs to eyeglasses to personal attendants to special care facilities. However there is a floor for claiming the medical expenses tax credit. The first $1813 or 3% of the individual’s net income for the taxation period, whichever is lower, of medical expenses cannot be claimed. That is to say, the taxpayer must incur over $1813 or 3% of their net income for that taxation period of medical expenses before they can claim a medical expenses tax credit, and the amount of tax credit that can be claimed is only for the amount that exceeds the above floor. Talk to one of our knowledgeable Toronto tax lawyers to learn more about the medical expenses tax credit.

Optimizing the Medical Expenses Tax Credit – The 12 Month Period

Due to the floor for claiming the medical expenses tax credit, the 12 month period for claiming the tax credit and the ability to share the credit with spouses and dependants, there can be significant room to optimize how the tax credit is claimed. Notably, this tax credit is for medical expenses incurred over a 12 month period, not the medical expenses incurred in a taxation (calendar) year and the tax credit is to be claimed in the year within which the 12 month period expires. This better allows taxpayers to utilize the medical expenses tax credit, as it is possible that a taxpayer has significant medical expenses spread between two taxation years but within one 12 month period. Essentially, this allows a taxpayer to aggregate as many medical expenses as possible by selecting the most advantageous 12 month period for incurred medical expenses. For example, a taxpayer has a surgery and related expenses in March of 2015, buys prescribed drugs in June of 2015, and buys new prescription glasses in February of 2016. These expenses fall in different taxation years and the new glasses alone may not exceed the $1813 or 3% floor mentioned above, but due to the 12 month rule, the surgery, drugs, and glasses can all be claimed for the 2016 taxation year, allowing taxpayers to maximize their tax credit. Contact one of our expert Toronto tax lawyers for tax planning help to maximize your medical tax credits.

In Part II of this article we will detail how aggregating incurred medical expenses and how careful selection of which family member to claim the expenses can allow families to, as a whole, receive a greater medical tax credit. Additionally, Part II will detail how vitamins, supplements, as well as medical marijuana function figure into the equation. As readers will see, careful and thoughtful income tax planning must be undertaken immediately to ensure the most preferential tax treatment. To find out how our experienced Toronto tax lawyers can assist you, please continue to Part II of this Medical Expenses Tax Credit article.

The Medical Expenses Tax Credit – Tax Planning for Optimizing Your Tax Claim – A Toronto Tax Lawyer Analysis – Part II

In part I of this article about optimizing your medical tax credit claim through tax help from our expert Toronto tax lawyers, we discussed the requirements of the medical tax credit as well as how the 12 month incurred medical expenses period can affect your tax planning.

In part II of this article, we will discuss how aggregating your medical expenses within your family and choosing the right person to claim the credit can result in greater savings. We will consider what does or does not qualify as an eligible medical expense using two common examples.

Optimizing the Medical Expenses Tax Credit – Aggregation of Incurred Expenses and Who Should Claim the Tax Credit

Beyond selecting the most advantageous 12 month period, taxpayers can make sure they get the most of their incurred medical expenses through aggregation. The medical expenses tax credit can be aggregated between spouses and dependant children to allow for income tax planning. When aggregated, one taxpayer can report the sum of the eligible medical expenses incurred by their spouse/dependant children on their tax return. The result is that this better allows for taxpayers to overcome the floor for claiming the medical expenses tax credit mentioned above. Rather than each taxpayer needing to incur medical expenses greater than 3% of their net income or $1813, as long as the aggregate medical expenses exceeds 3% of the net income of the taxpayer claiming the tax credit or $1813, then that taxpayer can received the tax credit. Since the aggregate medical expenses can be claimed by either spouse, it is important to consider which spouse should use the aggregate medical expenses to claim the tax credit.

For example, say there is a family is composed of husband, wife and a dependant child where husband earns $50,000 a year in income and incurred $2000 of medical expenses, wife earned $30,000 and incurred $500, and the dependant child incurred $1000 of medical expenses. If each person claimed individually, husband would have a floor of $1500 (3% of $50,000) and could claim $500 as a medical expenses tax credit, while wife would have a floor of $900 (3% of $30,000) and could claim no credit with only $500 of incurred expenses. Instead, if aggregated, the family would have incurred $3500 of medical expenses and husband could claim a $2000 tax credit ($3500 - $1500), or wife could claim a $2600 tax credit ($3500 - $900). Thus, aggregating the incurred medical expenses resulted in a significantly higher total medical expenses tax credit regardless of which of the spouses claimed it. Additionally, wife would have been able to claim a $600 higher tax credit than if claimed by husband. Call our top Toronto tax lawyers and get the most out of your medical expenses tax credit.

Vitamins and Supplements – Not Eligible Medical Expenses

While the medical expenses tax credit applies to a wide range of different expenses, vitamins and supplements generally do not qualify. The provision in the Canadian Income Tax Act that allows this tax credit, subsection 118.2(2), requires that drugs, medicaments and other preparations or substances meet 3 requirements. First, they must be made or sold for the purpose of diagnosing or treating a disease or disorder or its symptoms or for restoring or correcting an organic function. Second, it must only be lawfully acquirable if prescribed by a medical practitioner or dentist. Third, its purchase must be one which is recorded by a pharmacist. While vitamins and supplements might meet the first requirement, they generally fail to meet the second and third requirements. Doctors and other medical practitioners will sometimes prescribe vitamins and supplements, however it is vital to note that the second requirement is that the substance must only be legally acquirable with a prescription. Even when prescribed, most vitamins and supplements can also be purchased without prescriptions and thus do not qualify. Furthermore, off the shelf vitamins and supplements purchases do not tend to be recorded by pharmacists. That said, where a vitamin or supplement does meet the 3 requirements, then it would likely qualify for the medical expenses tax credit.

Medical Marijuana – An Eligible Medical Expense

What may come as a surprise is that, although vitamins and supplements do not qualify, the CRA has stated that medical marijuana and marijuana seeds are eligible medical expenses for purposes of the medical expenses tax credit. So long as the taxpayer has a prescription for the medical marijuana written by a medical practitioner and the marijuana is purchased at a legal dispensary. What qualifies as an eligible medical expense is highly varied and can include more than one might imagine. Make sure your medical expenses are eligible and that you are claiming all credits available to you – call our experienced Toronto tax law firm today.

The information is thought to be current to date of posting. Income tax law changes frequently and content may no longer reflect the current state of the law. This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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