Seeking medical treatment abroad has been a growing trend among Canadians. Reasons include quicker access to care than Canada's public health care system often provides and access to alternative treatments or better technology. In addition, with the strong Canadian dollar, Canadians are spending more time away from Canada – whether staying in their foreign vacation properties, attending foreign universities or on temporary foreign work assignments. Naturally, that boosts the demand for medical attention outside the country. This article reviews some of the relevant Canadian tax considerations.
What tax relief is available for medical expenses in general?
Canada's medical expense tax credit (METC) can be claimed for the eligible medical expenses that are paid during any 12-month period that ends during the taxation year (24 months in the year of death).
You can claim medical expenses incurred by you, your spouse or common-law partner and your children who are under 18 years of age. For 2012, the federal creditable medical expenses are reduced by 3% of your net income for the year (to a maximum $2,109). In addition, you may claim medical expenses you paid on behalf of certain relatives without limit, if the relative is dependent upon you for support at any time during the year. Your claim for the relative's medical expenses will be reduced by 3% of his or her net income for the year (also to a maximum of $2,109). The maximum reduction corresponds to a net income of $70,300.
The tax benefit of the METC is equal to your creditable medical expenses multiplied by the lowest federal tax rate, which for 2012 amounts to 15%. Each province and territory provides similar relief for medical expenses − generally based on the province's lowest tax rate for the year.
Can foreign medical expenses be claimed on a Canadian return?
Fortunately, the METC is not limited to medical expenses incurred within Canada. For example, a payment for services rendered by a foreign medical practitioner may qualify as a medical expense. A medical practitioner is by definition a person who is authorized to practise medicine pursuant to the laws of the jurisdiction in which the service is rendered. Therefore, there is no distinction drawn between payments made to Canadian or foreign medical practitioners for purposes of eligibility for the METC, as long as they satisfy the licensing requirements where they perform their services.
What about expenses related to a stay at a foreign rehabilitation centre?
An eligible medical expense includes the cost of the care and training of a physically or mentally impaired individual at a school, institution or other place (such as a rehabilitation centre or out-patient clinic), who has been certified by an appropriately qualified person to be in need of the equipment, facilities or personnel specifically provided by that school or institution for individuals suffering from the same impairment.
The Canada Revenue Agency (CRA) has indicated that a patient suffering from a behavioural problem arising out of a mental or physical impairment or suffering from a learning disability, who attends a school or other institution that specializes in the care and training of persons who have the same type of problem or disability, may qualify. For example, fees paid to a detoxification clinic for a patient suffering from an addiction to drugs or alcohol can qualify, assuming the certification requirement is met. On the other hand, fees paid to a stop-smoking or weight loss course or program would not generally qualify, apart from an exceptional case, such as if it is part of a patient's medical treatment that is:
- required because of a serious health deterioration problem; and
- both prescribed and monitored by a medical practitioner.
Again, no distinction is drawn between a foreign school or institution and a Canadian one for METC purposes. Accordingly, even if similar facilities exist in Canada, an individual or a family member could attend a foreign school or institution, with the tuition and other associated costs eligible for the METC, provided the medical certification requirement has been satisfied.
What about alterations to a foreign vacation property for improved mobility?
Renovations or alterations to a foreign property may qualify for the METC if they are made to enable an individual − you or a family member − who lacks normal physical development or has a severe and prolonged mobility impairment to gain access to, or to be mobile or functional within, the property. To qualify, the renovation costs must:
- be reasonable;
- typically not be expected to increase the value of the property; and
- not be of a type that someone who does not have the particular impairment would incur.
For this purpose, the METC does not distinguish between renovating a property located in Canada or abroad. Therefore, should you purchase or own a foreign vacation property, which must be renovated because you or a family member has an impairment, these costs would qualify for the METC just as if the renovation had been made to your Canadian property.
Similar relief may be available for any incremental costs incurred during the construction of a foreign property that enable an impaired individual to gain access to, or be mobile or functional within, the property. However, an added condition is that the home must be a principal place of residence of the individual. That is, it is used more than any other property as his or her residence. In most cases, it would be difficult for a Canadian resident individual to establish that a foreign property being constructed is his or her principal place of residence. Therefore, from an income tax perspective, generally it would be preferable to purchase an existing foreign property and then renovate it, rather than to undertake renovations as part of the construction of a foreign property, because the principal place of residence test does not apply to a renovation or alteration.
Can a medical credit be claimed for travel expenses incurred to obtain medical treatment?
Transportation and travel can be significant costs in seeking medical treatment abroad. Fortunately, these costs are eligible for the METC if:
- they are paid to a person engaged in the business of providing transportation services for the transport of the patient and/or for one accompanying person if a medical practitioner certifies that the patient is incapable of travelling alone;
- the destination is at least 40 kilometres from the patient's home, taking a reasonably direct route;
- substantially equivalent medical services are not available where the patient lives; and
- it is reasonable for the patient to travel to the particular place to seek the medical services.
If the patient lives in an area where persons engaged in the provision of transportation services are not readily available, the individual may instead claim vehicle expenses.
Other travel expenses (costs ancillary to the actual cost of being transported) are subject to the same limitations as for transportation expenses, except that the distance travelled must exceed 80 kilometres from the patient's home. These expenses include such things as the reasonable cost of meals and accommodation costs incurred while seeking medical treatment. If a bone marrow or organ transplant is required, not only are the travel, board and lodging costs of the patient and one person accompanying the patient eligible for the METC, but so are the costs paid by the patient for the donor and one person accompanying the donor that were incurred in respect of the transplant. Under these circumstances, a medical practitioner need not certify the necessity of the accompanying person, there is no minimum distance requirement to be travelled and the patient does not have to justify why he or she sought the transplant in the place travelled to.
If travel expenses do not qualify, does that affect the ability to claim foreign medical expenses?
Even if the conditions to claim the travel expenses are not met, the foreign medical expenses themselves may still be eligible for the METC. In other words, you may choose to seek medical treatment abroad, even if substantially equivalent medical services are available where you live in Canada. The general rules determine whether or not you can claim the METC for the medical costs.
How are medical insurance premiums and reimbursements treated?
As is the case with Canadian medical expenses, if a foreign medical expense is reimbursed by the province in which you reside or by your private medical insurance carrier, only the unreimbursed portion of the medical expense can qualify for the METC.
Premiums paid to a private health services plan for health and dental coverage for you and certain other members of your household are eligible for the METC. The CRA accepts that premiums paid for supplemental travel insurance coverage can also qualify for the METC, if paid to a private health services plan for hospital or medical care that would otherwise qualify for the METC. When the travel insurance premiums also cover non-medical related items such as life insurance and cancellation insurance, the CRA's administrative position generally is to allow the medical coverage component of the travel insurance premiums as an eligible medical expense, if a reasonable breakdown is provided by the insurance company.
For the most part, Canada's tax system does not limit the tax relief available to a Canadian who incurs medical expenses abroad, regardless of the reasons for doing so. Generally, while income tax consequences may not be a significant consideration in determining your treatment plan, you can factor tax savings into your calculation of the true cost of receiving treatment abroad.
This article appeared in Wealth and tax matters for individuals and private companies, 2012, Issue 2.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.