Under the Medical Expense Tax Credit (METC) in section 118.2 of the Income Tax Act (Canada) (ITA), an individual can claim a non-refundable federal tax credit of 15% (plus any provincial credit) of qualifying medical expenses over a certain threshold. A taxpayer can pool his or her expenses along with qualifying medical expenses of his or her spouse or common-law partner and any children under 18. Individuals can also claim up to $10,000 of qualifying medical expenses that they have paid for a dependent relative if the amount exceeds the relative's threshold.
The METC is also relevant for ensuring the tax preferred treatment of medical and hospital insurance plans, drug plans and dental plans often provided to employees by employers. Contributions by an employer to a "private health services plan" (PHSP) and benefits paid out of a PHSP are not taxable employee benefits. However, the CRA's position is that such health services plans can only qualify as a PHSP if the coverage provided normally would otherwise have qualified as a medical expense under the METC.
Similarly, the METC is relevant for the newly introduced employee life and health trust (and also the existing health and welfare trust) as, generally, contributions by the trust to a PHSP are deductible by the trust and do not give rise to a taxable benefit to the employee. Benefits received in respect of a PHSP through such trusts are also not subject to tax.
This article briefly reviews changes in the availability of the METC that should be kept in mind while preparing tax filings in respect of the 2010 taxation year.
In the 2010 Budget, the Department of Finance (Finance) introduced an amendment to the METC provisions that restricts the availability of the METC for cosmetic procedures. As a result, all medical or dental expenses incurred after March 4, 2010 (including related services and other expenses such as travel) in respect of cosmetic procedures will not be eligible for the METC unless necessary for medical or reconstructive purposes.
Cosmetic procedures generally include surgical and non-surgical procedures purely aimed at enhancing one's appearance such as liposuction, hair replacement procedures, botulinum toxin injections, and teeth whitening. A cosmetic procedure will continue to qualify for the METC if it is required for medical or reconstructive purposes such as surgery to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.
The CRA has confirmed that corrective laser eye surgery and dental crowns would generally be eligible expenses under the METC.
Practitioner's Certification in Writing
The eligibility of certain expenses for the METC is conditional on the certification of a medical practitioner (or an appropriately qualified person depending on the type of expense). The ITA will be amended to clarify that certifications given after December 20, 2002 in respect of the following expenses must be in writing:
- remuneration for a full-time attendant at home;
- full-time care in a nursing home;
- care and / or training at a school, institution, etc.; and
- transportation and travel expenses of a person incapable of traveling without the assistance of an attendant.
Transportation and Travel Expenses
Certain transportation and travel expenses can also be eligible for the METC. Transportation expenses for purposes of the METC are payments to a person engaged in the business of providing transportation services for the transportation of a patient and one other individual if a medical practitioner has certified that the patient is incapable of travelling without the assistance of an attendant. If the patient travels at least 80 kilometres for the medical services then reasonable travel expenses may also be claimed.
Transportation and travel expenses are generally eligible under the METC if the following conditions are met:
- substantially equivalent medical services are not available in the locality where the patient dwells;
- the route is reasonably direct;
- it is reasonable to travel to the place to obtain the medical services; and
- for transportation expenses, the locality of the services is greater than 40 kilometres from where the patient lives, but for travel expenses, the locality of the services is greater than 80 kilometres from where the patient lives.
The question of whether "substantially equivalent" medical services were available was considered by the Tax Court of Canada in Young v. R. In this case, the taxpayer and his wife moved from Ottawa to Edmonton where their daughter was living. They subsequently moved to Airdrie, just outside Calgary, their daughter's new residence. The taxpayer travelled from both Edmonton and Airdrie to Calgary to receive medical treatment.
Claims for travel expenses related to the taxpayer's move from Edmonton to Airdrie were denied by the Court on the basis that the expenses were not for the purpose of obtaining required medical services but for personal reasons. Expenses related to trips between Edmonton and Calgary were denied on the basis that substantially equivalent medical services were available in Edmonton. The Court noted that "travel expenses are to accommodate those who cannot access medical services where they dwell. They are not to accommodate personal needs or preferences due to family circumstances; as harsh as that may seem."
However, the Court did allow travel expenses related to the move from Ottawa to Edmonton. The Court relied on the medical practitioner's certification that the surgery planned in Ottawa was a more extensive procedure than the one that the surgery team in Calgary was willing to entertain. The Court found that had the taxpayer stayed in Ottawa he would have undergone more drastic cancer treatment that he was able to avoid by being treated in Calgary. The Court accepted that this meant that Calgary offered medical services that were not available in Ottawa and concluded that it was reasonable, for purposes of the METC, for the patient to travel to Alberta to obtain the cancer treatment.
In light of the above case, taxpayers should be careful to be able to justify that their travel expense claims are not to accommodate personal needs or preferences and be able to demonstrate (with the help of a medical practitioner) that the trip is required for medical services of which substantially equivalent services are not locally available.
Claiming Travel Expenses
The CRA considers reasonable travel expenses for the purposes of the METC to include vehicle, meals and accommodation expenses. The CRA allows taxpayers to choose between a detailed or simplified method to calculate travel expenses. Generally, the difference is that the detailed method requires all receipts to be kept whereas the CRA provides flat per meal and per kilometre rates for the simplified method.
Taxpayers and advisors should note that the CRA's position is that meals, accommodation, and parking expenses incurred during the period of treatment are not eligible for the METC. For example, the CRA has stated that while hotel and parking expenses incurred en-route to the hospital or medical facility may be eligible for the METC, expenses incurred on arrival are not as the traveling would have been completed by the time that such expenses are incurred.