This year’s federal budget closes the door on taxpayers who want to make a claim under the medical expense tax credit program for a hot tub or a new hardwood floor. Such purchases raise the value of a home, it notes, and are, therefore, recoverable.

The program provides tax relief for 16% of eligible medical expenses that are more than the lesser of 3% of the taxpayer’s income or $1,844. Reasonable expenses for home renovations are allowed by the Canada Revenue Agency under the METC, as long as they are done to provide access or increase mobility within the home for a family member who suffers from a severe and prolonged impairment.

However, as noted in the budget, the Tax Court of Canada has periodically interpreted the CRA policy more broadly to include installation of a hot tub or a hardwood floor.

For example, in a September 2004 case known as Whitfield v. The Queen, the TCC allowed an appeal by the wife of a man who suffers from severe lower-back pain following a hip replacement. A hot tub was purchased to relieve joint pain. The man’s psychiatrist also recommended “hydrotherapy” to provide “deep relaxation for depression and anxiety,” the court noted.

Hot tub allowed

In an August 2004 case, Klywak v. the Queen, a taxpayer won her appeal for an METC based on the combined purchase and installation of a hot tub costing almost $8,800. She had been diagnosed with fibromyalgia, an illness that causes severe pain in joints and muscles. The court noted from the evidence that “regular and continuing use of the hot tub did assist her to walk.”

Several taxpayers have also gone to Tax Court to fight for an METC for installing hardwood floors — usually because they have asthmatic or allergy-prone children.
The courts have been less sympathetic, as the impact on the child’s mobility is less evident in such cases, but some taxpayers have been victorious.

The courts’ interpretations go “far beyond the policy intent of the METC,” says the federal Finance Department. Installing a hot tub or hardwood floor will inevitably increase the value of a home. A tax credit is, therefore, being given for an expense involving “personal consumption and personal choice.”

Ottawa is making the right move in ending such credits, says Jamie Golombek, vice president of taxation and estate planning at Toronto-based AIM Funds Management Inc.
“It never made sense to me that Canadian taxpayers should be subsidizing an expense that could be recouped.”

To ensure that the METC is given only in appropriate cases, a two-part test is proposed in the budget. First, the expense must not be expected to increase the value of the home. Second, the expense must be one that would not be incurred if the person for whom the expense is claimed were not suffering from a severe, prolonged impairment.

An example would be home renovations made to accommodate a person requiring a wheelchair, such as a wheelchair ramp.
Because a subsequent owner would probably wish to remove a ramp, Golombek says, that type of renovation does not add to the value of a home.

Some typical expenses that will continue to be eligible, says Finance, include: entrance and exit ramps, the widening of doorways, modifying kitchen cabinets and the relocation of electrical outlets. IE