Check medical expenses closely

Medical expenses are eligible for a non-refundable tax credit, calculated at a rate of 15%. Clients can claim expenses that are not covered under a health plan if those expenses exceed the lesser of two amounts: $2,171 or 3% of the individual’s net income. Expenses can be claimed for any 12-month period ending during the calendar year to which the tax return applies. For example, if your client has claims for November 2013 and March 2014, they can be submitted together for 2014. Expenses can be claimed for the client or a dependent, which includes a spouse (married or common-law), children under the age of 18 and those classified as “other dependents,” such as children 18 and older who are financially dependent.

The list for medical expenses can be found at the Canada Revenue Agency’s (CRA) website (www.cra-arc.gc.ca). The list of expenses is, for the most part, straightforward, covering items such as drugs and vision care not covered under a health plan, as well as necessary home renovations for a person with a mobility issue, such as the construction of a ramp.

There are, however, provincial exceptions to the list. For example, the types of medical practitioners whose services are eligible for the tax credit can vary from province to province. A visit to a chiropractor is eligible for the tax credit everywhere in Canada except Newfoundland and Labrador and Nunavut. A consultation with a registered nutritionist is eligible for the tax credit in Quebec but not in most other provinces, including Ontario.

Remind your clients of the importance of keeping evidence of their medical expenses, particularly if they file their taxes electronically.

“They have to keep their receipts,” says Amélie Campeau-Lanctôt, vice president, tax and estate planning, with Richardson GMP Ltd. in Montreal. “They don’t necessarily have to file [the receipt], but they have to keep it. There are a lot of CRA reviews on those expenses.”

The CRA’s list of eligible expenses should be consulted frequently because it is “always evolving,” Waters says. Items frequently are added or deleted each year.

For example, in 2010, the federal budget removed purely cosmetic procedures, such as liposuction and teeth whitening. However, some cosmetic procedures still are allowed, such as breast implants for reconstructive surgery after a mastectomy or the removal of excess skin following rapid weight loss. The 2014 budget added service animals trained to help manage severe diabetes.

Just as the list of eligible expenses is not static, the exact criteria for eligibility are not always clear. Recent Tax Court cases show that the extent to which certain expenses can be claimed may be subject to interpretation.

In the case of Tallon v. the Queen, for example, Trudy Tallon of Thunder Bay, Ont., expensed flights, accommodation and meals for herself and her husband when she spent the winter in Indonesia and Thailand during the 2009 tax year after a doctor recommended that Tallon spend the season in a warm climate to alleviate her chronic pain. The CRA denied the credit but the Tax Court subsequently ruled in favour of Tallon, who won a similar court case for claims made in 2008. Tallon and her husband made trips to a number of other countries, including Cambodia, Vietnam, Malaysia and Venezuela, during the tax years for which Tallon made claims.

This case illustrates the importance of reasonableness when making a claim, says Matthew Williams, partner with Thorsteinssons LLP in Toronto. While the judge ruled that Tallon’s travel expenses were eligible, Williams says, the judge questioned whether it was reasonable for Tallon and her husband to travel to so many places but did not rule on that matter because the CRA did not raise it in court.

The CRA, however, often takes a narrow view of what medical expenses include. So, anyone thinking of making a claim that might test some of that grey area must be prepared to be challenged by the CRA.

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