While our health care system is not without its problems, Canadians are fortunate to benefit from a publicly funded system in which individuals are not required to pay personally for the cost of necessary medical care. Generally speaking, acute care provided in a hospital setting is covered by that system, as is more routine care provided by physicians in their offices.
Canadians who, as the result of illness or accident, require care in our medical system are nonetheless often surprised to find that there is a long and ever-increasing list of expenses which are not covered by government-sponsored health care, or for which the individual is required to make at least a partial payment. In some cases, individuals will have private health care coverage to help offset those costs but for most, such costs must be paid on an out-of-pocket basis. For those who must bear such costs personally, some recovery of costs incurred is possible by claiming a medical expense tax credit on the annual return. The federal medical expense tax credit is equal to 15% of the cost of qualifying medical expenses claimed, and each of the provinces and territories also provide for a medical expense tax credit, at varying rates.
There are an almost limitless number and variety of such expenses and it’s not, unfortunately, possible to provide a general rule as to which such expenses qualify for the credit and which do not. As well, the rules governing the credit for qualifying expenses can seem illogical and baffling, in that some expenses require a doctor’s prescription, while others do not and seemingly similar expenses can receive very different tax treatment. For instance, in order to claim a medical expense tax credit for the cost of a “walking aid”, a prescription is required: however, no prescription is needed in order to claim the cost of a wheelchair. The list of expenses eligible for the credit provided by the Canada Revenue Agency (CRA) on its website includes 134 categories of such expenses, each with its own qualification criteria.
That said, it is possible to outline in a general way the categories or kinds of expenses which will qualify for the medical expense tax credit. Some of the most frequently incurred out-of-pocket medical expense for which a credit can be claimed are as follows:
- payments made to a medical doctor, dentist, nurse, or certain other medical professionals or to a public or licensed private hospital (while most medical services provided by doctors are covered by public health plans, others must be paid for out-of-pocket and a credit can generally claimed for such costs);
- the cost of obtaining non-cosmetic care from a dentist or a denturist, including the cost of dentures;
- the cost of medical devices including pacemakers, hearing aids and artificial limbs;
- the cost of assistive mobility equipment and devices, including crutches, wheelchairs and walkers;
- the cost of prescription medications;
- the cost of obtaining eye care, including the cost of prescription eyeglasses or contact lenses; and
- payments made for ambulance services for transport to or from a public hospital.
Individuals who find it advisable to obtain coverage under a private health services plan in order to help with the cost of necessary medical expense will similarly be able to claim a medical expense tax credit for premiums paid for that coverage.
Given the frequency with which Canadians claim the medical expense tax credit, it’s unfortunate that the rules governing that credit can be somewhat confusing. The first thing to note is that the credit is a non-refundable one (i.e., any medical expense tax credit claims made can reduce tax otherwise payable, but cannot create or increase a refund). For 2016, the general rule for the credit is that is that a taxpayer may claim medical expenses paid that were more than 3% of the taxpayer’s net income (the amount that appears on line 236 of the taxpayer’s tax return), or $2,237, whichever is less. That’s not a formula which is easily understood, but there is a rule of thumb. If the taxpayer’s 2016 income is more than $74,575, then that taxpayer can claim medical expenses paid which were over the $2,237 threshold. If his or her net income for 2016 is less than $74,575, then it’s necessary to calculate 3% of that net income number, and claim medical expenses which were over the 3% figure.
As well, there is some strategy involved in structuring the medical expense claim for a particular year. Qualifying medical expenses incurred can be claimed for any 12-month period ending in the taxation year for which the claim is being made. There is, unfortunately no hard and fast rule, or even a rule of thumb, which can be used to determine just which 12-month period will produce the best tax result, as each case is different, depending on the income of the taxpayer claiming the credit, the amount of medical expenses incurred, and just when those bills were paid. The optimal claim period must be worked out each year when filing the annual tax return.
Out-of-pocket medical expenses are a fact of life for most Canadians, and an increasingly costly one. While claiming the available tax credit for such expenses can take a bit of calculation and effort, getting at least some relief from those out-of-pocket expenses is worth that effort.
The CRA provides a great deal of information on its website to help taxpayers make such claims (including a lengthy list of qualifying medical expenses), and that information can be found at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330-331/menu-eng.html#mdcl_xpn and www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f1/s1-f1-c1-eng.html.
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