Be prepared to argue your medical expense claim.
Outwardly straightforward, the rules on medical expense tax credit eligibility develop fuzzy boundaries when you're talking non-conventional treatments.
As a Canadian taxpayer you can claim a tax credit for medical expenses paid for yourself, your spouse, and certain other related dependents. The Income Tax Act cites a long list of eligible expenses, mostly for conventional therapies and treatments. What we think of as "alternative medicine," however, occupies a zone of uncertainty in terms of tax treatment.
In recent years, several taxpayers have challenged the Canada Revenue Agency (CRA) denial of claims for medical expenses. In some cases the Tax Court has sided with the taxpayer; in others, with the CRA.
In 1999 a B.C. couple traveled to a Mexican health retreat for diabetes and obesity treatments. They received vitamin and mineral supplements, colonics, spa and massage treatments, hydrotherapy, and diet and lifestyle advice. The visit to the retreat cost about $15,000. CRA allowed credits on only about $5,500, which the couple challenged. The Tax Court upheld the CRA ruling. The judge said thousands of dollars for room and board at a health retreat does not, even under the most liberal interpretation, qualify as medical services - and added that the couple should be happy CRA allowed any tax deduction at all.
Several cases have involved people who installed whirlpools or hot tubs in their homes. One taxpayer bought a hot tub to help ease his wife's chronic muscle and joint pain caused by fibromyalgia. The Tax Court denied the cost of the hot tub as a medical expense, because the woman's doctor had not prescribed it.
In another case, the Tax Court judge denied the cost of a whirlpool spa for the same reason, but did allow the $9,000 installation cost. This judge deemed the installation a "reasonable expense for renovations or alternations" to enable the woman to function and be mobile within her own home.
In a 2012 case, the tax court judge denied the cost of acquiring and installing a hot tub to be used as a hydrotherapy pool for the taxpayer’s adult daughter who is severely and significantly disabled with cerebral palsy-related spastic quadriplegia and other conditions. The taxpayer’s doctor recommended daily hydrotherapy in an appropriate hot tub pool to assist with her muscle stimulation and relaxation, breathing and blood circulation, to relieve her pain and suffering, and to enhance her muscle mobility and flexibility.
The cost, including installation, only slightly exceeded the $10,000 annual limit. The taxpayer was able to prove that they acquired and used the hot tub pool solely for the daughter’s recommended treatments and benefits. Unfortunately, the judge denied the expense of acquiring and installation of the hot tub because of a recent addition to the tax legislation of only permitting an expense where the renovations or alterations are of a type that one would not normally expect a person of normal physical development and mobility to have done.
A medical doctor, with his own chelation clinic, prescribed and supplied vitamins, herbs and minerals to a patient who was at risk for repeat bypass surgery. One claim made for chelation therapy is that it helps rid the body of heavy metals believed ultimately to cause hardening of the arteries. The prescribed supplements are normally considered eligible medical expenses under the Income Tax Act, so the patient claimed the costs. CRA said the costs were not eligible because the patient did not have the prescription recorded and filled at a pharmacy.
The Tax Court judge denied the taxpayer's appeal, but did acknowledge his frustration with the system. In doing so, he cited another Tax Court judge who had ruled in an earlier similar case "...I am aware generally that alternative medicines and homeopathic treatments are making great progress these days. I can well understand why...the government requires certain medications be prescribed by a medical practitioner, because there is as yet not very much control in the labeling or sale of alternative medicines, and that needs to be done.
"Sooner or later, however, I think the government will have to face the fact that homeopathic medicines, alternative forms of treatment, herbs, natural healing, and that sort of thing are so prevalent it should consider an amendment to the Income Tax Act that would permit a tax credit in respect of these things..."
A study done in 1999 by the Fraser Institute of Vancouver indicates significant growth in Canadian use of alternative medical treatments. At that time, almost 75% of Canadians had used alternative treatments such as herbal remedies, chelation, massage, relaxation techniques, acupuncture, yoga, chiropractic, special diet programs, and homeopathy. Many people use these therapies along with traditional approaches; others say alternative medicine works when conventional treatments are no longer effective.
All things considered, it seems likely that taxpayers will continue to challenge the eligibility of various medical expenses.
For now, however, here's how CRA decides if an expense is eligible for a non-refundable medical tax credit:
First, it must have been paid within any 12-month period ending in the calendar year for which you're filing. It must have supporting receipts, not have been used in calculating a previous year's credit, and not have been reimbursed or be reimbursable (by an insurance company, for example).
It must also put you over your claim threshold. In claiming a federal credit, your total eligible medical expenses first must be reduced by the lesser of 2 amounts. For the 2002 tax year, those amounts are 3% of your net income or $2,109. The tax credit is 15% of the amount remaining. A similar calculation applies for the provincial part of the credit.
The most common types of qualifying expense include, but are not limited to:
- Payments to medical practitioners and hospitals. "Medical practitioner" covers a broad range of professionals such as osteopaths, chiropractors and physiotherapists, and varies by province.
- Patient care in an institution or school, when the patient needs the equipment, personnel or facilities provided there.
- Premiums paid to private health care services plans (Blue Cross, for example).
- Transportation and travel expenses to obtain medical services more than 80 kilometres from home if those services are not available locally.
- Artificial limbs, aids (such as wheelchairs, prescription eyeglasses, contact lenses and dentures) and other devices and equipment.
- Renovations and alterations to a dwelling if made to enable a person with severe prolonged mobility problems to either gain access to the dwelling or be mobile or functional within it.
- Preventive, diagnostic and other treatments, including drugs and preparations prescribed by a medical practitioner and recorded by a pharmacist.
- Devices and equipment such as needles and syringes, orthopedic shoes, heart monitors, and hospital beds that are prescribed by a medical practitioner. A description of the various types of medical device and equipment that qualify for the medical expense credit can be found in Interpretation Bulletin IT-519R2, "Medical Expenses and Disability Tax Credit and Attendant Care Expenses Deduction," available from CRA offices and on the website at http://www.cra-arc.gc.ca/E/pub/tp/it519r2-consolid/.
Finally, don't forget the refundable medical expense supplement of up to $1,119 for working individuals with low family incomes and high medical expenses. In this context, "refundable" means you get the money even if your tax payable before credits is zero. It's another reason for students and others below the tax threshold to file a return anyway.
If you would like a free consultation to find out how FBC can help you with your small business tax needs, call 1-855-378-3628, or email today.