Published: March 12, 2020
Last Updated: March 16, 2020
The Medical Expenses Tax Credit – Optimizing Your Claim – A Toronto Tax Lawyer Analysis – Part I
Part I: How the Medical Expenses Tax Credit Functions
The medical expenses tax credit is available for Canadian tax residents as a non-refundable credit. Essentially, taxpayers can claim as a tax credit in a year any eligible medical expenses the taxpayer, the taxpayer’s spouse or the taxpayer’s dependants incur over a 12 month period that ends in that year. Being a non-refundable credit, the medical expenses tax credit can only offset income taxes payable and will not result in a tax refund even where no tax is owed. This tax credit can be claimed for a wide range of medical expenses, from prescribed medical tests and drugs to eyeglasses to personal attendants to special care facilities. However there is a floor for claiming the medical expenses tax credit. The first $1813 or 3% of the individual’s net income for the taxation period, whichever is lower, of medical expenses cannot be claimed. That is to say, the taxpayer must incur over $1813 or 3% of their net income for that taxation period of medical expenses before they can claim a medical expenses tax credit, and the amount of tax credit that can be claimed is only for the amount that exceeds the above floor. Talk to one of our knowledgeable Toronto tax lawyers to learn more about the medical expenses tax credit.
Optimizing the Medical Expenses Tax Credit – The 12 Month Period
Due to the floor for claiming the medical expenses tax credit, the 12 month period for claiming the tax credit and the ability to share the credit with spouses and dependants, there can be significant room to optimize how the tax credit is claimed. Notably, this tax credit is for medical expenses incurred over a 12 month period, not the medical expenses incurred in a taxation (calendar) year and the tax credit is to be claimed in the year within which the 12 month period expires. This better allows taxpayers to utilize the medical expenses tax credit, as it is possible that a taxpayer has significant medical expenses spread between two taxation years but within one 12 month period. Essentially, this allows a taxpayer to aggregate as many medical expenses as possible by selecting the most advantageous 12 month period for incurred medical expenses. For example, a taxpayer has a surgery and related expenses in March of 2015, buys prescribed drugs in June of 2015, and buys new prescription glasses in February of 2016. These expenses fall in different taxation years and the new glasses alone may not exceed the $1813 or 3% floor mentioned above, but due to the 12 month rule, the surgery, drugs, and glasses can all be claimed for the 2016 taxation year, allowing taxpayers to maximize their tax credit. Contact one of our expert Toronto tax lawyers for tax planning help to maximize your medical tax credits.
In Part II of this article we will detail how aggregating incurred medical expenses and how careful selection of which family member to claim the expenses can allow families to, as a whole, receive a greater medical tax credit. Additionally, Part II will detail how vitamins, supplements, as well as medical marijuana function figure into the equation. As readers will see, careful and thoughtful income tax planning must be undertaken immediately to ensure the most preferential tax treatment. To find out how our experienced Toronto tax lawyers can assist you, please continue to Part II of this Medical Expenses Tax Credit article. Continue reading more about Medical Expenses Tax Credit.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."