Published: March 12, 2020
Last Updated: April 26, 2021
The Medical Expenses Tax Credit – Tax Planning for Optimizing Your Tax Claim – A Toronto Tax Lawyer Analysis – Part II
In part I of this article about optimizing your medical tax credit claim through tax help from our expert Toronto tax lawyers, we discussed the requirements of the medical tax credit as well as how the 12 month incurred medical expenses period can affect your tax planning.
In part II of this article, we will discuss how aggregating your medical expenses within your family and choosing the right person to claim the credit can result in greater savings. We will consider what does or does not qualify as an eligible medical expense using two common examples.
Optimizing the Medical Expenses Tax Credit – Aggregation of Incurred Expenses and Who Should Claim the Tax Credit
Beyond selecting the most advantageous 12 month period, taxpayers can make sure they get the most of their incurred medical expenses through aggregation. The medical expenses tax credit can be aggregated between spouses and dependant children to allow for income tax planning. When aggregated, one taxpayer can report the sum of the eligible medical expenses incurred by their spouse/dependant children on their tax return. The result is that this better allows for taxpayers to overcome the floor for claiming the medical expenses tax credit mentioned above. Rather than each taxpayer needing to incur medical expenses greater than 3% of their net income or $1813, as long as the aggregate medical expenses exceeds 3% of the net income of the taxpayer claiming the tax credit or $1813, then that taxpayer can received the tax credit. Since the aggregate medical expenses can be claimed by either spouse, it is important to consider which spouse should use the aggregate medical expenses to claim the tax credit.
For example, say there is a family is composed of husband, wife and a dependant child where husband earns $50,000 a year in income and incurred $2000 of medical expenses, wife earned $30,000 and incurred $500, and the dependant child incurred $1000 of medical expenses. If each person claimed individually, husband would have a floor of $1500 (3% of $50,000) and could claim $500 as a medical expenses tax credit, while wife would have a floor of $900 (3% of $30,000) and could claim no credit with only $500 of incurred expenses. Instead, if aggregated, the family would have incurred $3500 of medical expenses and husband could claim a $2000 tax credit ($3500 – $1500), or wife could claim a $2600 tax credit ($3500 – $900). Thus, aggregating the incurred medical expenses resulted in a significantly higher total medical expenses tax credit regardless of which of the spouses claimed it. Additionally, wife would have been able to claim a $600 higher tax credit than if claimed by husband. Call our top Toronto tax lawyers and get the most out of your medical expenses tax credit.
Vitamins and Supplements – Not Eligible Medical Expenses
While the medical expenses tax credit applies to a wide range of different expenses, vitamins and supplements generally do not qualify. The provision in the Canadian Income Tax Act that allows this tax credit, subsection 118.2(2), requires that drugs, medicaments and other preparations or substances meet 3 requirements. First, they must be made or sold for the purpose of diagnosing or treating a disease or disorder or its symptoms or for restoring or correcting an organic function. Second, it must only be lawfully acquirable if prescribed by a medical practitioner or dentist. Third, its purchase must be one which is recorded by a pharmacist. While vitamins and supplements might meet the first requirement, they generally fail to meet the second and third requirements. Doctors and other medical practitioners will sometimes prescribe vitamins and supplements, however it is vital to note that the second requirement is that the substance must only be legally acquirable with a prescription. Even when prescribed, most vitamins and supplements can also be purchased without prescriptions and thus do not qualify. Furthermore, off the shelf vitamins and supplements purchases do not tend to be recorded by pharmacists. That said, where a vitamin or supplement does meet the 3 requirements, then it would likely qualify for the medical expenses tax credit.
Medical Marijuana – An Eligible Medical Expense
What may come as a surprise is that, although vitamins and supplements do not qualify, the CRA has stated that medical marijuana and marijuana seeds are eligible medical expenses for purposes of the medical expenses tax credit. So long as the taxpayer has a prescription for the medical marijuana written by a medical practitioner and the marijuana is purchased at a legal dispensary. What qualifies as an eligible medical expense is highly varied and can include more than one might imagine. Make sure your medical expenses are eligible and that you are claiming all credits available to you – call our experienced Toronto tax law firm today.
Read Part I of Medical Expense 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."