Last spring, tax specialist Susan Kent brought one of her clients to tears. It wasn't because of taxes owed. Ms. Kent informed her that she could claim the medical-expense tax credit on the $12,000 in tuition fees she paid for her learning-disabled daughter to attend a special school. The client was so happy, she cried.
The client wouldn't be the first person to be happily shocked by a surprise deduction for medical expenses. According to tax firm H&R Block, the credit is the most overlooked part of the tax return.
Wigs, water purifiers, whirlpool baths, moving expenses, medicinal marijuana, hospital services, gluten-free bread and attendant care are just a few of the items listed on the Canada Revenue Agency's website that are eligible expenses, as long as a medical practitioner has recommended them.
"Computers and specialized software, such as Dragon Speaking Software, can be claimed if they are needed for an impaired person to communicate or learn," says Ms. Kent of Ottawa Tax Services.
Replaced your furnace recently due to a chronic respiratory condition? It's one of the modifications to your home that can qualify for the medical-expense tax credit.
"We have got clients medical credits for various renovations in the home where they have a disability," says Mark Goodfield, a partner at Toronto accounting firm Cunningham LLP. "It has mostly been ramps and air conditioners, where prescribed due to a chronic ailment."
What's one of the most often missed medical expenses? "Many people do not seem to realize they can claim the premiums paid on private health-care plans," says Ms. Kent. Health insurance purchased for foreign travel is also eligible.
Cosmetic procedures are no longer eligible, but laser eye surgery and dental veneers are still legitimate. So is the cost of removing excess skin after rapid weight loss (to prevent infection).
Under the medical-expense tax credit, the federal government gives a non-refundable credit of 15 per cent on allowable medical expenses that exceed 3 per cent of the taxpayer's net income or $2,024, whichever is less. The provinces also offer credits.
Many taxpayers don't seem to be aware that they can claim more than their own medical expenses on their return. In fact, they can report eligible medical expenses for themselves, their spouse and their dependent children under the age of 18.
Since the allowable medical expense has to first be reduced by 3 per cent of net income, it generally makes sense for the family member with the lowest net income (and enough taxes due) to file for the family's medical expense tax credit.
For example, someone in Ontario with a net income of $30,000 and $10,000 in medical spending can reduce their taxes by $1,915. But someone earning $50,000 net income would get a lesser break of $1,789 on the $10,000, and someone earning $100,000 would get even less: $1,681.
Taxpayers can enter up to $10,000 of the medical expenses that they paid for extended family members who are dependent on them, including parents, grandparents, adult children, brothers, aunts and nieces. When filing, however, the medical expenses need to be reduced by 3 per cent of the dependant's net income (or $2,024, if lower).
What is eligible is not always obvious. For example, taxpayers are entitled to apply for costs related to travelling more than 40 kilometres to obtain medical treatment, but CRA's policy was to refuse the medical-expense tax credit on non-cash costs (for example, Aeroplan points) - until the 2010 Tax Court of Canada case of Johnson v. The Queen ruled in favour of taxpayers.
A few words of caution, however. Large claims raise red flags at the CRA and often result in requests to remit receipts and medical certificates. An audit may even be performed - as was the case for a large medical claim obtained by Mr. Goodfield's firm for a client paying tuition fees to a special school in which the client's disabled child was enrolled. It pays to make sure you are aware of your options and that all your paperwork is in order.
Five tax-planning ideas for the medical-expense tax credit
1. Since medical expenses can be calculated for any 12-month period ending in the tax year, the medical-expense tax credit can be optimized by selecting the appropriate 12 months. (Be careful, however, not to count expenses twice if periods overlap). Some people schedule procedures with higher medical costs within a 12-month period to increase their medical-expense tax credit.
2. "Many people are missing receipts for dental, orthodontic and other kinds of work," Mr. Goodfield says. "However, if you request a yearly printout, almost all practitioners will provide the required information. Thus, no receipt is missed or overlooked."
3. Check to see if you meet the conditions for the refundable medical-expense supplement on Line 452.
4. Each person supporting a dependent relative can claim up to $10,000 "as long as the total claimed by all supporting persons does not exceed the total medical costs for the dependant," says taxtips.ca. "This would make it advantageous to share high medical costs (such as nursing-home costs) among supporting persons."
5. To claim all medical expenses for the 24-month period allowed in the case of deceased taxpayers, the tax return for the year prior to death "could be revised so that no medical expenses are claimed, leaving them available for the year of death," taxtips.ca says.
What's eligible for the medical-expense tax credit?
•services of dentists, nurses and other medical practitioners
•hospital services
•expenses not covered by health plan
•medical coverage for foreign travel
•prescription drugs
•dentures
•diagnostic procedures
•eyeglasses
•certain transportation costs
•reasonable moving costs
•care of person with impairment
•guide dogs
•artificial limbs/eyes, wheel chairs, hearing aids
•incontinence products