Tax advice for an aging nation: Get to know the medical expense tax credit.
The shadowy medical expense tax credit – a lot of taxpayers know it's there, but not what costs are eligible or how to calculate it. "The medical expense tax credit is probably one of the more complicated ones to calculate," explains John Crawford, a chartered accountant and chief financial officer of Pacific Blue Cross in Burnaby, B.C. "The rules are quite complicated in terms of what's eligible and what's not eligible."
It's widely understood that charitable donations can generate a tax credit, in large part because receipts for donations say things such as "Please retain – official receipt for income tax purposes." But similar boilerplate doesn't automatically appear prominently on the receipt you get when you pay for a prescription or other medical services. For that reason, Mr. Crawford suggests developing a habit of slipping medical receipts as they arise into an envelope or file that you refer to at tax time.
The definitive list of what medical expenses are eligible for a tax credit can be found on the CRA website (bit.ly/1l8KRJj). A quick run-through shows there are claimable expenses of interest to more than people in or approaching their senior years, including gluten-free food and medical marijuana. Check the list annually because items are added and removed from time to time.
Mr. Crawford said a general rule is that expenses are eligible when related to treating a disease or medical condition, rather than preventing one. Expenses he gets asked about a lot and are not generally eligible include liposuction, Botox treatments and teeth whitening. "One that everyone gets upset about is blood pressure monitors, which are not covered."
Specifically labelled ineligible by CRA are non-prescription birth control, organic food, over-the-counter vitamins and supplements, and personal response systems that allow people to summon help if incapacitated.
CRA says gluten-free food is eligible if you have a doctor's note confirming it's required because of a gluten intolerance. You can only deduct the additional cost of buying gluten-free products over conventional food items. Medical marijuana is eligible only for amounts paid to Health Canada or designated producers by people authorized to use the drug for medical purposes.
For seniors seeking claimable expenses, Mr. Crawford highlighted prescription drug costs that are not covered by provincial government programs, private health insurance plans or retirement benefits from a former workplace. (Note: Premiums paid for provincial government health plans are not eligible.) Renovation costs that help someone maintain their mobility at home are another claimable expense. CRA says the expenses have to be for renos that would not typically be expected to increase the value of a home and that would not normally be incurred by people who don't have severe mobility issues.
Seniors and others having work done on their teeth may be able to use the medical expense tax credit as well. Purely cosmetic procedures are ineligible, but dentures and implants are eligible.
The mechanics of calculating the medical expense tax credit favour seniors and others who have significant health-related expenses. Mr. Crawford says you total up your eligible expenses then subtract them from a "deductible" that is set as the lesser of $2,171 for the 2014 tax year, or 3 per cent of net income. Your tax credit is set at 15 per cent of what's left over. In a household, expenses are typically claimed by the spouse or common-law partner with the lowest income.
CRA allows you to claim expenses that occur over any 12-month period ending in the year for which you're filing a return. So for the 2014 tax year, you could use unclaimed expenses paid partly in 2013 and partly in 2014.
Back up a claim for the medical expense tax credit by, where possible, having a doctor's note or prescription and receipts that you can send to CRA if requested. A self-diagnosis of gluten intolerance may not cut it with CRA.
Mr. Crawford said people living in remote areas should be aware that they can claim travel expenses related to medical treatment. CRA rules say you can claim travel expenses if you have to go at least 40 kilometres one way to obtain medical services; if medical services are at least 80 kilometres away from home, you may be able to claim accommodations, meals and parking costs as well. You can also claim medical expenses incurred out of the country that aren't covered by travel medical insurance.
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Rob Carrick