Summary of changes impacting tax measures: The 2023 Canadian Federal Budget was presented March 28, 2023. A number of changes were proposed, below is a quick summary […]
Claiming a deduction for union or professional duesDecember 14, 2019
Year-end planning for RRSPs and TFSAsDecember 14, 2019
While Canadians benefit from a publicly funded health care system, there are nonetheless a large, and increasing, number of medical expenses which are not covered by provincial health care plans. As well, with the rise in part-time positions and contract work — the “gig” economy — an increasing number of Canadians do not enjoy coverage for such costs through employer-sponsored private insurance. In those situations, Canadians have to pay for such unavoidable expenditures, including dental care, prescription drugs, ambulance trips, and many other para-medical services, like physiotherapy, on an out-of-pocket basis.
The good news, where such costs must be paid for partially or entirely by the taxpayer, is that our tax system provides a medical expense tax credit to help offset those costs. Unfortunately, the computation of such credit and, in particular, the timing of making a claim for that credit, can be confusing. In addition, the determination of what expenses qualify for the credit and which do not isn’t necessarily intuitive, nor is the determination of when it’s necessary to obtain prior authorization from a medical professional in order to ensure that the contemplated expenditure will qualify for the credit.
The basic rule is that qualifying medical expenses over 3% of the taxpayer’s net income, or $2,352, whichever is less, can be claimed for purposes of the medical expense tax credit on the taxpayer’s return for 2019. The Canada Revenue Agency (CRA) provides a lengthy list of qualifying expenditures, together with information on any requirements for a prescription or other medical authorization or documentation for a particular type of expenditure, and that list can be found on the CRA website at www.cra-arc.gc.ca/medical/#mdcl_xpns.
Put in terms that are more easily understood, the rule for 2019 is that any taxpayer whose net income is less than $78,400 will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income over $78,400 will be limited to claiming qualifying expenses which exceed the $2,352 threshold.
The other aspect of the medical expense tax credit which can cause some confusion is that it’s possible to claim medical expenses which were incurred prior to the current tax year, but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2019 will produce the greatest amount eligible for the credit. That determination will obviously depend on the amount of medical expenses and, in particular, when those medical expenses were incurred. Consequently, there is no universal rule of thumb that can be used.
Medical expenses incurred by family members — the taxpayer, his or her spouse, dependent children who were born in 2002 or later, and certain other dependent relatives — can be added together and claimed by one member of the family. In most cases, it is best, in order to maximize the amount claimable, to make that claim on the tax return of the lower income spouse, where that spouse has tax payable for the year.
As December 31 approaches, it’s a good idea to add up the medical expenses which have been incurred during 2019, as well as those paid during 2018 and not claimed on the 2018 return. Once those totals are known, it will be easier to determine whether to make a claim for 2019 or to wait and claim 2019 expenses on the return for 2020. And, if the decision is to make a claim for 2019, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for the claim.
Finally, it’s also a good idea to look at the timing of medical expenses which will have to be paid early in 2020. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or necessary dental work) it may make sense, where cash flow considerations allow, to accelerate the payment of those expenses to December 2019, so that they can be included in 2019 totals and claimed on the 2019 return.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.