Introduction: Medical Expense Tax Credit
Canada’s Medical Expense Tax Credit (METC) is a non-refundable tax credit.
The list of eligible and excluded medical expenses published by the Canada Revenue Agency (“CRA”) is constantly being updated, making it a challenge for taxpayers with medical needs to file their personal tax returns. According to the Income Tax Folio S1-F1-C1 Medical Expense Tax Credit, the non-refundable medical expense tax credit provides tax relief for individuals who have sustained significant medical expenses for themselves or for certain dependants. For a taxpayer to claim medical expense tax credits, the medical expenses 1) must be eligible medical expenses, 2) must have been paid or deemed to have been paid by the taxpayer, 3) must have been paid within any 12-month period ending in the 12-month period, with certain exceptions allowing the period to be extended to maximum 24 months, 4) must have not been used in calculating disability supports deduction, 5) must be proved by filing supporting receipts, and 6) must not have been reimbursed or be reimbursable. In addition, the medical treatment or procedure must be completed by a medical practitioner. Pursuant to the Federal Court of Appeal decision in Canada v Couture, 2008 FCA 412, for the purpose of medical expense tax credits, a medical practitioner is an individual that is authorized by laws of the jurisdiction to act as one under specific legislations that enable, permit, or empower that individual to perform medical services. As a result, medical practitioners from the CRA’s view include but are not limited to chiropractors, dental hygienists, dieticians, midwives, and naturopaths.
Medical expenses incurred outside Canada generally can be eligible for tax deduction unless they are paid towards attendant care, group home, or talking textbooks in connection with education institutions. Any medical expenses that have been reimbursed or will be reimbursed will not be deducted against an individual’s income tax. Moreover, section 118.2(1) sets the threshold for claiming an individual’s medical expense. An individual taxpayer can only claim medical expenses if the medical expenses exceed the lesser amount of 3% of the individual’s net income reported on his or her tax return or $2,635 in 2023 ($2,479 for 2022).
Hair Transplant Costs – Cosmetic Surgery Procedure
Prior to 2010, hair transplant costs were included in the list of eligible medical expenses, if the treatment or procedure was completed by a medical practitioner or a person employed by a medical practitioner. Starting from March 4, 2010, following the 2010 Federal Budget, hair transplants were labeled as non-essential medical procedures and became ineligible for tax credits, alongside a variety of other cosmetic surgical and non-surgical procedures purely aim at enhancing a person’s appearance. Expenses for cosmetic procedures may qualify as an eligible medical expense only if it is necessary for medical or reconstructive purposes. Examples provided by the Canada Revenue Agency include “surgery to address a deformity related to a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.”
In contrast to hair transplant treatment, costs for wigs were not removed from the list of eligible medical expenses. The wigs must be prescribed by a medical practitioner to a person who has suffered abnormal hair loss because of a disease, accident, or medical treatment. In other words, wigs that are purchased purely for appearances will not be considered eligible medical expenses.
Filing Medical Expenses Claims
Medical Expense claims should be included in an individual taxpayer’s personal income tax return. An individual can claim any eligible medical expenses occurred in a 12-month period that ends in the current taxation year. The latest end date for the 12-month period should be the date on which the individual files his or her personal tax return of the prior taxation year. For example, if an individual filed his or her personal income tax return on May 1, 2023, the 12-month period can start on any date between January 2, 2022, and May 1, 2022, as long as expenses occurred during the 12-month period have not been previously claimed by the taxpayer. An exception to this rule is if the medical expenses are claimed in the year of the individual taxpayer’s death, which allows for a 24-month period in which to claim medical expense credits.
Out-of-country medical expenses are subject to the same CRA eligibility guidelines for in-Canada medical expenses. Records of medical expenses to be claimed in any taxation years, for both out-of-country and in-Canada expenses, should be kept for at least three years from the date on which an initial notice of assessment is issued for the corresponding taxation year. It is also worth noting that the CRA often disallows parking expense claims.
Pro Tax Tips – Prepare Documentations For CRA Audits
Generally, when a tax return is filed, supporting documentation should be submitted at the same time to avoid triggering CRA tax audits from the Canada Revenue Agency. If the CRA is dissatisfied with the submitted evidence, taxpayers should be provided with additional opportunities to provide proof of their medical expenses. As the burden is on the taxpayers to prove their claims in their tax returns, it is necessary to keep records of any medical expenses that you would like to claim for minimum three years, from the date that you have received an initial notice of assessment for the taxation year in which you claim these medical expenses. Our top Toronto tax lawyers can assist you in the event of any denied medical expense credits.
Frequently Asked Questions
Can I Claim Hair Transplant Costs As Medical Expenses?
Unfortunately, taxpayers generally can no longer claim hair transplant costs as eligible medical expenses whether or not the procedure was completed by a medical practitioner after March 4, 2010. However, there are other medical expenses that may be deductible. For example, costs for wigs that are prescribed by medical doctors may be considered as eligible medical expenses. If you are being audited for medical expenses that you have claimed in prior tax returns, please contact our experienced Canadian tax lawyers for legal advice.
Can I Claim Medical Expenses For Treatment Completed Outside Canada?
Generally, an individual can claim all amounts of medical expenses paid, even if the expenses were not paid in Canada and that the expenses have not been or will not be reimbursed. Medical expenses incurred outside Canada are subject to the same eligibility guidelines for in-Canada medical expenses.
How Far Back Can Someone Claim Medical Expenses?
An individual can claim any eligible medical expenses occurred in a 12-month period that ends in the current taxation year. For example, if you are filing your personal income tax on March 31, 2023, the 12-month period can start as early as January 2, 2022. The latest end date for the 12-month period should be the date on which you file your personal income tax return. You are unlikely to be permitted to claim any eligible medical expenses beyond the 12-month period.
An exception to this rule is if the medical expenses are claimed in the year of the individual taxpayer’s death, which allows a 24-month period.
“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 Canadian tax lawyer.”