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THE TAX BENEFITS
FROM MEDICAL COSTS AND DISABILITY CREDITS
The cost of incurring medical expenses can be mitigated by significant tax benefits.
Expenses for an individual, or group of expenses for spouses and minor children,
which exceed the lesser of 3% of net income or $2,011 can be used to calculate a tax
credit against taxes otherwise payable. (Up to $5,000 of expenses incurred for
children over the age of 18 may also be claimed but are separately subject to the
same reduction as calculated below.) For example:
Assume a taxpayer has qualifying
medical expenditures of $5,000. The expenses eligible for the tax credit calculation
are determined as follows:
Taxable income |
$15,000
| |
Expenses incurred |
$ 5,000
| |
| Less: Lesser of | ||
| a) 3% of net income ($15,000 x 3% = 450) |
450
| |
| or |
||
| b) $2,011 |
$ 0
| |
| Amount eligible for credit |
$4,550
|
Credit Against Taxes Payable
These eligible expenses may result in a substantial reduction in taxes otherwise
payable. The credit against income tax payable is calculated as follows:
| Amount of eligible medical expenses as calculated above |
$ 4,550
|
Federal Credit Amount - 15.5% |
$ 705
|
| Ontario Credit Amount - 6.05% |
$ 275
|
| Total Credit Against Tax Payable |
$ 980
|
Therefore, if an individual has at least this much tax payable for a taxation year,
the credit amount will reduce taxes payable.
Timing Related to Expenses Claimed
Medical expenses accumulated for any 12-month period ending in the taxation year may
be claimed. These periods can overlap from year to year as long as the same
expenditures are not claimed twice. In the case of a deceased taxpayer, eligible
expenses include those accumulated during a 24-month period ending in the taxation
year including the date of death. If you are unsure of which expenses are best to
claim for the current year please contact a tax professional to ensure that maximum
benefits can be realized.
Which Medical Expenses are Allowable?
Although not exhaustive, this list describes basic medical expenses that will qualify
for the tax credit:
- Professional Services – chiropractor, dentist, dermatologist, optometrist, orthopedist, physiotherapist, psychiatrist, registered nurse, speech therapist, etc.
- Laboratory Examinations and Tests – blood work, x-ray examination, etc.
- Dental Services – teeth
extraction, oral surgery, x-rays, orthodontics, etc.
- Hospital Services – anesthetist, operating rooms, vaccines, etc.
- Medicines – insulin, oxygen, any drug prescribed by a medical practitioner, etc.
- Apparatus or Materials – artificial limbs, prescribed contact lenses, crutches, prescribed eyeglasses, needle/syringe, wheelchair, etc.
- Miscellaneous – ambulance charges (to or from hospital), premiums paid to non-government medical care plan, specialty animal training and related expenses for a person who is blind, etc.
- Hospital Services – anesthetist, operating rooms, vaccines, etc.
A detailed list of eligible
medical expenses can be found on the Canada Revenue Agency website at www.cra-arc.gc.ca.
Any medical expenses for which you are reimbursed, or are entitled to be reimbursed,
cannot be claimed as medical expenses. Formal receipts are required as support for
all medical expenses claimed. If you choose to EFILE your personal tax return, you
must keep your medical receipts on file.
Disability Tax Credit
The Disability Tax Credit is also a non-refundable tax credit that reduces tax
payable on your personal income tax return. If eligible, the Disability Tax Credit
can reduce taxes payable by almost $1,500 in 2009. If your income is insufficient
to utilize the credit, all or part of the credit may be transferred to a spouse,
common-law partner or other supporting person to reduce taxes payable on their
return.
In order to qualify for the Disability Tax Credit, a qualified practitioner must
certify on Form T2201 that an individual suffers from severe, prolonged medical or
physical impairment. Once the practitioner has certified on Form T2201 that an
individual suffers from such impairment, the form must be submitted to the Canada
Revenue Agency for review and approval in order to make the claim for the Disability
Tax Credit. This form is available at www.cra-arc.gc.ca or from your local tax
services office of the Canada Revenue Agency. Once the Disability Tax Credit has
been approved, the credit may be claimed annually.
If an individual is eligible to claim the Disability Tax Credit, they may also be
able to claim enhanced medical expenses for care by an attendant that is not a
medical practitioner. Attendant care expenses of up to $10,000 ($20,000 in the year
of death) may be claimed for amounts paid for you, your spouse or common-law partner,
or your dependant where that individual qualifies for the disability tax credit.
Note that the attendant must be at least 18 years of age and can not be the spouse or
common-law partner of the disabled individual. The cost of care in a nursing home is
also considered attendant care.
The Canada Revenue Agency will allow a taxpayer to file amended income tax returns for
prior years in order to claim the Disability Tax Credit and attendant care expenses
if the disability began in a prior year and the credit was not previously claimed.
If you believe that you, your spouse, common-law partner or dependant qualifies for
the Disability Tax Credit, ask your qualified practitioner to complete Form T2201.
The annual tax savings can be significant.
[Updated - February 20, 2010]