Date: 01/04/2010

Medical Expenses and the Medical Expense Tax Credit - What's Claimable?

Each year, millions of Canadian taxpayers claim a non-refundable federal and provincial tax credit for out-of-pocket medical expenses. Many medical expenses are, of course, covered by provincial government health care plans, including most medical services provided by one's physician and, should the need arise, hospital care. For many taxpayers, the basic government plan is supplemented by private health care insurance, purchased privately or made available as part of an employer's benefit package. Such plans typically extend coverage to expenses not covered under government plans, including dental care, prescription drugs and vision care.

The rapid increase over the past several years in both cost pressures and user demands on government health care plans have led to the "delisting" of many previously covered expenses. As a result, many taxpayers now pay directly for health care services which were formerly covered by the public health care system, and seek to claim a medical expense tax credit for such costs.

The Canada Revenue Agency's (CRA's) answer to the question of whether direct payment for medical services will qualify for the medical expense tax credit has been a qualified "yes". However, whether the CRA will accept such costs as a qualifying medical expense rests on the nature of the services rendered and the qualifications of the person providing them. The CRA's general position is that a "qualifying medical expense", as defined in the Income Tax Act, includes an amount paid "to a medical practitioner ... in respect of medical ... services". The CRA therefore takes the general view that payments for services other than specific medical services rendered by a qualified practitioner cannot be claimed as a medical expense, and that services rendered must relate to an existing medical condition or illness.

The CRA has been asked whether a medical expense credit would be allowed for costs incurred in the following situations.

Membership fees charged by a private medical clinic

In this case, a membership fee was charged by a private medical clinic that allowed the individual access to private medical services when such services were required. The fee did not relate to any existing condition that the individual had and, where private medical services were provided, a fee over and above the membership fee was charged. In some cases, that additional fee was covered by the applicable provincial health services plan, while in others, the individual was responsible for payment.

The CRA concluded that the membership fee charged by the clinic did not qualify as a medical expense, as it was not attributable to any particular medical service provided to the individual but rather was for the availability of the services if they were required.

Fees paid to corporation for access to para-medical services

Another situation considered by the CRA was that of a fee paid to a corporation that agreed to provide certain services, if required, including basic homemaking services, recreational, occupational and physiotherapy services. Once again, the CRA concluded that the fee paid would not qualify as a medical expense, even though some of the services offered would have qualified as medical expenses, had they been paid for directly. As with the private clinic membership fees, the CRA considered that the fee paid to the corporation was not paid directly for the provision of medical services.

Doctors' fees for "de-listed" services

As different services have been "delisted" by provincial government health insurance plans, doctors have begun charging patients for the provision of those delisted services. The CRA was asked whether an annual fee charged by a doctor for services not covered by the applicable provincial government health insurance plan (such as telephone advice or telephone prescription renewals) would qualify as a medical expense. The answer was no and, in addition, the CRA took the view that such ancillary or incidental services provided for the fee were not of the type which could be reimbursed by a private health care services plan. Once again, the basis for the CRA's position was that a fee charged for making medical services available was not a fee for medical services provided and consequently could not qualify.

Executive medical done in a private clinic

Many companies require senior officers or executives of the company to undergo regular physical examinations with a view to prevention or early treatment of possible health problems. Where such examinations are carried out in a private clinic, the costs will qualify as a medical expense, as long as the service related to the diagnosis, treatment or prevention of disease and was performed by a qualified medical practitioner.

The number and variety of medical and para-medical services, and the administrative structures through which those services can be delivered is virtually limitless, and it's unlikely that the CRA will ever be able to develop a position or policy which encompasses all situations. In the meantime it seems, from the technical opinions and interpretations issued by the CRA to date, that taxpayers are probably on safe ground in claiming the medical expense tax credit for costs incurred relating to any direct medical services provided by qualified medical practitioners. However, amounts paid solely for access to medical care will not, it seems, qualify for the credit.