Sunday, December 3, 2023

CRA usually helps you to declare household medical bills — not this time

Jamie Golombek: Tax regulation quirk means a partner is not explicitly allowed to assert medical bills paid by different partner

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Tax season is upon us and whereas the submitting deadline is Could 1 (April 30, the traditional due date, falls on a Sunday in 2023, giving us the additional day), now could be the proper time to begin organizing all these tax slips and receipts you’ll must file your 2022 return together with receipts for any medical bills you paid that weren’t lined by your group or personal medical health insurance plan.

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Medical bills are eligible for each federal and provincial/territorial non-refundable tax credit. To your 2022 return, the medical expense tax credit score (METC) is obtainable supplied your loved ones’s complete medical bills exceed a minimal threshold equal to the lesser of three per cent of your web earnings or $2,479 (for 2022). You can too declare a provincial/territorial credit score, with the minimal earnings thresholds various by province/territory.

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Below the Revenue Tax Act, you may declare a METC for bills you paid for your self, your partner or accomplice, and your youngsters below age 18. That is claimed on line 33099 of the 2022 private tax return. It’s possible you’ll, nonetheless, additionally be capable to declare medical bills for different kinfolk in the event that they trusted you for assist in 2022. These bills go on line 33199.

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Eligible dependants embrace grownup (grand)kids, (grand)dad and mom, brothers, sisters, uncles, aunts, nephews or nieces supplied they had been residents of Canada at any time within the yr. Within the case of kinfolk’ medical bills, solely bills above the three-per-cent web earnings check (or most threshold) of that relative’s 2022 web earnings qualify.

For {couples}, married or common-law, it’s usually recommended that each one the household’s medical bills be pooled collectively and claimed on one partner’s or accomplice’s tax return, in order that the minimal threshold want solely be reached as soon as. Moreover, if spouses or companions have disparate web incomes, except they each earn greater than $82,633, the lower-income partner or accomplice ought to declare all of the household’s bills, since their threshold earnings can be decrease.

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However readers could not notice that the power for one partner or accomplice to assert the METC for bills that the opposite paid is only an administrative concession by the Canada Income Company and isn’t truly based mostly in regulation. Not like the rule for charitable donations, which was amended in 2016 to explicitly enable a partner or accomplice to assert charitable donations made by the opposite partner or accomplice, no such rule technically exists for medical bills paid by the opposite partner in terms of the METC. This quirk within the tax regulation was the topic of a tax case determined final month.

The case concerned a taxpayer who claimed the METC on his 2018 tax return for $20,675 of medical bills for his spouse’s mom who resides at a long-term care facility in southwestern Ontario. She has osteoporosis and requires help in all every day features, together with the usage of a wheelchair.

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In late 2019, the CRA reassessed the taxpayer’s 2018 tax return, disallowing all of the medical bills he had claimed for his mother-in-law. It later allowed $607 of these bills and denied the stability. The taxpayer objected and took the matter to Tax Courtroom.

A sign outside the Canada Revenue Agency.
An indication outdoors the Canada Income Company. Picture by Adrian Wyld/The Canadian Press

On the trial, each the taxpayer and the CRA agreed that each one the required circumstances to permit the taxpayer’s METC had been happy save one: whether or not the taxpayer truly paid the medical bills himself. Practically all of the medical bills of the taxpayer’s mother-in-law had been paid by the taxpayer’s partner from a joint checking account held by his partner and his partner’s mom.

The taxpayer argued that since his partner had authority over the joint checking account, any medical bills paid by his partner from that account ought to meet the definition of “paid by the person” for functions of claiming the METC. The taxpayer maintained that it shouldn’t matter whether or not the expense was paid by him or his partner.

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The CRA disagreed, pointing to the precise phrases within the Revenue Tax Act that require the taxpayer, himself, to have paid the bills claimed for a relative. The CRA mentioned these bills “had been paid from a checking account over which the (taxpayer) had no authority, possession or different proper.”

The complicating issue on this case, and maybe the rationale why the CRA selected to not comply with its longstanding administrative apply of permitting a partner to assert the METC for medical bills paid by the opposite partner, could must do with the precise distinctive details of this case.

By the use of background, a choice was made in 2010 to centralize all of the taxpayer’s mother-in-law’s earnings and banking operations in a single single account. Due to the mother-in-law’s well being circumstances, her monetary establishment recommended {that a} joint account be opened below the names of the taxpayer’s spouse and mother-in-law. The good thing about this was to permit deposits and withdrawals by every of the joint account holders with out requiring an influence of legal professional to take action, or requiring co-signatures.

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As soon as the joint account was opened, all of the mother-in-law’s funds had been transferred to that account and any earnings she acquired was deposited there. From that account, pre-authorized debits had been set as much as enable her long-term care facility and her pharmacy to obtain month-to-month funds immediately.

The proof confirmed the mother-in-law’s earnings in 2018 totalled $19,054 whereas her bills for the care residence and pharmacy totalled $19,618. Because the choose famous, “greater than 97 per cent of the medical bills paid from the joint account had been lined by (the mother-in-law’s) deposits made that yr to the account.”

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The choose, due to this fact, concluded that the taxpayer didn’t, both immediately and even not directly, pay for his mother-in-law’s medical bills, and thus upheld the CRA’s resolution to, no less than on this case, comply with the strict letter of the regulation, thereby denying the taxpayer’s declare for the METC.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto.


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