It is quite well-known that medical expenses can be claimed as a tax credit, but what is less known is just how such a tax credit is generated. You are not alone if the details of these rules are mystifying. We constantly struggle to understand the myriad of rules in the medical expense area – one wonders why the government could make something so important to almost every tax filer so complicated!
Basic rule: All eligible medical expenses incurred during a 12-month period (which can mean the January-December calendar year, or any other 12-month period that ends during the calendar year) can indeed be claimed for the year. Sometimes a 12 month period that is not a calendar period gives a better result than the calendar period.
Here’s the hitch: The credit is not for the exact dollar value of your medical expenses for the year. Instead, you will only begin receiving a credit if your expenses during the year exceed the lesser of $2,109 or 3% of your net income; if your medical expenses do not exceed this threshold, there is no tax credit.
The upside: Fortunately, there is an upside for families: the medical expenses of spouses and any dependents can be pooled together and the sum can be claimed on one tax return, so the chance of exceeding that minimum threshold will often be higher when looking at the family as a whole.
Something else: If you pay premiums for private medical insurance, those can also be claimed – but if you receive medication or treatment that was covered by your policy, then you can only claim the difference between the cost of the treatment and the amount covered. (For instance, your dental insurance might have 80% coverage; in that case, you can claim the premium you pay for the year plus the 20% of dental expenses you paid for out of pocket.) Remember that travel health insurance premiums are included in the concept of private medical insurance. So those snow birds taking trips to the south need to keep their travel health insurance coverage documents.
It is admittedly a hassle trying to hang onto every single pharmacy receipt or dental invoice over 12 months. Luckily, insurance companies can provide you with a summary of all the claims you make during the year, and you could also phone your pharmacy and ask them to prepare a summary of all medication during the year as well (they are obligated to do this at no cost to you).
Parents in nursing homes: Some of the costs incurred in a nursing home can be claimed for a medical credit and/or an attendant care credit. If the parent has low income and are dependent on the adult child then the adult child may claim these medical amounts on their own tax return. However, the expense must be paid by the child.
The devil’s in the detail: If you are having trouble getting to sleep sometime, please consult CRA for a list of all eligible medical expenses at the following link – reading this baby will definitely get you drowsy!