The Medical Expense Tax Credit (METC) is a non-refundable tax credit that allows you to claim back a portion of your medical bills and health insurance costs as a tax credit. It’s important to note that because it’s a non-refundable tax credit, you can only use the METC to reduce the tax you already owe. You can’t use it to bring your tax balance above zero for a refund.
Let’s take a closer look at how the METC works, who can claim it, and whether there are any alternatives out there.
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How the Medical Expense Tax Credit Works
Your medical expenses must exceed a certain threshold to qualify for the METC. At the moment, that threshold is either 3% of your net income, or $2,397, whichever is lower.
The amount of the tax credit is determined by multiplying your medical expenses in excess of the threshold by the lowest marginal tax rate of your province in addition to the federal tax rate of 15%. Since these provincial tax rates vary, it’s important to know the lowest marginal tax rate in your province if you prepare your own taxes.
One aspect that can make claiming the METC challenging is a lack of supporting documentation. Many people don’t keep mileage logs or prescriptions, which can influence the end result of their claim. We highly recommend keeping all your medical documentation, as well as supporting documentation like fuel receipts and caregiver lodging receipts, to get the most out of your claim.
The Canada Revenue Agency (CRA) allows you to use medical expenses from any 12-month period, as long as it ends within a tax year. This period allows you to maximize your credit by claiming medical expenses that you couldn’t in the previous year. Just double-check the last expense still falls in the tax year.
Note that you can’t double-dip and claim a medical expense for this tax year if you have claimed it in another year, even if it falls within the selected 12-month period. Your entire family also must use the same start and end date for the claim period.
The 12-month rule allows you to maximize the impact of your tax credit. For instance, let’s say that your family had a spate of medical expenses from November to February. If you choose a tax period that ends on December 31, you’ll split the expenses across two different tax years. The disadvantage of this is that you’ll be subject to the 3% rule twice, which can dramatically reduce your claim credit.
Instead, if you select a 12-month claim period from October 1 to September 31, you can lump all your November – February expenses in one claim. You’ll only have to pass the 3% threshold once, maximizing the credit you receive.
The CRA has an exhaustive list of allowable deductions that qualify for the METC. Some of the more notable deductions include:
- Prescribed medication
- Dental treatments
- Health insurance premiums
- Air conditioners and air filters, as long as prescribed by a medical professional
- Crutches and other prosthetics
- Medical marijuana
- Service animals
- Baby-breathing monitors
- Bathroom aids
- Environmental control systems
- Full-time care facilities, or the salaries or wages of the in-home care attendant
- Hearing and vision assistance
- Mobility aids
- Up to 20% of the cost of a van to transport wheelchair users
- Travel expenses if you receive medical care over 80 km away from your home. These expenses include parking charges and other vehicle expenses such as fuel and accommodation.
According to the CRA, all eligible medical expenses are allowable, even those incurred outside Canadian borders.
Healthcare Insurance Premiums
The CRA allows you to claim out-of-pocket health insurance premiums as long as you have a private health services plan. It’s a good idea to know what your provincial health plan covers and what it doesn’t so that you can get appropriate supplementary insurance.
Given that you can claim your annual or monthly premium, you have the freedom to explore more comprehensive insurance options, as long as you keep the 3% threshold in mind.
Also note that if you have a medical plan that reimburses a portion of a medical expense, you can only claim the portion of the expense you paid. If your insurance covered the whole expense, then you can’t use it for a METC claim.
Overlooked Eligible Medical Expenses
Many people who apply for the METC credit forget about medical travel expenses. They can add a significant amount to the cost of ongoing treatment plan costs, such as chemotherapy, where patients constantly travel to and from the clinic. You can also claim out-of-pocket expenses for caregivers, including mileage, meals, and lodging. However, it’s vital to keep a mileage log and all other necessary documentation when claiming these expenses.
Other often-overlooked expenses include:
- Food, shelter, and veterinary care for service animals
- Replacement air filters for air conditioners
- Disposable medical equipment like briefs or diapers
- Gluten-free foods for those with confirmed gluten intolerance
It’s always a good idea to speak to a tax professional about what other expenses you can claim. These small, overlooked amounts can often add up to a significant portion of your final medical expense tax credit.
The METC vs the Disability Tax Credit
The Disability Tax Credit applies to individuals with prolonged medical conditions. It covers:
- Medical expenses for prolonged medical conditions
- The cost of attendant care over $10,000
- The cost of a nursing home
In some instances, you may achieve a lower tax liability if you claim the METC instead of the DTC. It’s worthwhile to speak to a tax consultant to identify the best option for your particular situation.
While there are plenty of medical procedures that fall under the METC, there is also a relatively long list of ineligible deductions. Some of the more notable exceptions include:
- Cosmetic surgery, unless it’s for reconstructive surgery from a congenital disability, accident, or disease
- Fitness clubs
- Health plan premiums
- Over-the-counter medications, even if you have a prescription
- Diaper services
- Personal response systems
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Who Can Claim the Medical Expense Tax Credit?
There are two main categories of medical expense claims outside of claims for yourself: those for close family and those for other dependents. While the claim process is almost the same, you will use a different line on your return for each.
Close Family Members
If you want to claim the medical expense tax credit for your spouse, yourself, common-law partner, or dependents under the age of 18, you’ll claim using line 33099 of your return. In some instances, it may be useful to have the lower-income spouse claim the expense, as they will have a lower threshold, and you’ll receive a larger credit.
If you have both a spouse and a common-law partner, such as if the spouse is in a nursing home, then the situation becomes a bit more complicated. According to the CRA, you can only claim for one dependent—the spouse or the common-law partner—but not both.
When it comes to maximizing credits, it’s important to consider several factors apart from income. Medical tax credits are non-refundable and can’t be carried over to subsequent years the way some credits can, meaning that they’re gone forever if you don’t apply them during that tax year. If one spouse is close to bringing their tax owed to zero due to other credits, it doesn’t make sense to claim their medical expenses, even if they have a lower income.
The CRA allows the following as qualifying dependents:
- Children over the age of 19
- Aunts and uncles
- Nieces and nephews
If you’re claiming medical expenses for these other dependents, you’ll use line 33199 to complete your claim. Medical claims for these dependents will use the dependent’s net income to determine whether the claim exceeds the annual threshold of 3% net income.
In instances where more than one person supports the dependent, each person can claim up to the maximum credit. However, the total claim by all the supporting individuals can’t exceed the total medical costs of the dependent.
If that’s the case, it’s a good idea to share high medical costs amongst a pool of supporting individuals. This type of claim is especially common in larger families where everyone contributes to nursing care for an ageing parent or grandparent.
Medical Expenses for a Deceased Person
In the event of a dependent’s death, you can still claim their medical expenses on your return to increase your credit. However, you only have a 24-month period after the person’s death to make a claim.
In most cases, you won’t need to submit supporting documentation along with your tax return form. However, it’s a good idea to keep these documents in the event of an audit or review. Examples of supporting documents include:
- Receipts showing CRA-deductible expenses that indicate the name of the company or individual you paid
- Prescriptions from an accredited and registered medical practitioner
- Certification for certain items in the CRA guide, such as air conditioners or aids. Your primary healthcare provider or any other authorized medical practitioner can issue this certification
- A mileage log for travel expenses
- Social insurance numbers for individual paid caregivers
Applying for the Medical Expense Tax Credit
You’ll apply for the medical tax credit on your Schedule 1 tax return. You can either complete line 330 if you’re claiming for yourself or close family members or line 331 to claim for other dependents. You should also complete your territorial and provincial form with the same information.
You can submit your return electronically or via post. If you submit your return electronically, keep all the supporting documentation in case the CRA needs to review something.
If you submit your return by standard mail, attach all supporting documents and keep a copy of them for your records.
Alternatives to the Medical Expense Tax Credit
If you’re an independent contractor, self-employed, or a small business owner, you can use a CRA-approved Health Care Spending Account (HCSA) instead of applying for medical expenses tax credits. A Health Care Spending Account, also sometimes called just a Health Spending Account, is a designated account that reimburses you for any out-of-pocket medical expenses.
The advantage of using an HCSA is that the reimbursement is tax-free. Similarly, the HSA is 100% tax-deductible for your company. There are several other advantages to this method, as well:
- No minimum threshold
- No wait to get credits
- No complicated calculations
- 100% reimbursement
However, you can’t take advantage of both the METC and an HCSA for the same expense. You also need to have an incorporated business or have at least one employee to take full advantage of the tax benefits of an HCSA. A qualified tax professional can help you determine if you qualify for an HCSA, and if not, what you can do to change that.
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