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Dan White

Income Tax Act s. 118.2(1)A taxpayer can claim medical expenses paid by the taxpayer or the taxpayer’s spouse or [1] common-law partner. The medical expenses claimable include those paid for the taxpayer, the taxpayer’s spouse or common-law partner, or a child or grandchild (who is dependent on the taxpayer or spouse for support) of the taxpayer or spouse. Also claimable are medical expenses for a parent, grandparent, sibling, aunt, uncle, niece or nephew who resided in Canada at any time during the year and depended on the taxpayer or taxpayer’s spouse for support.

Medical expenses can be claimed for any 12 month period ending in the current tax year (and not claimed in the prior tax year), or in the year of death for any 24 month period ending in the current tax year (and not claimed in a prior year). In order to claim all medical expenses for 24 months in the year of death, the tax return for the prior year could be revised so that no medical expenses are claimed, leaving them available for the year of death. To do this, a T1Adj must be filed. See [2] changing your tax return above.

Generally, all medical expenses can be claimed, even if they were incurred outside of Canada. When medical expenses are reimbursed by an insurance plan, only the portion not reimbursed can be claimed.

Medical expenses for the taxpayer, the taxpayer’s spouse or common-law partner, and dependent children under 18 are claimed on line 330 of the federal tax return. Only expenses in excess of the lesser of $1,844 (federal, for 2005) or 3% of [3] net income can be claimed. The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit.

Starting with the 2004 tax year, there is a separate calculation for the medical expense tax credit for other eligible dependents, which includes children 18 years of age and older, grandchildren, parents, grandparents, siblings, aunts, uncles, nieces or nephews.

Medical expenses for other eligible dependents are claimed on line 331 of the federal tax return. A separate calculation is done for each dependent. Only expenses in excess of the lesser of $1,844 (federal, for 2005) or 3% of net income of the dependent can be claimed, up to a maximum of $10,000 per dependent (federal for 2005, up from $5,000 for 2004). The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit.

Most provinces have also increased the maximum allowable medical expenses for other eligible dependents to $10,000 for 2005. See the [4] tables of non-refundable tax credits for the maximum for each province and territory.

Tax tips:
- You may be eligible for the [5] refundable medical expense supplement.
- In the year of a taxpayer’s death, it may help to adjust the prior year tax return to remove medical expenses, and claim them on the year of death tax return. a. Non-prescription medications are not deductible.

Tax Court of Canada cases prior to 2004 had determined that non-prescription medications could be included as medical expenses on a tax return, as long as they were prescribed by a doctor and “recorded by a pharmacist”. The allowable medical expenses are, according to the Income Tax Act:

“drugs, medicaments or other preparations or substances… manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof or in restoring, correcting or modifying an organic function, purchased for use by the patient as prescribed by a medical practitioner or dentist and as recorded by a pharmacist”

The previous advice was to have medications qualify for this deduction, make sure you get a written prescription from the doctor, and keep your itemized pharmacy receipt.

A 2004 Tax Court of Canada case, [6] Melnychuk v. the Queen, has come to a very different conclusion. The Judge in this case concluded that “The requirement that a medication be recorded by a pharmacist refers to the recording requirements found in legislation governing pharmacists in each province and territory. Unless that legislation requires a pharmacist to keep a record of the sale of a particular medication, the cost of the medication will not be a medical expense under the Income Tax Act, regardless of how it is sold or treated within a particular pharmacy.” A 2005 Tax Court of Canada case, [7] Rasler v. the Queen, came to the same conclusion, disallowing non-prescription medications because they were off-the-shelf medications.

It is possible that this case could be appealed and the decision changed in the future. Our advice is to keep prescriptions and receipts for any non-prescription medications prescribed by your doctor, and talk to your tax advisor as to whether they can be deducted.