Tax season is upon us and while the filing deadline is May 1 (April 30, the normal due date, falls on a Sunday in 2023, giving us the extra day), now is the perfect time to start organizing all those tax slips and receipts you’ll need to file your 2022 return including receipts for any medical expenses you paid that were not covered by your group or private health insurance plan.
Medical expenses are eligible for both federal and provincial/territorial non-refundable tax credits. For your 2022 return, the medical expense tax credit (METC) is available provided your family’s total medical expenses exceed a minimum threshold equal to the lesser of three per cent of your net income or $2,479 (for 2022). You can also claim a provincial/territorial credit, with the minimum income thresholds varying by province/territory.
Under the Income Tax Act, you can claim a METC for expenses you paid for yourself, your spouse or partner, and your kids under age 18. This is claimed on line 33099 of the 2022 personal tax return. You may, however, also be able to claim medical expenses for other relatives if they depended on you for support in 2022. These expenses go on line 33199.
Eligible dependants include adult (grand)children, (grand)parents, brothers, sisters, uncles, aunts, nephews or nieces provided they were residents of Canada at any time in the year. In the case of relatives’ medical expenses, only expenses above the three-per-cent net income test (or maximum threshold) of that relative’s 2022 net income qualify.
For couples, married or common-law, it’s often suggested that all the family’s medical expenses be pooled together and claimed on one spouse’s or partner’s tax return, so that the minimum threshold need only be reached once. Furthermore, if spouses or partners have disparate net incomes, unless they both earn more than $82,633, the lower-income spouse or partner should claim all the family’s expenses, since their threshold income would be lower.
But readers may not realize that the ability for one spouse or partner to claim the METC for expenses that the other paid is purely an administrative concession by the Canada Revenue Agency and is not actually based in law. Unlike the rule for charitable donations, which was amended in 2016 to explicitly allow a spouse or partner to claim charitable donations made by the other spouse or partner, no such rule technically exists for medical expenses paid by the other spouse when it comes to the METC. This quirk in the tax law was the subject of a tax case decided last month.
The case involved a taxpayer who claimed the METC on his 2018 tax return for $20,675 of medical expenses for his wife’s mother who resides at a long-term care facility in southwestern Ontario. She has osteoporosis and requires assistance in all daily functions, including the use of a wheelchair.
In late 2019, the CRA reassessed the taxpayer’s 2018 tax return, disallowing all the medical expenses he had claimed for his mother-in-law. It later allowed $607 of those expenses and denied the balance. The taxpayer objected and took the matter to Tax Court.
At the trial, both the taxpayer and the CRA agreed that all the necessary conditions to allow the taxpayer’s METC were satisfied save one: whether the taxpayer actually paid the medical expenses himself. Nearly all the medical expenses of the taxpayer’s mother-in-law were paid by the taxpayer’s spouse from a joint bank account held by his spouse and his spouse’s mother.
The taxpayer argued that since his spouse had authority over the joint bank account, any medical expenses paid by his spouse from that account should meet the definition of “paid by the individual” for purposes of claiming the METC. The taxpayer maintained that it shouldn’t matter whether the expense was paid by him or his spouse.
The CRA disagreed, pointing to the specific words in the Income Tax Act that require the taxpayer, himself, to have paid the expenses claimed for a relative. The CRA said these expenses “were paid from a bank account over which the (taxpayer) had no authority, ownership or other right.”
The complicating factor in this case, and perhaps the reason why the CRA chose not to follow its longstanding administrative practice of allowing a spouse to claim the METC for medical expenses paid by the other spouse, may have to do with the specific unique facts of this case.
By way of background, a decision was made in 2010 to centralize all the taxpayer’s mother-in-law’s income and banking operations in one single account. Because of the mother-in-law’s health conditions, her financial institution suggested that a joint account be opened under the names of the taxpayer’s wife and mother-in-law. The benefit of this was to allow deposits and withdrawals by each of the joint account holders without requiring a power of attorney to do so, or requiring co-signatures.
Once the joint account was opened, all the mother-in-law’s funds were transferred to that account and any income she received was deposited there. From that account, pre-authorized debits were set up to allow her long-term care facility and her pharmacy to receive monthly payments directly.
The evidence showed the mother-in-law’s income in 2018 totalled $19,054 while her expenses for the care home and pharmacy totalled $19,618. As the judge noted, “more than 97 per cent of the medical expenses paid from the joint account were covered by (the mother-in-law’s) deposits made that year to the account.”
The judge, therefore, concluded that the taxpayer did not, either directly or even indirectly, pay for his mother-in-law’s medical expenses, and thus upheld the CRA’s decision to, at least in this case, follow the strict letter of the law, thereby denying the taxpayer’s claim for the METC.
Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.
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