Most people know that in order to claim a medical item, the payment must have been made to a medical practitioner, a dentist or a registered nurse or be for prescription medication. They also know that the receipts must be for the current period.
Where people seem to get tripped up is when they think that they can deduct 100% of the medical expenses that they paid on their income taxes, when in fact, only 15% of the amount over 3% of your net income can be deducted on your income tax return. Another thing that isn’t readily known is that the receipts can be for any twelve month period as long as the ending period is sometime during the current calendar year.
Medical expenses can be taken by one spouse for both spouses and also for your dependants even though they may no longer live with you. The proof that the Canada Revenue Agency (CRA) requires when taking the medical expense credit for a dependent is that you paid the expense.
Those people who participate in an extended health and dental plan can deduct the medical expense portion that is not covered by the plan. For example, if your plan only covers 80% of your expenses, the other 20% would be deductible. In addition, if your plan covers 100% of your expenses, but doesn’t reimburse you for the first $200 every year, then that $200 would be deductible.
The medical expense credit is a non-refundable tax credit. What that means is that a credit is given to the taxpayer that will be deducted directly off their taxes payable based on certain criteria. It is not refunded to the tax payer.
If the tax payer doesn’t have enough taxes owing to take the entire medical credit, the rest of the credit is lost.
Here again is another tax planning tip for couples. If one spouse makes less or very little income, it would make sense for that spouse to take the medical expense credit because there would be more medical expenses available for credit. So in order to lower taxes payable or increase a refund, medical expenses can be manipulated to provide the best benefit for the family.
Rather than provide a list of what is deductible, CRA has provided a list of items that are not deductible and have been claimed as medical expenses in error. These are: athletic or fitness club fees, non prescription birth control, blood pressure monitors, cosmetic surgery (liposuction, hair replacement, filler injections – botox, teeth whitening), diaper services, employer paid health plan premiums, health programs, organic food, vitamins and supplements (even if prescribed), personal response systems (Lifeline and Health Line), provincial health plans and travel expenses where you have been reimbursed.
What do you need to bring your accountant? You need the actual medical receipt along with proof of payment. The debit card slips by themselves are not accepted by CRA and will not qualify for the credit.
Most pharmacies are all computerized and will gladly print you out an annual summary that you can bring to your accountant. Then you can be assured that you have all your medical expenses and it might speed up the processing of your return. Some pharmacies and dental offices will provide a total page showing just the total of the medical paid for the year, however this is not sufficient. What you need to provide to your accountant is the detailed list of medical expenses procedures performed so that they can verify that there are no non deductible items included.
Since the processing of tax returns is now computerized, its probably just a matter of time for the pharmaceutical system to feed directly into the tax system and the deduction of medical related items will be automatic. Until then, the CRA monitors the claiming of the tax credit electronically by noting any exceptions from prior years. What happens is that you or your accountant will receive a letter from CRA (desk audit) requesting more information with respect to the medical receipts claimed on your tax return.
A desk audit means that the auditor reviews the material in front of him or her rather than visiting you at home or your office. You or your accountant will then need to gather those receipts and send or electronically transfer them to CRA, so it is important that you or your accountant has received and kept all of the detail with respect to the medical receipts.