CRA usually allows you to declare household medical bills — not this time

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Tax season is upon us and whereas the submitting deadline is Might 1 (April 30, the conventional due date, falls on a Sunday in 2023, giving us the additional day), now’s the proper time to begin organizing all these tax slips and receipts you’ll must file your 2022 return together with receipts for any medical bills you paid that weren’t lined by your group or personal medical insurance plan.

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Medical bills are eligible for each federal and provincial/territorial non-refundable tax credit. To your 2022 return, the medical expense tax credit score (METC) is out there supplied your loved ones’s whole medical bills exceed a minimal threshold equal to the lesser of three per cent of your internet revenue or $2,479 (for 2022). You can too declare a provincial/territorial credit score, with the minimal revenue thresholds various by province/territory.

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Below the Revenue Tax Act, you may declare a METC for bills you paid for your self, your partner or accomplice, and your youngsters beneath age 18. That is claimed on line 33099 of the 2022 private tax return. You could, nevertheless, additionally have the ability to declare medical bills for different relations in the event that they trusted you for assist in 2022. These bills go on line 33199.

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Eligible dependants embody grownup (grand)kids, (grand)mother and father, brothers, sisters, uncles, aunts, nephews or nieces supplied they have been residents of Canada at any time within the 12 months. Within the case of relations’ medical bills, solely bills above the three-per-cent internet revenue check (or most threshold) of that relative’s 2022 internet revenue qualify.

For {couples}, married or common-law, it’s usually prompt that every one the household’s medical bills be pooled collectively and claimed on one partner’s or accomplice’s tax return, in order that the minimal threshold want solely be reached as soon as. Moreover, if spouses or companions have disparate internet incomes, until they each earn greater than $82,633, the lower-income partner or accomplice ought to declare all of the household’s bills, since their threshold revenue could be decrease.

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However readers might not notice that the flexibility for one partner or accomplice to assert the METC for bills that the opposite paid is only an administrative concession by the Canada Income Company and isn’t truly primarily based in legislation. Not like the rule for charitable donations, which was amended in 2016 to explicitly enable a partner or accomplice to assert charitable donations made by the opposite partner or accomplice, no such rule technically exists for medical bills paid by the opposite partner in relation to the METC. This quirk within the tax legislation was the topic of a tax case determined final month.

The case concerned a taxpayer who claimed the METC on his 2018 tax return for $20,675 of medical bills for his spouse’s mom who resides at a long-term care facility in southwestern Ontario. She has osteoporosis and requires help in all day by day capabilities, together with using a wheelchair.

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In late 2019, the CRA reassessed the taxpayer’s 2018 tax return, disallowing all of the medical bills he had claimed for his mother-in-law. It later allowed $607 of these bills and denied the steadiness. The taxpayer objected and took the matter to Tax Courtroom.

On the trial, each the taxpayer and the CRA agreed that every one the required situations to permit the taxpayer’s METC have been glad save one: whether or not the taxpayer truly paid the medical bills himself. Almost all of the medical bills of the taxpayer’s mother-in-law have been paid by the taxpayer’s partner from a joint checking account held by his partner and his partner’s mom.

The taxpayer argued that since his partner had authority over the joint checking account, any medical bills paid by his partner from that account ought to meet the definition of “paid by the person” for functions of claiming the METC. The taxpayer maintained that it shouldn’t matter whether or not the expense was paid by him or his partner.

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The CRA disagreed, pointing to the particular phrases within the Revenue Tax Act that require the taxpayer, himself, to have paid the bills claimed for a relative. The CRA stated these bills “have been paid from a checking account over which the (taxpayer) had no authority, possession or different proper.”

The complicating issue on this case, and maybe the explanation why the CRA selected to not observe its longstanding administrative follow of permitting a partner to assert the METC for medical bills paid by the opposite partner, might should do with the particular distinctive information of this case.

By the use of background, a choice was made in 2010 to centralize all of the taxpayer’s mother-in-law’s revenue and banking operations in a single single account. Due to the mother-in-law’s well being situations, her monetary establishment prompt {that a} joint account be opened beneath the names of the taxpayer’s spouse and mother-in-law. The advantage of this was to permit deposits and withdrawals by every of the joint account holders with out requiring an influence of legal professional to take action, or requiring co-signatures.

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As soon as the joint account was opened, all of the mother-in-law’s funds have been transferred to that account and any revenue she obtained was deposited there. From that account, pre-authorized debits have been set as much as enable her long-term care facility and her pharmacy to obtain month-to-month funds instantly.

The proof confirmed the mother-in-law’s revenue in 2018 totalled $19,054 whereas her bills for the care dwelling and pharmacy totalled $19,618. Because the choose famous, “greater than 97 per cent of the medical bills paid from the joint account have been lined by (the mother-in-law’s) deposits made that 12 months to the account.”

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The choose, due to this fact, concluded that the taxpayer didn’t, both instantly and even not directly, pay for his mother-in-law’s medical bills, and thus upheld the CRA’s determination to, at the least on this case, observe the strict letter of the legislation, thereby denying the taxpayer’s declare for the METC.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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