Claiming COVID-19 costs and the medical expense tax credit

THE FEDERAL MEDICAL EXPENSE TAX CREDIT 15%

The Canada Revenue Agency this week issued two technical interpretations providing taxpayers with some guidance on whether various Covid-19-related expenses could qualify for the medical expense tax credit (METC).

Specifically, the CRA was asked whether masks, COVID-19 testing and the cost of a foreign-administered vaccine would be eligible expenses. Before reviewing the CRA’S comments, let’s go over the general rule for claiming medical expenses on your tax return.

For the 2021 tax year, valid medical expenses qualify for a 15-per-cent federal METC and a provincial credit, provided they exceed a minimum threshold equal to the lesser of three per cent of your net income or $2,421.

The tax rules allow you to claim the METC for expenses you incurred for yourself, your spouse (or partner) and your kids under the age of 18. To qualify, the medical service or item must be specifically listed as an “eligible” medical expense under the Income Tax Act. Medical devices must be prescribed by a medical practitioner.

COVID-19 costs

In the first technical interpretation, the CRA was asked whether the cost of face masks may qualify for the METC. The questioner felt that the CRA’S view on this matter would be “particularly useful in light of the current COVID-19 pandemic and the generally widespread requirement by health authorities to use face masks indoors in public settings.”

The CRA explained that if a particular medical expense is not described in the act (or its regulations), the expense is not eligible for claiming the METC, even if the expense has been incurred for medical purposes.

Under the act, “an amount paid for a device or equipment” may qualify as a medical expense if certain conditions are met. Generally, to qualify, the device or equipment must be prescribed by a medical practitioner, be included in the list of qualifying devices or equipment described in the regulations, and meet the prescribed conditions.

Under the list of prescribed devices or equipment, the closest thing to a face mask is an “air or water filter or purifier for use by an individual who is suffering from a severe chronic respiratory ailment or a severe chronic immune system dysregulation to cope with or overcome that ailment or dysregulation.”

The CRA was prepared to acknowledge that a face mask could be considered an air filter, but in order for the filter to qualify, it must be used by an individual suffering from a particular ailment.

After reviewing the different types of face masks (non-medical, medical, N95), the CRA stated that “it is a question of fact whether a particular face mask would be considered an eligible device that would qualify for the … METC. However, based on our understanding of current information about non-medical masks and their recommended use, which is mostly to protect others from the wearer, it would seem unlikely that a medical practitioner would prescribe such masks for a patient with a severe chronic respiratory or immune condition, or that the patient would use such masks, ‘to cope with or overcome’ that condition.”

In short, the CRA concluded that non-medical masks would likely not qualify for the METC.

That said, the CRA acknowledged that medical masks and respirators likely qualify as eligible devices for the purpose of the METC if they are prescribed by a medical practitioner to a patient to cope with or overcome a severe chronic respiratory or immune condition.

In the second technical interpretation, the CRA was asked whether the cost of COVID-19 tests, specifically those required for travel and to enter Canada, would qualify for the METC.

Under the tax act, eligible medical expenses include “amounts paid for laboratory, radiological or other diagnostic procedures or services together with necessary interpretations for maintaining health, preventing disease or assisting in the diagnosis or treatment of any injury, illness or disability” as “prescribed by a medical practitioner.”

The term “prescribed” isn’t defined in the act, based on ordinary meaning and prior jurisprudence, but the CRA interprets it as “to direct in writing” or “recommend as something beneficial.” The CRA, therefore, concluded that amounts paid for a COVID-19 test would qualify for the METC if the test was prescribed by a medical practitioner.

The CRA was also asked whether the cost of a COVID-19 vaccine received outside Canada would be eligible for the METC. Under the tax act, the costs paid for “drugs, medicaments or other preparations or substances” are valid medical expenses provided they are prescribed for a patient by a medical practitioner.

The CRA, therefore, concluded that amounts paid for a COVID-19 vaccine may qualify for the METC provided it was prescribed for the patient by a medical practitioner.

What about travel costs?

What the CRA did not discuss was whether the travel costs incurred by a Canadian taxpayer to get vaccinated outside Canada could also qualify for the METC. A shortage of local vaccinations led some Canadians to seek them abroad, perhaps while they were on a vacation. This practice, dubbed “vaccine tourism,” has even been encouraged by some cities and states in the United States.

Under the tax act, you can deduct the cost of transportation, meals and accommodation if you have to travel abroad to obtain various medical services. Essentially, in order to deduct transportation as a medical expense, the medical services must not be available in the local community, the place of travel must be located more than 40 kilometres from the patient’s home (80 kilometres if you want to deduct travel expenses other than transportation), the route taken must be a direct one, and “it must be reasonable for the taxpayer to travel to that place to obtain the services.”

In certain cases, a companion’s travel expenses may also qualify for the METC if a medical practitioner has certified that the taxpayer can’t travel without assistance.

In the past, the CRA has stated that the need to travel abroad can be met “even if medical services are available nearer to the individual’s locality if, in the circumstances, it is reasonable for the individual to have travelled to the place where the medical services were obtained.”

If you plan to write off the cost of your vaccine trip abroad as a medical expense, absent some further guidance from the CRA, be prepared to explain why you felt it was “reasonable” to travel abroad to get vaccinated, especially since the Canadian government has discouraged non-essential foreign travel since March 2020.