Wednesday, March 29, 2023

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

Jamie Golombek: Tax legislation quirk means a partner is not explicitly allowed to assert medical bills paid by different partner

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Tax season is upon us and whereas the submitting deadline is Might 1 (April 30, the traditional 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 have to file your 2022 return together with receipts for any medical bills you paid that weren’t lined by your group or non-public medical insurance plan.

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Medical bills are eligible for each federal and provincial/territorial non-refundable tax credit. On your 2022 return, the medical expense tax credit score (METC) is obtainable offered your loved ones’s whole medical bills exceed a minimal threshold equal to the lesser of three per cent of your web revenue or $2,479 (for 2022). It’s also possible to declare a provincial/territorial credit score, with the minimal revenue thresholds various by province/territory.

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Underneath the Earnings Tax Act, you’ll be able to declare a METC for bills you paid for your self, your partner or accomplice, and your youngsters underneath age 18. That is claimed on line 33099 of the 2022 private tax return. It’s possible you’ll, nonetheless, additionally be capable of 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 embrace grownup (grand)youngsters, (grand)dad and mom, brothers, sisters, uncles, aunts, nephews or nieces offered they have been residents of Canada at any time within the yr. Within the case of relations’ medical bills, solely bills above the three-per-cent web revenue check (or most threshold) of that relative’s 2022 web revenue qualify.

For {couples}, married or common-law, it’s usually advised that each 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 web 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 power 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 the case of 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 features, together with the usage of 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.

A sign outside the Canada Revenue Agency.
An indication exterior the Canada Income Company. Picture by Adrian Wyld/The Canadian Press

On the trial, each the taxpayer and the CRA agreed that each one the mandatory situations to permit the taxpayer’s METC have been glad save one: whether or not the taxpayer truly paid the medical bills himself. Practically 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 Earnings 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 rationale why the CRA selected to not comply with its longstanding administrative observe of permitting a partner to assert the METC for medical bills paid by the opposite partner, might should do with the particular distinctive info of this case.

By means of background, a call 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 advised {that a} joint account be opened underneath the names of the taxpayer’s spouse and mother-in-law. The good thing about this was to permit deposits and withdrawals by every of the joint account holders with out requiring an influence of lawyer 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 straight.

The proof confirmed the mother-in-law’s revenue in 2018 totalled $19,054 whereas her bills for the care residence and pharmacy totalled $19,618. Because the decide 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 yr to the account.”

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The decide, due to this fact, concluded that the taxpayer didn’t, both straight 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, comply with 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.


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