The Secret Truth about Canada's Medical Expense Tax Credit

January 10, 2024

Did you know that you have to pay for a minimum amount of medical expenses before you can claim a credit on your taxes? This article will reveal the intricate details of the ever-so-confusing Medical Expense Tax Credit for Canadians.

The Surprising Truth About "Claiming" Your Medical Expenses

If you don't have enough eligible medical expenses, claiming them on your taxes won't make a difference. To be eligible, your medical expenses must be at least $2,635 or 3% of your net income, whichever is lower. And even after that, the credit is only 15% of the eligible expenses on top of that minimum amount. So, for every $100 of eligible medical expenses over the minimum amount, you only get back $15.

A visual example:

Example (Making $80,000 in Net Income)
Medical Expenses: $5,000
Minus Minimum Amount : 3% of Net Income (Max $2,635): $2,400
Allowable Amount of Medical Expenses: $2,600
15% Tax Credit on Allowable Amount: $390

Why the Minimum Amount?

The intent behind the law (Income Tax Act, subsection 118.2(1)) is to provide relief to taxpayers burdened by significant medical expenses throughout the year. The government considers minor amounts as part of everyday life and believes you don't need the tax break. However, if you've paid for major surgeries or procedures, the METC can help reduce your tax liability.

Eligible Medical Expenses

Some examples of eligible medical expenses include:

  • Prescription drugs
  • Dental care
  • Eyeglasses and laser eye surgery
  • Medical professionals (e.g., fees for medical practitioners, nurses, and therapists)
  • Medical services (e.g., private MRIs, X-rays, ultrasounds)
  • Certain assistive devices (e.g., hearing aids, crutches, braces, wheelchairs, and prosthetic limbs)
  • Medically necessary cosmetic surgeries (e.g., personal injuries, addressing deformities)
  • Home renovations for medical reasons (e.g., walk-in bathtubs, grab bars)

Note: If you have health insurance coverage, you can only claim the out-of-pocket portion. Not all medical expenses are eligible. Over-the-counter medications and unnecessary cosmetic procedures do not qualify.

Calculating the Tax Credit

Remember that even if you have enough eligible medical expenses to claim the credit, you can only claim the amount exceeding $2,635 or 3% of your net income, whichever is lower.

Examples of How the METC Works

  1. Lucie paid $5,000 for laser eye surgery, but $1,000 was covered by her work insurance. She can claim a METC of $1,365 ($4,000 - $2,635).
  2. Logan paid $1,500 in out-of-pocket massage therapy expenses, and his net income was $85,000. However, he is not eligible for a medical expense tax credit, because his eligible medical expenses are lower than the required threshold.

See below:

Scenario Name Net Income Expense Insurance Coverage Eligible Expenses Minimum Threshold Tax Credit
1 Lucie $60,000 $5,000 (Laser Eye Surgery) $1,000 $4,000 $2,635 15% of $1,365 = $204.75
2 Logan $80,000 $850 (Massage Therapy) $0 $850 $2,635 Not eligible

If Logan's annual net income was $40,000, and he paid $1,500 in out-of-pocket massage therapy expenses. The amount to subtract is $1,200 (3% of his net income), which is lower than the total eligible medical expenses of $1,500. Therefore, Logan could claim a medical expense tax credit of $300 ($1,500 - $1,200).

Long Story Short

Your medical expenses have to be more than $2,635 or 3% of your net income for you to even potentially qualify for a tax credit. And the credit is 15% of every dollar you spend after subtracting $2,635, or 3% of your net income, whichever is lower. Understanding the intricacies of the Medical Expense Tax Credit is crucial for Canadian taxpayers looking to maximize their tax savings. Remember that the credit's amount depends on your eligible medical expenses, net income, and the minimum threshold. By familiarizing yourself with the eligibility requirements and calculating your potential tax credit accurately, you can make the most of this valuable tax-saving opportunity.

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without a specific consultation. Lucas CPA Professional Corporation will not be held liable for any problems that arise from the usage of the information provided on this page.

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