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Medical expense claims popular question at tax time

Tax questions about medical expense claims are amongst the most frequently asked, says Evelyn Jacks, best-selling author of Essential Tax Facts and President of The Knowledge Bureau. Taxpayer and their advisors always appreciate a quick review of the rules at this time of the year to ensure receipting is complete for all family members.

MEDICAL EXPENSE CLAIM CHECKLIST 2007

What is claimable? The Income Tax Act allows a non-refundable credit against taxes payable for a portion of the medical expenses for the year.

The credit is calculated by applying the lowest federal bracket to the total of the taxpayer’s allowable medical expenses for the family for any 12-month period ending in the year in excess of 3% of the taxpayer’s net income on line 236 (up to an annually indexed maximum amount). For 2006 this amount is $1,884. In 2007 it will be $1,926. An additional credit may be claimed for the medical expenses of an adult dependant. This credit is limited by the income of the dependant.

Filing Requirements. Make the claim on Schedule 1 Federal Tax line 330 for the nuclear family (parents and minor children) and 331for medical expenses of adult dependants.

Claim Period. Receipts should be retained for audit purposes and saved over a period of at least two years, as medical expenses can be claimed for any 12-month period ending in the tax year. Medical expenses should be grouped within a twelve month period that generates the highest claim. This could be February 1 to January 31, May 1 to April 30 and so on.

Allowable Medical Expenses for the Family. Medical expenses for the nuclear family may be claimed for any of the following:

• the taxpayer,
• the taxpayer’s spouse or common-law partner,
• a child of the taxpayer who has not attained 18 by the end of the year. The credit for an adult dependant can be claimed for:
• a child or grandchild of the taxpayer or the taxpayer’s spouse who has attained 18 by the end of the year and who depended on the taxpayer for support, and
• a parent, grandparent, brother, sister, uncle, aunt, niece, or nephew of the taxpayer or the taxpayer’s spouse who lived in Canada at any time in the year and depended on the taxpayer for support.

Planning with family members. Because the claim is reduced by 3% of the taxpayer’s net income, it is often best to claim the amount on the return of the lower-income taxpayer, unless that taxpayer does not have sufficient tax payable to absorb the credit. Because the claim for the expenses of an adult dependant turns only on the net income of the dependant, it generally is irrelevant which return the credit is claimed on, so long as the person making the claim has sufficient tax payable to absorb the credit.

Year of Death. In the year of death, the normal 12-month period for making the medical expense claim is increased to a 24-month period that includes the date of death. Medical expenses paid by the executor after death may be claimed. Medical expenses may be claimed on the final return or on any of the optional returns filed in the year of death. However, the total amount claimed on all returns may not exceed the amount that would be allowed if the claim were made on one return.

Allowable medical expenditures: Discuss the checklist below with your family members, excerpted from The Knowledge Bureau’s commentary in InTRA Tax Research Library, available from Intuit Canada.

• a dentist
• a medical doctor
• a medical practitioner
• an optometrist
• a pharmacist
• a psychologist
• a speech-language pathologist
• an osteopath
• a chiropractor
• a naturopath
• a therapeutist (or therapist)
• a physiotherapist
• a chiropodist (or podiatrist)
• a Christian science practitioner
• a psychoanalyst who is a member of the Canadian Institute of Psychoanalysis or a member of the Quebec Association of Jungian Psychoanalysts
• a psychologist
• a qualified speech-language pathologist or audiologist
• an occupational therapist who is a member of the Canadian Association of Occupational Therapists
• an acupuncturist
• a dietician
• a dental hygienist
• a nurse including a practical nurse whose full-time occupation is nursing as well as a Christian science nurse
• an audiologist (after Feb 18, 1997).

This information is used with the permission of Knowledge Bureau, Inc. For more information go to www.knowledgebureau.com.