CLAIMING THE MEDICAL EXPENSES tax credit is a key element of tax planning that often is overlooked.
Some medical expenses, such as home renovations for disabled taxpayers, are relatively widely known, but such claims often face challenges by Canada Revenue Agency (CRA) auditors. You can help your clients reduce their tax bills by ensuring that the proper documentation is provided when making claims related to medical conditions.
Among claims often missed are special expenses for children who require assistance with a mental disability. This can include tutoring and private schools that specialize in helping struggling students. Your client's child must require the tutoring because of a mental or physical impairment, says Norma Sierra, tax manager, private clients, with Deloitte Touche Tohmatsu Ltd. in Toronto. A doctor must certify the tutoring is necessary to improve the child's condition.
One of Sierra's most interesting cases involved a client who sent his child to an institution to treat "Internet addiction." Although expenses involving substance abuse additions are commonly accepted, she says, this was a unique scenario. "No one in my firm had dealt with this," she says. The CRA did not challenge the claim.
Vision-care expenses not covered by your client's employee medical plan are claimable. This will be of special interest to clients considering laser eye surgery, which often is not covered by employer medical plans, but increasingly is a treatment of choice.
Other lesser known claimable medical expenses include baby monitors for a child at risk of sudden infant death syndrome (SIDS) - but only if there is a bona fide, medically documented risk of SIDS.
With the increasing recognition of gluten intolerance, it is now possible to claim costs involved in purchasing gluten-free food. But there are strict conditions, says Jamie Golombek, managing director of tax and estate planning with Canadian Imperial Bank of Commerce's wealth advisory services division in Toronto.
Your client must show medical proof of a celiac disease diagnosis, he says. Moreover, only the value of the difference in price of ordinary food and gluten-free food can be claimed. The food must also be specifically designated for celiac disorder. It cannot simply be labelled "gluten-free."
Does your client need to wear a wig due to a disease such as cancer or a disfigurement caused by an accident? The wig can be claimed as a medical expense if accompanied by a doctor's prescription.
Cosmetic surgery was once widely claimed, says Golombek, but the CRA now limits such claims to necessary procedures only. For example, he says, a claim could involve cosmetic surgery after your client has been in an accident or if the surgery is necessary to correct a deformity.
Orthodontic treatments should be claimed, says Golombek, as they are generally accepted by the CRA as long as a medical professional prescribes them.
Orthotics also can be claimed. This is good news for runners and people who have developed foot arch problems as they age.
Clients who need guide dogs because of vision or hearing impairments can claim expenses associated with purchasing and maintaining the animal, says Sierra.
It's hard to overstate the importance of proper records and documentation when claiming medical expenses. One of the most common examples is travel expenses associated with medical care.
Does your client live outside an urban centre in which a medical facility provides specialized care? If so, he or she should claim travel expenses incurred to obtain the care, such as mileage, meals and overnight stays, says Robin MacKnight, senior tax partner with Wilson Vukelich LLP in Markham, Ont.
However, CRA auditors will comb through travel claims closely. Thus, it helps to keep a journal of the trips with all the original receipts, he says.
Your client needs to get proper detailed support for the expenses from a qualified medical practitioner. You may have to help your client educate his or her medical practitioner about the type of documentation required to prevent CRA challenges or delays.
One type of expense that is often challenged by the CRA involves home renovations. Renovations made for elderly or disabled clients should be claimed, says Sierra. But the CRA has strict guidelines for such claims, she cautions.
For example, renovations should be medically prescribed as necessary to improve accessibility or improve mobility, if that is the issue. The modifications absolutely cannot be expected to increase the value of your client's dwelling.
Note that the medical tax credit is non-refundable. However, if your client's qualifying medical expenses are more than 3% of his or her annual net income, the amount of taxes payable can be reduced significantly.
© 2015 Investment Executive. All rights reserved.