Claiming Medical Expenses on Your Tax Return

I talked to someone the other day who told me a story about some very bad advice they had received from their “advisor”. This person had to get some dental work performed to the tune of $15,000 but they told me that it was no big deal since they owned a company and could “write the whole thing off”. Gross misconceptions like these can be dangerous so I thought I’d set the record straight when it comes to tax deductions for medical expenses.

This particular individual owned a sole-proprietorship (and not a corporation) so much of the tax strategies they had considered didn’t apply to them at all. The tax strategies that are available inside a corporation are a bit more complex so we’ll leave that discussion for another day.

For individuals in Canada, it is possible to claim medical expenses when you prepare your taxes and receive a partial reimbursement for your costs. The reimbursement your receive will not however be 100% of these costs. By understanding the rules associated with claiming these medical expenses, you can help maximize the amount you can deduct.

First of all, you need to determine what expenses you can actually claim. The can range from dental work to medications and even services provided to disabled dependents. Take a look at the CRA website to ensure the expenses you plan to deduct are actually eligible first: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/llwbl-eng.html

These eligible expenses can be claimed for yourself, your spouse or common-law partner and/or a dependent child or children. If both spouses earn less than $65,400 net income, it is best to lump all of these expenses together and have the spouse that earns less claim the full amount. The reason for this is that there is a base amount that is exempt from claims. This amount is calculated by subtracting 3% of your net income (line 236 of your tax return) up to a maximum of $1,962, whichever is less. A $65,401 net income would push you over the $1,962 amount.

The amount that you claim above this base exempt amount will then be deducted from your income. So if your total expenses are $5,000 in a year and your net income puts you on the $1,962 maximum, you would be able to deduct $3,038 from your tax return. If you are in a 40% tax bracket, you would receive a refund of $1,215.20 (40% of the $3,038). With this example, you would receive 24.3% of your out of pocket expenses returned to you.

Additional planning comes in to deciding what 12 month period to use. You can lump together larger expenses in any 12 month period ending in the tax year of your return, so long as you didn’t claim the same expenses in the previous year. This type of strategizing may not make much of a difference to someone with regular expenses but it could be very useful if your previous year’s expense were too low to claim but you had a large amount of them towards the end of that year.

Many people decide to do their own tax returns and understanding how these medical expense claims works can go a long way to maximizing your returns. When in doubt though or if you’re not completely sure, make sure to consult with a tax professional so you don’t make any mistakes or miss out on what’s due back to you.