• CANADA

    Global Employer Services News October 2021

COVID-19 and medical expense tax credit

Summary:

Various COVID-19 related expenses may qualify for the medical expense tax credit in Canada. This would require an analysis to ensure the individual taxpayer meets the below.

Earlier this year, the Canada Revenue Agency (CRA) issued several technical interpretations providing taxpayers with guidance on whether certain COVID-related expenses could qualify for the medical expense tax credit (METC). Specifically, the CRA was asked whether face masks, COVID-19 testing and the cost of a foreign-administered vaccine would be eligible expenses.

1. Face masks

Do the costs of face masks (when used in the context of the COVID-19 pandemic) qualify for the medical expense tax credit (METC)?

The CRA has commented that the answer depends on the facts and circumstances of each case.

Under paragraph 5700(c.1) of the Income tax Regulations, “an amount paid for a device or equipment”, such as a face mask, may qualify as eligible devices if they are:

  1. prescribed by a medical practitioner;
  2. included in the list of qualifying devices or equipment; and
  3. they meet the requirements in that provision in terms of their use and reason for acquisition.

From the list of qualifying devices, a face mask may fall under “air or water filter or purifier for use by an individual who is suffering from a severe chronic respiratory ailment or a severe chronic immune system dysregulation to cope with or overcome that ailment or dysregulation.”

However, for non-medical masks, the CRA has commented that it would seem generally unlikely that a medical practitioner would prescribe these for use by a patient with a severe chronic respiratory or immune condition, or that the patient would use these “to cope with or overcome” their condition. To this effect, it seems generally unlikely that non-medical masks would meet the requirements in both paragraph 118.2(2)(m) of the Act and paragraph 5700(c.1) of the Regulations to be eligible for the purpose of the METC.

On the other hand, the CRA recognizes that medical masks and respirators are likely to qualify as eligible devices for the purpose for the METC if they are prescribed by a medical practitioner. It is therefore incumbent on the individual to demonstrate that the requirements in paragraph 5700(c.1) of the Regulations are met by reference to a prescription from the medical practitioner that states the purpose of the particular face masks or respirator.

Nonetheless, according to the CRA’s interpretation, it would seem that the majority of non-medical face masks purchased for everyday use as a result of the COVID-19 pandemic would not qualify for the METC.

2. COVID-19 test

Is the cost of a COVID-19 test an eligible expense for the purpose of the medical expense tax credit (METC) when the test is required as part of the travel restrictions to enter Canada?

The CRA has commented that the answer is “likely yes”, if the test is prescribed by a medical practitioner, and all the other requirements in paragraphs 118.2(2)(o) are met.

Pursuant to paragraph 118.2(2)(o) of the Act, eligible medical expenses include amounts paid for laboratory, radiological or other diagnostic procedures or services:

  1. for maintaining health, preventing disease or assisting in the diagnosis or treatment of any injury, illness or disability;
  2. for the patient; and
  3. as prescribed by a medical practitioner.

The term “prescribe” is not defined in the Act for the purposes of paragraph 118.2(2)(o); therefore, the CRA would generally rely on case law and the ordinary meaning (such as dictionary definitions). Namely, the verb “prescribe” means “[to] direct in writing,” or “recommend as something beneficial.” It is therefore generally the CRA’s view that the provisions in paragraph 118.2(2)(o) contemplate diagnostic procedures or services that are medically indicated or medically advisable.

As such, it is the CRA’s view that amounts paid for a COVID-19 test would qualify for the METC under paragraph 118.2(2)(o) of the Act if all the requirements in that paragraph are met, including the condition that the test be prescribed by a medical practitioner.

3. COVID-19 vaccine (out of country)

Is the cost of a COVID-19 vaccine that is received outside Canada eligible for the METC in a particular situation?

The CRA has commented that the answer is “likely yes”, if the vaccine is prescribed by a medical practitioner, and all the other requirements in paragraph 118.2(2)(n) of the Act or section 5701 of the Regulations, as applicable, are met. Note that as a general rule, eligible medical expenses are not restricted to those paid in Canada or for medical services provided in Canada.

Paragraph 118.2(2)(n) of the Act allows the costs paid for drugs, medicaments or other preparations or substances:

  1. that are manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;
  2. that can lawfully be acquired for use by the patient only if prescribed by a medical practitioner or dentist; and
  3. the purchase of which is recorded by a pharmacist.

The costs of drugs that can be lawfully acquired without a prescription may qualify as medical expenses, provided that the drug meets all the following conditions in section 5701 of the Income Tax Regulations:

  1. is manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;
  2. is prescribed for a patient by a medical practitioner; and
  3. may, in the jurisdiction in which it is acquired, be lawfully acquired for use by the patient only with the intervention of a medical practitioner.

Therefore, although drugs that are described in section 5701 of the Regulations are available without a prescription, these drugs must still be prescribed for the patient by a medical practitioner in order for their costs to qualify for the METC.

In this case, amounts paid for a COVID-19 vaccine may qualify for the METC provided that all the requirements in aforementioned provisions are met. Most notably, among other conditions, the vaccine must be prescribed for the patient by a medical practitioner. The CRA has stated that they have no authority to waive this prescription requirement.

BDO comment

When the annual personal tax filing season inevitably arrives, it will become incumbent on the individual taxpayer not only to substantiate the amount of any medical expenses claimed, but also their position on the eligibility of the claim. In cases where significant expenses (such as those outlined above) were incurred, we would recommend a consultation with a qualified tax professional.

Christopher Ng
[email protected]

Debra Moses
[email protected]