As the name implies, the medical expense credit can provide a tax break for medical expenses that you and your family incur.
The mechanics of the credit are explained below. But first, a couple of things to note.
First, and not surprisingly, the credit is allowed only for medical expenses that you pay out of your own pocket. If they are reimbursed by your employer, or are paid or reimbursed to you under a health insurance plan, you cannot claim the credit.
Second, although many medical expenses qualify, any given expense must be specified under the Act to be eligible for credit. If they are not, they do not qualify. The list of qualifying medical expenses is long and not all are listed here. See CRA Income Tax Folio S1-F1-C1 for a complete list.
The following describes some of the more common qualifying expenses, summarized in general terms (there are often more specific conditions that need to be fulfilled):
- Fees paid to a medical practitioner, nurse, or dentist, but again only to the extent you paid for them. For services provided by medical practitioners and nurses, the fees are typically paid by the provincial government. Any fees that are not covered, such as extra fees for a private hospital room, can qualify for the credit. Most dental fees are not paid by the provincial government and therefore qualify (except to the extent they are paid by, or reimbursed to you, under a health insurance plan).
- Fees paid to an attendant to care for a disabled person.
- Fees paid to a group home for the care of a disabled person.
- Fees paid for an ambulance to or from a hospital.
- The cost of certain tangible items such as an artificial limb, iron lung, wheelchair, crutches, spinal brace, a brace for a limb, an ileostomy or colostomy pad, truss for hernia, artificial eye and laryngeal speaking aid.
- The cost of prescription eyeglasses and contact lenses.
- For an individual who is blind, deaf, or has other specified medical conditions, fees paid for a service animal.
- For an individual who has a speech or hearing impairment, fees paid for sign language interpretation services.
- Amounts paid for most prescription drugs. (Over-the-counter drugs do not qualify.)
- Premiums paid for a private medical health plan.
- If you have celiac disease, the additional cost of buying gluten-free food (compared to food with gluten).
There are two components to the medical expense credit.
The first one covers qualifying medical expenses paid for you, your spouse or common-law partner, and your children who are under 18 in the year. For 2021, the federal credit equals:
15% x the qualifying medical expenses in excess of the lesser of:
- 3% of your income for the year (income means “net income” as shown on your tax return, which is after most deductions are claimed), and
- $2,421 (this amount is indexed each year for inflation)
(There is a parallel provincial credit against provincial tax as well; the value and dollar thresholds depend on the province.)
Although the rule technically applies to the individual who pays the expenses, in the case of couples, the Canada Revenue Agency allows either spouse or partner to claim the credit. It normally makes sense for the lower income spouse or partner to claim the credit because of the 3% income limitation (unless the lower income person has little or no tax and therefore cannot benefit from the credit).
The second component covers the qualifying medical expenses that you pay for adult dependants, such as your children aged 18 or over who are dependent upon you for support (in certain cases, it can cover medical expenses for other relatives dependent upon you for support − for example if your 18-year sibling is living with you and is dependent upon you for support). The federal credit here is similar to the first one above but with one major difference. The federal credit for 2021 is:
15% x the qualifying medical expenses in excess of the lesser of:
- 3% of the dependant’s income for the year, and
- $2,421
Since your dependant’s income will be typically less than your income (since they are dependent upon you for support), the second component can potentially lead to a larger credit than the first component.
On a final note, the credit can be claimed for qualifying medical expenses paid in any 12-month period ending in the year. Normally, most people just claim the credit for expenses paid in the calendar year. But in some cases it makes sense to use the 12-month rule to claim the credit in one year for expenses paid in two different calendar years. The following example illustrates why this might be the case.
Example
Bill is single. In the last six months of 2020, Bill paid $2,500 of medical expenses. In the first six months of 2021, he also paid $2,500 of medical expenses. He had no other medical expenses in those years. His net income for each year was $50,000.
Because of the 3% limitation described above, he can only claim the credit with respect to the medical expenses in excess of $1,500 in either year (that is, 3% of his income of $50,000).
If he claims the credit in both 2020 and 2021, he can claim the credit for only $1,000 of expenses each year (since he paid $2,500 in each year).
However, if he uses the 12-month rule, he can claim the credit for $3,500 of expenses in his 2021 tax return – the $5,000 he paid during the last six months of 2020 and first six months of 2021, minus the $1,500 limitation. So he will be much better off pooling his medical expenses under the 12-month rule and claiming the larger credit in 2021.
