Article Revised December 2006
Famiy Support Institute published original article in their Newsletter Possibilities - Winter 2004/2005
Medical Expenses – How to claim for renovating, new construction or moving expenses on your tax return
By Eileen Reppenhagen, Tsawwassen, British Columbia
In Fall 2003, my local paper reported a story about a young family thanks to the community for assistance with their elevator project.
That article prompted me to get out my Income Tax Act to learn what this family could write off for renovation, new construction and moving for those with a disability or impairment and for those who support them. I thought I would share what I discovered with you.
There are various medical expense tax credits available to taxpayers with disabilities or other impairments or infirmities and the families who support them. You can claim a medical expense for renovations or alterations to the dwelling of a patient who lacks normal physical development or has a severe and prolonged mobility impairment to enable the person to gain access to, or to be mobile or functional within the dwelling. If you build a new home you can expense the incremental costs of new construction and there is a provision for $2,000 of moving costs. Driveway alterations to facilitate access to a bus or purchase (or to alter within 6 months of purchase) a vehicle for a wheelchair ($5,000 or 20% of cost) could also qualify as a medical expense.
NOTE NEW LIMITATION FOR BOTH ALTERATIONS AND HOME CONSTRUCTION COSTS
i) are not of a type that would typically be expected to increase the value of the dwelling, and
ii) are of a type that would not normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment
There is a court case, Lejeune, H. V. The Queen (TCC) September 1, 2004 where the appeal was allowed to include the full cost for renovations ($10,531.62) to accommodate a spouse and mother-in-law who moved in to care for the spouse in order for the taxpayer to be functional in her own home.
Various medical devices and equipment qualify as medical expenses under Regulation 5700 of the Income Tax Act. These include air or water filters or purifiers, electric or sealed combustion furnaces and air conditioners for severe chronic respiratory ailments or immune system disregulation. Power operated guided chairs, mechanical devices to assist with in/out of tubs or on/off toilets, power operated lifts and computerized electronic environmental control systems for severe and prolonged mobility restrictions also may qualify.
I must stress immediately that to qualify to claim these items as medical expenses you must have adequate documentation and certification of a particular type of disability or impairment from an appropriate medical professional. All devices and equipment prescribed in Regulation 5700 for use by the patient must be
i) of a prescribed kind
ii) precribed by a medical practitioner
iii) not described in S. 118
iv) meet such conditions as may be prescribed as to its use or the reason for its acquisition
to the extent that the amount so paid does not exceed the amount, if any, prescribed in respect of the device or equipment
How will you afford to pay to build or move? The Home Buyers' Plan (HBP) allows you to withdraw up to $20,000 from RRSP to buy or build a qualifying home for yourself (as a first-time home buyer or as a person with a disability) or for someone who is related to you and is a person with a disability. Home Buyer’s Plan loans from your RRSP are either repaid or included in your income over the next 15 years. It won’t help you renovate, but if you are considering a move, it’s worth considering whether or not a different home or even a new home is appropriate.
Will you qualify? In 2001, according to Statistics Canada, 3.6 million Canadians were considered infirm or disabled. The Minister of Finance tells us that only 550,000 taxpayers qualify as disabled in 2002. Even fewer taxpayers qualify after an audit of 106,000 taxpayers who had claimed the disability tax credit in past year, initiated in late 2001, disqualified a significant number of claimants. Not all medical expenses require Form 2201 disability certification. Some require certification in writing in the form of a letter. Don’t lose heart. With appropriate documentation, you might have a claim.
What should you consider before making a decision to move or renovate for reasons that qualify? You might want to do a list of pro’s and con’s. I am sure that there will be many factors to consider including:
o fair market value of your old home, a renovated home and a new home
o the cost of the renovation compared to the incremental cost of new construction
o devices and equipment required, new, used or rental
o ties to the community
o support systems
o the cost and availability of capital
o whether or not you will repay the loan or pay the tax on the income spread over 15 years-if taxable income will be very low over the next fifteen years and there are significant tax credits available for transfer from the person with a disability, you might not have to pay your tax or repay your RRSP
Who will qualify to claim these expenses? If you support the person who qualifies and qualification must be certified by medical doctor or other qualified professional, you can transfer the medical expense to a supporting person. Ask your accountant about the medical notch provision, which limits this transfer of expense. There are changes in the Budget for 2004 affecting the notch provision. For persons under 18 the notch has been eliminated, for over 18, your claim has been capped at $5,000.
Depending on which medical expense you are planning to claim, the criteria for who will qualify will differ significantly. In some cases, the patient must lack normal physical development or have severe and prolonged mobility impairment. For Home Buyer’s Plan qualification the patient must be certified as disabled. See the CRA Information Concerning People with Disabilities Guide RC 4064 which includes Form 2201.
What if I already moved or renovated and didn’t know I could claim? According to CRA’s Fairness Policy IC92-3, CRA can issue income tax refunds or apply them against a balance owing beyond the normal three-year period when the refund or reduction would have been made if the return had been filed on time or the request had been made on time; and the necessary adjustment is correct in law and was not previously allowed. This was amended by the Budget in 2004 which limited retroactive claims to 10 years.
What would I recommend if you were going to consider moving or renovating for a personal that has mobility impairment or other wise qualifies? Consult with a professional accountant before proceeding. There are limits on some types of claims and not on others. Tax and financial planning can ensure that you maximize your claim. Ask about documentation required to make a claim.
Meet with the doctor to discuss what certification they would be willing to provide. Does the person lack normal physical development, do they have severe and prolonged mobility impairment, do they have a severe chronic respiratory ailment or immune system disregulation or are they disabled in some other way that will qualify?
Obtain receipts from and hire a legitimate contractor. Ask about GST on new construction. You will require receipts to make a tax credit claim!!
Appropriate documentation might include a certification of disability on Form 2201 or a letter certifying lack of normal physical development, severe and prolonged mobility impairment or severe chronic respiratory ailment or immune system disregulation. It will depend on which expenses you plan to claim what certification is required. It might be a good idea to write to CRA and ask them to pre-authorize their approval prior to commencement of purchases.
There are more than 70 medical expenses listed in Section 118.2 and Regulation 5700 of the Income Tax Act. The General Tax Guide prepared by CRA only lists some common expenses. If you have purchased something for medical reasons, make sure you keep the receipts and ask CRA or your accountant if the purchases qualify as a medical expense. Nothing ventured, nothing gained.
If you meet the criteria for a disability tax credit claim, consider whether any of these medical expenses might qualify as disability supports because you work or attend school. If you have taxable income, this will reduce your taxable income directly, rather than reducing your tax payable by tax credit at the lowest tax rate.
This area of taxation is incredibly complex. Each claim is judged on its own merits and the relevant conditions imposed by CRA. In each case the facts relating to the particular person, their situation and their purchases will be different. Adequate, appropriate documentation, along with certification by appropriate professionals is absolutely necessary to file a successful medical expense claim.
List of reference materials
Canada Revenue Agency www.cra-arc.gc.ca
•CRA General Tax Guide
•RC4064 Medical and Disability - Related Information
•RC4135 Home Buyers Plan (HBP)
•ITA S. 118.2 and Reg 5700
Income Tax Act S. 118.2 Medical expenses only
Regulation 5700 Medical devices and equipment referred to in S. 118.2(2)(m) above
Assistive Technology www.at-links.gc.ca
Led by Industry Canada, this site will assist persons with disabilities and employers to find information on assistive technologies, accommodation issues and accessible information. It does not provide information on purchasing, evaluation or rating of technologies
BC Home Owner Grant - reduction for persons with disabilities http://www.rev.gov.bc.ca/hog - if renovations completed
Deferral of Property Tax NEW!!! http://www.rev.gov.bc.ca/rpt/
New in 2003 - one spouse over 60, widowed or disabled
CMHC funding http://www.cmhc-schl.gc.ca/en/co/prfinas/
CMHC has up to $24,000 in funding to assist in creation of affordable housing for low income seniors and adults with disabilities. Homeowners, private entrepreneurs and First Nations persons who own residential properties that could create a bona fide affordable self-contained rental accommodation are eligible for the program called "Residential Rehabilitation Assistance Program's Secondary/Garden Suite.
Check out their other forms of assistance at the same page on their website above...
Eileen Reppenhagen, Certified QuickBooks ProAdvisor speaks and writes about accounting and tax. Her website is www.taxdetective.ca
Employer assistance - Cost of compliance is minimal to accommodate versus cost of employee turnover and has been recognized in the following ways:
Renovations to Income Producing Buildings to allow access by landlords or employers are a current expense, not capitalized and include ramps, door openers, widening doorways, bathrooms, elevators, new doorways
Prescribed devices including elevator car position indicators, visual fire alarms, listening devices for group meetings or telephone devices for hearing impairment
See Software and Hardware attachments ITA 20(1)(qq).(rr) 1995 regulations ITR 1102(1)(a), 8800, 8801
nBenefits paid to or for persons with disabilities will not create a taxable fringe benefit under ITA S. 6(16) if employee is certified by T2201 to be a person with a disability. This includes actual cost or reasonable allowance for transportation to/from work and cost of attendant to assist person with disability in performance of duties.
q(Joyce Gravelle) 1-250-954-0701
qCompetency framework /audit program/curriculum
qIssues include accommodation, accessibility, rehabilitation, retention of employees who are injured or disabled
qHuman Resources Mgmt (HRSDC) and EI
qDisability Management Programs – policies and procedures, framework for compliance, audit DMP
qFuture could include incentives – rebates on WCB premiums or premium increases for non-compliance
Canadian Human Rights Commission
qObligation to accommodate under Employment Equity Act (federal employers)
Cost of compliance is minimal to accommodate versus cost of employee turnover
nRehadat Canada / Nat’l Institute of Disability Management and Research