Medical Expenses – How to claim for renovating, new
construction or moving expenses on your tax return
By
Last
fall the 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.
There is a recent court case,
Lejeune,
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.
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 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 could
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 stress
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 60
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.
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
•CRA
General Tax Guide
•RC
4064 Disability Guide
•RC4135 Home Buyers
Plan (HBP)
•IT
519 R2 Consolidated
•ITA
S. 118.2 and Reg 5700
•CRA www.CRA-adrc.gc.ca
•Assistive Technology Links www.at-links.gc.ca Led
by Industry
Eileen leads workshops for accountants and taxpayers
on personal tax credits, medical expenses and hiring caregivers.
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