It was the call every parent dreads most: “Your son’s been in an accident.” Fortunately, in my case, the next words I heard were, “But he’s all right.”
After I caught my breath, I learned that my 19-year old son who was away at university had been in an accident. While he wasn’t badly hurt, his front teeth were. His formerly perfect, orthodontically aligned two front teeth were no more.
This was bad news. But I felt a sense of relief. It was something we could fix. But, as I soon discovered, major dental reconstruction is a costly affair.
In our case, we were lucky in that because it was an accident. That meant my health insurance at work could cover a portion of the expense.
What I didn’t know, however, until I went to file my tax return, was that I could also claim the portion of the bill that I covered myself as a tax credit, along with a portion of our health insurance premiums.
Stuart Dollar is the Director of Tax and Insurance Planning for Sun Life. “The Medical Expense Tax Credit may be one of the most underused tax breaks available to Canadians,” he says. Why? “Because getting the most from it requires some careful planning – including keeping all of your medical receipts.”
Here’s how it works:
You may get a credit for unreimbursed medical expenses.
In order to get a credit, these unreimbursed medical expenses must exceed a set threshold. The threshold for the 2019 tax year is 3% of net income* or $2,352, whichever is less. And, the threshold for the 2020 tax year is $2,397.
(*Net income refers to the income you’re left with after deductions such as RRSP deductions.)
The government gives this credit at the lowest marginal tax rate.
The lowest federal tax rate is 15%.
Provincially, tax rates vary. For example, in Ontario, the lowest rate is 5.05%. Added together with the federal rate, this makes the lowest marginal tax rate in Ontario 20.05%.
Either spouse can claim the credit.
And, they can use the entire family’s medical expenses. So, in most cases, the lower-earning spouse can claim the credit because their threshold will be lower.
You can use the credit to reduce your taxes for the year.
But remember your expenses don’t all have to come from the same tax year. They just have to come from any 12-month period that ends in the tax year.
For example, for your 2019 tax return, you could use expenses you had from January 1, 2019 to December 31, 2019. Or, you could use expenses you had from January 2, 2018 to January 1, 2019 whichever works better for you.
You can claim out-of-pocket medical expenses.
You may be able to claim all eligible medical expenses not covered by a health insurance plan.
For example, let’s say you went to the dentist and the charges were $750. Your health insurance plan reimbursed you for $450. In this case, you can claim $300 toward your medical expense tax credit.
You can claim out-of-pocket health insurance premiums.
You can do this so long as the plan is a private health services plan designed to pay for medical expenses not covered by your provincial medical insurance plan. (You can only claim the portion of the premiums* you pay yourself. But not any amount covered by your employer. *Premiums refer to the monthly or annual fees you pay for insurance.)
Dollar provides the following example:
Let’s say a family’s combined medical expenses, including health insurance premiums were $10,200. If they were reimbursed through a health insurance plan for $6,000, their out-of-pocket medical expenses would be $4,200.
Say, after doing the math, the lower-income spouse had $3,000 in expenses over the minimum threshold. The lowest federal tax rate is 15%. And, if they lived in Ontario where the lowest rate is 5.05%. So, their total credit would be $601.50 (20.05% of $3,000).
“Getting $600 back after out-of-pocket expenses of $4,200 may not seem like much,” says Dollar. “But the credit is designed to help those who have substantial medical claims.”
- Are your insurance premiums tax-deductible? Here’s what you need to know.
In our case, I’m very grateful that my son’s accident only injured his two front teeth. We won’t be getting a large tax break this year by claiming the Medical Expense Tax Credit. But I’m also very grateful that his accident wasn’t more serious. For those having to cover far more costly medical expenses, claiming the tax credit may provide some much-needed financial assistance.
- To learn more about the Medical Expense Tax Credit, visit the Government of Canada’s Medical Expenses page.
- Health insurance is an important way to guard your income against unexpected medical expenses. You can also protect your income if you’re unable to work with disability insurance, and get financial help coping with and recovering from a serious illness, with critical illness insurance.
- Do you qualify for the disability tax credit?
- Are you paying more tax than you need to?
- 4 important tax credits that help caregivers
*This article is intended to provide general information only. Sun Life Assurance Company of Canada (Sun Life) does not provide legal, accounting or taxation advice to advisors or clients. Before acting on any of the information contained in this article, make sure you seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation. Any examples, illustrations and information based on Sun Life’s understanding and interpretation of the Income Tax Act (Canada) and regulations have been included only to help clarify the information presented in this article, and should not be relied on by you in any transaction. Any tax information provided in this document is based on the provisions of the Income Tax Act (Canada) and the regulations as of April 2020. In addition, these are subject to Sun Life’s current understanding and interpretation of the rules and the administrative practices of the Canada Revenue Agency (CRA) in effect.