CRA denies medical expense credit claim because of father’s residency

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One of many extra in style tax credits, claimed by greater than 5 million Canadians yearly, is the medical expense tax credit (METC), which offers tax reduction for qualifying above-average medical or disability-related bills incurred by people on behalf of themselves, a partner or common-law accomplice, or a dependent relative.

Below the Income Tax Act, you’ll be able to declare a METC for bills you paid for your self, your partner or accomplice, and your children below age 18. The worth of this federal credit score is calculated by making use of the bottom personal income tax rate (15 per cent) to the quantity of qualifying medical bills in extra of the lesser of three per cent of your web revenue or $2,759 (in 2024). The credit score may be claimed for bills paid in any interval of 12 consecutive months that ends within the taxation yr through which the declare is being made. There are additionally parallel provincial and territorial medical expense credit obtainable at varied charges and minimal spend thresholds.

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For medical bills paid on behalf of dependent kinfolk aside from minor kids, you’re capable of declare qualifying medical bills that exceed the lesser of three per cent of the dependant’s web revenue or $2,759. For functions of the METC, eligible dependants embrace grownup (grand)kids, (grand)dad and mom, brothers, sisters, uncles, aunts, nephews and nieces supplied they have been depending on you for help and have been residents of Canada at any time within the yr.

A tax case determined final month handled the METC associated to medical bills paid by a taxpayer for his father. In Might 2019, the taxpayer’s father was on a customer’s visa to Canada and deliberate to remain for roughly two weeks. Sadly, his father suffered a significant coronary heart assault and remained in hospital in Canada for eight weeks till July 2019.

Throughout his hospital keep, he required acute after which rehabilitative medical care, which was not lined below the provincial well being care system as a result of his father wasn’t a resident of Canada. Sadly, he handed away in November 2021.

“Lest anybody assume healthcare is ‘free’ in Canada,” the decide famous, the daddy’s health-care prices amounted to greater than $18,700, which the taxpayer, as a “dutiful and caring son,” paid. The taxpayer proceeded to assert these bills on his 2019 tax return as certified medical bills for a dependant — his father. The Canada Revenue Agency subsequently denied his declare, and the taxpayer objected and took the matter to Tax Court.

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The decide clearly articulated the regulation for claiming medical bills for a dependant, breaking it down into its three parts. To have the ability to declare the METC for a dependant, the recipient of the medical expense have to be associated ultimately to the taxpayer. Second, the recipient have to be depending on the taxpayer for help. Lastly, if the dependant isn’t a partner or common-law accomplice or (grand)youngster of the taxpayer, they have to be a relative who’s “resident in Canada at any time within the yr.”

The primary situation was clearly happy for the reason that taxpayer paid the medical bills of his father, a qualifying relative. So far as dependency, the courtroom discovered that throughout the father’s presence in Canada, he was “factually fully dependent” upon his son. The quantities paid to help his father’s therapy, lodging and rehabilitation so as to enable him to go away the hospital, and, in the end, Canada, have been all paid for by the taxpayer. Thus, the one contentious difficulty within the case was the residency take a look at, particularly, the that means of the phrase “resident in Canada at any time within the yr.”

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The taxpayer interpreted this phrase to imply “an individual that’s legally residing in Canada any time between Jan. 1 and Dec. 31 in a particular yr.” Since his father was issued a authorized visa for as much as six months and he visited for about eight weeks, together with his time within the hospital, the taxpayer argued that this could represent residence in Canada. Because of this, his father was a resident of Canada on the time of his eight-week keep, when the medical bills have been incurred.

The CRA disagreed, noting that the Revenue Tax Act, when it refers to residency in Canada as the premise for taxation, makes use of the frequent regulation definition of residency, which embodies the idea of “ordinarily resident in Canada.”

The decide famous that the time period “resident in Canada at any time within the yr” is discovered 17 instances within the act, and, maybe most significantly, is present in the principle charging provision of the act through which residency varieties the premise for taxation in Canada. In his view, to be “resident in Canada” for the aim of claiming the METC for a dependant, “the traditional guidelines of residency needs to be used that are in any other case relevant to different sections of the (act) to yield constant utility.”

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In different phrases, the case comes down as to whether the daddy might be thought-about a “factual resident of Canada” at any time in 2019. For the reason that function of the daddy’s journey was to go to his son and different members of the family in Canada for a finite period of time, and, however for his coronary heart assault, he would have returned residence (his bizarre place of residence) after two weeks, there was merely no proof to ascertain that the daddy was planning to remain in Canada.

Because the decide wrote, the daddy “by no means transformed or ever supposed to transform his intentions, habits or domicile to Canada past a brief go to, unavoidably delayed for a further six weeks due to his coronary heart assault. He was not a factual resident.”

Because of this, the decide denied the taxpayer’s declare for the METC on the premise that his father, for whom he claimed the medical bills, was not an bizarre resident of Canada.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. Jamie.Golombek@cibc.com.

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