Why should you claim medical expenses?
Healthcare costs are a significant burden among most Canadians. As you get closer to your golden years, it’s natural to worry about rising medical expenses. Provincial health insurance programs won’t cover all your healthcare costs. Bridge the gap between your limited budget and ever-increasing healthcare expenses by checking out the benefits of a reverse mortgage and combining that with your CRA medical expenses claims.
Recurring, out-of-pocket medical expenses can cut into your monthly budget. A reverse mortgage can help you to tap into your home’s equity and access tax-free cash. You decide whether to receive regularly scheduled payments or a lump sum of cash. At the end of the year, maximize recovery of your expenses by earning back what you spend in the form of a non-refundable Medical Expense Tax Credit (METC) through CRA allowable medical expenses claims.
Combining these benefits boost your retirement finances while alleviating the burden of rising healthcare costs.
The provincial health insurance programs may not be able to cover your prescription drugs, mobility aids, physiotherapy and other medical expenses. There are solutions to financing these expenses in the years to come and pay for your additional medical expenses not covered by federal programs. Find out how!
Medical expenses in Canada: breaking down the costs
Canadian healthcare cost inflation continues to rise rapidly with each passing year. Before COVID-19, it was projected that healthcare costs would increase by 5.4% annually. It remains to be seen how the pandemic will impact healthcare costs over the next decade. However, in Canada, public healthcare covers only about 70% of the total medical expenses, while the remaining is split between private insurance and self-contribution. Individuals without private coverage may spend over $5,000 per year on out-of-pocket medical expenses, but this can increase to $30,000 for people over 60. This may include:
- Prescription drugs: the average Canadian household spends $450 per year on prescription drugs and another $550 on private health plan premiums. Many of you may spend as much as $1500 a year on prescription drugs alone!
- Mobility aids: whether you need a cane, walker, scooter, or wheelchair, you may be paying a portion of the costs out of pocket. Wheelchairs can cost $4,000 and up, while electric wheelchairs and other mobility aids can cost $2,000 to $10,000 or more. Home modifications can cost even more. Although there is some government assistance to add ramps or chair lifts to your home, you may not qualify at certain income levels.
- Caregiving costs: Statistics Canada indicates that by age 55, there is a 10% chance that you will need long-term care, whereas by age 75, that probability increases to 50%. Since long-term care is excluded under the Canada Health Act, most these expenses will be borne by you. In certain provinces, based on your annual income, home care expenses may be partly or fully covered.
- Hiring a personal care worker will cost $28 – $35 an hour, while the services of a registered nurse may cost upward of $45 – $80 an hour.
- Currently, most home healthcare agencies charge $25 to $35 per hour for a 3 to 8-hour shift. For overnight care or live-in arrangements, the cost ranges from $58,000 to $75,000 per year. For 24-hour in-home care service, you may have to pay over $200,000 per year.
- Long-term care in a nursing home is another option when in-home care isn’t available. As per a 2017 Cost of Care Survey, the median cost for nursing home stay (including accommodation, medication and care) was $85,776 per year for a semi-private room, and $97,452 per year for a private room.
- Other Medical Expenses: Provincial health insurance plans may also exclude other services, such as dental care, physiotherapy, prescription glasses and ambulance services. These expenses add up, even if you purchase private insurance to cover them.
Instead of cashing in your retirement savings or relying on financial support from family, find other options that fit your budget.
How does the Medical Expense Tax Credit (METC) work?
The METC is a tax credit for unreimbursed medical expenses. It is not refundable, but it can reduce the amount of tax you pay.
- Do you know that the Medical Expense Tax Credit (METC) can make a big impact on your tax bill?
- Are you familiar with the list of eligible medical expenses allowed by the CRA?
- Are you aware of the amount of CRA deductible medical expenses you can claim each year?
Although many healthcare costs are not covered in the provincial insurance programs, you may find them in the list of eligible medical expenses provided by CRA under the Income Tax Act. On your tax returns, METC is applicable to certain types of medical equipment, drugs, hearing and vision aids, treatment-related travel, renovations to aid or support mobility, and more.
How to claim CRA allowable medical expenses on your tax return?
In your Schedule 1 tax return, you will find two areas where you can claim METC for CRA deductible medical expenses. Unsure about who should claim medical expenses through CRA? Follow these simple steps:
- Use line 33099 for yourself, your spouse, your common law-partner and your dependent children under 18. If both you and your spouse have taxable income, try to claim CRA medical expenses on the return that has lower income, as that will be more beneficial. In order to calculate your total claim, use the total amount of your CRA allowable medical expenses for that year, minus 3% of your net income, or $2,421 – whichever is the lesser of the two amounts.
- Use line 33199 if you are claiming for other dependents, such as close family members, or older children you care for. Follow the same calculation as above, but remember to calculate the 3% on your dependent’s net income and not yours or $2,421 whichever is lower.
How much tax deductible CRA medical expenses can you claim?
The threshold for eligible medical expenses is $2,421 or 3% of your net income, whichever is less. Here are two scenarios that can help you understand.
- If your net income (the amount on line 236 of your return) was $40,000, deduct 3% of that amount (i.e. $1,200) from $3,000. Accordingly, the total credit on your CRA medical expenses claim will be $1,800.
- If your net income was $80,000, 3% of that will amount to $2,400. Hence, in this case, from your $3,000 spend, deduct $2,421, and claim $579 as METC on your tax returns.
Documents you need to support your allowable medical expense claims
While you do not need to send any supporting documents with your tax return, make sure you keep the relevant items handy, in case the CRA asks to review them later. These include:
- Receipts: save the receipts of all CRA deductible medical expenses that you claim under METC. The receipts must clearly show the name of the individual or company to whom you made the payment.
- Prescriptions: if you are claiming the cost of prescription drugs mentioned in the CRA medical expense guide, ensure that you have the relevant prescription copies available with you. If you are missing a copy, an authorized medical practitioner can re-issue one, on request.
- Certification in writing: certain items in the CRA medical expense guide require a certification in writing. You can ask your primary healthcare provider, or an authorized medical practitioner to provide one, if needed.
- Form 2201 Disability Tax Credit Certification: for expenses related to nursing home care, or personalized therapy, you may need the CRA to approve Form 2201, Disability Tax Credit Certificate. You can find detailed information about this requirement here.
If you are a small business owner, you can use either METC on your personal tax returns, or a Health Spending Account (HSA), while filing your business taxes. A competing alternative to METC, HSA shares the same objective; help reduce your personal medical expenses. Basically, HSA turns your after-tax personal medical costs into before-tax business deductibles, which means, you can eliminate 100% of the taxes on your medical expenses. Learn more about HSA, and check whether your business qualifies for its benefits.
List of eligible CRA medical expenses in Canada
While the complete list of CRA allowable medical expenses is quite extensive, here are some of the common medical expenses that most Canadians 55+ will qualify for.
- Medical treatment: claim treatments that are part of the eligible medical expenses list by CRA, but not covered by your provincial insurance plans. As long as you were treated by an authorized medical practitioner, in a public or licensed private hospital, it doesn’t matter if you received the treatment in Canada, or abroad.
- Care facilities: If you, your spouse or dependent are in a nursing home, or any other institution that provides full-time care, you can claim all the fees, including food and accommodation. However, if you are receiving in-home care, or staying in a retirement home, you can only claim the salaries or wages of the attendant care services.
- Hearing and vision assistance: most of the hearing and visual aids are part of the CRA allowable medical expenses. Claim the expenses that you have incurred on hearing aids (including batteries and repairs), audible signal devices, as well as captioning equipment. Similarly, claim all the expenses related to vision issues, including eyeglasses, laser eye surgery, contact lenses and reading services.
- Medical and non-medical equipment: include your expenses for all qualifying medical equipment (including repairs). This includes heart monitoring devices, kidney machines, catheters, phototherapy equipment, and more. You can also claim CRA medical expenses for non-medical items, such as assisted breathing devices, electrotherapy devices, air purifiers, air conditioners, lifts or transportation equipment, and several others.
- Mobility aids: scooters, wheelchairs and wheelchair carriers are all CRA-allowable medical expenses, as are walking aids. You can also claim up to 20% of the cost of a van to transport wheelchair users (maximum $5,000).
- Drugs: prescription drugs and vaccines are eligible. However, you cannot claim for over-the-counter drugs or most vitamin supplements.
- Medical expenses for travel: the CRA allows you to claim transit expenses (taxi, bus, or train) if you travel over 40 kilometres for medical treatment. If you travelled over 80 kilometres, you can also claim the accommodation, meals and your own vehicle expenses, including parking charges.
- Renovations and household mobility aids: several mobility-related aids such as bathroom rail or stair chairs are eligible. You may even be able to claim costs for structural renovations made to accommodate wheelchairs.
How to finance your medical expenses if you don’t have insurance or need more money?
If your budget does not permit buying an insurance policy or investing in a fixed or variable annuity, check if you qualify for some of the government provided income assistance programs and benefits. If you don’t qualify, or need more cash you should consider one of the several borrowing options available to you, including:
- Personal loans: ideal for covering a one-time expense, such as a specific medical procedure that is not covered by your provincial insurance program (for example, laser eye surgeries or dental surgeries). Borrow lump sum funds and repay in monthly installments at market-led interest rates.
- Life insurance policy related conversions: convert your existing life insurance policy into a long-term care benefit plan or collect a lump sum by cashing in your policy. Keep in mind that in both cases, your beneficiaries will not get the full value of your policy on your death.
- Home equity line of credit (HELOC): As long as you have 20% equity in your home and a good credit score, you may be eligible for a low-interest line of credit secured against the value of your home, with repayments beginning as soon as you borrow the funds.
- Reverse mortgage: if you are 55 years and better and own your home, you can access some of the value of your home in tax-free cash. There are no monthly payments required and you only have to pay back the amount when you decide to move or sell, or after you pass away.
Learn more about dealing with expenses in retirement:
- One Tax Credit You May Not Know About That Could Save You Thousands
- What to Use Reverse Mortgage Funds For
- How Much Money do you Need to Retire?
A reverse mortgage will cover you between the CRA medical expense claims
Although you may be able to make the most of your CRA allowable medical expenses by claiming credits for them through your Income Tax returns, that is an annual process. You may still need funds at your disposal to pay for ongoing expenses throughout the year. Not to mention, we all know that there are always those unfortunate, unexpected medical expenses that can arise over time and affect your limited, post-retirement, healthcare budget.
While you have several financial assistance options, such as insurance policies, loans, and lines of credit, there are certain downsides. The good news is, there’s a better option! If you own a property and are 55+, you can cash in on some of your home’s equity in the form of tax-free cash. The CHIP Reverse Mortgage® allows you to retire in your home with financial security to provide on-going healthcare needs to you and/or your loved ones. The CHIP Reverse Mortgage offer many advantages:
- As long as you are above 55 years of age, there is no minimum income or credit score requirement
- You can access up to 55% of your home equity in a lump sum or as initial advance, with the balance amount disbursed over time, or as needed
- Your repayments do not start immediately after borrowing. You only have to repay the loan when you decide to move or sell your home
- During the tenure of the mortgage, you continue to retain the ownership of your home
- If you move out or sell the home, you can use the sale proceeds for repayment
- The borrowed amount is tax-free and does not affect your eligibility for Old Age Security (OAS) or Guaranteed Income Supplement (GIS) and CPP
Learn about why CHIP is the perfect solution for Canadian homeowners 55+.
A reverse mortgage is a great way to use your home’s equity for covering routine healthcare costs, or to retrofit your home for your aging needs.
Do you want to know how a CHIP Reverse Mortgage can help you meet your ongoing medical expenses? Call us at 1-866-522-2447 or use our reverse mortgage calculator to get a free estimate of how much tax-free cash is available to you. Still not sure? Check out which reverse mortgage product suits your need
Frequently Asked Questions
Which spouse should claim CRA medical expenses?
Ideally, the spouse with the lower income should claim the credit because of the lower threshold, but it can be helpful to calculate the credit for each spouse before filing. Medical expenses for both spouses can be combined on one tax return.
Can you claim medical expenses from previous years in Canada?
You can claim eligible expenses paid in any 12-month period that ends in the tax year, provided you haven’t already claimed them. For example, you can claim expenses from January 20, 2020 to January 19, 2021 on your 2021 taxes, because the period ends in the year 2021.
At what credit rate does the government give the Medical Expense Tax Credit?
Only expenses in excess of the threshold of $2,421 or 3% of your net income can be claimed as a federal tax credit.
Is physiotherapy tax deductible in Canada?
For the most part, physiotherapy is tax deductible, but there are stipulations. By law, to qualify as deductible, services must be prescribed and delivered by authorized medical practitioners. You will need to keep receipts. Only the reimbursed amount you paid can be deducted.
Are medications tax deductible in Canada?
Prescription medications and drugs are eligible for tax deductions. Over-the-counter medications are not eligible. Keep your receipts to clearly indicate what you paid.
Figures are based on the time the article is published and are subject to change.