1.9 Medical Expense Tax Credit
I asked Chat-GPT the following question:
Sam: “Can you provide a 500 word university level explanation of the medical expense credit in Canada? Please include an example and provide any relevant CRA reference sources”
Here is Chat-GPT 4’s response (See if you can figure out the pros and cons of its response):
“The Medical Expense Tax Credit (METC) in Canada is a non-refundable tax credit that assists taxpayers by reducing the financial burden of eligible medical expenses incurred for themselves, their spouse or common-law partner, and their dependent children under the age of 18. The purpose of the credit is to provide some relief for individuals who have incurred substantial medical expenses, which can have a significant impact on their financial situation. The METC operates under the Income Tax Act and is administered by the Canada Revenue Agency (CRA).
To be eligible for the METC, medical expenses must be recognized by the CRA as qualifying expenses, as outlined in the Income Tax Act. A comprehensive list of eligible medical expenses can be found on the CRA’s website at the following link: eligible medical expenses. Some examples of eligible expenses include dental services, prescription medications, and medical equipment or devices prescribed by a medical practitioner.
To calculate the METC, taxpayers must first determine their total eligible medical expenses for themselves, their spouse or common-law partner, and their dependent children under 18. The credit is then calculated as the lesser of either 3% of the taxpayer’s net income or $2,421 (as of the 2021 tax year) subtracted from the total eligible medical expenses. This amount is then multiplied by the lowest federal tax rate (15% as of the 2021 tax year) to determine the value of the tax credit.
It is important to note that the METC is a non-refundable tax credit, meaning it can only be used to reduce the taxpayer’s tax liability to zero. If the calculated METC is greater than the taxpayer’s tax liability, the excess amount will not be refunded.
Example 1.9.1
Consider a taxpayer with a net income of $50,000 and eligible medical expenses totaling $6,000 for the tax year. To calculate the METC, the taxpayer would first determine the lesser of either 3% of their net income or $2,421:
3% of $50,000 = $1,500 Since $1,500 is less than $2,421, the taxpayer would use $1,500.
Next, the taxpayer would subtract this amount from their total eligible medical expenses:
$6,000 – $1,500 = $4,500
Finally, the taxpayer would multiply the remaining amount by the lowest federal tax rate:
$4,500 * 15% = $675
In this example, the taxpayer would be eligible for a $675 Medical Expense Tax Credit, which would reduce their tax liability accordingly.
For more information on the METC, including detailed guidelines and examples, taxpayers are encouraged to consult the CRA’s resources on the subject, such as the Income Tax Folio S1-F1-C1: Medical Expense Tax Credit. This resource provides extensive information on eligibility criteria, calculations, and the process for claiming the credit.
Author: Chat-GPT (with minor edits to links by S.Newton)
References and Resources
- Income Tax Act, RSC 1985, c1, (5th Supp.) s 118.2
- Income Tax Folio S1-F1-C1: Medical Expense Tax Credit
“Medical Expense Tax Credit” from Introductory Canadian Tax Copyright © 2021 by Sam Newton and Wahaj Awan is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
