It was the call every parent dreads: “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 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 respect 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 as a tax credit:

  • the portion of the bill that I covered myself, and
  • a portion of our health insurance premiums. 

“The Medical Expense Tax Credit may be one of the most underused tax breaks available to Canadians.” So says Stuart Dollar, Director of Insurance Tax Solutions for Sun Life. Why? “Because getting the most from it requires some careful planning – including keeping all of your medical receipts.”

Here are answers to some of your questions about claiming your medical expenses on your tax return: 

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Can you get a credit for unreimbursed medical expenses?

You may. To get a credit, these unreimbursed medical expenses must exceed a set threshold. The threshold for the 2021 tax year is 3% of net income* or $2,421, whichever is less. Threshold levels for the provincial part of the credit may be different. In Quebec, for provincial income tax purposes the threshold is 3% of both spouses’ combined net income – there is no “lesser of”.

(*Net income refers to the income you’re left with after deductions such as RRSP deductions.)

At what credit rate does the government give the Medical Expense Tax Credit? 

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%.

Can either spouse claim the credit?

Yes. 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.

Can you use the credit to reduce your taxes for the year?

Yes. But remember your expenses don’t all have to come from the same tax year. They just must come from any 12-month period that ends in the tax year.

For example, for your 2021 tax return, you could use expenses you had from January 1, 2021, to December 31, 2021. Or you could use expenses you had from January 2, 2020, to January 1, 2021, or for any 12-month period in between, whichever works better for you.

Can you claim out-of-pocket medical expenses?

You may be able to claim all eligible medical expenses for which you have not been reimbursed, such as from 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.

Can you claim out-of-pocket health insurance premiums?

You can do this so long as the plan: 

  • is a private health services plan, and 
  • pays for medical expenses not covered by your provincial medical insurance plan.

You can claim only 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, Director of Insurance Tax Solutions at Sun Life, 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 lower-income spouse's net income for the year was $40,000, 3% of which is $1,200. $4,200 minus $1,200 is $3,000). The lowest federal tax rate is 15%. And, if they lived in Ontario where the lowest rate is 5.05%, 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. And if you have ongoing medical expenses exceeding the threshold amount, over the years the amount you save in taxes can really add up.”

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.

What if you need help managing your medical expenses?

You may want to talk with an advisor about health insurance. It’s an important way to guard your income against unexpected medical expenses.

You can: 

An advisor can look at your unique situation to help you build a customized plan.

 

Need help figuring out what’s right for you?

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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.