CRA denies taxpayer's medical expense credit for his visiting father's hospital stay

National Post

2024-05-16



One of the more popular tax credits, claimed by more than five million Canadians annually, is the medical expense tax credit (METC), which provides tax relief for qualifying above-average medical or disability-related expenses incurred by individuals on behalf of themselves, a spouse or common-law partner, or a dependent relative.

Under the Income Tax Act, you can claim a METC for expenses you paid for yourself, your spouse or partner, and your kids under age 18. The value of this federal credit is calculated by applying the lowest personal income tax rate (15 per cent) to the amount of qualifying medical expenses in excess of the lesser of three per cent of your net income or $2,759 (in 2024). The credit can be claimed for expenses paid in any period of 12 consecutive months that ends in the taxation year in which the claim is being made. There are also parallel provincial and territorial medical expense credits available at various rates and minimum spend thresholds.

For medical expenses paid on behalf of dependent relatives other than minor children, you’re able to claim qualifying medical expenses that exceed the lesser of three per cent of the dependant’s net income or $2,759. For purposes of the METC, eligible dependants include adult (grand)children, (grand)parents, brothers, sisters, uncles, aunts, nephews and nieces provided they were dependent on you for support and were residents of Canada at any time in the year.

A tax case decided last month dealt with the METC related to medical expenses paid by a taxpayer for his father. In May 2019, the taxpayer’s father was on a visitor’s visa to Canada and planned to stay for approximately two weeks. Unfortunately, his father suffered a major heart attack and remained in hospital in Canada for eight weeks until July 2019.

During his hospital stay, he required acute and then rehabilitative medical care, which was not covered under the provincial health care system because his father wasn’t a resident of Canada. Sadly, he passed away in November 2021.

“Lest anyone think healthcare is ‘free’ in Canada,” the judge noted, the father’s health-care costs amounted to more than $18,700, which the taxpayer, as a “dutiful and caring son,” paid. The taxpayer proceeded to claim those expenses on his 2019 tax return as qualified medical expenses for a dependant — his father. The Canada Revenue Agency subsequently denied his claim, and the taxpayer objected and took the matter to Tax Court.

The judge clearly articulated the law for claiming medical expenses for a dependant, breaking it down into its three components. To be able to claim the METC for a dependant, the recipient of the medical expense must be related in some way to the taxpayer. Second, the recipient must be dependent on the taxpayer for support. Finally, if the dependant is not a spouse or common-law partner or (grand)child of the taxpayer, they must be a relative who is “resident in Canada at any time in the year.”

The first condition was clearly satisfied since the taxpayer paid the medical expenses of his father, a qualifying relative. As far as dependency, the court found that during the father’s presence in Canada, he was “factually entirely dependent” upon his son. The amounts paid to support his father’s treatment, accommodation and rehabilitation in order to allow him to leave the hospital, and, ultimately, Canada, were all paid for by the taxpayer. Thus, the only contentious issue in the case was the residency test, specifically, the meaning of the phrase “resident in Canada at any time in the year.”

The taxpayer interpreted this phrase to mean “a person that is legally residing in Canada any time between Jan. 1 and Dec. 31 in a specific year.” Since his father was issued a legal visa for up to six months and he visited for about eight weeks, including his time in the hospital, the taxpayer argued that this should constitute residence in Canada. As a result, his father was a resident of Canada at the time of his eight-week stay, when the medical expenses were incurred.

The CRA disagreed, noting that the Income Tax Act, when it refers to residency in Canada as the basis for taxation, uses the common law definition of residency, which embodies the concept of “ordinarily resident in Canada.”

The judge noted that the term “resident in Canada at any time in the year” is found 17 times in the act, and, perhaps most importantly, is found in the main charging provision of the act in which residency forms the basis for taxation in Canada. In his view, to be “resident in Canada” for the purpose of claiming the METC for a dependant, “the normal rules of residency should be used which are otherwise applicable to other sections of the (act) to yield consistent application.”

In other words, the case comes down to whether the father could be considered a “factual resident of Canada” at any time in 2019. Since the purpose of the father’s trip was to visit his son and other family members in Canada for a finite amount of time, and, but for his heart attack, he would have returned home (his ordinary place of residence) after two weeks, there was simply no evidence to establish that the father was planning to stay in Canada.

As the judge wrote, the father “never converted or ever intended to convert his intentions, habits or domicile to Canada beyond a short visit, unavoidably delayed for an additional six weeks because of his heart attack. He was not a factual resident.”

As a result, the judge denied the taxpayer’s claim for the METC on the basis that his father, for whom he claimed the medical expenses, was not an ordinary resident of Canada.