The most recent federal budget has not been kind to hot tub salesmen and
hardwood floor installers.
That's because buried deep within the technical, 425-page budget document are
new rules that govern the eligibility of certain home renovation expenses for
the medical expense credit.
Under the Income Tax Act, medical expenses qualify for a 16% federal credit
as well as a provincial credit. In addition to the most common medical expenses,
such as prescription drugs and dental bills, other qualifying expenses can
include certain home renovation costs.
The Income Tax Act envisioned these as "reasonable expenses relating to
renovations or alterations to a dwelling of the patient who lacks normal
physical development or has a severe and prolonged mobility impairment."
However, the government has become concerned that recent jurisprudence has
interpreted the renovation expense credit perhaps a bit too broadly for their
liking to include both the installation of hot tubs and the cost of hardwood
The most recent hot tub case, which was decided last fall, involved a
taxpayer who was on long-term disability and suffered from several serious
medical conditions including clinical depression and bi-polar disorder. He
purchased a hot tub on the recommendation of his psychiatrist, who recommended
hydrotherapy to provide "deep relaxation for depression and anxiety." While the
judge did not allow the cost of the hot tub as medical expense, he did allow the
cost of the installation of the hot tub.
As for hardwood floors, a June, 2003, case involved a taxpayer suffering from
severe allergies who had his carpeting removed and installed hardwood floors "to
remove sources of mould in the house." The judge concluded that the $11,000 cost
qualified as an eligible renovation expense for purposes of the medical expense
Now it appears the government is cracking down on the installation of both
hot tubs and hardwood flooring. As the budget documents state, "such an
expansion goes far beyond the policy intent of the [credit] because it
subsidizes renovation expenses that increase the value of the home, and extends
tax recognition to expenses with a substantial element of personal consumption
and personal choice."
As a result, the government proposed a new two-criteria test for determining
whether home renovation expenses will now qualify for the medical expense
credit. First, the expense must not typically be expected to increase the value
of the home; secondly, the expense must be something that would not typically be
undertaken by someone without a mobility impairment. Going forward, only
renovation expenses that meet both of these criteria will be eligible to be
claimed under the medical expense credit -- a common example being the
installation of a wheelchair ramp, which would not typically increase the value
of the home.
Other renovation expenses that may still be eligible include the cost of
widening doorways, lowering shelves, modifying kitchen cabinets and moving
electrical outlets. But trying to recoup the cost of a whirlpool tub will likely
put you in hot water.