It’s full blown tax season for us! Last week we looked at organization tips to lighten your year-end tax planning burden, and hopefully make the job more effective. We’re here to help all season long…we’ve got lots more ideas and suggestions up our sleeves.
This week we’ll look at medical expenses—something every person and family deals with.
Medical expenses that go over a minimum threshold give you a non-refundable tax credit. The threshold is 3% of your net income, and it maxes out at $68,400 or a flat $2,052. All qualifying medical expenses above this threshold will make you eligible for a 20.05% tax credit in Ontario.
There are a lot of qualifying medical expenses. If you’re not sure, you can look at this CRA bulletin: IT – 519R2 which provides all the details you could ever want about allowable expenses.
If you’re self-employed, premiums paid to drug or dental plans are deductible as a business expense. Business tax planning suggest that this is far better than claiming a tax credit, because the tax savings will be at your highest marginal tax rate rather than 20.05%.
Medical expenses can be claimed for yourself, your spouse and any of your close relatives dependent on you for support such as children, grandchildren, parents and siblings resident in Canada.
Medical expenses made on behalf of yourself, your spouse and dependent minor children can be pooled for purposes of the 3% expense threshold, or $2052—whichever is less.
If you paid for medical expenses for other dependent relatives, you can claim those that exceed the dependent’s 3% threshold. A new tax rule this year: there’s no limitation on the amount you can claim for each relative. In prior years the limitation was $10,000 per dependent.
Another recent tax change: money spent on purely cosmetic medical procedures is no longer claimable.
Here’s an interesting clause. When you claim medical expenses, you can pick any 12 month period as long as it ends in the current tax year. For example, if you had expenses you couldn’t claim in 2010 because your total was below the threshold, you can add them to expenses incurred in the early part of 2011 to make a bigger claim for 2011.
Because of the 3% threshold rule, it’s usually smartest to combine the whole family’s medical expenses on the return of the lower income spouse, who might have a lower threshold.
You can also affect your claim amount by playing with when you make medical payments. If you think you’ll have a big medical expense, you may want time the payments so it can be grouped with other costs in one particular tax year.
With careful planning and enough forethought, you can substantially impact and reduce the amount of taxes you might otherwise have to pay.