Tax court denies medical expense claim due to residency rule

Tax court rules against a METC claim for a father's medical expenses, stressing residency requirements

Tax court denies medical expense claim due to residency rule

The medical expense tax credit (METC) is a widely utilized tax benefit, claimed by over five million Canadians each year. 

According to the Financial Post, this credit offers tax relief for significant medical or disability-related expenses incurred by individuals for themselves, a spouse or common-law partner, or a dependent relative. 

Under the Income Tax Act, the METC can be claimed for expenses paid by individuals for themselves, their spouse or partner, and their children under 18.  

The credit's value is calculated by applying the lowest personal income tax rate (15 percent) to the amount of qualifying medical expenses exceeding the lesser of three percent of the individual’s net income or $2,759 (in 2024).  

The credit applies to expenses paid within any 12-month period ending in the taxation year of the claim. Additionally, provincial and territorial medical expense credits are available with varying rates and thresholds.   

For expenses paid on behalf of dependent relatives, such as adult (grand)children, (grand)parents, siblings, uncles, aunts, nephews, and nieces, the METC can be claimed for qualifying expenses exceeding the lesser of three percent of the dependant’s net income or $2,759.    

A recent tax case brought attention to the METC concerning medical expenses a taxpayer paid for his father.  

In May 2019, the taxpayer’s father, visiting Canada on a visitor’s visa, suffered a major heart attack, requiring an extended hospital stay and significant medical care not covered by provincial health insurance.  

The taxpayer incurred over $18,700 in expenses during his father’s eight-week hospital stay. He claimed these expenses as qualified medical expenses for a dependant on his 2019 tax return. However, the Canada Revenue Agency (CRA) denied the claim, prompting the taxpayer to appeal to the Tax Court. 

  The court reviewed the three conditions necessary to claim the METC for a dependant: the recipient must be related to the taxpayer, dependent on the taxpayer for support, and a resident of Canada at any time in the year.  

The court found that the taxpayer’s father met the first two conditions but debated the residency requirement.   

The taxpayer argued that his father, legally in Canada on a visa and staying for eight weeks, should be considered a resident. The CRA, however, maintained that “resident in Canada” implies ordinary residence, per common law definitions used throughout the Income Tax Act.   

The judge noted that the term “resident in Canada at any time in the year” appears multiple times in the act, and consistent interpretation necessitates using common residency rules. The father’s visit, extended due to unforeseen medical circumstances, did not establish ordinary residency in Canada.   

Thus, the court concluded that the father was not a factual resident of Canada in 2019. Consequently, the taxpayer’s METC claim for his father’s medical expenses was denied because the father did not meet the residency requirement.