Medical Expense TAX CREDIT

January 23, 2019

 

As we age medical expenses can begin to accumulate, use these tips to stay informed as to what can turn into a valuable tax credit for you.

 

1.  The lowest income earner should claim the tax credit.

 

2.  The attendant cannot be the spouse or common-law partner of the payer and cannot be under 18 at the time the remuneration is paid. However, the attendant can be the spouse or common-law partner of the patient, or another relative of the patient. The relative must be over 18.” This statement essentially means that the recipient of care, cannot pay their spouse or common-law partner to take care of them, but a child or another relative can pay them to do so (also for example: a brother can be paid to take care of his sibling).

 

3.  Expense credits relating to disability and attendant care including in a nursing home or other institutional care.  You can claim only one; the Disability Tax Credit or the Medical Tax Credit, but not both.

 

When deciding to hire a personal care attendant (home care) often the potential CRA Tax Credits is the furthest thing from your mind when deciding how much you can and cannot afford.  Read on to review some useful information to keep in mind when considering affordability.

 

First you need to understand what medical expenses actually qualify, the CRA has a complete list online for you to reference, following that you need to calculate the percentage of expenses that can be applied to your tax credit;

 

Qualifying medical expenses over 3% of your income

OR

Qualifying medical expenses over $2,352 (2019)

You would use whichever is the lowest number for your calculation

 

How does the

Medical Expense Tax Credit Work?

 

When you have qualifying medical expenses, you can make a claim for a non-refundable tax credit for the amount of expenses that EXCEED EITHER 3% of your net income or $2,352 (2019) which ever is less.  Then once you multiply that number by the lowest marginal tax rate for Alberta (10%) plus Federal (15%) the number you get is your METC  (Medical Expense Tax Credit)

 

 

Here’s how to calculate your METC. 

For simplicity we will assign a letter (eg. A) to each of the categories

 

A          Net Income

B          Eligible Medical Expenses  

C          Lowest Provincial Tax Rate 

 

EXAMPLE CALCULATION BASED ON $30,000 NET INCOME

 

FORMULA

Using 30,000 Net Income Example

STEP 1

A * 0.03 = A1

$30,000 * 0.03 = $900

 

STEP 2

Compare A1 with $2352

Compare $900 with @2,352

 

STEP 3

Take the lower number – either step 1 or step 2 (we will call this A2)

Selecting the lower number A2 = $900

 

STEP 4

B – A2 = X

$2500 – $900 = $1600

 

STEP 5

X * (C+0.15) = METC   (0.15 stands for the 15% federal tax rate)

$1600 * (0.1 + 0.15) / 1600 *(0.25)= $400

 

STEP 6

METC= $400.00

 

In the above example we have a METC Calculation as follows:

 

Net Income                             =$30,000

Eligible Medical Expenses    = 2500

Alberta Tax Rate 10%            = 0.1 + Federal 0.15 (0.25) 

In this situation you would have a non-refundable tax credit of $400.00

As a general rule the lower the income the larger the Tax Credit.

 

 

 

 

 

 

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