Tax Detective
Check
Your Paycheque!
Eileen Reppenhagen
E
xtended health and dental premiums (also called
private health plans) are a medical expense. Claiming medical expenses can result in tax savings.
When was the last time you looked carefully at those
deductions from gross pay? Is your employer paying for your
employee benefits? Consider yourself very fortunate!
Does your employer take a deduction from your
paycheque to pay for an employee benefit, namely the premiums for your private health plan? Did you know that
private health plan premiums are a medical expense? I’ve
had many new clients shocked to find out it was beneficial
to make a medical claim.
The thought process is usually that if everything is paid
for by the plan, why would there be a claim? When I advise them the premiums they pay, plus the part that the
plan doesn’t pay, is probably over the threshold allowed,
especially on the lower income spouse or partner’s return,
it always seems to come as a surprise. The first question is
usually about previous years.
Is this worth the time to calculate?
In my experience, it is. If you have an extended health
and dental plan, the premiums and the portion of expenses
that are not covered by the plan are medical expenses.
Think back to your tax return for last year. You are able
to claim medical expenses if they exceed 3% of your net
income on Line 236 of your return with a maximum threshold of $1,755.
• If you paid $1,200 for extended health and dental premiums and you earned net income of $40,000, every
penny of medical expenses over the $1,200 threshold is
eligible to reduce your tax payable ($40,000 x 3% =
$1,200).
• If your private health plan reimbursed you $200 for your
lenses in your new glasses that cost $600, the claim for
$400 ($1,600 less $1,200 threshold) will reduce your
tax payable by $64 (2004 rates).
If you or your spouse or partner makes less than $40,000
but more than $8,012 (2004) and pays tax, the amount of
the claim could be more substantial. For example, if the lower
income spouse or partner has a net income of $15,000 then:
• the threshold for claim is $15,000 x 3% = $450.00,
• $1,200 in premiums plus $400 for glasses = $1,600 of
medical expenses,
• $1,600 of medical expenses less $450 threshold = $1,150,
• $15,000 net income claims $1,150 in medical expenses
= $472 reduction in tax (2004 rates).
Adequate documentation is the key to making a claim!
Employee benefits often include extended health and
dental premiums, as well as non-medical expenses for coverage for short-term disability and term insurance. Employers frequently group these employee benefit deductions as
one line on your paycheque.
You may not be able to determine the amount that applies to extended health and dental premiums on your
paycheque. If your paycheque does not clearly identify extended health and dental premiums, request a letter from
your payroll administrator to provide CRA with proof of
your payments.
How do you make a claim?
Record premiums paid on the medical expense form in
your tax return.
• Look for a line just before the total where it states “Premiums paid to private health services plans.”
• Claim your private insurance paid for coverage for travel
out of the province or country.
• Do not claim the premiums paid for provincial or territorial health plans, such as BC medical or OHIP.
It’s usually a good idea to use a tax software program
like Quicktax so that you can move the medical expenses
back and forth between spouses to see the most beneficial
way to claim for medical expenses and charitable donations. Usually it’s beneficial to claim medical on the lower
income spouse and donations on the higher income spouse.
I’ve seen situations where childcare expenses or other expenses can alter who is the most beneficial claimant in an
economic unit.
©Canadian MoneySaver • PO Box 370, Bath ON K0H 1G0 • (613) 352-7448 • http://www.canadianmoneysaver.ca • February 2005
What about reimbursements for medical expenses? Will
they reduce my claim?
The amount to claim is net of any reimbursements,
whether or not they are received in the year or the following year.
Your benefit plan sends a statement with the reimbursement cheque for what they were willing to reimburse you.
Keep these statements and any receipts they don’t reimburse you for, for your tax preparer. If the plan refuses to
pay for something, it doesn’t mean that it isn’t a medical
expense for tax purposes. It means that your plan doesn’t
cover that type of expense.
Who can claim medical expenses on Line 330 of the
tax return?
Usually it’s the lower income spouse who claims all the
medical expenses, but if other family members are supporting someone read what the CRA General Tax Guide says at
http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-1303e.html#P1151_168185.
You can claim medical expenses that you or your spouse or
common-law partner paid for any of the following persons:
• yourself,
• your spouse or common-law partner,
• you or your spouse or common-law partner’s child or
grandchild who depended on you for support, and
• you or your spouse or common-law partner’s parent,
grandparent, brother, sister, uncle, aunt, niece, or nephew
who lived in Canada at any time in the year and depended on you for support.
You can claim medical expenses paid in any 12-month
period ending in 2004 and not claimed for 2003. Generally, you can claim all amounts paid, even if they were not
paid in Canada. Your total expenses have to be more than
either 3% of your net income (line 236) or $1,755, whichever is less.
On the return for a person who died in 2004, a claim
can be made for expenses paid in any 24-month period
that includes the date of death.
What if you support other people and pay their medical
expenses?
In past years if you claim medical expenses for a dependant (other than your spouse or partner) whose net income is more than $7,756 (2003), you had to reduce your
claim by the medical notch provision. See the General Tax
Guide produced by CRA at http://www.cra-arc.gc.ca/E/
pub/tg/5000-g/README.html. For 2004, the federal
budget made changes to the medical notch provision. I’ll
cover changes to notch provisions in a separate article.
Can you go back to prior years if you didn’t claim this
amount in the past?
Due to a change in the federal budget in February 2004,
claims under the fairness provision are limited to 10 years
after the 2004 calendar year. Claim extended health and
dental premiums in combination with the portion not covered by the plan as medical expenses to reduce your taxes.
Eileen Reppenhagen, CGA, Tsawwassen, British Columbia,
604-943-7414, eileen@taxdetective.ca
©Canadian MoneySaver • PO Box 370, Bath ON K0H 1G0 • (613) 352-7448 • http://www.canadianmoneysaver.ca • February 2005