2017-0683371E5 Medical expenses - sauna and hydrotherapy pool

Principal Issues: Would the costs of a steam shower / sauna and hydrotherapy pool (that are part of a master bathroom in an individual’s home) qualify as a medical expense in a particular situation?

Position: Question of fact, but generally no.

Reasons: Renovations to install a hydrotherapy pool or steam bath would not generally meet the requirements under paragraph 118.2(2)(l.2) because they are of a type 1) that would typically be expected to increase the value of the dwelling, or 2) that would normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment. Conversely, the conditions under the home accessibility tax credit (HATC) – namely paragraph (g) of the definition of “qualifying expenditure” – are less restrictive, in that they allow expenditures that may increase or maintain the value of an eligible dwelling, as long as these expenditures are not made or incurred primarily for that purpose. Also, the HATC provisions recognize the cost of goods acquired in addition to the services received (for example, to install the goods in question).

Author: El-Kadi, Randa
Section: 118.2(2); Reg 5700

XXXXXXXXXX                                                                                                                  2017-068337
                                                                                                                                          Randa El-Kadi
December 4, 2018

Re:  Tax relief for hydrotherapy pool and steam bath

Dear XXXXXXXXXX,

We are replying to your correspondence wherein you ask whether the cost of renovations to build a master bathroom on top of your garage would qualify as an eligible medical expense for the purpose of the medical expense tax credit (METC). More specifically, the bathroom will accommodate a steam shower and hydrotherapy pool that are medically prescribed to manage XXXXXXXXXX by easing pain and helping you improve your health. You state that water therapy is the most recommended treatment that helps XXXXXXXXXX patients maintain strength and mobility. We apologize for the delay in our response.

XXXXXXXXXX

Our comments:

This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R8, Advance Income Tax Rulings and Technical Interpretations.

Medical expense tax credit

Paragraph 118.2(2)(l.2) of the Act allows an individual to claim as eligible medical expenses, 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. To claim renovation expenses under this provision, the following conditions must be met:

a)    the expenses were paid to enable the patient to gain access to his or her dwelling or be mobile or functional within it;
b)    the expenses would not typically be expected to increase the value of the dwelling; and
c)    the expenses would not normally be incurred by persons who have normal physical development or who do not have severe and prolonged mobility impairment. (footnote 1)

The types of renovations and alterations contemplated under paragraph 118.2(2)(l.2) of the Act include such items as the cost of installing entrance and exit ramps, widening doorways, lowering shelves, kitchen or bathroom cabinets, moving electrical outlets, and installing a custom built shower with appropriate grab bars and seat. Reasonable expenses pertaining to a particular renovation or alteration may include payments to an architect or a contractor.

On the other hand, the cost of installing hot tubs and pools are examples of common renovation expenses that would generally not be considered eligible medical expenses, because they are typically expected to increase the value of the dwelling (see (b) above) or because they are normally incurred by persons who have normal physical development or persons who do not have a severe and prolonged mobility impairment (see (c) above).

It is a question of fact whether a particular renovation or alteration will qualify under paragraph 118.2(2)(l.2) of the Act. Therefore, claims under this paragraph will be considered on a case by case basis. If the renovations include specific renovations or alterations that would not be made by a person who has normal physical development or who does not have a severe and prolonged mobility impairment, then reasonable expenses relating wholly to such specific renovations or alterations could be claimed, provided they are not of a type that would typically be expected to increase the value of the dwelling. The onus is on the individual to prove that the conditions of paragraph 118.2(2)(l.2) of the Act have been met.

Home accessibility tax credit

The home accessibility tax credit (HATC) allows seniors and individuals who are eligible for the disability tax credit (“qualifying individuals”) - or family members who live with them (“eligible individuals”) - to claim certain amounts (“qualifying expenditures”) paid for “qualifying renovations” made to the individual’s “eligible dwelling” in Canada. Up to $10,000 in qualifying expenditures can be claimed in a given tax year, which results in a tax credit of up to $1,500 for that year.

The terms qualifying individual, eligible individual, qualifying expenditure, qualifying renovation, and eligible dwelling are all defined in section 118.041 of the Act. An explanation of these terms is also available on the Canada Revenue Agency webpage entitled “Line 398 – Home accessibility expenses” and in the General Income Tax and Benefit Guide 2017.

In general, to be a qualifying renovation eligible for the HATC, the renovation must enable the qualifying individual to gain access to their home, be mobile or functional in their home, or reduce the risk of harm within (or in gaining access to) their home. The renovation must be enduring and integral to the home.

Qualifying expenditures must be directly attributable to a qualifying renovation. Examples of qualifying expenditures include expenditures relating to wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. Qualifying expenditures include the cost of labour and professional services (for example, electricians, plumbers, carpenters and architects), building materials, fixtures, permits, and equipment rentals used in the course of the qualifying renovation.

In our view, where the main purpose for incurring an expense is to undertake a qualifying renovation, the expense will not cease to be a qualifying expenditure for the sole reason that it may increase the value of the eligible dwelling. Conversely, where the main purpose for incurring an expense is to increase or maintain the value of the eligible dwelling, such an expense would not be considered a qualifying expenditure for the purpose of the HATC.

In your case, there is not sufficient information to indicate whether you are a qualifying individual for the purpose of the HATC. Provided that you are, and that the renovations you are contemplating are in respect of an eligible dwelling, it appears that the expenses you expect to incur may be directly attributable to a qualifying renovation. These expenses, up to a maximum of $10,000 per year, may qualify for the HATC if they each meet all the conditions for being a qualifying expenditure. We understand from your correspondence that the expenses relating to the ventilation system are essential to the safe operation of the hydrotherapy pool. As such, they appear to be mainly incurred for that purpose - even if they also maintain the value of your home.

Interaction between the HATC and the METC

The HATC is not reduced by any other tax credits or grants to which a qualifying or eligible individual is entitled under other government programs. For instance, in the case of an individual who claims a qualifying expenditure that also qualifies for the METC, the individual is permitted to claim both the HATC and the METC in respect of that expenditure. Expenditures that are reimbursed, or are expected to be reimbursed, other than through a government program, are not eligible.

We trust our comments will be of assistance.

Yours truly,

Lita Krantz, CPA, CA
Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  See paragraphs 1.94 to 1.96 of Income Tax Folio S1-F1-C1, Medical Expense Tax Credit. This publication contains the Canada Revenue Agency’s general views regarding the medical expense tax credit.

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