2019-0828011M4 Medical expenses – IVF and surrogacy

Principal Issues: Multiple questions revolving around the same issue: whether the Canada Revenue Agency’s (CRA) practice to disallow expenses incurred on behalf of a surrogate mother / person (e.g., procedures relating to in-vitro fertilization (IVF)) is discriminatory.

Position: No. The CRA is applying the wording in subsection 118.2(2.2), which requires that an amount be paid for the purpose of a patient conceiving a child, as the term “patient” is defined in paragraph 118.2(2)(a), for the purpose of subsection 118.2(2).

Reasons: The Tax Court of Canada has determined in its decision in Zanatta v The Queen, 2014 TCC 293, that paragraph 118.2(2)(a) of the Act does not infringe on section 15 of the Canadian Charter of Rights and Freedoms, because surrogacy-related fees are consistently non-deductible for all taxpayers.

Author: Underhill, Cynthia
Section: 118.2(2)(a) - definition of "patient;" and 118.2(2.2) of the Income Tax Act; section 15 of the Canadian Charter of Rights and Freedoms

July 29, 2020

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Dear XXXXXXXXXX:

The Honourable Diane Lebouthillier, Minister of National Revenue, and Ms. Tammy Branch, Deputy Assistant Commissioner of the Collections and Verification Branch, have asked me to reply to your correspondence about the eligibility of in-vitro fertilization expenses for the medical expense tax credit (METC). Thank you for your understanding regarding the delay of this response.

I am sorry to hear of the difficulties you have been facing. I assure you that it is not the intention of the Canada Revenue Agency (CRA) to cause you distress or to treat anyone unfairly.

The CRA’s general views regarding the METC and fertility-related expenses are contained in paragraphs 1.146.1 to 1.146.3 of Income Tax Folio S1-F1-C1, Medical Expense Tax Credit. You can find this folio online by going to canada.ca and typing “folio s1-f1-c1” into the search toolbar.

As explained in paragraph 1.146.3 of Income Tax Folio S1-F1-C1, where artificial insemination procedures are used to conceive a child but are not required because of a medical condition, the cost of these procedures will generally be deemed to be a medical expense when they are paid by an individual in respect of a patient.

Paragraph 118.2(2)(a) of the Income Tax Act defines the term “patient” and paragraph 1.8 of Income Tax Folio S1-F1-C1 clarifies that, “Where the term patient is used, it refers to the person in respect of whom a medical expense was incurred.” Paragraphs 1.2 to 1.7 of the folio explain that the amounts must be incurred for medical expenses of the individual, the individual’s spouse or common-law partner, or a dependant of the individual.

For tax years beginning in 2017, Budget 2017 introduced subsection 118.2(2.2) to the Act to clarify the application of the METC to allow individuals to claim expenses paid for reproductive technologies, even where such treatment is used to conceive a child but is not required because of a medical condition. This means that individuals who are patients and who require medical intervention in order to conceive a child will be eligible to claim the same expenses that would generally be available only to individuals who require the reproductive technologies on account of medical infertility.

The introduction of subsection 118.2(2.2) is not intended to broaden the scope of qualifying medical expenses for the purposes of the METC; it is intended only to remove the requirement for a medical condition for medical expenses incurred for the purpose of conceiving a child. In addition, subsection 118.2(2.2) did not remove the condition that the amounts paid by an individual need to be medical expenses for the patient.

The cost of freezing embryos as well as certain lab or diagnostic procedures within the in‑vitro fertilization process for a patient, when medically advisable because of impeding medical treatments that are likely to have a direct significant negative effect on reproduction functions in the future, would qualify as eligible medical expenses if the requirements of paragraph 118.2(2)(o) are otherwise met.

The Tax Court of Canada’s decisions in Warnock v R., 2014 TCC 240, and Zanatta v The Queen, 2014 TCC 293, support the CRA’s position in paragraph 1.146.2 of Income Tax Folio S1-F1-C1 regarding medical expenses incurred on behalf of a surrogate mother. The Tax Court in both cases dismissed the taxpayer’s appeal on the basis that the surrogate mother was not a patient as defined in paragraph 118.2(2)(a) of the Act.

The taxpayer in Zanatta v The Queen argued that, because gay male couples do not have ovaries to produce eggs and wombs in which to gestate a foetus, they must work with surrogates, which heterosexual and female gay couples do not have to do. Therefore, the court in Zanatta v The Queen also considered whether paragraph 118.2(2)(a) of the Act infringes on section 15 of the Canadian Charter of Rights and Freedoms. At paragraphs 13 and 14 of Zanatta v The Queen, the Tax Court states:

[13] Subsection 15(1) of the Charter provides:

Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

[14] There is a two-step process in analyzing section 15 of the Charter. In Eldridge v British Columbia (Attorney General), [1997] 3 S.C.R. 624 at paragraph 58, the two‑step process is described as follows:

...A person claiming a violation of s. 15(1) must first establish that, because of a distinction drawn between the claimant and others, the claimant has been denied “equal protection” or “equal benefit” of the law. Secondly, the claimant must show that the denial constitutes discrimination on the basis of one of the enumerated grounds listed in s. 15(1) or one analogous thereto...

The Tax Court concluded that paragraph 118.2(2)(a) of the Act does not infringe on section 15 of the Charter because surrogacy fees are consistently non-deductible for anyone, regardless of whether they are incurred by heterosexual couples, female gay couples, male gay couples, single females, or single males.

The CRA administers and enforces the provisions of the Act, while the Department of Finance Canada develops tax policy and is responsible for amending or creating tax legislation, including the Act and its regulations. Changing the legislation to allow eligible medical expenses for someone who is not a patient would be a change in tax policy and, as a result, is the responsibility of the Department of Finance. For this reason, your previous correspondence dated April 3, 2019, was forwarded to the Honourable Bill Morneau, Minister of Finance, for his insight.

In Budget 2019, the Government announced its commitment to ensuring that the METC reflects medically related developments. It will review the income tax treatment of fertility-related medical expenses under the METC for fairness and consistency in light of the Assisted Human Reproduction Act and supporting regulations. To date, this review has not been completed, and it is uncertain whether an amendment to the Income Tax Act will be proposed.

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I trust the information I have provided is helpful.

Sincerely,

Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch

c.c.:  XXXXXXXXXX

Prepared by:
Cynthia Underhill
905-721-5197
2019-082801

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