2021-0876012E5 Medical expenses - COVID-19 test & vaccine

Principal Issues: 1) Whether the cost of a COVID-19 test would be an eligible expense for the purpose of the medical expense tax credit (METC), when the test is required as part of the travel restrictions to enter Canada. 2) Whether the cost of a COVID-19 vaccine that is received outside Canada would be eligible for the METC in a particular situation.

Position: 1) Likely yes, if the test is prescribed by a medical practitioner, and all the other requirements in paragraphs 118.2(2)(o) are met. 2) Likely yes, if the vaccine is prescribed by a medical practitioner, and all the other requirements in paragraph 118.2(2)(n) of the Act or section 5701 of the Regulations (as applicable) are met.

Reasons: 1) The wording in paragraph 118.2(2)(o); 2) The wording in paragraph 118.2(2)(n) of the Act and section 5701 of the Regulations.

Author: El-Kadi, Randa
Section: 118.2(2)(n); 118.2(2)(o); Regulations 5701. Considered: 118.2(2)(s).

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                                                                                                                                      2021-087601
                                                                                                                                      Randa El-Kadi

April 22, 2021

Dear XXXXXXXXXX,

Re:  The medical expense tax credit: COVID-19 tests and vaccines

We are replying to your correspondence of January 6 and 13, 2021, wherein you ask whether the cost of COVID-19 tests (namely those required for travel, to enter Canada) and COVID-19 vaccinations received outside Canada, would qualify for the purpose of the medical expense tax credit (METC). You indicate that private health services plans (PHSPs) tie coverage under the plan to those expenses that are eligible under the METC.

You refer to a webpage titled “Details of medical expenses” which indicates that a prescription is needed for medical tests and procedures. You also explain that a prescription for a COVID-19 test for travel purposes may either not be possible or it may not be required to take the test. As such, you ask whether the Canada Revenue Agency (CRA) may lift the prescription requirement. You also ask whether the costs of COVID-19 tests and vaccines that are not eligible for the METC can be considered medical expenses, or connected expenses, for purposes of determining the 10% coverage under a PHSP.

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 70-6R11, Advance Income Tax Rulings and Technical Interpretations.

Medical expenses which are eligible for the METC are limited to those described in subsection 118.2(2) of the Act. If a particular expenditure is not described as an eligible medical expense in subsection 118.2(2) of the Act, or if the conditions under which the expenditure would qualify are not met, the expenditure will not qualify for purposes of the METC, even though the expenditure may have been incurred for medical reasons.

The CRA’s general views regarding the METC are contained in Income Tax Folio S1-F1-C1, Medical Expense Tax Credit (the “Folio”).

As a general rule, eligible medical expenses are not restricted to those paid in Canada or for medical services provided in Canada. Where reference in the Act is used in respect of a service rendered by a medical practitioner, the term includes individuals such as a medical doctor, pharmacist or nurse who is authorized to practice in the stated profession according to the laws of the jurisdiction in which the service is rendered.

COVID-19 tests

Pursuant to paragraph 118.2(2)(o) of the Act, eligible medical expenses include amounts paid for laboratory, radiological or other diagnostic procedures or services together with necessary interpretations:

*    for maintaining health, preventing disease or assisting in the diagnosis or treatment of any injury, illness or disability;

*    for the patient; (footnote 1)  and

*    as prescribed by a medical practitioner.

The expenditures must satisfy all of the conditions listed above to be considered eligible medical expenses under paragraph 118.2(2)(o). As indicated in paragraph 1.129 of the Folio, the reference to “other diagnostic procedures or services” is generally limited to diagnostic services or procedures of the same class as laboratory or radiological services. In other words, the procedures or services must assist a medical practitioner in making a diagnosis and formulating a course of treatment (where the medical practitioner or dentist determines it is appropriate to do so).

The term “prescribe” is not defined in the Act for the purposes of paragraph 118.2(2)(o); therefore, we generally rely on case law and the ordinary meaning (such as dictionary definitions). Namely, the verb “prescribe” means “[to] direct in writing,” or “recommend as something beneficial.” It is therefore generally our view that the provisions in paragraph 118.2(2)(o) contemplate diagnostic procedures or services that are medically indicated or medically advisable.

As such, in the present case, it is our view that amounts paid for a COVID-19 test would qualify for the METC under paragraph 118.2(2)(o) of the Act if all the requirements in that paragraph are met, including the condition that the test be prescribed by a medical practitioner.

COVID-19 vaccines

Paragraph 118.2(2)(n) of the Act allows the costs paid for drugs, medicaments or other preparations or substances (hereinafter referred to as “drugs”):

(A)   that are manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;

(B)   that can lawfully be acquired for use by the patient only if prescribed by a medical practitioner or dentist; and

(C) the purchase of which is recorded by a pharmacist.

The costs of drugs that can be lawfully acquired without a prescription may qualify as medical expenses, provided that the drug meets all the following conditions in section 5701 of the Income Tax Regulations:

(a)   is manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;

(b)   is prescribed for a patient by a medical practitioner; and

(c)   may, in the jurisdiction in which it is acquired, be lawfully acquired for use by the patient only with the intervention of a medical practitioner.

Therefore, although drugs that are described in section 5701 of the Regulations are available without a prescription, these drugs must still be prescribed for the patient by a medical practitioner in order for their costs to qualify for the METC.

In the present case, amounts paid for a COVID-19 vaccine may qualify for the METC under paragraph 118.2(2)(n) of the Act or section 5701 of the Regulations, provided that all the requirements in either one of these provisions are met. Namely, regardless of the provision that may apply to the particular COVID-19 vaccine, the latter must (among other things) be prescribed for the patient by a medical practitioner in order for its cost to be considered an eligible medical expense. The CRA has no authority to waive the prescription requirement.

The 10% Coverage under a PHSP

The CRA considers a plan to be a PHSP where the following conditions are met:

*    All of the expenses covered under the plan are:

?    medical and hospital expenses (medical expenses)
?    expenses incurred in connection with a medical expense and within a reasonable time period following the medical expense (connected expenses)
?    a combination of medical expenses and connected expenses.

*    All or substantially all of the premiums paid (generally 90% or more) relate to medical expenses that are eligible for the METC (the remainder 10% of premiums paid is hereinafter referred to as the 10% coverage).

*    The plan meets the conditions outlined in paragraph 3 of the Interpretation Bulletin IT-339R, Meaning of private health services plan [1988 and subsequent taxation years].

The term medical expenses is defined in the Act only for purposes of the METC, and the definition of a PHSP found in subsection 248(1) of the Act does not refer to the METC. As we previously mentioned, where the legislation does not define a term, we generally rely on case law and the ordinary meaning. It is a question of fact whether expenses that are not eligible for the METC are medical expenses or connected expenses for purposes of determining the 10% coverage.

Therefore, it is a question of fact whether a plan qualifies as a PHSP when it provides coverage for expenses such as COVID-19 tests that are not prescribed by a medical practitioner.

We trust our comments will be of assistance to you.

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  The term patient is used to refer to the individual who is claiming the medical expense tax credit, the individual’s spouse or common-law partner or a dependant of the individual (within the meaning assigned by subsection 118(6) of the Act).

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