2021-0879911E5 METC - COVID-19 tests & hotel quarantine

Principal Issues: 1) Whether the cost of COVID-19 tests would be an eligible expense for the purpose of the medical expense tax credit (METC), when these tests are mandated as part of the travel restrictions to enter Canada. 2) Whether the cost of a 3-night mandatory hotel reservation or stay at a government-authorized hotel (while travellers await their COVID-19 test results) would be an eligible medical expense for the METC.

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) No.

Reasons: 1) The wording in paragraph 118.2(2)(o) and previous position in technical interpretation 2021-087601; 2) The cost of accommodations at a hotel may be eligible as part of travel expenses only if incurred for the purpose of obtaining medical services (subject to the conditions in paragraph 118.2(2)(h)). This is not the case in the present situation.

Author: El-Kadi, Randa
Section: -

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                                                                                                                       2021-087991
                                                                                                                       Randa El-Kadi

May 15, 2021

Dear XXXXXXXXXX,

Re:  Medical expense tax credit: COVID-19 tests and mandatory hotel reservation

We are replying to your correspondence of February 2, 2021, wherein you ask whether the costs of COVID-19 tests (prior to, and upon arriving in Canada) and mandatory 3-night reservation at a government-authorized hotel (while travellers await their test results) would qualify for the medical expense tax credit (METC). The Government of Canada has implemented these measures, among others, to discourage nonessential travel and slow the spread of COVID-19 and its variants in Canada.

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 Canada Revenue Agency’s (CRA) 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 (including the cost of diagnostic tests) 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.” (footnote 2)  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.

Hotel accommodations while awaiting test results

For purposes of the METC, the cost of accommodations (including meals) may be an eligible medical expense only in specific circumstances, when provided as part of any of the following:

*    full-time care in a nursing home or a facility that has equivalent features and characteristics of a nursing home;

*    an individual’s care, or care and training at a school, an institution or another place that is described under the Act. Broadly speaking, the particular place must provide specialized equipment, facilities or personnel for individuals with a particular physical or mental handicap; however, such a place would not qualify if it functions primarily as a provider of rental accommodations;

*    reasonable travel expenses to allow an individual to obtain medical services in a place that is not less than 80 km from the locality where the individual dwells, if substantially equivalent medical services are unavailable within that locality; 

*    reasonable moving expenses (up to a maximum of $2,000) that are incurred to move an individual who lacks normal physical development or has a severe and prolonged mobility impairment to a dwelling that is more accessible, or where the individual is more mobile or functional.   

Amounts paid to comply with a three-day Government-imposed stay at a Government-authorized hotel do not meet any of the specific circumstances mentioned above. It is therefore our view that such amounts are not eligible medical expenses for purposes of the METC.

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).

2  See, for example, paragraph [13] in Klywak v. The Queen, 2004 TCC 523 (confirmed by The Queen v. Klywak, 2005 FCA 354).

UNCLASSIFIED

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