2021-0892731I7 METC – Renovation expenses

Principal Issues: Whether the costs incurred to modify an existing deck qualify as a medical expense for purposes of the METC.

Position: It is a question of fact but in this case most likely yes.

Reasons: See response.

Author: Underhill, Cynthia
Section: Sections 118.2; 118.3; and 118.041; ss 118.4(2); paragraph 118.2(2)(l.2)

                                                                   October 26, 2021

Validation Policies and Procedures            Income Tax Rulings Directorate
Section, Collections and Verification          Business and Employment Division
Branch                                                             Cynthia Underhill

Attention: XXXXXXXXXX                            2021-089273

SUBJECT: Medical expense tax credit

We are writing in response to your email dated May 4, 2021, asking if the cost of modifying an existing deck would qualify as an eligible medical expense for the purposes of the medical expense tax credit (METC). More specifically, you asked the following:

1. Whether an exterior deck is considered to be part of or within the dwelling as required by subsection 118.2(2)(l.2) of the Income Tax Act (Act)?

2. If yes, whether the cost of upgrading the deck materials to PVC, and the cost of various other materials used to modify the deck are reasonable eligible medical expenses for the purposes of the METC?

We understand that these expenses were incurred to modify an existing deck at the taxpayer’s dwelling. The taxpayer has a progressive condition, XXXXXXXXXX and needs a walker to move around. You explained that the taxpayer has been approved for the disability tax credit (DTC).

The taxpayer hired a contractor to complete various modifications to an existing deck XXXXXXXXXX. The following deck renovations were incurred:

XXXXXXXXXX

Our Comments

METC

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).

Medical expenses 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 does not qualify for purposes of the METC, even though the expenditure may have been incurred for medical reasons.

It is a question of fact whether any particular medical expense is an eligible medical expense for purposes of the METC. Although we cannot provide a determination of eligibility of each expense relating to the deck which is listed in your email, we can provide the following general comments to aid you in making your determination.

Under paragraph 118.2(2)(l.2) of the Act, an individual is allowed 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. As explained in paragraph 1.94 of the Folio, 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.

Paragraphs 1.95 and 1.96 of the Folio clarify the types of renovations and alterations contemplated under the Act. Such items include 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.

It is the CRA’s and the courts view that an exterior deck is considered to be part of or within the dwelling for the purposes of paragraph 118.2(2)(l.2) of the Act; therefore, the cost of a patio/deck may qualify as eligible medical expenses under paragraph 118.2(2)(l.2) of the Act where all the conditions of the provision are met.

Whether the amounts paid in a particular situation are reasonable is a question of fact that must be determined on a case-by-case basis. Determining whether the cost of the materials used to build a deck is reasonable, depends on several different factors, such as, the price of the materials that may be used in the project, availability of the materials in the area, strength of the materials required (i.e., to support a wheel chair if required or the platform for the mechanical chairlift), and/or the cost of maintaining the materials. Therefore, it is a question of fact as to whether the cost of certain materials used to build a deck is reasonable.

Subparagraph (i) of paragraph 118.2(2)( l.2) of the Act provides that a home renovation or alteration expense must not be of a type that would typically be expected to increase the value of the dwelling in question. It is a question of fact as to whether the modified deck increases the value of the dwelling. It is our view that the cost of a new deck would typically be expected to increase the value of a dwelling. However, where the deck is designed specifically for a person with a physical impairment, the value of the dwelling may not increase and might have a negative impact on the value of the dwelling. In this case, the deck has been altered or designed specifically for the mobility impairment; therefore the requirements in subparagraph (i) of paragraph 118.2(2)(l.2) of the Act appear to have been met.

Subparagraph (ii) of paragraph 118.2(2)(l.2) of the Act provides that the expense be of a type that would not normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment, unless the renovation or alteration is especially designed or altered for that person’s severe and prolonged mobility impairment.

In this situation, it appears that the renovation or alteration is especially designed or altered for the taxpayer’s severe and prolonged mobility impairment as the various modifications are being done to the existing deck XXXXXXXXXX in order for the taxpayer to gain access and improve their mobility on the deck. Therefore, in this situation it appears that the requirements in subparagraph (ii) of paragraph 118.2(2)(l.2) of the Act have been met.

In this case, it is our view that the cost of modifying the existing deck qualifies as an eligible medical expense under paragraph 118.2(2)(l.2) of the Act where all the conditions of the provision have been met.

Home accessibility tax credit (HATC)

The HATC allows “qualifying individuals” or “eligible individuals” to claim “qualifying expenditures” paid for “qualifying renovations” made to the individual’s “eligible dwelling” in Canada. In this scenario, the taxpayer may be entitled to claim an amount for the HATC for any qualifying expenditures in respect of a qualifying renovation. 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 and explained on the CRA webpage, titled “Line 31285 – Home accessibility expenses” at canada.ca/line-31285.

As explained on the CRA webpage, to be a qualifying renovation under this provision, the renovation or alteration must be of an enduring nature and integral to the eligible dwelling (including the land that forms part of the eligible dwelling). The renovation must meet one of the following conditions:

* allow the qualifying individual to gain access to, or to be mobile or functional within, the dwelling; or

* reduce the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling.

An item you buy that will not become a permanent part of your dwelling is generally not eligible.

Qualifying expenditures must be directly attributable to a qualifying renovation of an eligible dwelling. The qualifying expenditures can include the cost of labour and professional services, building materials, fixtures, permits, and equipment rentals used in the course of the qualifying renovation.

A qualifying expenditure excludes an expense that is “made or incurred primarily for the purpose of increasing or maintaining the value of the eligible dwelling”.

It is a question of fact whether a specific expenditure is incurred with the primary purpose of increasing or maintaining the value of the eligible dwelling. Where the primary 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 primary 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 our view, the cost of a new deck and /or modifications to an existing deck, including installation, is typically the type of expenditure that is made for the purpose of increasing or maintaining the value of the eligible dwelling. However, where the facts of a situation appear to support the view that the primary purpose of the expenditure was incurred is to undertake a qualifying renovation, a claim under the HATC may be allowed, provided all the conditions of the provision are met, up to a maximum of $10,000 per year.

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.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust these 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
905-431-6996

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