2023-0983151E5 METC - Assisted Human Reproduction expenses

Principal Issues:

1. Whether amounts paid to a fertility clinic in Canada, to obtain reproductive materials which are sourced by the Canadian fertility clinic from a donor bank outside of Canada, are eligible medical expenses for purposes of the medical expense tax credit (METC). 2. Whether the cost of certain assisted human reproduction services that were contracted with and paid to a fertility clinic or donor bank located outside Canada are eligible medical expenses for purposes of the METC. 3. Whether the cost of certain assisted human reproduction services where an individual who wants a child needs to purchase donor eggs, donor sperm and requires the use of a surrogate mother are eligible medical expenses for purposes of the METC. 4. Whether amounts paid either directly to a donor or surrogate, or paid to a fertility clinic or donor clinic, in respect of the donor or surrogate could be an eligible medical expense for purposes of the METC. 5. Whether administrative fees charged by the fertility or donor clinics are eligible medical expenses for purposes of the METC where they are ancillary to medical services performed or the purchase of goods that are eligible medical expenses. 6. Whether receipts used to support a METC claim by a taxpayer, from a fertility or donor clinic, need to describe the nature of each service or good provided, for the fees paid to the fertility and donor clinics.

Position:

1. Question of Fact. 2. Question of Fact. 3. Question of Fact. 4. Likely, yes. 5. Question of Fact. 6. Yes.

Reasons:

1. Legislation, paragraph 118.2(2)(v) specifies that the amounts must be paid to a fertility clinic or donor bank in Canada, however, it does not specify that the reproductive material must be obtained in Canada. 2. Where assisted human reproduction procedures are for the patient, they may be eligible medical expenses pursuant to paragraphs 118.2(2)(a), (n) or (o). 3. Where assisted human reproduction procedures are for the surrogate, they may be deemed to be the medical expense of the individual if the goods are acquired in or services are received in Canada by the surrogate. 4. Legislation 5. Depends on whether the amounts fall under 118.2(2)(a) or 118.2(2)(v). 6. Legislation.

Author: Brennan, Christopher
Section: 118.2(2)(a), 118.2(2)(n), 118.2(2)(o), 118.2(2)(v), 118.2(2.21)

XXXXXXXXXX                                                                2023-098315
                                                                                        Chris Brennan, CPA CA

January 15, 2025

Dear XXXXXXXXXX:

Re: METC - Assisted Human Reproduction expenses

This is in reply to your original email dated July 11, 2023 and subsequent correspondence that requested our views on a number of issues regarding the eligibility of various fertility and surrogacy related expenses for purposes of the medical expense tax credit (METC). We apologize for the delay in our response.

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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Issue 1

You have asked whether amounts paid to a fertility clinic in Canada, to obtain reproductive materials which are sourced by the Canadian fertility clinic from a donor bank outside of Canada, are eligible medical expenses for purposes of the METC pursuant to paragraph 118.2(2)(v) of the Income Tax Act (the Act).

You provide an example where an individual engages the services of a fertility clinic in Canada to provide various assisted human reproduction services for the purposes of becoming a parent. These services include obtaining sperm or ova from a donor bank for the individual. The donor bank is located in the United States where there is a large established network for these services.

Response

For the 2022 and subsequent tax years, paragraph 118.2(2)(v) of the Act allows as an eligible medical expense amounts paid to a fertility clinic or donor bank in Canada as a fee or other amount paid or payable, to obtain sperm, ova, or embryos (collectively referred to as “reproductive material”) to enable the conception of a child by the individual, the individual's spouse or common-law partner or a surrogate mother on behalf of the individual.

Paragraph 118.2(2)(v) of the Act explicitly limits the METC for fees or other amounts paid or payable to obtain reproductive material to amounts paid to a fertility clinic, or donor bank in Canada. The term “obtain” is not defined in the Act, therefore we would rely on its ordinary meaning, which is defined by the Online Dictionary as “get, acquire, or secure (something).” Thus, paragraph 118.2(2)(v) of the Act allows amounts paid to a fertility clinic or donor bank in Canada, as a fee or other amount paid or payable, to “get, acquire, or secure” reproductive material.

In Canada, surrogacy and the donation of reproductive material are regulated under the Assisted Human Reproduction Act (AHR Act). Health Canada is responsible for developing policy and regulations under the AHR Act. According to Health Canada’s Compliance and Enforcement: Assisted Human Reproduction website, “the AHR Act and its regulations establish the framework to help protect the health, safety, dignity and rights of individuals who use or are born of assisted human reproduction in Canada”. This framework includes a set of prohibitions and penalties, provides for the oversight of processing donor sperm and ova used for the purpose of assisted human reproduction and the reimbursement of donors and surrogates, and establishes regulatory requirements at the federal level on how such activities must be conducted to help protect public health and safety.

Therefore, it is our view that amounts paid to a fertility clinic or donor bank in Canada, through an arrangement or transaction that is in accordance with the AHR Act and its related regulations, as a fee or other amount paid or payable, to obtain sperm, ova or embryos from outside Canada, to enable the conception of a child by the individual, the individual's spouse or common-law partner or a surrogate mother on behalf of the individual, are eligible medical expenses for purposes of the METC pursuant to paragraph 118.2(2)(v) of the Act.

Issue 2

You requested our views on the eligibility of the cost of certain assisted human reproduction services that were contracted with, and paid to a fertility clinic or donor bank located outside Canada.

You provided the following hypothetical example:

• The individual (Patient A) and her spouse (Patient B) (collectively, the Patients) sought to have an in-vitro fertilization (IVF) cycle performed with anonymous donor eggs obtained for the purpose of conceiving a child;

• The Patients contracted with the US donor bank for the IVF cycle, which included the purchase of materials and provision of services by the US donor bank, along with additional services provided by a Canadian fertility clinic;

• All fees paid by the Patients were paid to the US donor bank including the fees for the services provided by the fertility clinic in Canada;

• The fees for the services provided by the Canadian fertility clinic were paid in full by the US donor bank from the total fee fees paid to them by the Patients.

The following assisted human reproduction services were provided:

• The Patients purchased frozen donor eggs through the US donor bank;

• The fertility clinic in Canada provided the following services in Canada for the Patients:

o consultation, diagnosis, and preparation of the treatment plan,

o sperm collection from Patient B, testing and freezing,

o shipping sperm to the US donor bank for insemination with donor egg (to create embryo);

• Upon receipt of the sperm, the embryos are created by the US donor bank using donor egg and sperm from Patient B, and the embryo is then shipped to the Canadian fertility clinic, and;

• Upon receipt of the embryos, the Canadian fertility clinic services include thawing and transfer of the embryo to Patient A (in Canada).

Response

In your example, the services provided by the US donor bank include the purchase of frozen donor eggs and the embryo fertilization procedure.

Paragraph 118.2(2)(v) of the Act explicitly limits the METC for fees or other amounts paid or payable to obtain reproductive material to amounts paid to a fertility clinic, or donor bank in Canada. Therefore, amounts paid to the US donor bank, to obtain the frozen donor eggs, would not meet the conditions of paragraph 118.2(2)(v) of the Act and would therefore not be an eligible medical expense for purposes of the METC.

It is our understanding that the embryo fertilization procedure is a laboratory procedure within the in-vitro fertilization process which is performed by fertilizing an ova with sperm and is not performed on a particular individual. In this scenario, the sperm used in the embryo fertilization process is provided by Patient B. Paragraph 118.2(2)(o) of the Act includes the cost of laboratory, radiological and other diagnostic procedures or services, with necessary interpretations, for maintaining health, preventing disease or assisting in the diagnosis or treatment of any injury, illness or disability of the patient. Unlike paragraph 118.2(2)(v) of the Act, eligible medical expenses under paragraph 118.2(2)(o) of the Act are not restricted to those paid in Canada or for medical services provided in Canada. Therefore, the cost of the embryo fertilization procedure for a patient could qualify as eligible medical expenses if the requirements of paragraph 118.2(2)(o) of the Act are otherwise met. For the purposes of the METC the term “patient” is defined as the individual, the individual's spouse or common-law partner or a dependant of the individual.

With respect to the services provided by the Canadian fertility clinic, many expenses related to the use of assisted human reproduction technologies may be eligible for the METC under 118.2(2)(a), (n) or (o) of the Act, provided that the expenses are for the patient. These expenses may include amounts paid to a medical practitioner or a public or private hospital to conceive a child, amounts paid for prescription drugs (including the cost of prescribed fertility medication) and amounts paid for laboratory, radiological and other diagnostic procedures involved with a reproductive technology.

Therefore, the amount paid to the US donor clinic for assisted human reproduction services provided by the fertility clinic in Canada, may be eligible medical expenses for the purposes of the METC, if they are for the patient, and they otherwise meet the requirements of paragraphs 118.2(2)(a), (n) or (o) of the Act.

Issue 3

You have requested our views on the eligibility of the cost of certain assisted human reproduction services where an individual who wants a child needs to purchase donor eggs, donor sperm and requires the use of a surrogate mother.

The following facts and assumptions have been provided for this scenario:

• An individual purchased frozen donor eggs and frozen sperm through a US donor bank;

• The US donor bank creates the embryos using the donor egg and donor sperm;

• The embryos are shipped to the fertility clinic in Canada;

• The fertility clinic in Canada provides consultation and treatment to the surrogate mother in preparation for transfer of embryo;

• Upon receipt of the embryos, the fertility clinic in Canada prepares the embryo for transfer and then transfers the embryo to the surrogate, and;

• Similar to the scenario in Issue 2, the individual paid the US donor bank for all of the services performed, including both the materials purchased and the services provided by the US donor bank and the services provided by the fertility clinic in Canada.

Response

As discussed above, paragraph 118.2(2)(v) of the Act explicitly limits the METC for fees or other amounts paid or payable to obtain reproductive material to amounts paid to a fertility clinic, or donor bank in Canada. Therefore, amounts paid to the US donor bank to obtain donor eggs and sperm would not be an eligible medical expense, pursuant to paragraph 118.2(2)(v) of the Act.

Unlike the scenario in Issue 2 above, the sperm used in the embryo creation process in this example was not provided by the individual’s spouse or common-law partner. Given that the embryo fertilization procedure is not for the patient, the cost to create the embryo with the donor sperm and donor ova would not be an eligible medical expense under paragraph 118.2(2)(o) of the Act.

In this particular scenario, the surrogate (not the intended parent) is the patient in respect of the services provided by the fertility clinic in Canada. The fertility clinic in Canada may provide consultation and treatment to the surrogate mother in preparation for transfer of embryo, and; upon receipt of the embryo, the fertility clinic in Canada would provide the services of thawing the embryo and transferring the embryo to the surrogate.

For 2022 and subsequent tax years, subsection 118.2(2.21) of the Act deems certain amounts paid by the individual or the individual's spouse or common-law partner for the purpose of the individual becoming a parent to be an eligible medical expense for purposes of he METC. To qualify, an amount must be:

• a reimbursed expenditure for the purpose of surrogacy, donating sperm or ova, or maintenance and transport of an in vitro embryo, as described under any of sections 2 to 4 of the Reimbursement Related to Assisted Human Reproduction Regulations (the RRAHR Regulations); or

• paid in respect of a surrogate mother or donor, and that would be an expenditure under any of sections 2 to 4 of the RRAHR Regulations if it was paid to the surrogate mother or donor.

In addition, to qualify as a medical expense of the individual, the amount must also be

• an amount that would be a medical expense of the individual under subsection 118.2(2) of the Act, if the amount had been paid in respect of a good or service provided to the individual or the individual's spouse or common-law partner; and

• an expense incurred in Canada.

It is our view that the phrase “expense incurred in Canada” within subsection 118.2(2.21) of the Act means that the medical expense incurred is a good that is acquired in Canada or a service received in Canada, by the patient (in the case of subsection 118.2(2.21) of the Act, the patient for a particular medical expense is the surrogate or donor).

Applying this interpretation to the current situation, a good acquired or medical service received by the surrogate in Canada meets the requirement of an “expense incurred in Canada”. Therefore, assuming that all of the other criteria of subsection 118.2(2.21) of the Act are met, amounts paid in respect of a surrogate mother for goods acquired or medical services provided in Canada to a surrogate by a Canadian fertility clinic would the meet the criteria of subsection 118.2(2.21) of the Act. This would apply even when amounts for those goods acquired or services provided in Canada were paid to a US clinic. Such amounts paid by an individual could be an eligible medical expense for purposes of the METC.

Issue 4

You have indicated that a fertility or donor clinic may issue their invoices to the taxpayer, their spouse or common-law partner, the donor, or the surrogate. You have asked whether amounts paid either directly to a donor or surrogate, or paid to a fertility clinic or donor clinic, in respect of the donor or surrogate could be an eligible medical expense for purposes of the METC.

Response

Paragraph 118.2(2.21)(b) of the Act provides that an amount must be either described under any of sections 2 to 4 of the RRAHR Regulations or paid in respect of a surrogate mother or donor and would be an expenditure under any of sections 2 to 4 of the RRAHR Regulations if it was paid to the surrogate mother or donor.

Sections 2 and 4 of the RRAHR Regulations sets out categories of reimbursable expenditures that could be incurred by a sperm or ova donor or surrogate mother in relation to their donation or surrogacy.

Therefore, amounts paid either directly to a donor or surrogate, or paid to a fertility clinic or donor clinic, in respect of the donor or surrogate, would meet the requirement of paragraph 118.2(2.21)(b) of the Act and may be an eligible medical expenses for purposes of the METC, if all other conditions of subsection 118.2(2.21) of the Act are met.

Issue 5

Whether administrative fees charged by the fertility or donor clinics are eligible medical expenses for purposes of the METC where they are ancillary to medical services performed or the purchase of goods that are eligible medical expenses. The administrative fees may include the cost to prepare and maintain patient files, setup appointments, coordinate with reproductive material donor banks, and complete medical forms.

Response

It is our understanding that the administrative fees are ancillary services that are being provided by the fertility or donor clinic to the patient.

Whether an administrative fee is an eligible medical expense for purposes of the METC is a question of fact. Administrative fees in respect of fertility or donor services, may be eligible medical expenses for the METC if they fall under paragraph 118.2(2)(a), or 118.2(2)(v) of the Act.

Pursuant to paragraph 118.2(2)(a) of Act, an amount paid to a medical practitioner, dentist or nurse, or a public or licensed private hospital is considered to qualify as a medical expense of an individual only if it is paid in respect of a medical or dental service. A medical service is a service relating to the diagnosis, treatment or prevention of disease performed by a medical practitioner acting within the scope of his or her professional training. The completion of the forms by a medical practitioner would normally be ancillary to the medical service provided by the practitioner. Accordingly, amounts paid to the practitioner for the completion of medical form would generally qualify as a medical expense for the METC.

Based on the information provided it appears that a number of the administrative activities described above are performed to support medical services provided by the fertility or donor clinics. It is uncertain whether these activities are performed by the medical practitioners within the scope of their professional training. To qualify for METC under paragraph 118.2(2)(a) the Act, the expenses paid for medical services are eligible only to the extent that theses services are administered by a medical practitioner, dentist or nurse acting within the scope of his or her professional training. As such, it is a question of fact whether these administrative activities can qualify for METC under paragraph 118.2(2)(a) of the Act.

Paragraph 118.2(2)(v) of the Act specifies that the amounts paid to a fertility clinic or donor bank as a fee to obtain sperm, ova or embryos to enable the conception of a child must be paid to a fertility clinic or donor bank in Canada. Where administrative activities are performed in order to obtain sperm, ova or embryos, and all other criteria under paragraph 118.2(2)(v) of the Act are met, amounts paid to a fertility clinic or donor bank in Canada, for administrative fees related to obtaining sperm, ova or embryos, may qualify as a medical expense under paragraph 118.2(2)(v) of the Act.

Issue 6

You have asked whether receipts used to support a METC claim by a taxpayer, from a fertility or donor clinic, need to describe the nature of each service or good provided.

Response

As outlined in paragraph 1.147 of the Canada Revenue Agency’s (CRA) Income Tax Folio S1-F1-C1, Medical Expense Tax Credit, generally all expenses claimed as eligible medical expenses must be supported by proper receipts. A receipt should indicate the purpose of the payment, the date of the payment, the patient for whom the payment was made and, if applicable, the audiologist, dentist, medical doctor, nurse practitioner, medical practitioner, nurse, occupational therapist, optometrist, pharmacist, physiotherapist, psychologist, or speech-language pathologist who prescribed the purchase or gave the service.

If required forms, receipts or other supporting documents are not filed with the income tax return, such as when the return is electronically filed (E-filed), they should be retained and readily available as they may subsequently be requested as proof of the claims being made or in support of the information being reported.

Yours truly,

Eric Wirag, CPA, CMA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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