The Curious Tale of the Ailing Twins

Strategies for your medical expenses

Two sisters incur the same medical expenses over the same period of time. Yet one gets no tax benefits while the other gets $209 back on her taxes. Why? It’s all about timing.

One bright August afternoon in 2004, the twins woke up in their Whitby*-area condo feeling under the weather.

“I feel totally icky!” Mary-Kate said.

“Me too!” Ashley replied.

Later that day the girls dropped in on their provincially-licensed naturopath, each paying $100 for the office visit and receiving a prescription for an additional $100 in herbal remedies.

The girls return to the naturopath every month until May 2005, each time spending $100 for the visit and another $100 for the prescription.

Each twin had a taxable income of $35,000 annually, and each of them racked up $1,000 of allowable medical expenses per calendar year.

The Mystery
When tax time came around, Mary-Kate claimed $1,000 in medical expenses in 2004 and another $1,000 in 2005. Her tax credit came to $0.

Ashley, on the other hand, managed to get $209 back in credits on her 2005 tax return.

How is this possible?

Solution:

Ashley knew that medical expenses only start earning tax credits when they exceed 3% of your taxable income. With her taxable income of $35,000, she knew she needed to claim at least $1,050 in medical expenses before she’d start earning tax credits.

3% of $35,000 = $1,050

She also knew that a person is allowed to write off medical expenses for any 12-month period ending in the tax year. In this case, she could claim all her visits to the naturopath, her visit to the shrink, and all her prescriptions on her 2005 taxes, because they were all incurred in the 12-month period that ended in May 2005.

Tragically, Mary-Kate chose to apply each of her medical expenses to the tax year in which they were incurred. But each year her medical expenses were less than $1,050, so she couldn’t get a tax credit for them.

[one-third]

Mary-Kate

2004

  • medicals claimed: $1,000
  • medicals exceeding 3% of income: $0
  • credits earned: $0

2005

  • medicals claimed: $1,000
  • medicals exceeding 3% of income: $0
  • credits earned: $0

[/one-third][one-third]

Ashley

2004

  • medicals claimed: $0
  • medicals exceeding 3% of income: $0
  • credits earned: $0

2005

  • medicals claimed: $2,000
  • medicals exceeding 3% of income: $950
  • credits earned:
    $152 federal + $57 provincial = $209

[/one-third]

Note that the government recognizes various ‘alternative’ therapies as eligible medical expenses for tax purposes. Sessions with licensed naturopaths, chiropractors, acupuncturists and other medical professionals are eligible, as well as prescriptions from licensed naturopaths. Visit the Canada Revenue Agency or contact us for an extensive list of eligible medical expenses.

When Mary-Kate learned how much money she’d lost out on, she became so upset that she eventually checked herself into a private care facility. But it was mostly for the tax break.