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Can your medical and dental bills save you taxes?


Author: Gill Campbell

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Tax time is coming up and you should all be getting your T4’s by the end of February, then all the other forms soon after that. But when you sit down to see how much you will owe, or will get back, don’t forget that you may be able to save taxes by claiming your family’s medical and dental bills.

All of the political parties talk about the dangers of a two-tier health system in Canada. But no one talks about the fact that, effectively, we do have a two-tier system. Only our hospital stay on a ward and our visits to specialists or our personal physician are paid by our MSP premiums.

We pay to visit our dentist, our chiropractor, our massage therapist, our physiotherapist, our psychologist, our optometrist and any other paramedicals we may need. Also we pay for our prescriptions drugs (pharmacare takes over after a hefty deductible) and our glasses or contact lenses. Also we pay if we need an ambulance, crutches, wheel chairs and private hospital room. However, the tax rules mean that we can create a 22% tax credit when these expenses go over 3% of our net income.

As taxpayers you may claim qualifying medical and dental expenses paid during the tax year, or any twelve-month period ending in 2005. Accumulated expenses for the family unit exceeding 3% of the net income will qualify for the tax credit. You get the most benefit if you claim the tax credit on the tax form of the spouse (or common-law partner) with the lower net income, if they have tax payable.

And don’t forget that you can claim reasonable travel expenses including meals and accommodation if you have to travel more than 80 kilometres. There are many expenses that can be claimed but the rules change every year. I recommend that you check on the government website for more details at www.cra-arc.gc.ca. Type "medical expenses” into the Search box and scroll down to: 8. 2005 Resource Kit: Medical expenses, for full details.

Of course, many of you have health plans at work and are able to get some or all of the money back for these services and goods. But most plans do not pay everything so make sure you do the calculation to see if the deductibles add up enough to make a claim.

Once you have the total of the eligible medical and dental expenses, and you have deducted 3% of your net income, you will generate a tax credit at the lowest tax bracket – but it’s better than nothing.

However, if you have a business you may have other options for your family’s health and dental care. In 1998 Paul Martin, who was the Finance Minister at that time, brought in legislation to allow small businesses to set up a Personal Health Services Plan (PHSP). There are many rules but basically the PHSP allows eligible medical and dental expenses to be expensed in the business rather than being deducted on the personal income tax form.

The rules for incorporated businesses are fairly straightforward. Sole proprietors are subject to rules to to ensure that they really are in business: more than 50% of the total income should be net income from self-employment;, other income should be less than $10,000; and, active self-employment on a regular and continuous basis is required. If you are in business, visit the CRA site for more information on www.cra-arc.gc.ca. Type "T4002” into the Search box, go to Chapter 3, Expenses and scroll down to: private health services plan (PHSP)

While individuals can reasonably easily incorporate their expenses in their personal tax declarations and generate the tax credit, business operators interested in creating a business deduction are encouraged to consult with their lawyers and accountants about the merits of a PHSP or health trust for their situation.

Government has provided options to limit our personal health expenses. Hopefully this article will help more of us take advantage of the options.

Gill Campbell is a certified financial planner and an independent insurance broker. Please email her with specific areas that you would like her to consider in developing future columns

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This entry was posted on Monday, January 2nd, 2006 at 6:04 pm and is filed under FEATURE. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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