Monday, February 4, 2008

Income Tax Q and A's. #2: Claiming hearing aids as a medical expense

Q: Can I claim my hearing aids as a medical expense on my income tax?

A: Yes you can.
You can claim, as a non-refundable tax credit, medical expenses for yourself, your spouse or common-law partner, and your children born in 1990 or later. For 2007, the total expenses have to be more than 3% of your net income, or $1,926, whichever is less.
You may also be able to claim medical expenses for the following persons if they depend on you for support:
you or your spouse or common-law partner's child or grandchild who was born in 1989 or earlier; and
you or your spouse or common-law partner's parent or certain close relatives who lived in Canada at any time in the year.

Q: If I purchased a hearing aid for someone other than myself, can I claim it under my medical expenses on my federal income tax?

A: The Canada Revenue Agency states that:

1. You can claim, as a non-refundable tax credit, medical expenses for yourself, your spouse or common-law partner, and your children born in 1990 or later. For 2007, the total expenses have to be more than 3% of your net income, or $1,926, whichever is less.

You may also be able to claim medical expenses for the following persons if they depend on you for support:
· you or your spouse or common-law partner's child or grandchild who was born in 1989 or earlier; and
· you or your spouse or common-law partner's parent or certain close relatives who lived in Canada at any time in the year (see 2).

The link to the above information is: http://www.cra-arc.gc.ca/newsroom/taxtips/2008/tt080115-e.html

2. You may claim the portion of eligible medical expenses you or your spouse or common-law partner paid for the following persons who depended on you for support on line 331:
· your or your spouse or common-law partner's child who was born in 1989 or earlier, or grandchild; or
· your or your spouse or common-law partner's parent, grandparent, brother, sister, aunt, uncle, niece, or nephew who was a resident of Canada at any time in the year.
The claim must be for the same 12-month period that was determined at line 330.
The link to the above information is: http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return/completing/deductions/lines300-350/331-e.html

The following is the formula used for Federal Medical and Disability Tax Credits
Medical Tax Credits are calculated as follows, using the formula:

A x B

Where “A” is a prescribed rate and “B” is the eligible amount.

The prescribed rate is subject to change from year to year. It is currently 15.5%.

The eligible amount is more complicated to determine:

Formula Y-Z

Z is the lesser of:
Net Income x 3%
Or
$1,926

Y is the total amount of all eligible medical expenses for the year.

In Example:
If you had a net income of $100,000 and medical expenses for the year of $7,000.

A = 15.5%
B = (Y-Z) = $7,000 - The lesser of: (100,000 x 3%) = $3,000 or $1,926
B = 7,000 – $1,926 = $5,074

A X B = 15.5% X $5,074 = $786.47

Therefore, you would receive a deduction in taxes payable to the federal government in the amount of $786.47.



Disability Tax Credits are also calculated using the formula A X B:

Where “A” is a prescribed rate and “B” is the eligible amount.

The prescribed rate is the same 15.5%

The eligible amount is $6,890 ($7,021 for 2008)

Therefore, someone who is eligible to receive the disability tax credit would receive a deduction in taxes payable to the federal government in the amount of $1067.95 ($6,890 X 15.5%).