Make sure you collect and keep all your receipts for tax-deductible medical and moving costs.
Now is a good time to take a look at two tax deductions that taxpayers often think little about until the approaching income tax deadline sends them scurrying to find all those illusive receipts they might need for the end-of-the-tax-year meeting with their CPA.
Over the last few years, the Canada Revenue Agency (CRA) has made many changes to allowable medical expense deductions. Technological advances and recognition of non-traditional treatments have created a broader range of deductions. By way of example, claims are now allowed for:
- phototherapy equipment for treating psoriasis or other skin disorders
- vehicle modification to enable wheelchair-bound individuals to drive a vehicle
- medical marihuana if the person is authorized under the Controlled Drug and Substances Act to purchase or produce this otherwise illegal drug.
Many taxpayers claim medical expenses that are not deductible. As well as listing expenditures that are deductible, the CRA details the conditions for which expenditures are not deductible. For example, a prescription issued for over-the-counter vitamins would not be allowable because the item could be purchased without a prescription.
Your province or territory of residence may determine whether the health care service is tax deductible. For instance, acupuncture is not recognized as a medical practice in Nova Scotia, Saskatchewan, Prince Edward Island and the three territories; this suggests that an acupuncturist’s billings may not qualify as a tax deductible medical expense for taxpayers who live in these geographic areas.
Because of the ever-expanding list of deductible expenses for treatments and drugs, the CRA website includes a link that lists allowable medical expenses.
People often forget to keep receipts.
Canadians are mobile. A study by the Vanier Institute of the Family shows that 41% of Canadians moved in the five-year period between 2001 and 2006. Unfortunately, during the move itself, people often forget to keep receipts for expenses incurred. The general rule is that, if you are moving to carry on business, moving for employment, or to become a full time student in a post-secondary educational institution, you are entitled to deduct moving expenses.
There are, however, some provisos:
- You cannot deduct moving expenses against investment or employment insurance income.
- You must have moved at least 40 kilometres closer to the new place of business, place of employment or educational institution.
- Moves must be within Canada. (There are some exceptions; for more information on eligibility and exceptions see the CRA’s “Information about Moving Expenses” at cra-arc.gc.ca/E/pbg/tf/t1-m/t1-m-14e.pdf, or consult your CPA).
- You cannot claim expenses that have been refunded.
- Moving expenses cannot exceed the net income earned from the new business or place of
- Students who receive taxable scholarships or research grants cannot deduct expenses that exceed these amounts.
- If the entire moving expense cannot be used in the year of the move, it can be carried forward to the next tax year and beyond, if applicable.
Possible expenditures include:
- The cost of moving the personal effects inside a mobile home is deductible, but the cost of moving the mobile home is not.
- Transportation and storage costs for all household items as well as recreational items are deductible.
- Travel expenses include vehicle expenditures (the most obvious of which is fuel), meals, and temporary lodgings for the taxpayer and family members. Temporary lodging is limited to 15 days.
- If you rent, lease cancellation for the former residence is deductible.
- If you own, vacate the premises to move, and incur expenses during the selling period you may claim up to $5,000 for the cost of insurance, property tax, interest, heating, and utilities. These deductions do not apply if you are renting the vacated property.
- Costs, such as legal fees, advertising, real estate commissions or mortgage penalties for paying off a mortgage before the maturity date are also deductible. If you purchase a new home in your new work location, costs incurred for legal fees, land transfer fees or registration costs can be claimed.
- To claim meals and vehicle expenses as tax deductions, the taxpayer has the option of choosing the detailed or simplified method. For meals, there is a predetermined flat rate per person; for vehicles, the distance from the start of the move to the destination must be determined. A cent-per-kilometre amount (as prescribed by the CRA) is used as a multiplier to obtain the allowable expense deduction.
- With respect to moving expenses carried forward, they can only be applied against the original self-employment or employment income earned.
Some expenditures cannot be claimed:
- replacement of personal-use items
- cleaning or repairing a leased premises
- expenses incurred to fix up the old residence for sale
- mortgage default insurance
- job hunting travel expenses
- cost of replacing items movers may refuse to take (plants, gasoline, ammunition, paint, etc.)
- any loss incurred on the sale of your home
Whether filing for medical or moving expenses, the CRA may audit your return and require documentation to establish whether the expenses are justified. Medical expenses can be claimed for any 12-month period ending in the tax year; if the taxpayer has died within the year, the period is extended to 24 months and must include the date of death. Since moving costs can be carried forward to apply against future years’ income, the taxpayer may be subjected to a CRA audit after the first year of claiming if the carry forward is available and used in the following year. In any case, it is the responsibility of the taxpayer to obtain and keep all documentation required to support the deductions claimed.
Plan Ahead to Keep Those Receipts
At this time of year, many students and employees are looking forward to moving to further their education or relocating for that new job. Along with the anticipation of an exciting move, comes the cost of ensuring adequate medical coverage and transportation needs. Take advantage of the tax allowable deductions by collecting and carefully filing receipts for all costs associated with your move and provide them to your CPA.
The preceding article is reprinted from the August 2015 newsletter Business Matters with the permission of the Chartered Professional Accountants of Canada. Business Matters is a bi-monthly newsletter, the full version of which can be obtained on request.
This post deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.