Principal Issues: Whether cosmetic procedures to treat melasma that is severe, persistent and disfiguring qualify for the METC.
Position: Yes, if all the conditions under paragraph 118.2(2)(a) are also met.
Reasons: Medical services to treat melasma that is severe, persistent and disfiguring would generally be considered to have a medical or reconstructive purpose. Thus, paragraph 118.2(2.1) does not apply. All the conditions under paragraph 118.2(2)(a) must also be met.
XXXXXXXXXX 2010-037805 Chrys Tzortzis, CA
December 16, 2010
Dear XXXXXXXXXX :
Re: Eligible medical expense
We are writing in reply to your email dated August 17, 2010, wherein you inquire whether the cost of a particular treatment for melasma qualifies as an eligible medical expense for the purposes of the medical expense tax credit ("METC"). In addition, you inquire whether the costs of laser skin treatments to remove brown spots qualify as eligible medical expenses for the purposes of the METC. Your inquiry is made in the context of claiming these costs under a health care spending account. You also state that you reside in British Columbia but that these cosmetic procedures will be performed in Ontario.
It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the CRA Web site at
www.cra-arc.gc.ca. However, we are prepared to provide the following general comments, which may be of assistance.
Benefits received or enjoyed by an employee in respect of, in the course of, or by virtue of an office or employment are generally taxable as income from that office or employment pursuant to paragraph 6(1)(a) of the Income Tax Act (the "Act"). However, subparagraph 6(1)(a)(i) of the Act specifically excludes benefits derived from the contributions of a taxpayer's employer to or under a private health services plan ("PHSP"). A health care spending account may qualify as a PHSP provided it meets all the requirements of a PHSP.
Pursuant to subsection 248(1) of the Act, a PHSP means a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or a medical care insurance plan or hospital care insurance plan or any combination of such plans. In Interpretation Bulletin IT-339R2, Meaning of Private Health Services Plan, the Canada Revenue Agency has set out the requirements that must be met in order for a plan to be considered a PHSP. In paragraph 4 of that bulletin, it is stated that coverage under a PHSP must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) in the determination of the METC. If a particular plan does not qualify as a PHSP, the amount of any benefit received out of the plan will be taxable to the employee.
Medical expenses which are eligible for the METC are limited to those described in subsection 118.2(2) of the Act. If a particular expenditure is not described as an eligible medical expense in subsection 118.2(2) of the Act, or if the conditions under which the expenditure would qualify are not met, the expenditure does not qualify for purposes of the METC, even though the expenditure may have been incurred for medical reasons.
Pursuant to paragraph 118.2(2)(a) of the Act, an amount is considered to qualify as a medical expense for the purposes of the METC if it is paid to a medical practitioner, dentist or nurse or a public or licensed private hospital in respect of medical or dental services. Paragraph 118.4(2)(a) of the Act provides that where the reference to a medical practitioner, dentist or nurse (a "practitioner") is used in respect of a service rendered to an individual, that reference is to a person authorized to practice as such pursuant to the laws of the jurisdiction in which the service is rendered. Therefore, in order to determine whether a particular practitioner qualifies as such under the Act, one must look to the relevant provincial legislation to determine whether the particular practitioner is authorized under the laws of that province. Thus, if the service is rendered in Ontario, the practitioner must be authorized to practice as such pursuant to the laws of Ontario.
Pursuant to subsection 118.2(2.1) of the Act, a medical expense does not include amounts paid for medical or dental services, nor any related expenses, provided purely for cosmetic purposes, unless necessary for medical or reconstructive purposes. The CRA has posted on its Web site some examples of procedures that will generally be ineligible as medical expenses for purposes of the METC and the examples include chemical peels and laser treatments (skin resurfacing and removal of age spots).
As noted in your correspondence and stated in the explanatory notes to subsection 118.2(2.1), examples of procedures that would generally be considered to have a medical or reconstructive purpose include those that would ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.
In our view, cosmetic procedures to treat melasma that is severe, persistent and disfiguring would generally be considered to have a medical or reconstructive purpose. Therefore, such procedures may qualify as eligible medical expenses if all the conditions under paragraph 118.2(2)(a) are also met.
We trust that these comments will be of assistance.
Yours truly,
G. Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch