Principal Issues: Whether legal fees in an action against Ontario Health Insurance Plan to obtain reimbursement of medical expense for treatment of a serious disease.
Position: No.
Reasons: The legal fees are not qualifying medical expenses for purposes of the METC nor are they otherwise deductible under the Act.
XXXXXXXXXX 2010-038984 J. Gibbons, CGA March 3, 2011
Dear XXXXXXXXXX :
Re: Legal Fees
This is in reply to your letter dated December 2, 2010, concerning the income tax treatment of legal fees incurred by a taxpayer (the "Taxpayer") to pursue coverage under the Ontario Health Insurance Plan ("OHIP").
In particular, you describe the following circumstances. The Taxpayer, an Ontario resident, is seeking ongoing medical treatment for a serious illness. The Taxpayer was denied medical expense reimbursement under OHIP. The Taxpayer incurred legal expenses for advice from a third-party law firm regarding the denial of his claim by OHIP and for subsequent legal action against them.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.
Unless there is a specific provision in the Income Tax Act (the "Act") providing for the deduction of legal fees, for example, paragraphs 8(1)(b), 60(o) or (o.1) of the Act, legal fees are only deductible to the extent that they constitute reasonable non-capital expenditures incurred for the purpose of gaining or producing income from a business or property. Alternatively, in the case where a patient needs a bone marrow or organ transplant, reasonable legal fees incurred to locate a compatible donor and to arrange for the transplant qualify for the medical expense tax credit ("METC") under paragraph 118.2(2)(l.1) of the Act.
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.
Based on the foregoing, it is our view that the legal fees incurred in the circumstances described in your letter would not qualify as medical expenses for purposes of the METC nor would these fees be deductible under another provision of the Act for income tax purposes.
We trust 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