Claiming medical expense tax credit on hot tubs, pools and warm weather

By Doug Carroll | June 21 2016 07:00AM
At issue

The medical expense tax credit (METC) may be a bit of a mystery for the average taxpayer. Likely this is because it is intended to capture large outlays (individually or in aggregate), leaving smaller amounts in each taxpayer’s hands. To the point, the credit is only available on expenses in a year that exceed the lesser of $2,000 and 3% of net income.

But for those with a standing medical condition, the METC addresses a fundamental financial need. It is also a substantial government spend – and unfortunately is open to abuse, particularly where an element of leisure attaches to large ticket items. On closer examination though, what is a luxury to some may be a necessity to others, irrespective of tax considerations.

Hot tubs and hardwood

In the early 2000’s there were a number of court cases and Canada Revenue Agency (CRA) letters dealing with hot tubs and hardwood floors. Generally a medical practitioner had recommended the former for alleviating mobility problems, and the latter for asthma sufferers.

CRA letters usually opined in the case of hot tubs that at best the installation costs may be allowed. The court dispositions were not always consistent. Here’s a selection:

Gibson v. Canada, [2000] T.C.J. No. 753 – Costs of renovation for installing hot tub could be claimed, but not hot tub itself. (Fybromyalgia with severe neck pain)

Donahue v. The Queen, 2003 TCC 888 – Cost of hot tub is an allowed medical expense. (Severe chronic back pain)

Canada v. Klywak, 2005 FCA 354 – Cost of hot tub allowed as a device that is designed to assist an individual in walking. (Fybromyalgia impairing walking and other mobility)

These and other cases conducted under the informal procedure relax the rules of evidence and are not binding on other courts. Adding to uncertainty, more than one judge had allowed the hot tub cost in one case while denying in another. Outcomes were fact-dependent.

2005 Federal Budget and after

The 2005 Budget amended the criteria for claiming medical expenses. The supporting notes to the Budget explicitly referred to Department of Finance concerns with hot tubs and hardwood floors.

Income Tax Regulation 5700(i) was amended to limit mobility claims to devices “exclusively” designed to assist “walking”, effectively over-ruling future claims akin to Klywak. And an over-riding test was added at Income Tax Act s.118.2(2)(l.2), requiring that any alterations or additions:

- could not increase the value of a dwelling, and

- could not be a cost that someone without mobility challenges would typically spend.

Pools and warm weather

The new provisions shifted judicial analysis toward these legal tests, leaving less latitude for discretionary fact-driven outcomes. 

Barnes v The Queen 2009 TCC 429 – A regular swimming pool used for rehabilitative physiotherapy does not meet the second part of the new test as it is something that a person with normal mobility might install. (Cerebral palsy and Special Olympics training)

Johnston v The Queen 2012 TCC 177 – Hot tub solely used for subject person shown to assist wheelchair mobility throughout home, but still fails the second part of the new test. (Cerebral palsy, related quadriplegia, and contractures of limbs)

Sotski v The Queen 2013 TCC 286 – Replacing relatively new carpet with inexpensive laminate flooring satisfies all requirements. (Parkinson’s condition with serious trip/fall concern)

Tallon v. The Queen, 2015 FCA 156 – And as to that warm weather? A taxpayer initially succeeded on claiming costs of being in a warm southern climate to alleviate chronic joint pain experienced during the cold Canadian winter, but was later reversed on appeal.

Practice points
  1. The selection of cases here is not comprehensive, but rather shows the range of outcomes, and that each situation is unique.
  2. Even so, the rules are much tighter since 2005. As more than one judge has stated: “The bar has been clearly set high by Parliament.”
  3. As Sotski shows, it may still be possible to succeed on a claim under the new rules, less likely though that may be for hot tubs and pools.