Medical marijuana now an allowable expense for income tax purposes

By Susan Yellin | November 11 2015 07:00AM

Canadian users of prescribed medical marijuana can now claim the drug as an allowable medical expense on their income tax – good news for those who cannot get reimbursed by their drug plans.

In early September, the Canadian Medical Cannabis Industry Association (CMCIA) said it had received a letter from Canada Revenue Agency (CRA) confirming that medical cannabis purchased by an individual from a licensed producer under Health Canada’s Marihuana for Medical Purposes Regulations (MMPR) would be an allowable medical expense under the Income Tax Act.

The individual needs to first have a prescription for medical marijuana from a doctor and then buy it from a licensed producer, and may then claim the cost of the drug as an allowable medical expense on their income tax.

According to the CMCIA, “the letter notes that while amendments to the Income Tax Act have yet to be introduced to recognize the MMPR, ‘the CRA will not disallow eligible medical expenses claimed for the purchase of medical marihuana allowable under these new regulations’.”

“This is an important step in acknowledging the legitimacy of the way patients use medical cannabis, to help manage the symptoms of a range of health conditions,” Neil Belot, CMCIA executive director said in a news release. “We have been working with the CRA and the Department of Finance for several months to clarify this issue, and we’re extremely pleased that cannabis regulated by Health Canada has been recognized as an allowable tax expense. It’s very good news, and will help make the use of cannabis as medicine more accessible and affordable for patients.”

Health Spending Accounts

Wendy Hope, a spokesperson for the Canadian Life and Health Insurance Association, says this now means that people can use their Health Spending Accounts (HSAs) to get reimbursed from insurers for medical marijuana.

The HSAs are covered because in this à la carte process, employees get a number of credits in an account and can use the credits to pay for the kinds of health and dental expenses not covered elsewhere in their plan.

However, Hope says a regular supplementary health benefit plan alone will not cover medical marijuana because the marijuana doesn’t have a drug identification number (DIN). It still has to go through a process with Health Canada to qualify it as a prescription drug and provide it with a drug identification number [to get reimbursed],” says Hope. “Only if an employer explicitly instructs the insurer to cover the ‘non-DIN drug’ (i.e. marijuana), would the cost of that drug be reimbursed.”

A DIN is assigned by Health Canada and is found on the label of both prescription and over-the-counter drug products that have been evaluated and authorized for sale in Canada.

In an email to the Insurance and Investment Journal, a CRA spokesman said the fact that medical marijuana does not have a DIN has nothing to do with its eligibility for a tax credit.

“Although most drug products prescribed by doctors have DINs and many of these products are eligible for the medical expense tax credit, the eligibility for the tax credit is governed by the Income Tax Act, not by whether the drug product has a DIN.  

“The courts have required reasonable access to a legal source of marijuana when authorized by a healthcare practitioner.  This legal access is provided by the Marihuana for Medical Purposes Regulations. Authorized healthcare practitioners can prescribe medical marijuana to their patients, who can then access it by purchasing from a licensed producer that has been authorized under the applicable medical marijuana regulations.  Medical marijuana does not have a DIN, but a specific provision of the Income Tax Act allows the cost of the purchase of marijuana for medical purposes to be eligible for the medical expense tax credit when purchased as allowed under the new regulations.”

Safety, efficacy and quality

Health Canada says drugs are authorized for sale in Canada and receive a DIN once they have successfully gone through the drug review process to test for “safety, efficacy, and quality of a drug.” A spokesman for Health Canada noted the following on the federal department’s website:

“With the exception of Sativex® and Cesamet®, which have received Notices of Compliance authorizing their sale as therapeutic products in Canada, scientific studies do not demonstrate that marijuana is safe and effective for medical use to the extent required by the Food and Drug Regulations for marketed drugs in Canada. Except with respect to the above-mentioned drugs, at present no applicants have obtained approval under the FDA and its regulations, with respect to marijuana. As such, there can be no DIN associated with marijuana for medical purposes. However, marijuana for medical purposes is legally accessible by registering directly with a licensed producer under the terms of the MMPR.”

Hope says those wanting to claim prescribed marijuana as an expense on their income tax forms should note that there is a threshold amount to meet first.

For example, on the 2014 Schedule 1 tax form the taxpayer is asked to enter the total amount of eligible medical expenses for the tax year that the taxpayer or spouse or common-law partner paid.

They are then asked to enter 3% of their net income or $2,171, whichever is less, and then subtract that from their total medical expenses.

There are currently 26 licensed producers across Canada. As of the end of March 2015, a total of 1,284 applications had been received by Health Canada from those hoping to be licensed to sell marijuana. Of those, 252 were refused, 324 are still in progress. Other applications were either incomplete or withdrawn. Health Canada says licences are only issued once all regulatory requirements are met. Each application undergoes a detailed assessment, including in-depth security checks by the RCMP and site inspections.

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