5 June 2002 Internal T.I. 2002-0142167 - EXEMPT INCOME - MEDICAL EXPENSE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Can a status Indian with no income other than exempt income claim the refundable medical expense supplement?

Position: No.

Reasons: If the amount is exempt under section 81, it cannot be income as income for the purposes of determining whether an individual qualifies for the refundable medical expense supplement under subsection 122.51(1) of the Act.

		June 5, 2002

	Brent Davies	HEADQUARTERS
	Enquiries & Adjustments Division	Karen Power, CA
	Winnipeg Tax Centre	(613) 957-8953

		2002-014216

Exempt Income / Medical Expense Supplement

We are writing in reply to your correspondence of May 22, 2002, wherein you requested our views on whether a status Indian reporting no income because his or her income was exempt income pursuant to paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act would be entitled to claim a refundable medical expense supplement as described in section 122.51 of the Act.

Our Comments

Section 122.51 of the Act provides a refundable tax credit for eligible individuals - the refundable medical expense supplement. The supplement is equal to the lesser of $500 and 25/16 of the medical expense tax credit claimed by an eligible individual for the year. The supplement is reduced by 5 per cent of the individual's "adjusted income" in excess of an indexed threshold.

For the purpose of the refundable medical expense supplement, an "eligible individual" for a taxation year is defined in subsection 122.51(1) as an individual (other than a trust) who is resident in Canada throughout the year, 18 years of age or older at the end of the year and whose income from a business and/or employment (excluding disability benefits) for the year is at least $2,500.

Paragraph 81(1)(a) of the Act states that amounts declared exempt from income tax should not be included in computing income. Subsection 122.51(1) provides that the individual's aggregate income for the year from offices, employment and business must exceed $2,500. If an individual's income is exempt under paragraph 81(1)(a), it will not be recognized as income for purposes of determining whether the individual qualifies as an "eligible individual" within the meaning assigned by subsection 122.51(1) of the Act. Consequently, where a status Indian has no income other than exempt income, he/she will not be entitled to claim the refundable medical expense supplement.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the CCRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a severed copy using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.

We trust our comments will be of assistance.

Mickey Sarazin, CA
Aboriginal Affairs Section
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch