2 August 2006 External T.I. 2006-0198081E5 - Medical Expenses

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.

Principal Issues: Whether particular expenses related to renovations and alterations to a pool are medical expenses for purposes of the medical expense tax credit.

Position: Under proposed amendments applying to expenses incurred after February 22, 2005, expenses likely don't qualify.

Reasons: In general, renovations or alterations to a pool would not be considered "renovations or alterations to a dwelling" within the meaning of paragraph 118.2(2)(l.2). On facts, however, pool is enclosed and attached to the dwelling. However, renovations to render a pool usable would reasonably be incurred by a person who has normal physical development or who does not have a serious and prolonged mobility impairment. It is also reasonable to assume that the renovations are of a nature that would increase the value of the dwelling.

XXXXXXXXXX 								2006-019808

August 2, 2006

Dear XXXXXXXXXX:

Re: Eligible Medical Expenses - Renovations to Swimming Pool

This is in response to your letter of April 4, 2006 asking for our views as to whether certain expenses you have incurred may be claimed as medical expenses in computing your medical expense tax credit for the 2005 taxation year. We also acknowledge your e-mail to us of July 26, 2006 asking that we contact you; however, we have been unable to reach you by telephone or e-mail.

In your letter, you advise that XXXXXXXXXX has Lupus, and as such, hydro-therapy has been recommended by her physician as a treatment for maintaining her physical flexibility. For this reason, you have moved from a two-storey home to a single storey home that provides greater accessibility to XXXXXXXXXX. At the time of purchase, your new home had an attached enclosed pool that was inoperative, and required extensive refurbishing to meet XXXXXXXXXX needs. Although you have not detailed the specific expenditures you have made, you have indicated that all the expenses at issue are related to the refurbishing of the pool for hydro-therapy purposes, and the costs associated with its on-going operation.

As you know, the Income Tax Act ("the Act") allows individuals to claim a medical expense tax credit based on the sum of their eligible medical expenses. Subsection 118.2(2) of the Act provides a complete list of the expenditures that currently qualify for the medical expense tax credit. Based on the description in your letter, we are of the view that two items on this list may be relevant to your situation. First, the list includes as eligible medical expenses (in paragraph 118.2(2)(l.2)), "reasonable expenses relating to renovations or alterations to a dwelling of the patient who lacks normal physical development or has a severe and prolonged mobility impairment, to enable the patient to gain access to, or to be mobile or functional within the dwelling". In general, renovations to a pool do not constitute renovations to a dwelling. However, you advise that your pool is enclosed and attached to your house. As such, the renovations and alterations to the pool could reasonably be viewed as renovations or alterations to your dwelling. We also believe, having regard to the letter from XXXXXXXXXX physician, that the renovations to the pool may reasonably be viewed as having the purpose of enabling XXXXXXXXXX to be more mobile within your dwelling.

We note, however, that proposed legislative changes to paragraph 118.2(2)(l.2) may affect your entitlement to claim these expenses. The proposed changes apply to expenses incurred after February 22, 2005, and impose two additional requirements for such expenses to be eligible medical expenses. First, the expenses must not be of a type that would typically be expected to increase the value of your dwelling. Second, the expenses must be of a type that would not normally be incurred by a person who has normal physical development or who does not have a severe and prolonged mobility impairment. Your letter indicates that the extensive repairs needed to make the pool usable depressed the purchase price of your home; as such, it seems reasonable to assume that the repairs to the pool would increase the dwelling's value. Further, it is our view that the costs incurred to repair an inoperative pool would reasonably be incurred by a person who has normal physical development or who does not have a severe and prolonged mobility impairment. As such, the expenses you incurred after February 22, 2005 to repair the pool are unlikely to be eligible medical expenses.

However, if the renovations or alterations to the pool included specific renovations or alterations that would not be made by a person who has normal physical development or who does not have a severe and prolonged mobility impairment, then reasonable expenses relating wholly to such specific renovations or alterations could be claimed provided they are not of a type that would typically be expected to increase the value of your home.

The second category of medical expenses is one that you have not raised as an issue; however, we note that paragraph 118.2(2)(l.5) includes as eligible medical expenses "reasonable moving expenses of the patient who lacks normal physical development or has a severe and prolonged mobility impairment, incurred for the purpose of the patient's move to a dwelling that is more accessible by the patient or in which the patient is more mobile or functional, if the total of the expenses claimed...by all persons in respect of the move does not exceed $2000". You have indicated that, due to XXXXXXXXXX mobility impairment, you moved from a two-storey to a one-storey dwelling. Under such circumstances, the moving expenses that may be claimed as eligible medical expenses are the same as those described on the CRA's website under the heading "Expenses you can deduct" at http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return/completing/deductions/lines206-236/219/menu-e.html.

You had also asked whether the on-going cost of operating the pool (maintenance, heat, humidity control etc.) would constitute an eligible medical expense. In our view, such expenses do not fall into any of the categories of expenses that currently constitute eligible medical expenses and as such, cannot be claimed in computing your medical expense tax credit.

We hope that the foregoing comments are helpful. Should you wish to discuss the foregoing, or if you have additional questions, please feel free to contact Phil Jolie of the Income Tax Rulings Directorate at 613-957-2098.

Sincerely,

Robin Maley
Section Manager
For Division Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

cc. Jeff Haynes

Taxpayer Services Directorate
Individual Programs Section
Compliance Programs Branch