28 October 1991 External T.I. 912285 F - Meaning of "Reasonable Expenses Relating to Modifications to a Dwelling"

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.

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1989 Income Tax Return Interpretation of Paragraph 118.2(2)(l.2)

We are writing in reply to your memorandum of August 13, 1991, wherein you requested our views on the meaning of "reasonable expenses relating to modifications to a dwelling" in paragraph 118.2(2)(l.2) as it relates to this taxpayer's claim for medical expenses for the 1989 taxation year.

Our understanding of the facts in this case is as follows:

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Our Comments

Specifically, you have requested our opinion as to whether it was within the intent of the legislation to allow the building of an addition to a dwelling, or only less extensive modifications that are required to enable a person to move about and function within a home.

General Comments

In determining the intent of this legislation, one should look to the ordinary meaning of the words in the context of the paragraph.  Paragraph 118.2(2)(l.2) states, in part, that " ... a medical expense of an individual is an amount paid ..."

(1)     .2)     for reasonable expenses relating to modifications to a dwelling of the patient, who lacks normal physical development or is necessarily confined to a wheelchair for a long-continued period of indefinite duration, to enable the patient to be mobile and functional within the dwelling;" (emphasis added).

Since none of these highlighted words are defined in the Act, one must look to the ordinary meanings of these words as set out in dictionaries and other sources."

Reasonable

Not extreme or excessive, moderate, fair, inexpensive. (Webster's Ninth New Collegiate Dictionary).

Expenses

Expense. Something expended to secure a benefit or bring about a result. (Webster's Ninth New Collegiate Dictionary).

Modifications

Modification.  The act or action of changing something without fundamentally altering it. (Webster's Third New International Dictionary).

Modification.  A change; an alteration or amendment which introduces new elements into the details, or cancels some of them, but leaves the general purpose and effect of the subject matter intact. (Black's Law Dictionary - Fifth Edition).

Modify.        To "modify" means to make partial changes in, to change slightly. (Canada-Words and Phrases-Legal Maxims - vol. 3).

Modified.      The dictionary definition of "modify" is "to make partial changes in, to change (an object) in  respect of some of its qualities: to alter or vary without radical transformation". (Canada-Words and Phrases-Legal Maxims - vol.

In the context of paragraph 118.2(2)(l.2) and the ordinary meaning of the highlighted words, it would appear that moderate amounts spent for alterations to an existing dwelling that do not radically change or transform the dwelling, would be deductible as medical expenses provided that the alterations enable the patient to be mobile and functional within that dwelling.

Had the wording in the Act used either "alterations" or "renovations" in place of the word "modifications" an argument could be made that an addition to a dwelling might qualify as a medical expense.  However, the use of the word modifications, as defined above, clearly indicates that minor alterations that do not radically transform or change an existing building would qualify as a medical expense whereas an addition to a principal residence would not.

To further illustrate this point, assume that Taxpayer A purchases a dwelling with 2,500 square feet of living space for $325,000 and makes $50,000 in disability specific modifications to enable a disabled person to be mobile within the residence.  Taxpayer B, on the other hand, purchases a dwelling with 1,800 square feet of living space for $275,000 and makes a 700 square foot addition for $100,000 ($50,000 in basic construction costs and $50,000 in disability specific costs) to achieve the same end.  Both taxpayers have thus expended the same amount of money for comparable properties except that, if we were to accept that the addition to the dwelling qualified as a modification for purposes of paragraph 118.2(2)(l.2), Taxpayer B would be entitled to an additional $50,000 claim for the medical expense tax credit, a result clearly not intended by Parliament.

In view of the forgoing, it is our opinion that the Department of Finance never intended to allow major additions to a principal residence, such as occurred in the instant case, to be deductible as a medical expense.

As further support for the intent of this legislation, we are enclosing a copy of the Department of Finance press release dated December 20, 1988.  In an appendix to this release, the following explanatory note described what type of modifications to a principal residence would be considered to be reasonable medical expenses:

"Reasonable costs relating to the purchase and installation of an outdoor or indoor ramp, widening of hallways and doorways, the lowering of kitchen or bathroom cabinets, disability-specific bathroom fixtures, required to permit individuals who are certified in prescribed form (the disability certificate T-2201) to be necessarily confined to a wheelchair for a prolonged period or indefinite duration to enter into and to be mobile and functional within their home.

Alterations that continue to be excluded are replacement of carpet by tile or hardwood, electric garage door openers, and other renovations that are not exclusively disability specific." ...

Specific Comments

From our analysis of the situation set out in your submission, it would appear that you propose to disallow all of the basic construction costs related to the addition to the dwelling, while allowing those costs within that addition that are exclusively disability specific to the taxpayer's son.  This is being done on the basis that such costs would have been deductible under paragraph 118.2(2)(l.2) had they been made in connection with modifications to the existing dwelling, rather than as part and parcel of an addition to that dwelling.  In this regard, we find that your allowance of 24(1)   in costs very generous in the circumstances.

With respect to the taxpayer's representatives' submission of July 11, 1991, we believe that the following comments are relevant:

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In summary, it is our opinion that the wording in paragraph 118.2(2)(1. 2 ) does not permit the deduction, as a medical expense, of the costs of constructing an addition to a dwelling and that your proposed disallowance of    24(1)    in construction costs is justified. In drafting the amendment the Department of Finance would appear to have been cognizant of the fact that if an addition to a dwelling were allowed as a deduction in computing income, the gain on the sale of the dwelling would also be sheltered from income tax by virtue of the capital gains exemption for a principal residence.  This would, in effect, give a taxpayer making such a medical expense claim the unintended advantage of a double deduction for the cost of the dwelling addition.

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Should you require additional information or explanation in this regard please contact the writer.

P.D. FuocoChief, Personal and General SectionRulings DirectorateLegislative and Intergovernmental Affairs Branch