11 October 1994 942381A - 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.

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

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

Principal Issues:

Whether or not the school/institution in question would qualify as an eligible "school, institution or other place" for the purposes of paragraph 118.2(2)(e) of the Income Tax Act (the "Act").

Position TAKEN:

Question of Fact.

Reasons FOR POSITION TAKEN:

In order for the fees paid to qualify as medical expenses for a particular individual the three basic requirements as contained in the Act must be met: the claimant must have a certicate from a qualified person certifying they have a physical or mental handicap, the nature of which for treatment purposes, requires the equipment, facilities or personnel specially provided by the Centre. Such a certificate should be detailed in stating the nature of the handicap and should also be specific to the particular individual.

				October 11, 1994

	T1 Programs Division		HEAD OFFICE
	T1 Assessment &		Rulings Directorate
	  Reassessment Section 		D. Zion
	Director		(613) 957-8953

	Attention: Adrian Raghunandan
				942381

Medical Expenses - Eligible Institution

We are writing in reply to your memorandum of September 14, 1994, wherein you requested our opinion as to whether or not the XXXXXXXXXX would qualify as an eligible "school, institution or other place" for the purposes of paragraph 118.2(2)(e) of the Income Tax Act (the "Act").

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Our Comments

The medical expense deduction was originally contained in section 27(1) of the Act. There was no provision for the type of payment at issue for a deduction as a medical expense. In 1971, subparagraph 110(1)(c)(vi) of the Act was introduced to address this problem. As stated in Introduction to the Budget Measures and Tax Reform Legislation "The definition of medical expenses is expanded to include amounts paid to a school which cares for mentally or physically handicapped persons". This new legislation limited qualifying institutions to those which cared exclusively for handicapped persons. This restriction of exclusivity was removed in 1976, retroactive to 1974. The wording of the amendment was such that the new law would admit as a qualifying institution any school, institution, or other place that specially provided the equipment, facilities, or personnel as required for the care or care and training of the handicapped person, provided all other required conditions were met. The legislation remains essentially the same at the present time.

Paragraph 118.2(2) of the Act states that " For the purposes of subsection (1), a medical expense of an individual is an amount paid ...

"(e) for the care, or the care and training, at a school, institution or other place of the patient, who has been certified by an appropriately qualified person to be a person who, by reason of a physical or mental handicap, requires the equipment, facilities or personnel specially provided by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by the patient;"

Thus, in order for the fees paid to the Academy to qualify as medical expenses for a particular individual three basic requirements must be met:

1.The individual must be certified by an appropriately qualified person. This certification will usually be done by a medical practitioner or psychologist but is not restricted to such professionals.

2.The individual must be suffering from a physical or mental handicap.

3.The individual requires the equipment, facilities or personnel specially provided by the institution to treat the individual's particular physical or mental handicap and the determination of the individual's requirements must be made by the qualified person making the certification.

The three requirements which must be met in order for the amounts paid to be deductible have been subject to review by the Courts and this jurisprudence is of assistance in determining the eligibility of an individual or the institution in question. In Somers v. M.N.R. 79 DTC 21, the taxpayer's appeal was dismissed by the Tax Review Board because the evidence indicated that, although the son had behavioural problems, there was no indication that he had physical or mental handicaps. In addition, the private boys' school he was attending was not an institution of the type referred to in the legislation. The institution provided a tightly structured educational environment, but it did not specially provide equipment, facilities or personnel for the care, or the care and training of individuals suffering from the physical or mental handicap. In Johnston v. M.N.R. 88 DTC 1300, the appellant's dependent was legally blind and performed poorly in the public school system. He was enrolled in a private school which could provide extra care and attention. The appeal was dismissed by the Tax Court of Canada, in spite of the dependant's documented physical handicap, because it could not be said that the relevant condition, that is, that "personnel specially provided by the school, institution or other place", had been met.

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The most recent case of pertinence would be Rannelli v M.N.R. 91 DTC 816. The appellant paid tuition and other fees to the Fraser Academy for the benefit of his children who suffered from dyslexia. Medical evidence was provided that this learning disability was a medical problem and that the specialized treatment offered by the Fraser Academy was essential to treat the dyslexia. The Court determined that the "care and training" provision was met by the Fraser Academy and that unlike the ordinary private schools reviewed in Johnston v. M.N.R. 88 DTC 1300 and Avery v. M.N.R. (unreported), the Fraser Academy "qualifies in all respects" to be one which specially provides the equipment, facilities or personnel for the training of individuals with handicaps.

We would like to mention that in a January 1983 memorandum to Policy and Systems Branch, we advised that we were unable to provide a definite opinion regarding the eligibility of the Academy; however, if the Academy could clearly establish that it does provide specialized equipment, facilities or personnel for children with learning disabilities arising from a mental or physical handicap, or that the Academy has some special status formally recognized by either the Ministry of Education or the Ministry of Community and Social Services as a school providing specialized care and training for such children, we would agree that the Academy would be an eligible institution. It would then be necessary to ensure that the individuals otherwise meet the other conditions of the legislation. This position was confirmed in a June 7, 1983 memorandum to the Toronto District Office.

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As indicated in paragraph 23 of Interpretation Bulletin IT-519, Medical Expense and Disability Tax Credits, the Department accepts the view that dependants suffering from behavioral problems and in attendance at schools specializing in this type of problem are considered to qualify under the above provision and the expenses incurred may qualify as medical expenses. However, it must be clear from the facts of each case that the problems are a result of a physical or mental handicap and are so severe that they require special equipment or facilities or the services of specially-trained personnel which are not available in the public school system. The certificate should be detailed in stating the nature of the handicap and should also be specific to the particular individual.

In summary, given the information you have provided, we are not in a position to provide you with a definitive answer as to whether the Academy is an eligible "school, institution or other place" for the purposes of paragraph 118.2(2)(e) of the Act. If the mental or physical handicap results in a disability which is so severe as to result in the certification of that child to be one who, by reason of the handicap, requires the equipment, facilities or personnel specially provided by the Academy and that the qualified person is certifying that the Academy does indeed specially provide them or the Academy itself can demonstrate that it specially provides them, then the fees paid to the Academy would be deductible pursuant to 118.2(2)(e). However, it is important, as illustrated in the Somers case, to distinguish between behavioural problems which result from a certified mental or physical handicap from those that result from emotional difficulties. In addition, although small classroom sizes and similar advantages found in privately-funded schools may be a preferred alternative to the regular schooling for children with behavioural problems resulting from a mental or physical handicap, the Department does not consider that the tuition at these schools qualifies as a medical expense for purposes of paragraph 118.2(2)(e) of the Act unless the school can illustrate that it has specially provided equipment, facilities or personnel to specifically care, or care for and train, individuals with the specific mental or physical handicaps. This would be a question of fact for each individual as it is primarily the individual in respect of whom the payment is made who must satisfy the requirements of the Act.

We trust that our comments have been of assistance.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch