16 December 2010 Ministerial Correspondence 2010-0384271M4 - METC - Certain drugs and PHSP premium

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: 1- Whether the costs of certain drugs qualify as a medical expense for the purposes of the medical expense tax credit (METC) and as medical expenses covered under a PHSP. 2- Whether premiums paid to a plan are eligible for the METC if the plan covers OTC drugs that are ineligible for the METC.

Position: 1-Question of fact whether a certain drug may lawfully be acquired only by prescription (or only with the intervention of a medical practitioner). If not, the cost of the drug does not qualify under 118.2(2)(n) for the METC. If the cost of the drug would not normally have otherwise qualified for METC, then does not qualify as a medical expense covered by a PHSP. 2- Premiums do not qualify as the plan is not considered a PHSP.

Reasons: Wording of 118.2(2)(n), 118.2(2)(q) and paragraph 4 of IT-339R2

December 16, 2010

XXXXXXXXXX

Dear XXXXXXXXXX :

Thank you for your correspondence restating your concern that your extended health care plan no longer covers the costs of certain drugs. I am advised that you spoke with an official of the Canada Revenue Agency (CRA) on November 22, 2010, and that, in particular, you were concerned about a calcium supplement your wife uses to treat her hypoparathyroidism. I apologize for the delay in replying.

In your correspondence, you included an excerpt from a letter from your insurance company stating that since Health Canada has reclassified the drug as a natural health product, it is ineligible for coverage under your plan. As well, the letter explains that if your plan covered over-the-counter drugs, your premiums would be ineligible for the medical expense tax credit.

As I mentioned in my reply of September 28, 2010, the Income Tax Act allows you to claim the tax credit for the costs you paid for drugs, medicaments, or other preparations or substances (all of these items hereinafter referred to as drugs) if all the requirements of the specific provision are met. Only drugs that can lawfully be purchased only by prescription or only with the intervention of a medical practitioner will qualify under paragraph 118.2(2)(n) of the Act. That provision was amended to clarify the wording in response to a court case that had allowed the cost of vitamins and supplements as eligible medical expenses and which, as stated in the 2008 budget, was beyond the policy intent of that provision. The wording of the provision was clarified to ensure that the cost of vitamins, supplements, and drugs that can be purchased without a prescription remain ineligible.

The Act allows amounts paid as a premium under a private health services plan (PHSP) to be eligible for the tax credit. According to the Act, a PHSP is a contract of insurance for hospital expenses, medical expenses, or any combination of such expenses, or is a medical care insurance plan, a hospital care insurance plan, or any combination of such plans. In Interpretation Bulletin IT-339R2, Meaning of private health services plan [1988 and subsequent taxation years], the CRA lists the requirements a plan has to meet for it to be considered a PHSP. Paragraph 4 of the bulletin states that coverage under a PHSP must be for hospital care or expenses or medical care or expenses that would normally otherwise qualify as a medical expense for the medical expense tax credit. As over-the-counter drugs, including natural health products, generally would not qualify for the tax credit, a plan that covers such drugs would not be considered a PHSP. Therefore, your premiums under such a plan would not qualify for the tax credit.

You indicated that you would like the cost of calcium supplements used to treat hypoparathyroidism to be eligible for the medical expense tax credit. The Department of Finance Canada is responsible for tax policy and legislative changes to the Act, whereas the CRA is responsible for administering the tax system and applying the legislation as enacted. Any proposed changes to tax policy or legislation would have to be considered by Finance Canada and approved by Parliament. I am therefore forwarding a copy of our correspondence to the Honourable James M. Flaherty, Minister of Finance, for his consideration.

I trust that the information I have provided and the referral are helpful.

Yours sincerely,

Keith Ashfield

c.c.: The Honourable James M. Flaherty‚ P.C.‚ M.P.
Minister of Finance
House of Commons
Ottawa ON K1A 0A6

Chrys Tzortzis
(613) 957-2082
2010-038427