14 March 2011 External T.I. 2011-0391961E5 - METC and PHSP - Natural Health Products

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 the costs of Natural Health Products are eligible for the medical expense tax credit (METC) and may be covered by a PHSP.

Position: Generally, no unless qualify under 118.2(2)(k) which allows the cost of insulin, oxygen, liver extract injectible for pernicious anaemia or vitamin B12 for pernicious anaemia as prescribed by a medical practitioner. Only drugs that can lawfully be purchased only by prescription (or only with the intervention of a medical practitioner) will qualify under 118.2(2)(n). However, it is a question of fact whether a particular drug may lawfully be acquired only by prescription (or only with the intervention of a medical practitioner). Need to look at both federal and provincial/territorial legislation and regulations in order to make that determination. 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.

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

XXXXXXXXXX 					2011-039196
						Chrys Tzortzis, CA
March 14, 2011

Dear XXXXXXXXXX :

Re: Natural Health Products

We are writing in reply to your email dated January 5, 2011, wherein you inquire whether the cost of natural health products that are prescribed for a medical condition are eligible for the medical expense tax credit (METC) and whether such products may be covered by a private health services plan. We also acknowledge our telephone conversation of March 7, 2011 with you (Tzortzis/XXXXXXXXXX ).

Written confirmation of the tax consequences that apply to a particular fact situation is given by this Directorate only in the context of an advanced income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the CRA Web site at www.cra-arc.gc.ca. However, we are prepared to provide the following general comments, which may be of assistance.

According to the Health Canada Web site at www.hc-sc.gc.ca, natural health products (NHPs) include vitamins and minerals, herbal remedies, homeopathic medicines, traditional medicines such as Traditional Chinese Medicines, probiotics, and other products like amino acids and essential fatty acids.

Private Health Services Plan (PHSP)

Benefits received or enjoyed by an employee in respect of, in the course of, or by virtue of an office or employment are generally taxable as income from that office or employment pursuant to paragraph 6(1)(a) of the Income Tax Act (the "Act"). However, subparagraph 6(1)(a)(i) of the Act specifically excludes benefits derived from the contributions of a taxpayer's employer to or under a private health services plan (PHSP).

Pursuant to subsection 248(1) of the Act, a PHSP means a contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or a medical care insurance plan or hospital care insurance plan or any combination of such plans. In Interpretation Bulletin IT-339R2, Meaning of Private Health Services Plan, the Canada Revenue Agency has set out the requirements that must be met in order for a plan to be considered a PHSP. In paragraph 4 of that bulletin, it is stated that coverage under a PHSP must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) in the determination of the METC.

METC and Natural Health Products

Medical expenses which are eligible for the METC are limited to those described in subsection 118.2(2) of the Act. If a particular expenditure is not described as an eligible medical expense in subsection 118.2(2) of the Act, or if the conditions under which the expenditure would qualify are not met, the expenditure does not qualify for purposes of the METC, even though the expenditure may have been incurred for medical reasons.

Under paragraph 118.2(2)(k) of the Act, amounts paid for insulin, oxygen, liver extract injectible for pernicious anaemia or vitamin B12 for pernicious anaemia qualify for the METC if prescribed by a medical practitioner.

Subparagraph 118.2(2)(n)(i) of the Act allows the costs paid for drugs, medicaments or other preparations or substances (hereinafter referred to as "drugs"):

(A) that are manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;

(B) that can lawfully be acquired for use by the patient only if prescribed by a medical practitioner or dentist; and

(C) the purchase of which is recorded by a pharmacist.

Based on the foregoing, only drugs that can lawfully be purchased only with a prescription qualify under this provision.

Drugs that may lawfully be acquired without a prescription may qualify for the METC under subparagraph 118.2(2)(n)(ii) of the Act as prescribed under section 5701 of the Income Tax Regulations which allows the cost of a drug if the drug:

(a) is manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function;

(b) is prescribed for a patient by a medical practitioner; and

(c) may, in the jurisdiction in which it is acquired, be lawfully acquired for use by the patient only with the intervention of a medical practitioner.

Thus, a drug that may only be acquired through the intervention of a medical practitioner (a pharmacist, for example) may qualify under section 5701 of the Income Tax Regulations even if it does not lawfully require a prescription. However, pursuant to this provision, the patient must still obtain a prescription for the particular use of the drug.

It is a question of fact whether a particular drug may lawfully be acquired only by prescription (or only with the intervention of a medical practitioner). It is our understanding that under the applicable federal regulations, NHPs are available as over-the-counter products; however, some NHPs may require a prescription or the intervention of a pharmacist under the applicable provincial or territorial legislation. Therefore, it would be necessary to examine both federal and provincial/territorial legislation and regulations in order to make the determination for a particular drug.

As natural health products that are available for self-selection as over-the-counter products would not generally meet the requirements of any of the above noted provisions, such products would not qualify for the METC and would not qualify as medical expenses covered by a PHSP even if prescribed for a medical condition (unless paragraph 118.2(2)(k) of the Act applies).

We trust that these comments will be of assistance.

Yours truly,

G. Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch