Block Fees Can Qualify for Medical Expense Tax Credit

If your clinic offers services under block fee arrangements, this article will be of interest to you but for reasons beyond the obvious.

Canada Revenue Agency’s (“CRA”) Income Tax Rulings Directorate offered an interesting response to an inquiry letter about “block fees” recently. The inquirer asked whether these fees qualify for a Medical Expense Tax Credit (METC). Here’s where that simple question led…

The response stated the following:

  • Block fees are eligible for the METC but only to the extent that they are for eligible medical expenses as set out in ss.118.2(2) of the Income Tax Act (“the Act”). See CRA’s interpretation bulletin for a listing of qualifying medical expenses.
  • Payments made… for any medical services rendered by their employees or partners are eligible only when provided by a medical practitioner.
  • “Medical services” are diagnostic, therapeutic or rehabilitative services that are performed by a medical practitioner acting within the scope of his or her profession.

Here’s where it gets interesting…

1. It is revealing that CRA’s reply included the following:

“A list of staff on the medical clinic’s website indicates that all those listed, with the exception of one individual, would qualify as authorized medical practitioners…”

Say again?  Does this mean CRA reads taxpayer’s website content? That’s right – CRA is watching. Social media content may be used against you!

2. A “first aid” kit added to the block fee invoice prompted this response from CRA:

“…it does not appear that all components of the services would qualify as medical services or other medical expenses.”

My thought here is: Be careful to accurately describe medical or dental services rendered on your invoices, otherwise it is likely that they’ll be denied in the event of an audit.  This will result in additional tax and non-deductible interest charges.  An item described as a first aid kit will not qualify for a tax credit under ss.118.2(2) of the Act.

I wonder if this is an accurate description or, was the supply of a medical kit prescribed as part of medical treatment to a health condition?  If it was, then a different tax outcome would result with a more accurate description on the invoice.

3. Finally, this really caught my eye:

“Although you have not indicated that services are provided for cosmetic purposes, we would like to note that cosmetic services… provided purely for cosmetic purposes… [that portion of the block fee] would not qualify for the METC.”

CRA wasn’t asked for a response to cosmetic services but took the opportunity to comment anyways which is noteworthy.  Unless medical or dental procedures are performed for medical or reconstructive purposes, they will NOT qualify for the medical expense tax credit.

Have you had an encounter with CRA where they have denied either expenses claimed or input tax credits (GST)? Share your experience with on Twitter with us @tuckerspc!

 

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