With the changes implemented in the 2010 Federal Budget and the introduction of the Harmonized Sales Tax (HST) in Ontario, medical professionals and their patients will want to consider the tax deductibility rules for cosmetic procedures.
Generally, the income tax rules in Canada allow unreimbursed medical expenses to be claimed on one's personal income tax return.
In the 2010 Federal budget, the income tax legislation was changed so that expenses incurred for purely cosmetic procedures would not qualify for the medical expense tax credit. This generally includes surgical and non-surgical procedures purely aimed at enhancing one's appearance. However, a cosmetic procedure will continue to qualify for the medical expense tax credit if it is required for medical or reconstructive purposes such as a personal injury resulting from an accident or trauma or a disfiguring disease.
These changes to the treatment of cosmetic procedures for income tax purposes apply to expenses incurred after March 4, 2010. As such, the Canada Revenue Agency will likely require additional documentary evidence when cosmetic procedures form part of a medical expense tax credit claimed by an individual beginning with the 2010 taxation year. The onus will be on the taxpayer to show that the expense was required for medical or reconstructive purposes.
In addition, the 2010 budget clarifies that GST/HST applies to all purely cosmetic procedures, to devices or other goods used or provided with cosmetic procedures, and to services related to these procedures. These procedures have always been considered to be subject to GST/HST, however with the change in the income tax legislation as well as the change from 5% GST to 13% HST in Ontario effective July 1, 2010, this a good time to remind health care professionals of these rules. Similar to the income tax rules, a cosmetic procedure will continue to be exempt if it is required for medical or reconstructive purposes. Cosmetic procedures paid for by OHIP will also continue to be exempt.
Keep in mind that a health care professional can voluntarily register, but does not have to register and account for GST/HST under the small supplier rules until their gross taxable revenue exceeds $30,000 in any four consecutive quarters.
Please contact your Collins Barrow advisor if you require more information.
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