At the start of an important course in August, one of the members of our foursome pointed out that an accountant in our group had broken Newton’s first law and actually lost weight in the last year. The accountant, lets call him Luckie, no, how about Buck? Yes, Buck (that’s an obscure enough reference) advised that he had taken up jogging, decreased his alcohol intake and for several months had eaten whole grain sorghum wheat bread, hand ground with a mortar and pestle by 3 junior associates at his firm.
After also extolling the virtues of eating hand peeled lentils (a task completed by articled students who are forbidden from clipping their nails so that they can trim the husks more efficiently) Buck observed that I too appeared to have lost weight. “Yes”, I explained, “during my wife’s pregnancy, I gave up beer, mostly.” The others in my foursome were agog. That any man would do such a thing as forgoing alcohol, mostly, during a pregnancy was surely more than most wives would expect.
The sad fact was that my wife had given birth and I was dismayed that the new, better, slimmer me would soon oxymoronically (is that an adverb?) disappear. Being solidly middle class and lazy our foursome examined the alternatives to discipline and exercise. By the time we had all finished cheating on the first hole, it was agreed that plastic surgery was the only reasonable option.
Here’s the tax angle.
Medical expenses are sort of deductible against income. Most people don’t really think about the deductibility of medical expenses for procedures that are not covered by provincial medical plans. In a 1998 document the CRA confirmed that cosmetic surgery qualifies as a medical expense…so long as there is a medical purpose to the expense. The opinion of the physician is paramount in such a determination.
There are a couple of obvious limitations on the expense. First, the amounts must be paid to persons authorized to practice medicine. While potentially a large group it likely does not include practitioners of Wicca, or people who play doctors on television.
The second limitation is financial. The expense is actually a credit. Now whenever you hear or see the word “credits” in relation to income tax think small. For 2005, only expenses in excess of the lesser of $1,844 and 3% of your net income qualify. So if you make more than $62,000 per year, you can subtract $1,844 from the gross expense. Next, the credit is calculated in terms of the lowest tax bracket. This means that the credit is calculated at a 16% rate for 2005. The B.C. tax rates would also apply to make the effective credit about 22%. Liposuction should be so effective.
If you now turn to any plastic surgery website, you will not find many references to costs, but you will find a bunch of before and after pictures. Oh my. One site does advise: … approximate cost for liposuction in Canada is $2,500 for the first area and $1,500 each additional area depending on the technique.
If any of the people in our foursome were going to get liposuction it made sense to get several “areas” liposucked (is that a verb?). If we only get minor surgery then there is the chance that the medical expense will not be deductible because it does not exceed $1,844.
Let’s use me as an example. Suppose I want to have two areas of fat removed from my head and hair implanted on to my scalp. I use a real surgeon. My income is more than $62,000. The cost is $8,000. I will receive a net deduction of $1,354.00 ($8,000-$1,844 multiplied by 22%). Not the best result, but better than nothing.
The point is that the deduction can apply to a broad range of medical services. The CRA has given the thumbs up to everything from teeth whitening to infertility treatments if the proper prerequisites are in place.
While we are on the topic, remember that the credit applies to things as well as treatments. The Income Tax Act has a long list (at subsection 118.2(2) and regulation 5700 if you must know) of medical devices and home alterations that are tax deductible.
Don’t be silly in making claims. For example, in the mid 1990’s there seemed to be a lot of people claiming their hot tubs were deductible as hydrotherapy devices. Not surprisingly, several people ended up in tax court trying to defend the claims. Most of the time the taxpayers failed in court, but on occasion (see Vantyghem) the taxpayer was able to show that the hot tub was an effective treatment to medically diagnosed head and neck injuries. In the successful cases the taxpayers were typically able to connect the device or expense to a specific listed item in the Income Tax Act, show how the item had therapeutic value and usually provided testimony or statements from their doctors or medical practitioners validating their claims.
For those of you who are unsatisfied with the value of the credit, there is always the option of proactive tax filing. If you own a business, try setting up a private health services plan. The rules are complex and the CRA regularly scrutinizes plans in business audits. Typically, auditors examine whether the benefits under the plan result from shareholder or employment status. Where the plan provides benefits via shareholder status the benefit will be taxable and not deductible as a corporate expense. However, if the plan is structured properly the cost of your plastic surgery will qualify as a non-taxable employment benefit and a deductible business expense.
If you don’t want to incur the costs of health insurance, you can sail straight to the island of aggressive tax planning and claim your medical costs as business expenses. To be successful you would need to show a nexus between the expense and the business and also show that the expense was not personal in nature. If you go this route please let me know so that I can reference your tax case in a future article. Before and after pictures would also be appreciated.
-- J. Andre Rachert
The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.
