Taxpayers may claim a credit against taxes for their "medical expenses" if the expenses are higher than $2,152 (for 2013) or “3% of net income” (whichever is less).
"Medical expenses" are defined in s. 118.2(2). They can include renovations or alterations to your home if they help a person with a "severe and prolonged mobility impairment" access or move around in the home. In cases before 2005, the Tax Court had said that qualifying expenses could include: (a) hardwood floors bought to replace carpets for a person with severe allergies or (b) home alterations to install a hot tub. The Government (Department of Finance) thought these types of expenses were abusing the tax credit. So, starting February 2005, the credit was changed to disallow home alteration expenses if:
(i) they would typically be expected to increase the value of the home; or
(ii) they are the kind that would normally be incurred by persons who do not have a severe and prolonged mobility impairment.
Based on that change in law, the Tax Court judges had refused to allow the credit for hardwood floors or for swimming pool installation expenses: Hendricks v Canada, 2008 TCC 497 (CanLII); Barnes v Canada, 2009 TCC 429 (CanLII).
Even so, Justice Pizzitelli allowed the Appellant's claim for a credit for the costs of stripping out 5-year old carpeting in part of the home and replacing it with engineered hardwood laminate, as the wood helped her husband get around more easily. (He suffered from Parkinson's disease and related illnesses.) To justify his decision, Justice Pizzitelli distinguished the earlier cases noting (a) the replacement of a relatively new carpet (and only part of it) with cheap hardwood laminate did not increase the value of the home and (b) though healthy people might make a similar change, there was no personal choice in this one; it was essential and there was no cheaper way to do it. (Paras. 6 and 11.)
Pizzitelli J. felt this case did not offend the spirit of the law, which was to prevent people from improving their homes at the expense of other taxpayers. And he noted:
"It would indeed seem an absurd result that if the Appellant here hired an engineer to design a super smooth concrete floor or “medical floor” to use the Respondent’s term, with no resistance to specifically suit the needs of the Appellant at great expense, that that would qualify while using the most modest means to achieve the same result would not." (Para. 15)
There wasn't a lot of money involved here ("$3,675 expended in 2010"). So, it's hard to understand why CRA put itself and the taxpayer to the expense. But CRA is an institution responsible for applying the law and is supposed to do that consistently. It's hard for CRA to make exceptions without clear reasons. Here, the law was recently changed and seems to prohibit the deduction: Laminate wood floors are improvements that normal and healthy people make; so the taxpayer's expense seems to fail s. 118.2(1)(l.2)(ii).
Even so, Justice Pizzitelli clearly took a practical approach, as he explains in the quote from para. 15 (above). The Appellant represented herself and was obviously determined and intelligent. The case shows that courts will respond to arguments of fairness in some cases. There are many cases, though, where the Tax Court judges have applied the law against a taxpayer, despite recognizing that the result is unfair. So, one never knows how a case will turn out. Still, it helps to be able to show that your view of the law leads to a fair and practical result.
See Sotski v. The Queen, (2013 TCC Pizzitelli)
"Medical expenses" are defined in s. 118.2(2). They can include renovations or alterations to your home if they help a person with a "severe and prolonged mobility impairment" access or move around in the home. In cases before 2005, the Tax Court had said that qualifying expenses could include: (a) hardwood floors bought to replace carpets for a person with severe allergies or (b) home alterations to install a hot tub. The Government (Department of Finance) thought these types of expenses were abusing the tax credit. So, starting February 2005, the credit was changed to disallow home alteration expenses if:
(i) they would typically be expected to increase the value of the home; or
(ii) they are the kind that would normally be incurred by persons who do not have a severe and prolonged mobility impairment.
Based on that change in law, the Tax Court judges had refused to allow the credit for hardwood floors or for swimming pool installation expenses: Hendricks v Canada, 2008 TCC 497 (CanLII); Barnes v Canada, 2009 TCC 429 (CanLII).
Even so, Justice Pizzitelli allowed the Appellant's claim for a credit for the costs of stripping out 5-year old carpeting in part of the home and replacing it with engineered hardwood laminate, as the wood helped her husband get around more easily. (He suffered from Parkinson's disease and related illnesses.) To justify his decision, Justice Pizzitelli distinguished the earlier cases noting (a) the replacement of a relatively new carpet (and only part of it) with cheap hardwood laminate did not increase the value of the home and (b) though healthy people might make a similar change, there was no personal choice in this one; it was essential and there was no cheaper way to do it. (Paras. 6 and 11.)
Pizzitelli J. felt this case did not offend the spirit of the law, which was to prevent people from improving their homes at the expense of other taxpayers. And he noted:
"It would indeed seem an absurd result that if the Appellant here hired an engineer to design a super smooth concrete floor or “medical floor” to use the Respondent’s term, with no resistance to specifically suit the needs of the Appellant at great expense, that that would qualify while using the most modest means to achieve the same result would not." (Para. 15)
There wasn't a lot of money involved here ("$3,675 expended in 2010"). So, it's hard to understand why CRA put itself and the taxpayer to the expense. But CRA is an institution responsible for applying the law and is supposed to do that consistently. It's hard for CRA to make exceptions without clear reasons. Here, the law was recently changed and seems to prohibit the deduction: Laminate wood floors are improvements that normal and healthy people make; so the taxpayer's expense seems to fail s. 118.2(1)(l.2)(ii).
Even so, Justice Pizzitelli clearly took a practical approach, as he explains in the quote from para. 15 (above). The Appellant represented herself and was obviously determined and intelligent. The case shows that courts will respond to arguments of fairness in some cases. There are many cases, though, where the Tax Court judges have applied the law against a taxpayer, despite recognizing that the result is unfair. So, one never knows how a case will turn out. Still, it helps to be able to show that your view of the law leads to a fair and practical result.
See Sotski v. The Queen, (2013 TCC Pizzitelli)
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