Medical Expenses Tax Credit for Home Alterations: New Laminate Floors Qualified
By: Bobby B. Solhi, J.D. and Khalid Tariq
For people with severe and prolonged physical disability, the Medical Expense Tax Credit (METC) provides a valuable tax credit that can relieve some of the financial hardship associated with accommodating persons with disabilities or long term ailments.
Cost to Replace Carpeting to Laminate Floor was eligible for METC
In a recent case from the Tax Court of Canada in Sotski v. the Queen (2013 TCC 286), Pizzitelli, J. held for the Appellant and concluded that her claim for the cost of replacing carpeting with laminate floors to accommodate her disabled husband was an eligible medical expense credit. This was a great result for the Appellant and fairly novel in light of the jurisprudence.
What were the facts in Sotski?
The Appellant’s husband suffered from a number of ailments including Parkinson’s disease and psoriatic arthritis. His condition made walking on friction surfaces, like carpets, difficult and unsafe due to risk of falling. As a result, the Appellant replaced the fairly new carpet in their five-year old home with modestly-priced smooth laminate flooring to reduce the danger posed to her husband. The renovation was limited to the 800 sq. ft. area used by her husband.
The Minister denied the taxpayer’s claim for the METC on the basis that the installation of laminate flooring was a type of renovation that would typically be expected to increase the value of the dwelling and, moreover, that floor renovations in general provide a significant element of personal consumption.
The Minister also referred to Budget Papers and Technical Notes to argue Parliament intended to restrict the credit where it would subsidize renovation expenses with a substantial element of personal consumption and personal choice. The Budget Papers specifically identified hardwood flooring renovations as a source of abuse.
The Tax Court in Hendricks v. Canada, 2008 TCC 497, denied the cost of hardwood flooring as a medical expense citing the intent of Parliament as found in the Budget Papers. Similarly, in Barnes v. Canada, 2009 TCC 429, 2009 DTC 1282, the Tax Court denied the cost of a swimming pool installation as an eligible expense citing the intent of Parliament as found in Explanatory Notes and Budget Papers.
Tax Court Analysis
In deciding the Appellant’s eligibility for the Medical Expense Tax Credit, the Court carefully analyzed the conditions under paragraph 118.2(2)(l.2). That paragraph provides limitations to the expenditures to alter a home that would be eligible for the METC. It can be a difficult proposition as the taxpayer must demonstrate that:
(l.2) … such expenses
(i) are not of a type that would typically be expected to increase the value of the dwelling,
(ii) are of a type that would not normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment.
In evaluating the first condition – whether the installation of modestly-priced laminate flooring would necessarily increase the value of the Appellant’s dwelling, the Court found that the cost of quality carpeting can be in some cases be substantially more expensive than laminate flooring. Because the Appellant had removed fairly good quality carpet and replaced it with cheaper laminate flooring, the Court believed that no real increase in value had occurred.
Next, the Court turned its attention to whether the home renovation was of “a type that would not normally be incurred by persons who have normal physical development or who do not have severe and prolonged mobility impairment.” In analyzing the Budget Papers and explanatory notes, the Court agreed with the Minister that the conditions under paragraph 118.2(2)(l2) were designed as anti-avoidance measures and inserted to ensure that taxpayers were not subsidizing personal consumption and personal choices.
However, although the Budget Papers specifically mentioned hardwood flooring as a source of abuse, the Court interpreted that discussion to be in the context of providing examples of the type of abuses that can occur, and not a ban on flooring in general, as the Minister had asserted. Looking to the purpose of the Medical Expense Tax Credit, the Court found that it was intended to assist seriously impaired taxpayers with the extra costs in addressing their respective condition. The Minister’s technical reading of Parliament’s intent, which restricts all flooring renovations, would be contrary to that purpose since it would disadvantage taxpayers who undertake genuine flooring expenses to address their disabilities.
The Court further distinguished the present case from Hendricks. In that case, the taxpayer’s appeal failed on the basis that the first condition had not been met. The taxpayer could not disprove the Minister’s assumption that the installation of hardwood flooring had increased the value of the dwelling. Here, the Court had already established that no increase in value had occurred. In analyzing Barnes, the Court found that the case explicitly recognized that the legislation does not strictly prohibit certain types of expenditures as the Minister contended, but rather restricts the types of expenditures that fail to meet the condition of Parliament having regard to its stated policy. The taxpayer’s appeal failed in that case because the installation of a pool was not specifically catered for the disabled individual but rather was a general pool intended for personal consumption. In the case at hand, however, the expenditure incurred by the Appellant was necessary and contained no element of personal consumption or abuse. The Appellant had replaced new, good-quality carpet and only in the 800 square foot area that her husband predominately occupied. Moreover, the replacement was a simple and cost-effective way of addressing the husband’s disability.
Because both conditions had been met, the appeal was allowed in full, and the Minister was instructed to reassess accordingly.
To put it simply, the Court clarified that there was no outright ban on the eligibility of home alternation costs such as new flooring for purposes of the medical expense tax credit. Rather, where the Appellant acted reasonably and the expenses incurred were measured, with minimal personal benefit or consumption, they should qualify for the medical expense tax credit.
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