Understanding the Medical Expense Tax Credit (METC)

The Medical Expense Tax Credit (METC) is a non-refundable tax credit that you can use to reduce the tax you pay for eligible medical expenses. The METC is claimed on lines 33099 or 33199 of your personal tax return for medical expenses incurred by you, your spouse or your dependents. The METC works by allowing taxpayers to claim eligible medical expenses that exceed the lesser of 3% of their net income or $2,759.

To understand how the METC works, its limitations, and how it compares to a Health Savings Account (HSA) we will take a look at a few examples.

SCENARIO #1 — Calculating the METC

Jurisdiction: Alberta

Taxable Income: $110,000

Net Income = $80,000

Medical Expenses = $5,000

Marginal Tax Rate = 25%

To calculate the METC, you will need to complete the following steps:

Step #1 - Find the Minimum Expense Threshold (MET):

First, you will need to compare 3% of your net income to the limit set by the CRA ($2,759) to determine which is lower

• $80,000 * 0.03 = $2,400

Since $2,400 is lower, this will be the Minimum Expense Threshold (MET)

Step #2 - Calculate the METC

Next, you will subtract the MIT from your eligible medical expenses and multiply this number by the lowest marginal tax rate in the province.

• ($5,000 - $2,400)*0.25 = $650

In this scenario, the claimant would receive a total of $650 for their METC.

SCENARIO #2 — Limits of the METC

Jurisdiction: Ontario

Taxable Income: $145,000

Net Income: $100,000

Medical Expenses: $2,500

Marginal Tax Rate: 20%

In this case, since 3% of the net income is $3,000, Therefore, the Minimum Expense Threshold (MET) will be $2,759. Lets calculate the METC:

• ($2,500 - $2,759)*0.20 = $0

Because the Medical Expenses of $2,500 are below the MET of $2,759, in this scenario, the claimant would receive a total of $0 for their METC.

SCENARIO #3 — METC VS HSA

Jurisdiction: BC

Taxable Income: $125,000

Net Income: $90,000

Medical Expenses: $4,000

Marginal Tax Rate: 20%

In this case, since 3% of the net income is $2,700, we will use this number for the Minimum Expense Threshold (MET).

• ($4,000 - $2,700)*0.20 = $260

Therefore, in this scenario, they would receive a total of $260 for their METC.

That's not too bad right? Well, keep in mind, the $4,000 that you use to pay for medical expenses uses after-tax income. Therefore, you would actually need to spend $5,394 to pay for $4,000 in medical expenses. Lets take a look at how the HSA plan for an Incorporated Individual compares to the METC

SIDE-BY-SIDE COMPARISON

	METC	HSA
Taxes (38%)	$1,394	$0
Administration Fees	$0	$440
After Tax Medical Expense	$4,000	$4,000
METC Credit	-$260	$0
Total Cost	$5,134	$4,440
Savings		$694

With an HSA, there is no minimum expense threshold, and you pay with pre-tax dollars, meaning you receive a 100% reimbursement. In this case, by using an HSA, you would save $694 more with an HSA than compared with an METC and $932 more than paying out of pocket. Lets compare some more important features

	METC	HSA
Minimum Expense Threshold	Has Minimum Threshold	No Minimum Threshold
Reimbursement	Small Portion Recovered	100% Reimbursement.
Payment	Personal Expense	Corporate Expense

WHY CHOOSE AN HSA:

If you are a business owner, an HSA is an obvious choice. By turning medical costs into 100% deductible business expenses, you will save money on every dollar you spend. An HSA is also easy to establish and administer - saving you headaches.

Frontier HSA is a fully CRA-compliant solution that maximizes your tax savings, simplifies your medical expense process claims. To understand how HSAs work in detail, check out our comprehensive HSA guide. Ready to optimize your medical expenses? Learn more about Frontier HSA today