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® _______________________________________________________________________________________ Claiming Orthodontics as a Medical Expense This strategy will help you maximize your tax savings from claiming orthodontics payments as a Medical Expense on your tax return. _______________________________________________________________________________________ Most orthodontists allow their patients to make monthly payments for services over the period of time that the service occurs, which is often more than one year. The Canada Income Tax Act allows claims for payments to orthodontists to be included as Medical Expenses on tax returns. You can claim medical expenses paid in any 12month period ending in the tax year which you did not claim on your prior year's tax return. Your total expenses need to be more than either 3% of your net income (line 236) or $2,109 (for year 2012), whichever is less. would qualify as a medical expense on your tax return for the current year. Or if you receive service in December of the current year yet make payment in January the following year, the medical expense claim must wait until the following year's tax return. The following example may or may not be applicable to your personal situation, depending on your taxable income and total tax credits. An Orthodontics Example The Usual Way: Chris began paying $200 per In other words, there is a "deductible" against your medical expense claim each year. The deductible amount is the lower of 3% of your net income or $2,109 (if your net income is greater than $70,300 for 2012). month for orthodontics beginning July 2012, with payments scheduled over 20 months until February 2014. Because the payments are made over more than a 365 day (12 month) period, Chris cannot claim the sum of all payments as a Medical Expense on a single year's tax return. Your medical expense claim is based on the date of payment and not the date of service. If you pay a medical expense in December of the current year, yet receive the service in January, the payment The payments made from July 2012 until June 2013 can be claimed on Chris's 2013 tax return, and the payments from July 2013 until February 2014 can be claimed on the 2014 tax return. _______________________________________________________________________________________ Abbington Tax & Estate Services Inc., 662 Upper James Street, Hamilton, Ontario, L9C 2Z3 Tel: 905-389-3534 Fax: 905-389-0345 Web: www.abbington.ca ® _______________________________________________________________________________________ Therefore Chris will need to twice reduce the claim by 3% of net income (once on each year's tax return). If Chris's net income is $50,000, then 3% of net income equals $1,500. The combined Federal and Ontario Medical Expense tax savings rate is about 20%. So for Chris the total tax savings over two year's tax returns will be only $200, as shown here: Tax year 2013 2014 Payments $ 200 x 12 $2,400 $ 200 x 8 $1,600 Minus 3% of Net Income Leaves Tax savings rate Tax savings 1,500 1,500 $ 900 $ 100 x 20% x 20% $ 180 plus $ 20 . The Better Way: Chris should make all orthodontic payments within a 365 day period in order to claim all payments on a single year's tax return. Better still, if Chris makes all payments before Dec. 31, 2012, then the full claim could be made on the 2012 tax return rather than waiting until the 2013 return. Chris would achieve tax savings of $500, which is $300 more than the usual way. consider your reimbursement to be for the first payments made to the orthodontist. You will be able to claim only the subsequent surplus "out of pocket" payments on your tax return. When your orthodontist asks if you will make accelerated payments, now you know this may be to your benefit. Payment for orthodontic services is just one of many eligible Medical Expenses. If you have a choice, you should plan to pay as many of your medical expenses as possible within the same 365 day period to maximize your tax savings. Please contact Abbington Tax & Estate Services Inc. to schedule an appointment for us to prepare your income tax return. We also offer to review your previously filed tax returns for possible adjustments to improve your tax savings. Now you know what it means to… … Keep More of Your Money! _________________________________________ We are available throughout the year to serve you better. We always check to make the best claims for… RRSP Deductions Child Care Expenses Net Capital Losses Pension Splitting Medical Expenses Disability Amount Transfer Tuition & Education Amount Transfer Ontario Tax Reduction Charitable Donations … and more! One Tax Return (either 2012 or 2013) Total Payments Minus 3% of Net Income Leaves Tax Savings Rate Tax Savings $4,000 1,500 $2,500 x 20% $ 500 ! Note: If you receive a reimbursement under your employer's group health & dental insurance benefits, then the Canada Revenue Agency will This is just part of our excellent service to you! _______________________________________________________________________________________ Abbington Tax & Estate Services Inc., 662 Upper James Street, Hamilton, Ontario, L9C 2Z3 Tel: 905-389-3534 Fax: 905-389-0345 Web: www.abbington.ca