Curtailing Income Tax Relief for Cosmetic Medical Expenses

Posted: 23 Aug 2011

See all articles by Ling Chu

Ling Chu

Wilfrid Laurier University

Alan Macnaughton

University of Waterloo - School of Accounting and Finance

Nicole Verlinden

affiliation not provided to SSRN


This article is a comprehensive legal and policy review of an amendment introduced in the 2010 Canadian federal budget to exclude cosmetic medical expenses from the medical expense tax credit. The analysis is guided by knowledge relevant to these expenses from the fields of medicine and the social sciences.

The budget amendment is shown to be well justified in tax policy terms, despite the increased complexity it brings. A review of experience with similar rules in the United States, Australia, and Quebec suggests that few disputes with taxpayers should be expected if the enforcement level is similar to that in those jurisdictions.

The wording of the legislation (new subsection 118.2(2.1)) provides taxpayers with two separate avenues for avoiding the exclusion of cosmetic medical expenses: (1) the service for which the expense is paid is “necessary for medical or reconstructive purposes,” or (2) it is not “purely for cosmetic purposes.” Both of these exceptions may be subject to expansive interpretation by taxpayers.

The medical necessity exception is likely to be used extensively by taxpayers who obtain cosmetic medical treatment in order to alleviate appearance-related psychological distress. In light of the limited scientific evidence that cosmetic procedures are therapeutic for this problem, it might be desirable to legislate that this exception will be limited to distress related to gender identity disorder.

The second exception could potentially apply to almost any expenditure for cosmetic dentistry (which currently represents about one-fifth of all cosmetic medical expenses). Other jurisdictions have had a similar problem in this area. Filling this gap in the rules is difficult and would likely require removing the requirement that expenses be “purely” cosmetic to be caught. Detailed guidance from the Canada Revenue Agency would also be required.

Keywords: tax credit, medical, expenses, amendments

Suggested Citation

Chu, Ling and Macnaughton, Alan and Verlinden, Nicole, Curtailing Income Tax Relief for Cosmetic Medical Expenses. Canadian Tax Journal/Revue Fiscale Canadienne, Vol. 58, No. 3, pp. 529-575, 2010, Available at SSRN:

Ling Chu (Contact Author)

Wilfrid Laurier University ( email )

75 University Ave W
Waterloo, Ontario N2L 3C5

Alan Macnaughton

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
613-996-8267 (Phone)
613-943-5597 (Fax)

Nicole Verlinden

affiliation not provided to SSRN

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