8 July 2011 External T.I. 2011-0397631E5 - Indian Exempt Income - METC Claimed by Spouse

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the spouse of an Indian earning exempt income may claim the METC in respect of that Indian.

Position: Yes

Reasons: Subsection 118.2(1) does not impose any threshold on the amount of income earned by an individual in order for the METC to be claimed by the individual's spouse.

XXXXXXXXXX 				2011-039763
					Lori Merrigan
					(613) 957-8979

July 8, 2011

Dear XXXXXXXXXX :

Re: Indian Exempt Income - METC Claimed by Spouse

This is in response to your correspondence of February 24, 2011, and our telephone conversation of March 10, 2011, (Merrigan/XXXXXXXXXX ) regarding whether certain medical expenses can be claimed by the spouse of an Indian, as that term is defined in subsection 2(1) of the Indian Act, for purposes of the medical expense tax credit (the "METC") described in subsection 118.2(1) of the Income Tax Act (the "Act"). More specifically, you have asked whether the spouse of an Indian may claim the amounts paid by that Indian into a medical insurance plan for purposes of the METC, where the Indian is earning exempt income. In this letter, unless otherwise expressly stated, all statutory references are to the provisions of the Act.

The situation outlined in your letter appears to relate to a factual one, involving a specific group of taxpayers. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings". This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Should your situation involve specific taxpayers and
completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. Although we cannot comment on your specific situation, we are able to provide the following general comments, which may be of assistance.

Section 118.2 provides rules for determining the amount that may be claimed, as a tax credit, in respect of an individual's medical expenses. Subsection 118.2(1) stipulates, among other criteria, that the medical expenses must be incurred in respect of the individual, his or her spouse or common-law partner, or a dependant.

Subsection 118.2(1) provides that the amount of the medical expense tax credit is determined by multiplying the lowest personal tax rate by the amount of qualifying medical expenses that exceed the lesser of two amounts. Based on this calculation, an individual can claim medical expenses relating to one of the listed individuals whether or not that listed individual has any income (assuming that all other required conditions for the METC are met). This applies even if the listed individual is an Indian who is earning exempt income.

An amount paid as a premium, contribution or other consideration under a "private health services plan" in respect of an individual or the individual's spouse qualifies as a medical expense under paragraph 118.2(2)(q) to the extent that the payment was not deducted by the individual as a business expense under subsection 20.01(1) of the Act. The determination of whether a plan of insurance qualifies as a "private health services plan", which is defined in subsection 248(1), is a question fact. However, the CRA has set out its general views on this subject in Interpretation Bulletin IT-339R2, "Meaning of Private Health Services Plan".

We trust that these comments will be of assistance.

Yours truly,

Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch