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Posted by Alexandre Timothy, Group Insurance and Group Annuity Plans Advisor, March 17 2021
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Save on Income Tax With Your Group Insurance!

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Post originally published on February 18, 2016. Updated on March 17, 2021.

As we are all painfully aware, the income tax rate in Quebec is among the highest in all of North America. Taxpayers here should therefore make sure they apply every possible income tax credit and deduction available to reduce their tax burden, notably health care expenses. Health expenses are indeed rising constantly, and it doesn’t take much for the cumulative total to reach substantial proportions, especially if you factor in your group insurance costs.

Do you know how to take advantage of these credits, and how much can they add up to?Such a credit exists both at the federal level and the provincial level in Quebec. In both cases, your expenses must reach a certain amount in order to benefit from this tax measure.

Let’s first see what the eligible health care costs are and how to go about declaring them to maximize income tax savings.

Eligible Health Care Expenses

By eligible health care expenses, we mean any costs incurred for health care which have not been reimbursed by an insurance company, with the exception of purely cosmetic procedures, and that goes for both you and your dependents. Below is a summary of the most common expenses:

  • Expenses not reimbursed by your group insurance or the public health insurance plans, such as the following:
    • The deductible, the co-insurance, and the user fee;
    • Any medications;
    • Paramedical care (chiropractic, osteopathy, physiotherapy, etc.);
    • Other expenses (nursing care, magnetic resonance imaging, orthotics, etc.).
  • Expenses paid to a dentist, physician or nurse for medical or dental care services.
  • Payments made to a public hospital or a licensed private hospital.
  • Vision care expenses.
  • Travel and commuting expenses incurred to obtain medical care not offered in your area.
  • In Quebec: the group insurance premium or contribution (or other amount) paid by an employee to a private health insurance plan (this amount may appear in Box 235 of Relevé 1 slip), and the employer-paid portion (Box J of Relevé 1 slip). If you do not have private health insurance, the premium you pay to the RAMQ for the public medication insurance plan is eligible.

This list is not exhaustive, and other expenses may qualify. For a more complete list, click on these links for Quebec or Canada.

Now that you know which expenses are eligible, how can you minimize your income tax bill?

Quebec Income Tax

You can claim a non-refundable tax credit if the medical expenses you paid exceed 3% of your net income (Line 275 of your return). If you had a spouse on December 31, you must add your spouse’s net income to your own.

The medical expenses must have been paid over a period of 12 consecutive months for:

  • yourself;
  • your spouse;
  • a dependent.

Let’s take the following example of Martin, his spouse Pauline and their child Margaret:

  Net Income

Eligible Medical Expenses

Martin $40,000 $1,900
Pauline (spouse) $60,000 $1,700
Margaret (dependent child) $10,000 $500
TOTAL $110,000 $4,100
Estimated calculation in Quebec:
  • During the last 12-month period, the total medical expenses incurred by the family amounts to $4,100 (A)
  • Then, you calculate 3% of the family income of $110,000, which equals $3,300 (B)
  • A minus B will give you the amount to enter on Line 381, i.e. $800 (C)
  • To figure out your estimated provincial tax credit (Quebec), multiply amount (C) by 20%, which equals $160.

Federal Income Tax 

The calculation is similar for federal tax, with the exception of the following points:

  • Instead of considering the total insurance premium paid, you can only use the portion paid by the employee (Box 85 of the T4 slip).
  • You must then subtract the lesser of the following amounts from eligible expenses:
    • 3% of net income
    • An amount defined each year by the Canada Revenue Agency ($2,397 in 2020);
  • You calculate 12.5% of the eligible amount instead of 20%.
Estimated calculation for federal income tax:
  • During the last 12-month period, the total medical expenses incurred by the family amounts to $4,100 (A)
  • Use the lesser of the following amounts:
    • $2,397 (in 2020) OR
    • 3% of the lesser of Martin’s or Pauline’s income: 3% X 40,000 = $1,200 (B)
  • Subtract this amount from the total eligible expenses (A) minus (B): 4,100-1,200 = $2,900 (C)
  • To figure out your estimated federal tax credit, multiply amount (C) by 12.5%, which equals $362.50.

There are also added reimbursable amounts for low-income earners. For further information about this, consult your income tax guides (Line 452 of the federal guide and Line 462 of the provincial guide).

Discipline and... Savings!

Keep all your health care invoices and make sure your employer provides you with all the information you might need concerning your group insurance premium. You have a lot of substantial income tax savings coming to you, so make sure you don’t forget about them!

Moreover, in January, AGA posts on your Members Portal a statement featuring all the claims you made during the previous tax year along with the reimbursements you received. This statement will make things even easier for you!

Did you appreciate this bit of advice? Let your colleagues and friends know about us!
And do not hesitate to contact us or read our other blog posts to find out more.

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Group Insurance and Group Annuity Plans Advisor | With a Bachelor in finance, Alexandre Timothy understands the challenges and realities of his clients, both from a financial point of view as well as a level of human resources and benefits. With his new outlook in a traditional industry, Alexandre offers innovative solutions to ensure the sustainability of social benefits while meeting the needs of participants and employers. During his ten years of experience, Alexandre has stood out for his creativity and integrity, becoming a highly valued adviser by many of his customers.
Alexandre Timothy, Group Insurance and Group Annuity Plans Advisor