In twin decisions released earlier this month, the Tax Court of Canada has ruled that most surrogacy expenses are not eligible for the medical expense credit.
The first case involved a taxpayer who claimed a medical expense tax credit for just over $29,000 of medical expenses incurred in 2012, the bulk of which was paid to SCI Healthcare (SCI) in India. The taxpayer fertilized a donated egg and the embryo was subsequently implanted in a surrogate in India. The taxpayer claimed $1,400 for travel to India and $400 for meals during his eight-day trip, explaining that he travelled to India to undergo in-vitro services provided by SCI, as his sperm was used in the creating of the embryo to be implanted in the surrogate mother.
While the Court ruled that his medical expenses and travel was indeed eligible for the medical expense credit, it concluded that none of the expenses related to the surrogate mother were eligible. The reasoning for this was based on the definition of "patient" in the Tax Act. Under the rule, medical expenses "on behalf of the patient who requires a(n)... organ transplant" are eligible for the credit. While a prior case concluded that an embryo transplant is, in fact, an organ transplant for the purposes of this rule, this decision was not followed in two subsequent cases. Each of those case concluded that the rule does not apply to surrogacy arrangements because the surrogate who receives the transplant is not the "patient" which is defined for the purposes of the Tax Act as the taxpayer, their spouse or partner and dependents.
The second case involved a taxpayer who claimed $81,000 of medical expenses on his return, $64,000 of which related to compensation paid and medical expenses of the surrogate. In-vitro expenses of $17,000 incurred by the taxpayer were allowed.
After being denied the expenses based on the reasoning above, the taxpayer in this case also tried to argue that gay male couples are being discriminated against by the tax rules. According to his argument, "they deserve the same treatment as heterosexual and gay female couples who have the opportunity of claiming the medical expense tax credit in respect of in-vitro fertilization treatments... because gay male couples do not have ovaries to produce eggs and wombs in which to gestate a fetus, they must work with surrogates, which heterosexual and female gay couples do not have to do."
So the question before the Court was whether the fact that surrogacy expenses are not deductible infringes the anti-discrimination rule in section 15 of the Canadian Charter of Rights and Freedoms.
The Supreme Court has stated that in order to succeed with a discrimination argument you must show "unequal treatment under the law - more specifically that (you)... failed to receive a benefit that the law provided... or (you were) saddled with a burden the law did not impose on someone else."
In this case, the Tax Court judge ruled that there was no discrimination "since surrogacy fees are consistently non-deductible for anyone, whether heterosexual couples, female gay couples or male gay couples...The burden imposed by the law on male gay couples is no greater than that imposed on anyone else."