If you need to travel beyond 40 kilometres to obtain medical treatment because it is not provided where you live, you can claim the cost of transportation as a medical expense for purposes of the medical expense tax credit (METC).
Now, let us say that instead of actually paying for transportation by cash or credit, you redeem points or miles to “purchase” that trip. Is the value of the points cashed in also eligible for the METC?
That was the question before the Tax Court of Canada last month in a case involving Clark Johnson and his 2007 METC claim.
In 2007, Mr. Johnson travelled from Thunder Bay, Ont., to Chicago for medical treatment using a ticket he purchased by redeeming Aeroplan points. He also paid $220 in taxes on the reward ticket.
The Canada Revenue Agency only allowed the $220 cash portion of the cost of the ticket as a medical expense, concluding that Mr. Johnson “had not paid any amount in excess of $220 for the ticket.”
Mr. Johnson maintained that since he paid for the ticket by using his Aeroplan points, he should be able to claim the value of those points as a medical expense.
In other words, the court had to decide whether the Aeroplan points redeemed by Mr. Johnston in return for the ticket constitute an “amount paid,” as is required under the Income Tax Act to claim the METC.
Mr. Johnson testified that he had to redeem 76,000 Aeroplan points to travel to Chicago and back. Normally, such a trip would only cost 15,000 points, but because he booked his ticket on short notice, once he had made his medical appointments, he had to purchase Extra Access rewards, which cost more than normal.
When Mr. Johnson filed his 2007 tax return, he checked the Air Canada website and found an equivalent fare for the trip was $2,280 at that time, which is what he claimed on his return. He also testified that Aeroplan points can be purchased at 3¢ per point.
The CRA’s main argument was there was no amount paid since “no money was paid by him for the ticket … a transfer of money’s worth did not constitute an amount paid.”
The Judge disagreed and concluded that the phrase “amount paid” can include payments made by means of a transfer of a right and that the points given up by Mr. Johnson for the ticket were indeed a right since they could be exchanged for air travel upon his request. He allowed Mr. Johnson’s full claim of $2,280.
Since this case was heard under the Tax Court’s “informal procedure” — the equivalent of small claims court for tax matters — the decision, while influential, is not legally binding on future judges. Nonetheless, it will be interesting to see whether business owners, including the self-employed, who often use their own Aeroplan points for business travel, can now successfully write off the imputed value of their points travel.