If you’ve had a baby in the past two decades, you may have been given the option of collecting and storing your baby’s cord blood during the birth. While it’s unlikely that your own baby will ever be able to use its own banked cord blood, the blood may help a sibling with an illness such as leukemia, sickle cell disease, or Hodgkin’s lymphoma that could be treated with a stem cell transplant.
But banking your baby’s cord blood can be expensive. Fees start at about $1,400 to $2,000 for the initial collection and processing. Then, each year, the private cord blood bank will charge an annual fee of a couple hundred dollars for each year the blood is stored. Some cord blood banks charge as much as $10,000 upfront for lifetime storage.
Over the past two decades, various taxpayers have written to the Canada Revenue Agency asking whether the cost of the initial cord blood collection along with the annual banking fees would be eligible for the non-refundable federal and provincial medical expense tax credit (METC). The CRA’s longstanding response has been that these fees are not eligible since the expenses “do not involve an immediate medical condition or illness, rather they are preventive in nature.”
But what about a situation where a doctor has recommended the collection and storage of cord blood in the case of a family with a history of diabetes? Offspring of diabetic parents, and those of diabetic fathers in particular, have a higher cumulative risk of contracting diabetes than the general population. In such a situation, would the fees be considered a valid medical expense for the purpose of the METC?
Just such a case came before the Tax Court this summer. The case involved a mother who attempted to claim $5,720 of expenses in order to harvest and store stem cells from her umbilical cord when she gave birth to her second son. The taxpayer’s husband, who represented his wife at the hearing, is a Type I diabetic.
As a result of the husband’s medical condition and after consulting with their obstetrician, they decided to go ahead with the harvesting and storage procedure. They claimed the expense on their 2016 tax return, which the CRA denied.
Under the Income Tax Act, you can claim medical fees paid “for laboratory, radiological or other diagnostic procedures or services together with necessary interpretations, for maintaining health, preventing disease or assisting in the diagnosis or treatment of any injury, illness or disability, for the patient as prescribed by a medical practitioner or dentist.”
In other words, to meet the test for deductibility, there are four conditions that must be satisfied. First, the expense must be for a laboratory, radiology or diagnostic activity. Second, it must be undertaken to maintain health, prevent disease or diagnose or treat injury, illness or disability. Third, it must be for the patient and finally, it must be prescribed by a medical practitioner.
The judge cited a 2014 decision also involving the harvest and storage of stem cell blood, which found that the first element was satisfied because the harvesting and storage were similar to other laboratory procedures and services. The second condition is also satisfied because the procedure “anticipates maintaining health and assisting in the treatment of illness, regardless of whether such illness is subsisting or prospective.” Thirdly, like the second condition, prospective illness where possible for the intended patient, is sufficient.
As to the final condition, the 2014 decision found that “prescribed means that the procedure or service must be recommended by the medical practitioner.” That was the issue to be decided in the current case.
The taxpayer testified that they decided to collect their son’s cord blood “as a result of a verbally communicated recommendation from their obstetrician.” While the recommending obstetrician did not testify in court, the taxpayer’s husband stated that the doctor made a note of this recommendation in her clinical notes. The clinical notes were not produced in court.
Instead, a letter from a family doctor, dated Oct. 16, 2017, was “adduced into evidence as proof of the prescribed treatment.” It stated that “the above patient’s parents are storing his cord blood for future use as an illness over the general population. All patients are advised to do this, if possible, from birth.”
The taxpayer argued that the verbal recommendation by the obstetrician at the time of or just before birth combined with the letter from the family doctor “form conjunctively a prescription from a medical practitioner.”
The judge did not give much weight to the verbally communicated obstetrician “directive,” expressed at the time of the stem cell harvest. Other than the verbal testimony of the taxpayer’s husband, there was no evidence of “its content, specificity or effect at the time it was made.” In addition, the obstetrician did not testify and her clinical notes were not produced.
The judge also felt that the letter from the family doctor, written some 17 months after the procedure, “cannot provide evidence of a medical prescription undertaken by the (taxpayer) in 2016.” As the judge wrote, “The letter is a retrospective descriptive record of what the taxpayer did, why and on what basis. Although it identifies an elevated risk, it also reflects a generic suggestion that such a procedure is recommended for all patients.”
In denying the taxpayer’s METC claim, the judge made a final comment relating to the main purpose behind the law. He wrote, “Best practices are not captured within the ambit of (the METC). The provision creates a deduction for medical expenses incurred by a taxpayer for medical treatments and therapies prescribed to treat that taxpayer’s present and future ailments. It is not intended to create a deduction for generic and undiagnosed population-wide illness and disease.”