The medical expense tax credit: the threshold, what counts, and the alternative for owners

Why most people get nothing

The medical expense tax credit disappoints because of its floor. You do not get a credit on everything you spent; you get a credit on the portion of eligible expenses that exceeds a threshold, and the threshold is the lesser of two amounts: 3% of your net income, or a fixed dollar cap that is indexed each year. For the 2025 tax year that cap was $2,834.

The consequence is that the floor is 3% of net income for lower and middle incomes, and the flat cap for higher incomes. Someone with $60,000 of net income has a floor of $1,800; someone with $200,000 has a floor of the indexed cap, because 3% of their income exceeds it. Both only receive a credit on what they spent beyond that.

It is also a non-refundable credit. It reduces tax otherwise payable and cannot create a refund on its own. In a year with little or no tax payable, the credit is worth nothing at all.

The two provisions people underuse

Two features of the rules materially change the outcome and are routinely missed.

The 12-month window. Expenses can be claimed for any 12-month period ending in the tax year, provided they were not claimed in the prior year. That period does not have to align with the calendar. Choosing an end date that captures two clusters of spending — say, dental work in November and again the following September — can pull both into a single claim, clearing the floor once instead of failing to clear it twice.

Pooling on one return. Eligible expenses for you, your spouse and your children under 18 can be combined on a single return. Because the floor is calculated from the claiming spouse’s net income, putting the pooled claim on the lower-income spouse’s return usually produces a larger credit — up to the point where that spouse runs out of tax payable to offset. Expenses for other dependants are claimed separately, with the floor calculated from each dependant’s own net income.

What actually counts

CRA publishes a searchable list of common medical expenses showing whether each is eligible and what documentation it needs — some items require a prescription, some require written certification, and a few require Form T2201. The list is long and unintuitive. Prescription medication, dental work, eyeglasses and contact lenses, hearing aids, most practitioner fees, ambulance service and certain travel for treatment are eligible. Gym and fitness club fees are not. Non-prescription birth control is not. Blood pressure monitors are not, while blood coagulation monitors are.

Two rules cut across the whole list. You can only claim the portion you have not been and will not be reimbursed for — so amounts covered by an insurance plan come out. And amounts paid outside Canada are generally still claimable, which matters for anyone who travels for treatment.

Insurance premiums are worth a specific mention. Premiums you pay personally to a private health services plan are themselves an eligible medical expense. That is a real but modest benefit, and it is precisely the point where the incorporated owner should stop and consider the alternative.

The PHSP alternative for incorporated owners

A private health services plan — often set up as a health spending account for a one-person corporation — changes the arithmetic entirely. The corporation pays for eligible health costs through the plan, deducts the cost as a business expense, and CRA does not treat the coverage as a taxable benefit to the employee where the plan qualifies as a PHSP.

There is no 3% floor. There is no non-refundable-credit limitation. The spending becomes a corporate deduction at the corporation’s tax rate rather than a personal credit at the lowest personal rate on the amount above a threshold. For an owner with meaningful recurring family health costs, the difference is not marginal.

The conditions matter, though. The plan must genuinely be a plan — there are requirements around what it covers and how it operates, and simply having the corporation reimburse the owner’s dental bill without a qualifying plan in place risks a taxable benefit assessment instead of a clean deduction. The mechanics of setting one up are covered in more detail in our guide to the health spending account for small corporations.

Which route to take

If you are not incorporated, the credit is what you have, and the two levers worth using are the 12-month window and the choice of which spouse claims. Keep every receipt, including for expenses you think are too small to matter, because clearing the floor is an all-or-nothing threshold and the last few hundred dollars are the ones that count.

If you are incorporated, run the comparison before defaulting to the personal credit. The corporate route usually wins on recurring costs, and the personal credit remains available for anything the plan does not cover. Where the family also has large one-off costs in a single year — and where how you pay yourself already determines your net income — the two interact, because the floor moves with your income.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique — please speak with a CPA before acting on anything here.