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 get a credit only on eligible expenses above a threshold: the lesser of 3% of your net income or a fixed cap indexed each year. For the 2025 tax year that cap was $2,834.

So the floor is 3% of net income for lower and middle incomes, and the cap for higher ones. At $60,000 of net income the floor is $1,800; at $200,000 it is the cap, since 3% exceeds it. The credit covers only spending above the floor.

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. Claim expenses for any 12-month period ending in the tax year, if not claimed the year before. Choose an end date capturing two clusters of spending — say, dental work in November and the following September — to clear the floor once instead of missing it twice.

Pooling on one return. Expenses for you, your spouse and children under 18 can be combined. The floor uses the claimant’s net income, so the lower-income spouse usually gets the larger credit — until their tax payable runs out. Other dependants are claimed separately, each with a floor based on their own income.

What actually counts

CRA publishes a searchable list of medical expenses, showing eligibility and documentation — some need a prescription, certification or Form T2201. Prescription medication, dental work, eyeglasses and contacts, hearing aids, most practitioner fees, ambulance service and some treatment travel qualify. Gym fees, non-prescription birth control and blood pressure monitors do not; blood coagulation monitors do.

Two rules apply throughout. Claim only unreimbursed amounts, so insured costs come out. Amounts paid outside Canada are generally still claimable.

Premiums you pay personally to a private health services plan are themselves an eligible expense. That benefit is modest, and it is where an incorporated owner should weigh the alternative.

The PHSP alternative for incorporated owners

A private health services plan — often a health spending account for a one-person corporation — changes the arithmetic. The corporation pays and deducts eligible health costs, and CRA does not tax the coverage as a benefit where the plan qualifies as a PHSP.

There is no 3% floor and no non-refundable-credit limit. Spending becomes a corporate deduction instead of a personal credit at the lowest rate above a threshold. For recurring family costs, that is significant.

The conditions matter. The plan must genuinely be a plan, with rules on coverage and operation. Having the corporation reimburse the owner’s dental bill without a qualifying plan risks a taxable benefit assessment instead of a deduction. Setup is covered 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; use the 12-month window and choose which spouse claims. Keep every receipt, even small ones: the floor is all-or-nothing, and the last few hundred dollars are the ones that count.

If you are incorporated, compare before defaulting to the personal credit. The corporate route usually wins on recurring costs, and the credit still covers anything the plan does not. Large one-off costs and how you pay yourself interact, because the floor moves with your net 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, so please speak with a CPA before acting on anything here.