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Recent court decision shines light on antiquity of tax law

Last week I visited the drugstore to pick up a few things. I overheard a customer talking to the pharmacist on duty.

"You're sure this one bottle will cure me?" the customer asked.

"It must, sir -- nobody's ever made it back to refill the prescription," replied the pharmacist. Hmm. Not exactly a ringing endorsement of the product. But hey, the doctor prescribed it, and there's good reason to trust your doctor's judgment.

Apparently, Ottawa doesn't trust the judgment of doctors in this country very much. You see, Canadian tax law refuses to allow a medical expense tax credit in a growing number of situations, even in cases where a doctor has prescribed a medication or substance. This area of our tax law is in need an overhaul -- and quick. Consider the most recent court decision on this issue.

The case

A decision in the case of Willard Wilson v. The Queen was handed down on Dec. 23, 2005. This is the story of a man who suffers from age-related macular degeneration (AMD) -- a condition that damages the macula, the central part of the retina, which is responsible for central vision and the ability to see detail.

In 2003, Dr. Wilson claimed, as a medical expense, $1,840 for HMS-90, a natural substance that is recognized by the medical profession as a treatment for AMD, and $81 for Vitalux, a vitamin taken to delay the progression of AMD.

Now, HMS-90 and Vitalux are not drugs. One is a natural food supplement, and the other is a vitamin. But this was not the issue. You see, paragraph 118.2(2)(n) of our tax law will allow a medical expense credit for "drugs, medicaments, or other preparations or substances," provided they were prescribed by a doctor or dentist (as were Dr. Wilson's), and recorded by a pharmacist.

Did you catch those last four words? "Recorded by a pharmacist." Therein lies the problem. Although HMS-90 and Vitalux are both proven to help AMD, HMS-90 is not available through pharmacies, and Vitalux is sold "over the counter" and does not require the recording by a pharmacist.

The decision

The Tax Court of Canada ruled that Dr. Wilson could not claim the costs of his HMS-90 or Vitalux, despite the fact that they are proven to help AMD and were prescribed by a doctor.

(Dr. Wilson himself is a physician, but this was not relevant to the court's decision since a doctor can prescribe his own medication.)

The judge had no choice in the matter. The tax law -- in all its antiquity -- insists that a pharmacist record the prescription to entitle the taxpayer to a tax credit. Now, our tax law does allow certain substances, prescribed by a doctor or dentist, to be claimed even if not recorded by a pharmacist. Paragraph 118.2(2)(k) lists the following substances: insulin, oxygen, liver extract, and vitamin B12. That's it. I suppose there are no other substances worthy of being added to this list? Apparently, this list is so outdated that liver extract cannot even be purchased any more. Maybe Ottawa should change this provision to add cod liver oil to the list.

Let's face it. The world of medicine changes constantly. A tax law that tries to list specific substances that can be claimed is doomed to become obsolete in months -- not years. And why the requirement to have a pharmacist record these things? Isn't it enough that your doctor recognizes the benefit of a substance and prescribes it? Who is Ottawa to challenge the integrity and intelligence of the medical profession in Canada? It's about time Ottawa changed the tax law around medical expenses -- to reflect common sense.

Tim Cestnick is a principal with WaterStreet Group Inc. and author of Winning the Tax Game among other titles.

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