Can I claim my bong on my taxes?
Dry and Technical
Within the Income Tax Act (ITA) of Canada section 118.2(2)(m), there are four aspects that are required for something to qualify as a deductible device for medical purposes.
- (i) is of a prescribed kind,
- (ii) is prescribed by a medical practitioner,
- (iii) is not described in any other paragraph of this subsection, and
- (iv) meets such conditions as are prescribed as to its use or the reason for its acquisition;
Under the act, a device for medical cannabis consumption does quality with 3 of the 4 criteria. Technically, as mentioned in the Canada Revenue’s Unofficial Stance section of this post, your doctor would need to write out on the cannabis prescription “and a device for administration” or something to that regard, however for practicality purposes they would likely not split hairs unless you piss them off.
Why it fails “(i) Is of a Prescribed Kind”
What does this mean? For this, we head over to ITA 5700.
This is a list of devices that you can claim if prescribed to you. We will save you the hassle of reading the whole list of 36 items you can deduct for medical expenses.
So, if the device is not on this list it is not allowed to be claimed as a medical expense. And you guessed it, there is no “catch-all” item or clause either.
Since ITA 5700 has not been updated since 2009 (10 years ago), it is likely that either nobody has brought this up before or it has been ignored as a joke when it does come up.
What is a catch-all clause?
Simply, this is one of those aspects that are normally put into laws or policies, that will encompass new developments without requiring a rewrite of the whole act. For example, a catch-all clause for ITA 5700 would be something to the effect of;
“(z.5) any device that is used in the direct administration of a prescription or at the written direction of a physician with a value under $500 and is deemed reasonable.”
A clause like this within ITA 5700 would not only allow for deductions of medical cannabis paraphernalia but additionally would allow other other medical devices (under $500) that may come onto the market be deducted for tax purposes. And this would allow the CRA to perform their job with more ease.
Canada Revenue’s Unofficial Stance
During the research for this blog post in the autumn of 2018, a discussion was had with one of the department heads of the Canada Revenue Agency (CRA) out of Winnipeg.
The discussion started at a conference in Banff. The initial conversation was regarding the technical aspects of the act which were detailed in the previous section.
It was inquired if needles and syringes had to be written on the prescription along with the insulin or if it was an assumed “addition” to the insulin prescription. Obviously, you can see where this conversation was going by reading this article. The department head did not have a definite answer at that time. She asked for my contact information and said she would find the answer.
A couple of weeks later…
During the follow-up, her senior agent explained that technically it is required to be on the prescription. However, for practicality purposes, it was assumed. At this point the question was expanded to, if that was the case would this apply to vaporizers and other paraphernalia for prescription cannabis. This was met with an intrigued “I don’t know”, another few days passed and a response was given by the senior agent that was detailed in the above section.
Wanting to change the way things worked, it was inquired how this could be changed. Eventually, a response of you would need to change the law for them to be able to accept cannabis paraphernalia as a medical expense deduction.
Opinions of Canada Revenue Agents
During this process, several agents were spoken to on all levels and all of these agents were in general agreement that these expenses should at the least be considered for a legitimate medical deduction expense. Several agents were also surprised at the costs of vaporizers, like the Arizer Solo II, only being familiar with the cheaper, and almost disposable vape pens.
One of the senior agents ended up strongly agreeing as they had both an immediate family member and a close friend both with serious medical conditions that had their quality of life significantly improved with medical cannabis due to less adverse side effects. It was reassuring to hear that the Canada Revenue Agency, in general, was not only at the least neutral in the issue but seemed to be welcoming of a change to allow such expense deductions.
Reasonability of Expense
One other item that came out of the discussions and interviews with the Canada Revenue Agency was the reasonability of the expense. This is always at the front of the mind of all accountants in general.
What constitutes a reasonable expense for medical purposes?
There is no clear definition, and during the discussions, it was agreed that a $1000 custom bong would not be reasonable.
Would they allow a Linx Gaia when a $50 vape pen might work for the year?
The answer was, it would be case by case, but purchasing a $200 vaporizer that is expected to last longer than a year would be accepted as reasonable.
Purchasing a $300 bong might not be allowed in comparison as there would be minimal difference in life expectancy to a $100 bong. Again, this will fall into a case by case basis, if we are ever allowed to claim these as medical expenses.
Medical Cultivation Expenses
To give you the bad news right away. No, you cannot claim your expenses as they relate to your grow op for medical purposes.
This is detailed in Tax Folio S1-F1-C1 1.142
“None of the costs related to growing the medical marihuana from seed (other than the cost of the seeds as discussed at ¶1.139 – 1.141) are included under paragraph 118.2(2)(u)”
And you may only claim your seeds if they are purchased directly from Health Canada.
But why not?
We plan on going into far more detail on a future post regarding grey markets, the morality and function of these markets as they relate to keeping the government in check.
But for the purposes of this post, the question is if it is significantly less expensive to cultivate for medical purposes yourself why should the government differentiate between the cost of direct purchase of cannabis and the costs associated with a do it yourself approach?
Support for these expenses directly related to the cultivation of medical cannabis can be reasonably made. On Leafly.ca they have an informative article regarding the cultivation costs of Cannabis.
The article shows between $1.95 to $4.70 USD per gram of cannabis if we bump this up for the exchange and additional costs of equipment in Canada, we would run about $2.50 to $6 per gram of homegrown. So, if you can put in the effort to grow your own, why should you not be allowed to claim those costs, which are in theory less than what you would pay on prescriptions against your income?
Well, a theory is that you will be likely growing more than you would have purchased through your prescription and Canada Revenue knows that some of this excess will be sold through a grey market or to “friends”, which is illegal in both the sale and the lack of claiming sales on your tax return. Until there is a way for the government to differentiate between legitimate medical home grows and “I need this for my itchy eyes. All the excess cannabis was thrown into the garbage and totally not sold to Jerry.” type of home grows, there is no incentive for the government to allow the deduction of these expenses.
Yet another theory is that the reduction of the cost to the end user is equivalent to or higher than what the tax savings would have been for the medical deduction. See example below;
Cost vs Tax Savings
For this example, we will assume usage of 1g per day, therefore 365g per year of need.
An effective tax rate of 30% is also assumed.
365g @ an average cost of $10 per gram
Assuming full $3,650 is eligible for the medical tax credit
$1,095 increased refund
Grow Your Own
365g @ an estimated average cost of $5 per gram
No Eligibility for Tax Credit, If it was eligible $547.50 of increased refund
$1,825 Savings Compared to Prescription
Changing the Law
In order to fix this issue in the act, it is best to address this to a member of parliament that is willing to stand behind this change.
For anyone who has dealt with government in a significant capacity will understand it is never a simple affair. But we can still achieve change if we push. But the more people we have pushing, the faster and easier it will be accomplished.
The Giant Squirrel will be working towards changing this disservice and appreciates any help or support.
Buying something from the shop is appreciated support!
Share this with friends that may have medical conditions or may care is better support!
Getting involved is the best support.
If you want to get involved contact us as we navigate the road of making the government’s laws work better in general.
More to come as we work towards this goal!