For more than 50 years, the Medical Expense Tax Credit (METC) has offered Canadians some relief from high out-of-pocket health costs. But business leaders and benefits advisors say the credit is overdue for modernization — and they’re urging their peers to help advocate for change.

First implemented in 1971, the METC allows taxpayers to claim 15 per cent of eligible medical expenses that exceed either three per cent of net income or a fixed threshold ($2,759 in 2024). Provinces and territories provide parallel credits, creating combined tax relief of roughly four per cent to 20 per cent depending on the jurisdiction.

The Canada Revenue Agency maintains a long list of eligible expenses, such as payments to doctors and dentists, prescription medications, medical devices, hospital fees, private health plan premiums and, more recently, fertility treatments.

But critics say the program remains stuck in a past era—focused on remedial and reactive health care, without any options for preventative care.

The outdated METC is also holding back the wellness efforts of employers with workplace health benefits plans. “The underpinnings of what is eligible on employee benefit plans, including healthcare spending accounts, revolves around the medical expense tax credit. Modernizing the METC to include preventative care will create more fulsome options for healthcare spending accounts,” explains Gord Hart, CEO of Selectpath Benefits & Financial, a member firm of Benefits Alliance, which recently published a white paper, authored by Hart, on the METC.

James White, President and CEO of Wellmaster in Tillsonburg, Ontario, which manufactures and wholesales products for the groundwater, energy and horticultural sectors, couldn’t agree more. “It’s entirely within my interest as an employer to ensure our team is in peak physical and mental health. Whatever we can do to support them in that, there’s going to be a return in investment.”

Wellmaster’s health benefits plan, for a workforce of just under 50 employees who span several generations, was designed to be “a balance between insured benefits and other benefits that we can cover off with health spending accounts and wellness accounts,” says White. A key objective is to get employees more engaged in preventative care—for example, by joining a gym.

However, an analysis of claims revealed a consistent under-utilization of wellness-oriented benefits across all age groups. A closer look at wellness accounts, including conversations with staff, ran up against the issue of taxable benefits.

“There was confusion between health spending accounts and wellness accounts and the fact that take-home pay is reduced due to the withholding of taxes owed,” says White. “A big concern for us as the employer is that people may be thinking that wellness accounts aren’t what they appear to be, and are even underhanded, which brings us right back where we started, with a lack of engagement in spending accounts.”

The productivity imperative

Both White and Hart argue that modernizing METC is not simply a tax issue — it’s a productivity issue.

“This is about making the connection to the productivity emergency we’re dealing with in Canada,” emphasizes White. “A lot of people, when they think about productivity, they automatically think about technology. But more than half of productivity is people. It makes no sense that while we have multiple tax credits to make it easy to buy a machine, we don’t invest very much in the people operating the machines.”

Governments also ultimately win. “Forgoing the immediate tax benefit could pay enormous long-term dividends in the affordability of healthcare across the country, which translates into more income taxes and corporate taxes because we’ve improved productivity,” explains Hart. “A machine does not generate income taxes—a person doing a job effectively does.”

White reiterates that the same logic is already applied to other types of tax credit. “Governments will defer revenue because that’s more efficient than receiving the revenue and funding programs. But that logic hasn’t been applied to people, it hasn’t been applied to preventative health care—and I think that’s a tragedy.”

Starting the policy shift

The federal government could take an incremental approach to reform the METC, says Hart. They could pilot an expanded METC or a new Wellness Tax Credit that focuses on financial planning services, nutrition and food literacy programs, and coaching for physical activity or health to start.

“This isn’t just about gym memberships,” clarifies Hart. “It’s about providing the training or the coaching to make healthy habits stick. This is where we can see the real value in modernizing the medical expense tax credit.”

Eligible expenses can also be capped at $1,000 initially, to limit governments’ exposure while data is gathered. Hart’s white paper also recommends measures specifically in support of low-income and marginalized workers to prevent criticism that only higher-income earners benefit.

Calls to action

With so many priorities on policymakers’ plates, Hart and White stress that grassroots advocacy is key.

“As we think about the role of the advisor, advocacy is the most important piece,” says Hart. “We need to reach out to employers and have employers talk to the politicians in their regions. If it comes from employers, I think it would be material to policymakers.”

Echoes White to fellow plan sponsors: “Engage with your benefits advisors to educate yourself and advocacy personnel at your respective industry association. Then reach out to provincial and federal representatives and call for budget inclusion for METC reform.”