TAX UPFRONT

Surrogacy Costs

Tax planning for reproductive assistance

Clients who choose to grow their family through the use of surrogacy or other assisted reproductive technologies may find that, in some cases, the costs can be prohibitive and need to be factored into financial planning. Many are unaware that there may be tax savings associated with these costs through use of the Medical Expense Tax Credit (METC). For those using a surrogate mother, or a sperm, ova, or embryo donor, eligible medical expenses were historically limited and did not include payments made for medical expenses of the surrogate or third-party donor, or reimbursements paid to a surrogate or donor in respect of expenses those parties personally incur. The 2022 Federal Budget, released on April 7, 2022, proposed an expansion of these eligible expenses. Draft legislation that includes this expansion was released on August 9.

Let’ s review the METC and the new rules.

THE METC

The METC is a 15% non-refundable tax credit available for a wide range of medical expenses so long as a reimbursement has not been received for the expense. For example, if your employer ’ s group health insurance plan has covered an expense, you can ’t claim the METC in respect of that expense. The amount claimed is reduced by the lesser of 3% of your net income, and an annual threshold ($2,479 federally in 2022; provincial/territorial amounts vary).You can claim expenses incurred for you, your spouse or common-law partner, and for certain family members that you support. Historically, you could not claim the METC for expenses of an individual not falling into these categories. In the context of assisted reproductive

1 See Reimbursement Related to Assisted Human Reproduction Regulations, which are made under the Assisted Human Reproduction Act. 2 The 2022 Federal Budget which can be found online at https://budget.gc.ca/2022/report-rapport/tm-mf-en.html#a2. 3 Any such expenses must be in accordance with the Assisted Human Reproduction Act and associated regulations. 4 The reimbursed expenses must be permissible under the Reimbursement Related to Assisted Human Reproduction Regulations. technologies, this meant that medical expenses paid by intended parents in respect of a surrogate mother, or an ova or sperm donor, were not accommodated by the rules.

ELIGIBLE EXPENSES

There are a wide range of expenses for medical goods and services that qualify for the METC. Included are many costs related to fertility treatments and other reproductive assistance. For instance, fees paid to a medical practitioner or a hospital (public or private) to conceive a child are eligible. The costs of prescription medication, including fertility medication, are similarly eligible.

Surrogacy

Many pregnancy-related expenses of a surrogate qualify for the METC. For instance, the surrogate could require prescription medications or a medical device such as a blood pressure monitor. They may receive counselling services, both before and postpregnancy, which qualify for the METC. The cost of a doula satisfies the requirements, as would the services of a chiropractor. If the surrogate needed to find paid care for an aging parent during the pregnancy, that too could qualify.

Although Canadian laws prevent a surrogate from charging for the service provided, the surrogate is permitted to be reimbursed by the intended parents for expenses directly related to the pregnancy. 1 Prior to the budget, the medical expenses of the surrogate could only be included in a claim for the METC, however, by the surrogate or her spouse or common-law partner.The expenses were not eligible for the METC when paid for by the future parents.

The budget proposed expanding the METC rules to recognize that “ some approaches to building a family involve medical expenses for individuals other than the intended parents. 2 This budget proposal will allow the medical expenses of a surrogate outlined above, when paid by the intended parents, to qualify for the METC. This includes costs paid directly by intended parents, such as to a clinic for in vitro fertilization of a surrogate mother, 3 as well as reimbursements paid by the intended parent to a surrogate for medical expenses incurred by the surrogate. 4 This change is to be effective for the 2022 and subsequent years.

Artificial insemination and in vitro fertilization

Where artificial insemination (AI) or in vitro fertilization (IVF) is performed, amounts paid to a medical practitioner or a hospital for the procedure qualify for the METC. This includes not only the procedure itself, but also certain expenses associated with obtaining the sperm or ova, sperm washing, sperm freezing and thawing, ova freezing and thawing, and embryo freezing and thawing. Once the AI or IVF has been performed, it includes ultrasounds and blood tests. If there are anaesthetist costs, those qualify. Finally, fees paid for cycle monitoring are also eligible.

Similar to the laws surrounding surrogacy, a sperm or ova donor cannot be paid for the donation. The donor can, however, be reimbursed for expenditures incurred in the process, many of which could qualify for the METC if claimed by the donor personally. Various expenses for which a surrogate could be reimbursed apply to a sperm or ova donor. For instance, counselling services, medications, and elder care costs equally apply.

Prior to 2022, these expenses incurred by the donor also could not qualify for the METC by the intended parents. Just as with medical expenses of a surrogate, the budget proposed that these medical expenses of an ova or sperm donor be eligible for the METC when paid by the intended parent effective for 2022 and subsequent years. This includes costs paid directly, and those incurred by the donor and reimbursed by the intended parents.

Further, the budget proposed permitting fees paid to fertility clinics and donor banks to obtain donor sperm or ova to be eligible for the METC effective for the 2022 and subsequent years. Prior to this proposal, such fees were not eligible for the METC.

DEBBIE PEARL-WEINBERG, LLB, is the executive director,tax & estate planning with CIBC Private Wealth Management in Toronto. She can be reached at debbie.pearl-weinberg@cibc.com.

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