Claiming Quarantine Hotels & Testing Costs

By Walter Harder and Evelyn Jacks

It’s a frustrating time:  the fourth wave is upon us, and soon too will be tax season 2022.  While the need to stay in quarantine hotels ended on August 9, many Canadians expended significant sums to come back to Canada from abroad during the pandemic.  Are those costs deductible?  The answer depends on the taxpayer profile and circumstances of the expenditure, according to recent CRA interpretations.

Claiming the Cost of Quarantine Hotels.  For non-business travellers, the only possible way to claim such costs would be through the medical expense claim.  In this case, the cost of the hotel stay would definitely not be claimable as a medical expense,  since the only travel expenses claimable are for travel to obtain prescribed treatment not available in the home community.  However, if this was the reason for the travel in the first place, it is likely that these costs would form part of the overall medical costs for the medical travel.

For personal travel, however, the costs are not deductible. 

Business travellers would likely be able to claim those same expenses based on the following criteria: 

• If the traveller was self-employed and travelling on business, the costs would be a deductible business expense, like any other reasonable expenses incurred to earn income from the business
• If the traveller was an employee and travelling on business for their employer, the costs could be reimbursed by the employer, and the employer could deduct the costs as a business expense
• If the traveller was required to pay their own travel expenses under their employment contract, the hotel costs would be an allowable employment expense, but the costs of the COVID-19 test would not fall into any of the allowable employment expense categories and would thus not be claimable

COVID Tests.  CRA relies on Income Tax Folio S1-F1-C1, Medical Expense Tax Credit for guidance to whether COVID testing costs should be deductible.  It is interesting to note that eligible medical expenses include diagnostic testing here in Canada but also abroad and that testing can be administered by a medical doctor, pharmacist or nurse licensed to practice where the testing is administered.  The eligible medical expenses include laboratory and other procedures, under paragraph 118.2(2)(o) of the Income Tax Act (ITA) if the costs are incurred to maintain health, prevent disease or assist in the diagnosis or treatment of any illness, injury or disability and as long as the procedures is prescribed by a medical practitioner.   CRA would allow the costs of such testing as a medical expense, therefore if all the requirements of this paragraph are met.

Therefore, in the case of an employee, the cost of the COVID-19 test itself might be allowed as a medical expense, but only if it was prescribed by a qualified medical practitioner.  In the case of government-mandated testing in the absence of prescription, the expenses would likely not qualify.

For business travellers, these costs would be a part of the overall costs of the trip, and therefore deductible if reasonable and applicable under the circumstances.  Taxpayers must look to Section 18(1) of the ITA for guidance here, notably the following:

“18 (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

• General limitation

(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

• Capital outlay or loss

(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;

• Limitation re exempt income

(c) an outlay or expense to the extent that it may reasonably be regarded as having been made or incurred for the purpose of gaining or producing exempt income or in connection with property the income from which would be exempt;

• Personal and living expenses

(h) personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business;

Additional educational resources: help Canadians remain audit-proof while claiming COVID-19 related costs, and much more. The September 23 Virtual CE Summit will address the issue of Audit Defence: Managing Risk in Compiling Financial Statements, GST & Payroll. Host Evelyn Jacks will focus on Tax Audit Frameworks: Learn the latest tax news for personal and corporate tax filers from a compliance point of view and drill down on the key audit triggers for 2019, 2020 and 2021. The object: planning for tax efficiency – after taking into account and managing the risk of CRA audits. Learn more by enrolling online today!