When it comes to boosting your Canada Pension Plan (CPP) payments, there’s only so much Canadians can do. That’s because your CPP payout is mostly based on how much you contribute during your working years and for how long. Contributions are tied directly to your earnings, so unless you can magically bump up your income or extend your working years, your room to boost those payments is limited. You can delay taking CPP until you’re 70 to get a higher amount, but other than that, it’s about playing the long game and making consistent contributions over time!
So if you’re looking to boost your income, trying looking beyond CPP and seeing if this tax credit can help.
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What is the Medical Expense Tax Credit (METC)?
The Medical Expense Tax Credit (METC) is one of those hidden gems in the Canadian tax system that helps you save on your out-of-pocket medical expenses. It’s a non-refundable tax credit, meaning it reduces the amount of tax you owe, but you won’t get cash back if you don’t owe anything. Things like prescriptions, dental work, certain medical devices, and even travel costs if you need to go far for treatment all count.
For retirees, the METC can be especially useful because medical costs tend to creep up with age. Whether you’re using the credit to help pay for hearing aids, mobility aids, or other healthcare needs, it can help ease your financial burden. Plus, if your income drops in retirement, medical expenses might take up a larger chunk of your budget, making this credit even more valuable. It’s a nice way to keep more money in your pocket while taking care of your health.
How much you can claim
To qualify for METC, your expenses need to be more than 3% of your net income or $2,635 (whichever is lower), so it’s aimed at people with significant medical costs relative to their income. The nice part is that you can claim expenses for yourself, your spouse or common-law partner, and any dependents.
As for how much you can actually save, it really depends on how high your medical expenses are and your income level. For example, if you had $5,000 in eligible medical expenses and a net income of $40,000, you’d be able to claim anything above 3% of your income, which in this case is $1,200. That leaves you with $3,800 of claimable expenses. Everyone’s tax bills are different so it’s hard to generalize how much that claim would save you. It won’t make you rich, but it’s a helpful way to offset inevitable medical costs.
Reinvest if possible
If you end up getting a tax return, investing (and reinvesting) that money can be a smart way to grow wealth even in retirement. Investments like exchange-traded funds (ETF) can help you take advantage of compound growth. For instance, if you’re getting dividends from something like the iShares S&P/TSX Canadian Dividend Aristocrats ETF (TSX:CDZ), which invests in companies that regularly increase their dividends, reinvesting those payments means you’re not only earning on your initial investment — you’re also gaining on the dividends themselves. Over time, this can snowball into a bigger nest egg, even in your later years.
With CDZ specifically, you get exposure to a variety of solid dividend-paying stocks while benefiting from those companies’ increasing payouts. By reinvesting the dividends, you can buy more shares, which in turn generates even more dividends. For retirees, this can provide a great balance: regular income to live on and continued growth to ensure your money lasts longer. It’s like setting up a cycle of income and growth that can help keep your retirement fund strong, no matter how long your golden years last.
