As a physician, one of the most significant expenses you will incur during your career is tax—specifically, federal and provincial income taxes. That’s why it makes sense to minimize your taxes payable and maximize your financial position.
Here are 10 ways to pay less tax when you file your personal income-tax return for the 2017 tax year—and throughout the year.
1.Take advantage of a TFSA
Build up your savings in a tax-free savings account (TFSA). Any growth in a TFSA, whether it’s interest, dividends or capital gains, is not taxable. You can contribute $5,500 this year (it is indexed to inflation and rounded to the closest $500) and withdraw funds any time you wish, without any income-tax consequences.
2. Maximize your RRSP contributions
Contribute to a registered retirement savings plan (RRSP) and reduce your taxable income for the year (to the extent that you have available contribution room). Money inside your plan can grow and compound free of tax until you make a withdrawal (generally in retirement when you’re in a lower tax bracket).
3. Build your child’s education savings
A registered education savings plan (RESP) is one of the best ways to save for your child’s post-secondary education. Your contributions are not tax-deductible, but the investments are allowed to grow and compound on a tax-deferred basis. When money is withdrawn, earnings are taxed in the hands of your child based on your child’s income-tax bracket. Plus, there are government grants that can help you reach your goals sooner.
4. Pick the right time to move
If you finish training in 2018 and plan to begin practice late in the year, you could save on taxes by planning your moving date accordingly. Your entire year’s income will be taxed at the provincial rate in the province where you reside on December 31 in any given year, and not the province where the income was earned. If you’re relocating from a higher-tax province to a lower-tax province, move before December 31. If you’re going from a lower-tax province to a higher-tax province, move after December 31. Certain exceptions may apply for self-employment income.
5. Claim your child care expenses
If, like many busy physicians and two-physician families, you employ a full-time caregiver to provide child care, the lower-income spouse can claim the costs as child care expenses for your eligible child or children. (Certain maximums apply, based on the age of your children and whether they have a physical or mental infirmity.)
6. Keep accurate records
Accurate record keeping is essential for successful tax planning. An eligible deduction or tax credit can be disallowed by the Canada Revenue Agency if the supporting receipt or documentation is not available. Accurate and complete records can also minimize time spent on future assessments, re-assessments or audits.
7. Claim union, professional and like dues
Amounts paid for membership (required to maintain a professional status recognized by statute) in provincial or territorial medical associations or colleges of physicians and surgeons are generally deductible. Union dues, such as those paid to a provincial residency association (e.g., PARO, Resident Doctors of Saskatchewan, Maritime Resident Doctors, etc.) are also generally deductible.
8. Claim eligible employment expenses
If your employer requires you to use your own vehicle away from your ordinary site of employment (i.e., your department at the hospital) and you did not receive a reimbursement or tax-free allowance to cover your costs, you may be entitled to claim a deduction for the portion of your vehicle expenses incurred to earn employment income. Many family medicine residents, for example, use their vehicles for house calls, and the related travel costs should generally qualify as valid employment expenses.
9. Reinvest your tax refunds
It’s tempting to view a tax refund as “free money,” but rather than spending it, consider making additional payments on your student loans or line of credit, paying off your credit cards or investing in your RRSP and/or TFSA. If saving for a child’s education, consider starting or adding to an RESP.
10. Give to charity
In Canada, charitable donations in excess of $200 qualify for a non-refundable tax credit equal to 40% to 50% of the donations made, depending on your province or territory of residence. If you donate in kind (e.g., qualified stocks and mutual funds with unrealized capital gains), you can save even more in taxes.
If you have any questions about these tax tips, consult your tax advisor and your MD Advisor for further details.