Being aware of the tax breaks that you may qualify for as a resident physician can help minimize the taxes you pay.
Both tax deductions and tax credits reduce the amount of tax you pay. The difference is with tax deductions, the higher your marginal tax bracket (i.e., the higher your income), the more the deductions are worth. With tax credits, you would get the same amount regardless of your tax bracket.
Here are seven that are worth looking into.
1. Tuition tax credits
Any tuition fees you paid during residency may be eligible for the non-refundable tuition tax credit. Fees paid for admission, application, use of library or laboratory facilities, diplomas, and mandatory computer service fees may also qualify for the tuition tax credit.
Tip: If you have unused tuition tax credits from your medical school years, you can apply the unused credits to reduce taxes payable. If there are still unused credits at the end of the year, it automatically carries forward. Any amounts paid in the current year and not used or transferred to an eligible person (such as your spouse or common-law partner or, under certain restrictions, a parent or grandparent) will automatically be available to carry forward as well.
2. Interest on student loans
If you have an existing loan under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial loans program, you can claim a 15% federal non-refundable tax credit on any interest you paid in 2021.
In April 2021, the federal government announced that no interest will accrue until March 31, 2023, on the federal portion of Canada Student Loans. That said, you may nonetheless have student loan interest paid that is eligible for a tax credit on your 2021 tax return.
Note that interest paid on a personal loan or line of credit does not qualify for the tuition tax credit.
Tip: If you didn’t claim the interest paid on student loans in the past, you can go back and claim it for any of the previous five years.
3. Moving expenses
If you moved at least 40 kilometres to be closer to a new work location in the past tax year, you may be able to claim a tax deduction for your moving expenses. Moving expenses can include things like transportation and storage costs, travel expenses, temporary living expenses, the cost of cancelling a lease, and utility connections and disconnections.
Tip: If you have sold and/or purchased a home due to your move, you may be able to claim advertising, notary or legal fees, real estate commission, property transfer taxes, and other registration costs.
4. Union, professional and membership dues
If you paid for membership in medical associations or the college of physicians and surgeons of your province or territory, these are generally deductible for tax purposes if they are required in order to practise. Union dues paid to a provincial residency association (e.g., PARO, Resident Doctors of Saskatchewan, Maritime Resident Doctors, etc.) are also generally deductible.
Your malpractice premiums (minus any rebate you received from your province) paid to the Canadian Medical Protective Association are deductible as professional dues. If you live in Nova Scotia, Prince Edward Island and the territories, they are deductible as an employment expense.
Tip: You don’t need to file your official receipts from the association or union with your tax return, but be sure to keep them in case the CRA asks to see them.
5. First-time homebuyers’ amount
If you were able to buy your first home, you might be able to claim a federal non-refundable first-time homebuyers’ tax credit equal to 15% of up to $5,000 in the year of purchase. This can result in a tax savings of up to $750.
Tip: To qualify as a first-time homebuyer, you and your spouse or common-law partner must not have owned or lived in another home owned by either of you in the current or four preceding calendar years. You also must make the new home your principal residence within one year of purchase.
6. Child-care expenses
If you have children, the cost of daycare, babysitters and full-time caregivers is deductible, to a maximum of $8,000 a year for children who are under 7 and $5,000 a year for kids aged 7 to 16. Generally speaking, the lower-income spouse or common-law partner must claim this deduction (unless that person is at school or disabled or the two of you are separated).
Tip: In practice, the CRA generally does not attach specific child-care expenses to specific children. That is, as long as total child-care expenses don’t exceed the defined limits per child multiplied by the number of children, all eligible child-care expenses are generally allowed. To maximize your base for child-care deductions, make sure to report on your tax return all your children who are 16 years and under, and those with infirmities.
7. Medical expenses
If you incurred any medical expenses (including dental and eye care expenses) that aren’t covered by an insurance plan, you may be able to apply them against your taxable income.
For 2021, you can claim a 15% federal non-refundable tax credit on qualifying medical expenses in excess of either $2,421 or 3% of your net income, whichever is less. There is a long list of eligible expenses, including medical cannabis, tutoring services (learning disability), travel expenses to get medical services and fertility-related procedures.
If you are a resident physician with a basic tax return, you can get your income tax return done for free through the accounting firm MNP. A qualified tax specialist can also help you with your income tax return. For personalized financial planning advice, please speak with your MD Advisor*.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.