Being aware of the tax breaks that you may qualify for as a medical resident 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.
Exam fees may also qualify for the tuition tax credit. According to the MCC website, the Medical Council of Canada Qualifying Examination Parts I and II exam fees are eligible. Certain related fees, such as centre change request fees or late fees — up to a maximum total of $250 — are also eligible.
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 2020.
Of course, your interest payments were likely lower than usual in 2020. That’s because the federal government put a pause on repayment schedules from March 30 until September 30, so no interest accrued during this period on the federal portion of Canada Student Loans.
Note that interest paid on a personal loan or line of credit doesn’t qualify.
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 deduct allowable moving expenses against employment income earned at the new location. Moving expenses can include things like transportation and storage costs, travel expenses, temporary living expenses, the cost of cancelling a lease, and various other moving-related costs.
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.
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 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. Vehicle use
The cost of commuting to your regular hospital or clinic is considered a personal expense, and is not deductible.
However, medical residents can deduct local transportation costs for travel to a temporary hospital location, house calls, local medical conventions, emergency calls and staff meetings. You can deduct a pro rata share of your vehicle expenses — i.e., the proportion of the total that represents employment use — such as insurance, repairs and maintenance, interest on a car loan, car lease payments, tolls paid, parking fees and any other car-related costs. In addition, you can deduct any business-related taxis, public transit, parking fees and tolls.
Tip: Throughout the year, you’ll need to track and record the number of kilometres that were for employment purposes and the total number of kilometres you drove in that calendar year. You will also need to obtain a copy of Form T2200 – Declaration of Conditions of Employment, completed and signed by your employer.
If you are a medical resident 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.