It’s that time of the year again…it is almost time to file your 2018 tax returns! Now is a good time to go over the various deductions and tax credits so that you are not missing out. Here is an overview of some of the most relevant ones for medical residents.
Tuition, Education, and Textbook Tax Credits
You can claim the tuition fees as well as exam fees (e.g. Royal College exams) for the tuition credit. Although the additional education and textbook credits were eliminated after 2016, if you have not yet claimed them in previous years now would be a good time to adjust your prior tax returns (you can go back up to ten years) since UBC revised the T2202A slips from 2005 to 2016 to show this credit.
Professional Dues and Insurance
Dues paid to a professional body (e.g. College of Physicians and Surgeons of BC) are deductible. Liability insurance paid to the CMPA are also deductible.
Moving expenses are deductible provided that you have moved at least 40km closer to the new work location. This includes moving after residency as well as for new placements within residency. Deductible expenses include transport, travel, meals, vehicle costs, and temporary living costs for up to 15 days. Note that these expenses are only deductible against income earned at the new location.
Home Buyer’s Amount
You and/or your spouse or common-law partner can claim $5,000 (credit amount is $750) for the purchase of your first home provided that you did not live in a home that was owned by either of you in the current or preceding four years. The amount can be split between spouses or common-law partners but the total cannot exceed $5,000.
Student Loan Interest
Interest paid on government student loans can be claimed for a tax credit. Note that interest on line-of-credit loans from financial institutions are not eligible. Since line-of-credits loans often have a lower rate than government loans; one should take this into consideration for their borrowing decisions.
Parents are entitled to various tax credits and deductions for their children:
- Canada Child Benefit: Introduced in July 2016, this replaced the myriad of existing credits. This is a monthly non-taxable amount that is based on the number of children, their ages, whether any have a disability, and on family income. You will need to apply for this benefit.
- Childcare Expenses: These can be deducted from income for the lower-income spouse up to a maximum of $8,000 for each child under the age of 7 and $5,000 for each child between the age of 7 and 16. If the child has a disability, a larger amount can be claimed.
- Registered Educational Savings Plan (RESP): While not only a tax-time item, parents should set this up for their children in order to receive the Canada Education Savings Grant (CESG) that adds 20 cents for every dollar contributed up to a maximum grant of $500 per year (for a contribution of $2,500). The grant is paid annually up to the year in which the child turns 17 and there is a lifetime limit of $7,200. Unused grant amounts in a year are carried forward to future years although due to catch-up limits it could take more than a year to claim unused amounts.
Clinical Associates or Moonlighting
Some residents take on Clinical Associate or Moonlight shifts in addition to their resident duties. As such, they earn income on a fee-for-service basis which makes them self-employed. Such income is eligible for various tax deductions not normally available for salaried income.
- The cost of supplies, mobile phone (business portion only), and licensing fees are deductible.
- Automobile costs (gas, insurance, lease costs, interest expense, and maintenance), pro-rated for the driving to and from hospitals, can be deducted.
- Home office expenses (rent, mortgage interest, insurance, utilities, and repairs) can be deducted if you have a dedicated room in your home as your principal office.
Large Tax Refund
Many people enjoy getting a large tax refund upon filing their tax returns but they do not realize that their employer has deducted more tax than needed throughout the year. This is often the case with residents who have recently finished medical school and have significant tuition tax credits. Fortunately, taxpayers can complete forms to reduce the taxes withheld by their employer:
- TD1 – Personal Tax Credits: This is submitted by the employee to their employer. Tuition amounts for the current year are entered here.
- T1213 – Request to Reduce Tax Deductions at Source: Items not listed on the TD1 will require this form; these include tuition amounts carried forward from prior years, child care expenses, employment expenses, RRSP contributions, medical expenses, and donations. This is submitted to your local CRA office; if they accept your request they will issue you a letter of authorization which you can then provide to your employer.
The US requires its citizens and green card holders to file income tax returns even if they are not resident in the US. This means that persons who were born in the US and left as a child are still required to file annual income tax returns. US legislation requires foreign banks to disclose certain information about US citizens which increases the chance of detection of non-filers.
While the credit for Canadian taxes payable will often result in no US taxes payable on the US income tax return, a return must still be filed and penalties for non-compliance can be significant. Programs to assist in getting filings up to date are available for US citizens who are behind on their filings.
This article is courtesy of Richard Wong, CPA, CA of Baker Tilly WM LLP (formerly Wolrige Mahon LLP). Richard has extensive experience in providing accounting and tax services to physicians and other health professionals. For more information, Richard can be reached at firstname.lastname@example.org or at 604-691-6886.