As a medical student or resident, you have plenty of things on your mind other than your income taxes. However, being aware of things like tax benefits can help reduce the tax you pay and put you ahead financially.
Here are some tax tips, including ways to help reduce your tax bill.
File an income-tax return, even if you owe nothing.
There are several good reasons to file your income-tax return every year, even if you don’t owe any income tax. One is that you may qualify for the GST/HST credit, a tax-free quarterly payment that you could receive, depending on your income level.
A second benefit is that you can start accumulating registered retirement savings plan (RRSP) contribution room, which is calculated as a percentage of your earned income during the year. Even if you don’t have the money now to contribute to an RRSP, this contribution room is carried forward indefinitely, for use in future tax years.
If you get a tax refund, reinvest it.
It’s tempting to see a tax refund as “free money” that is yours to spend. But if you receive a tax refund, consider making extra payments on your student loans or line of credit, paying off your credit cards or investing in your RRSP or tax-free savings account (TFSA).
Find out what tax benefits you qualify for.
There are a number of tax credits, deductions and programs that medical students and residents may qualify for. Take advantage of these, as they can help reduce the tax you pay. In case your return is reviewed or audited by the Canada Revenue Agency, keep all your receipts for the deductions and credits you’re claiming for six years.
Here is a list of tax benefits worth looking into.
1. Tuition tax credits
The tuition fees you paid during medical school or residency may be eligible for the non-refundable tuition tax credit. Apart from tuition, fees paid for admission, application, use of library or laboratory facilities, examinations, diplomas and certain exam preparation courses, as well as mandatory computer service fees, may also qualify.
The federal government eliminated the education and textbook tax credits effective January 1, 2017. However, unused amounts from years before 2017 will remain available to be claimed in 2017 and subsequent years. The education and textbook tax credits have been replaced with increased Canada Student Grant amounts in an effort to make post-secondary education more affordable for students from low- and middle-income families.
2. Scholarships and bursaries
Amounts you received in a year for scholarships, fellowships and bursaries can be excluded from your income, if you were enrolled at a designated educational institution in a program for which you can claim the education tax credit. Post-doctoral fellowships generally have not qualified since legislative changes in 2010.
3. Interest on student loans
If you’ve received loans under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial law, you may be eligible for a non-refundable tax credit on payments of the interest portion. Interest paid for any other debts, such as bank loans or lines of credit, is not eligible for this credit. Provincial non-refundable tax credits may also apply.
4. Union, professional and like dues
Amounts paid for membership (required to maintain a professional status recognized by statute) to accredited associations or the college of physicians and surgeons of a province or territory are generally deductible—so are union dues, such as those paid to a provincial residency association.
5. Moving expenses
If you relocated at least 40 kilometres to be closer to a new work location or to attend full-time post-secondary education, you may be able to deduct allowable moving expenses against employment income earned at the new location or, if you’re a student, against taxable scholarship or grant income.
6. Provincial tax credits and tuition cash-back programs
Several provinces offer tax credits and incentives to encourage university graduates to live and work in their respective provinces. Be sure to consult your tax advisor to determine what effects these incentives might have on your personal tax return.
A qualified tax specialist can help you with your income-tax return. For personalized financial planning advice, please speak with your MD Advisor.
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