Tax Tips for the Physician and Physician in Training 2018 edition for use in preparation of 2017 tax returns - MD Financial Management
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Tax Tips for the Physician and Physician in Training
Tax Tips for the Physician and Physician in Training i
Tax Tips
for the Physician and
Physician in Training
2018 edition for use in preparation
of 2017 tax returnsTax Tips for the Physician and Physician in Training
Contents
Introduction.........................................................................1 Tax Credits and Deductions For Practicing Physicians... 10
What’s New for 2017?.........................................................1 Union, Professional and Other Dues.......................... 10
Tax Tips for the Physician and Physician in Training ii
The 2017 Federal Budget .............................................. 1 Malpractice (CMPA) Premiums.................................. 10
Proposed Tax Changes Impacting Private Calculating Taxable Business Income........................ 10
Corporations.................................................................. 1 Cell Phone Use............................................................. 10
Moving Expenses..........................................................11
Tips for Filing Your Personal Income Tax Return.............. 2
Charitable Donations.................................................. 12
Federal Income Tax Brackets........................................2
Public Transit Passes................................................... 12
Who Should File?...........................................................2
Province of Residence...................................................3 If You’re a Salaried Employee............................................ 12
When to File...................................................................3 Canada Employment Tax Credit................................. 12
Late Filing Penalties.......................................................3 Vehicle Use................................................................... 12
Auto-Fill Your Tax Return...............................................3 Additional Tax Considerations for
Filing Electronically Via Netfile.....................................3 Practising Physicians....................................................... 13
Filing Via Efile.................................................................3 Goods and Services Tax/Harmonized Sales Tax....... 13
Remember Provincial Tax Credits................................3 Incorporation............................................................... 13
Tax Planning Opportunity.............................................4 Tax Credits and Deductions For Families....................... 14
After You File....................................................................... 4 Marital Status.............................................................. 14
Keep All Receipts...........................................................4 Claim Your Spouse’s or Common-Law Partner’s
Assessments, Audits and Reassessments..................4 Unused Tax Credits...................................................... 14
Retention of Books and Records..................................5 Claim an Amount for an Eligible Dependant............. 14
Canada Caregiver Tax Credit...................................... 14
Tax Credits and Expenses for Medical Students
and Residents..................................................................... 5 Canada Child Benefit (CCB) Program....................... 15
Tuition Fees, Education and Textbook Tax Credit........5 Child Care Expenses.................................................... 15
Provincial Tax Credits and Tuition Children's Fitness and Arts Tax Credit....................... 16
Cash-Back Programs....................................................6 Adoption Expense Tax Credit...................................... 16
CaRMS Application Registration Fees.........................6 Registered Savings Plans................................................ 16
Examination Fees...........................................................6 Registered Retirement Savings Plans........................ 16
Scholarships and Bursaries..........................................6 Registered Education Savings Plan............................ 17
Medical Officer Training Plan........................................6 Tax-Free Savings Account........................................... 17
Interest on Student Loans............................................ 7
Disability Plans and Programs........................................ 18
Books and Instruments................................................. 7
Disability Tax Credit..................................................... 18
Medical and Dental Expenses....................................... 7
Home Accessibility Tax Credit.................................... 18
Refundable Medical Expense Supplement..................8
Registered Disability Savings Plan............................. 18
Government Benefit Programs......................................... 8
Taxpayer Information from the CRA............................... 19
Employment Insurance and Canada Pension Plan
Contributions.................................................................8 Tax Forms Available at the CRA Website.................... 19
Availability of Employment Insurance Benefits..........8 Tax Resources Available from the CRA...................... 19
Maximum EI and CPP Contributions...........................9 CRA Problem Resolution Program (PRP).................. 19
Employment Insurance Changes.................................9 A Word of Caution............................................................ 19
Proposed Enhancements to the Canada Beware of Income Tax Scams..................................... 19
Pension Plan...................................................................9 Tax Advice Provided by the CRA................................. 19
Working Income Tax Benefit.........................................9
The First-Time Home Buyers’ Tax Credit.....................9Tax Tips for the Physician and Physician in Training
Introduction
Like medicine, tax law is complex and often requires the involvement
of qualified professional advisors, such as a tax accountant and/or tax lawyer.
Tax Tips for the Physician and Physician in Training 1
The information in this publication is provided as a guide for all physicians and
physicians in training in Canada who are completing their respective personal
income tax returns. It is not intended, nor can it be relied upon, to offer
complete advice for every particular situation. You are strongly encouraged to
seek professional assistance to resolve your particular tax and financial situation.
All tax legislation, tax rates and credit amounts included in this guide are based on information
available as of January 1, 2018 (except where otherwise noted). The information contained in this guide
does not replace advice from a professional tax advisor.
What’s New income sprinkling with family members by way of
corporate dividends, holding passive investments inside a
for 2017? private corporation, and strategies for converting a
private corporation’s regular income into capital gains.
The private corporation proposals sparked debate across
the country and saw extensive lobbying efforts by
THE 2017 FEDERAL BUDGET the Canadian Medical Association (CMA) and many
provincial medical associations as well as farmers and
On March 22, 2017, Finance Minister Bill Morneau
other small business owners.
presented the second federal budget for the Liberal
government. The budget proposed a variety of tax and In mid-October, Minister Morneau released a number of
other financial measures, including consolidating the statements abandoning some proposals and amending
existing caregiver credit, infirm dependent credit and others. In addition, he announced a reduction in the small
family caregiver tax credit into a new Canada caregiver business tax rate, from 10.5% to 10% starting in 2018
credit. It also proposed to eliminate the public transit tax and a further reduction to 9% in 2019 for Canadian-
credit and to make certain changes to allowable medical controlled private corporations (CCPCs), an action that
expenses and the Disability Tax Credit. However, the was not considered in the original proposals.
impact of these changes was overshadowed by the
release of the federal government’s consultation paper As part of its October 2017 announcements, the
on private corporations several weeks later. government reconfirmed its intention to proceed with
income sprinkling proposals that would eliminate the
income-splitting benefits associated with the payment
PROPOSED TAX CHANGES IMPACTING PRIVATE
of dividends from a private corporation to certain family
CORPORATIONS
members, if these family members have not made
On July 18, 2017, the federal government issued a reasonable contributions to the business. In December
consultation paper targeting three areas of the Income 2017, the government announced further guidance in an
Tax Act (Canada) which it felt were allowing the wealthiest effort to help simplify the number of circumstances in
Canadians to obtain unfair tax advantages by using which the new reasonableness test would have to be
private corporations. The three targeted areas included considered and to introduce several new exclusions from
1Tax Tips for the Physician and Physician in Training
these rules. While these newly proposed income
sprinkling measures are effective as of January 1, 2018, Tips for Filing
they are not expected to become law until the 2018
federal budget process.
Your Personal
The most controversial proposal, however, relates to Income Tax Return
Tax Tips for the Physician and Physician in Training 2
the taxation of passive investment income earned by a
private corporation and, more specifically, to tax deferral FEDERAL INCOME TAX BRACKETS
strategies that may allow for significant investments to One of the most significant expenses you will incur during
accumulate within a private corporation. Rather than your professional career will be federal and provincial
proceeding with its initial plan to increase the overall income taxes. For 2017, up to 54% of your taxable income
effective tax rate on investment income earned by a could be paid in the form of income taxes (depending on
private corporation to a rate in excess of 70% in some your province or territory of residence and income level).
instances, Minister Morneau stated in October 2017 that It’s important to take advantage of all available
the government intends to introduce an annual passive deductions and tax credits to minimize the taxes you pay
income threshold of $50,000 before any investment and maximize your cash flow and financial position.
income becomes subject to the proposed higher tax rates.
While there is still no indication of the date on which these The federal personal income tax brackets and rates for
proposals will become effective, the government has 2017 and 2018 are outlined in the following table.
indicated that existing corporate investments assets
will be grandfathered, and are therefore not expected to TABLE 1: FEDERAL INCOME TAX RATES
be impacted by these proposals. Further details, as well
as draft legislation, are anticipated to be released in the 2017 FEDERAL 2018 FEDERAL
2018 federal budget. TAXABLE TAX TAXABLE TAX
INCOME RATE INCOME RATE
The proposal impacting the conversion of income to
capital gains was abandoned. $0–$45,916 15% $0–$46,605 15%
The implications of the consultation paper’s proposals $45,917–$91,831 20.5% $46,606–$93,208 20.5%
have been concerning for both business owners and their
$91,832–$142,353 26% $93,209–$144,489 26%
professional advisors. People who may be affected will
need to consider how to comply with the dividend $142,354–$202,800 29% $144,490–$205,842 29%
sprinkling proposals and how to respond to the passive
income proposals when released. However, until further $202,801 and up 33% $205,843 and up 33%
clarity is provided by the government and tax legislation
for passive investments is introduced, physicians are
WHO SHOULD FILE?
encouraged to continue with their current corporate
investment strategies and to work with their advisors to Generally, you are required to file an income tax return if
monitor the status of these proposals. you have “taxable” income in a given calendar year. Many
medical students may choose not to file a tax return, as
their income would not exceed $11,635, the 2017 basic
personal exemption. However, by completing a tax return,
based on income thresholds, you will ensure your
eligibility for the goods and services tax/harmonized
sales tax (GST/HST) credit, the Canada Child Benefit
and certain provincial tax credits. Manitoba, Quebec
By completing a tax return, you and Ontario, for example, provide refundable tax credits
for rent or property taxes paid by residents of those
will ensure your eligibility for the goods respective provinces in a given calendar year.
and services tax/harmonized sales tax You may also wish to file a tax return to document
and carry forward excess tuition/education/textbook
(GST/HST) credit, Canada Child amounts, moving expenses or eligible student loan
interest tax credits. Finally, filing an income tax return
Benefit and certain p rovincial will ensure that the Canada Revenue Agency (CRA) has
an up-to-date contribution limit calculation for your
tax credits. registered retirement savings plans (RRSPs).
2Tax Tips for the Physician and Physician in Training
Tax returns can be filed electronically or via paper filing. AUTO-FILL YOUR TAX RETURN
Blank tax return forms can be obtained from the CRA Since the 2015 taxation year, the CRA has provided an
website, from a local CRA Tax Services office or at many “Auto-fill my return” feature. This allows individuals and
Canada Post outlets. If using pre-printed forms, ensure authorized representatives who are using compatible
you use the correct province and that the printed name certified tax software to automatically fill in parts of their
and social insurance number (SIN) are correct. Tax Tips for the Physician and Physician in Training 3
current-year income tax return, based on information
slips that have been filed with the CRA. Most information
slips (e.g., T4 and T5 slips) will be received by the CRA
by early March. However, T3 slips, which are issued for
The 2017 deadline for filing mutual funds and exchange-traded funds, are often not
available until the end of March.
income tax returns is April 30, 2018.
"Auto-fill my return" can be used by anyone who is
registered for the CRA’s online service, My Account, and
who uses compatible certified tax preparation software.
PROVINCE OF RESIDENCE
Make sure to file a tax return for the province in which FILING ELECTRONICALLY VIA NETFILE
you resided on December 31 of the tax year. Generally Most taxpayers can file their T1 tax returns online via the
speaking, you reside in the province to which you have CRA’s program, NETFILE. Use of NETFILE (which is also
the strongest residential ties. For example, if you are offered by Revenu Québec) requires that tax returns
completing medical school at Memorial University in filed online first be prepared using CRA-certified tax
Newfoundland but your residential ties are to Ontario, preparation software or an approved web application.
you will likely have to file an Ontario personal tax return. Unlike previous years, the taxpayer no longer requires a
web access code to file a return via NETFILE. Instead,
WHEN TO FILE only your social insurance number and date of birth are
necessary. However, before filing online, your information,
The 2017 deadline for filing income tax returns is including your address, must be up to date.
April 30, 2018. If you are expecting a refund, you may file
your return once all receipts and tax slips are collected,
expediting your cash refund. If you are expecting to owe FILING VIA EFILE
additional taxes, you may still file early, but postdate your EFILE is an automated service provided by the CRA that
cheque for on or before April 30, 2018. This helps you permits tax preparation services or accountants who
avoid the last-minute “crunch” and delays payment until prepare and file taxes on behalf of others to electronically
legally required. file your income tax return to the CRA directly from the
software used to prepare the tax return.
Individuals who are self-employed (or whose spouse
or common-law partner is self-employed) have until
June 15, 2018, to file their 2017 personal income tax return. REMEMBER PROVINCIAL TAX CREDITS
However, if there is a balance of tax owing on their 2017 All provinces and territories calculate provincial taxes
income tax return, the amount is payable by April 30, 2018. according to their provincial rates multiplied by
provincially defined “taxable income” (i.e., tax-on-income).
LATE FILING PENALTIES Consequently, the respective province/territory also
offers its own tax credits for such items as donations,
If you owe money to the CRA for the taxation year and medical expenses, political donations and other items.
fail to file your personal tax return by the due date, the Be sure not to forget to complete the provincial income
Income Tax Act (Canada) has a first offence late filing tax forms.
penalty of 5% of the tax owing plus 1% per month to a
maximum of 12 months, for a total penalty of 17% of the
tax owing. Similarly, if you fail repeatedly to file income
tax returns after having been requested to do so,
additional penalties may apply.
Note: Interest and penalties paid to the CRA are not tax
deductible and are not eligible for a tax credit.
3Tax Tips for the Physician and Physician in Training
TAX PLANNING OPPORTUNITY
If you finished medical training in 2017 and plan to
After You File
practise later in the year, you may have a unique KEEP ALL RECEIPTS
tax planning opportunity. Consider these scenarios:
Keeping accurate records is
1. I f you are relocating from a province with higher Tax Tips for
essential forthe Physiciantax
successful and Physician in Training
planning. 4
provincial income tax rates to one with lower taxes, An eligible deduction or tax credit
you may consider relocating prior to December 31 can be disallowed by the CRA if the
and becoming resident in the “lower-tax” province supporting receipt or documentation is not available.
prior to year-end. In this case, your entire annual Accurate and complete records can also minimize time
income (possibly with the exception of self- spent on future assessments, reassessments or audits.
employment income as discussed below) will
be subject to the lower rates of the new province
of residence, potentially generating significant ASSESSMENTS, AUDITS AND REASSESSMENTS
tax savings. Once filed, a paper income tax return usually takes about
four to six weeks to be processed (two to four weeks if
2. A
lternatively, if you are relocating to a province with you have filed via NETFILE or EFILE). You will then receive
higher provincial or territorial income tax rates, a “Notice of Assessment” and any refund payable to you.
you may want to delay actual relocation until after This “assessment” is simply a check on your arithmetic
December 31 to ensure lower provincial/territorial as well as a cursory confirmation that the numbers on
income tax rates will apply to the year’s income. your return are supported by the submitted receipts
Certain exceptions may apply for self-employment and information slips. The fact that a particular claim is
income. allowed does not mean that the CRA (or Revenu Québec)
is “letting” you claim it; it merely means that the CRA has
If you are resident in one province on December 31 and not addressed the issue in any detail at the present time.
your self-employment income was earned and can be
allocated to a permanent establishment in a different Sometime after the initial assessment, your return
province, provincial tax may have to be allocated to may be selected for an audit. Most audits of individual
multiple provincial jurisdictions. taxpayers are “desk audits,” in which the auditor will ask
you to supply supporting material for claims you have
Determining province of residence can be complex. If made. If the audit reveals an indication that your
you are self-employed or if you are unsure about which tax payable should be other than that originally assessed,
province will be considered your province of residence the CRA will issue a “Notice of Reassessment.”
for tax purposes, be sure to speak with your tax advisor.
A reassessment cannot normally be issued more than
three years after the date of the original assessment,
unless there is a suspicion of fraud or misrepresentation
attributable to “neglect, carelessness or willful default,”
whereby a reassessment for any taxation year may
be issued.
Determining province of residence can
If you disagree with a reassessment, a wise first step is to
be complex. If you are self-employed or contact a CRA representative by phone to discuss the
issue(s); most disputes are resolved through a simple
if you are unsure about which province phone conversation. If you are unsatisfied with this
will be considered your province of outcome, you should speak with your tax advisor about
other options such as filing a "Notice of Objection."
residence for tax purposes, be sure to
speak with your tax advisor.
4Tax Tips for the Physician and Physician in Training
RETENTION OF BOOKS AND RECORDS
The CRA recommends that all taxpayers, including
Tax Credits
employees, self-employed individuals and incorporated
businesses, keep their records and supporting
and Expenses for
documents for at least six years from the end of the last Medical Students
Tax Tips for the Physician and Physician in Training 5
tax year to which they relate. However, certain records
such as supporting documents regarding acquisitions and Residents
and disposals of property, the share registry and other
historical information that would have an impact upon TUITION FEES, EDUCATION AND TEXTBOOK
sale or liquidation or wind-up of a business must be kept TAX CREDIT
indefinitely.
Tuition fees paid during medical school or a residency
Maintaining organized books and records is not only program are not deductible but may be eligible for a 15%
legally required but also necessary to avoid time- federal non-refundable tuition tax credit. Obtain Form
consuming document searches in the future when T2202A from your university to determine allowable
responding to requests for information or assessments tuition costs. Keep in mind that fees paid for admission,
from the CRA. Permission must be obtained from the application, use of library or laboratory facilities,
CRA to destroy any books and records before the end of examinations (including re-reading) and diplomas, as
the six-year period from the end of the last tax year to well as mandatory computer service fees and certain
which they relate. academic fees, qualify as eligible tuition fees. Other
tuition fees (e.g., for ATLS courses and certain LMCC
preparation courses) may also qualify for the tax credit.
Contact the course administrators for further details and
be sure to obtain appropriate documentation for these
courses from them.
Up to and including 2016, in addition to a tuition
tax credit, students may have been able to claim an
education tax credit. Full-time medical students could
generally claim a federal non-refundable education tax
credit equal to 15% of $400 per month of enrolment in a
Tuition fees paid during medical qualifying educational institution (or $120 per month for
part-time students).
school or a residency program are not
Similarly, until the end of 2016, a student may have been
deductible but may be eligible for a able to claim a non-refundable textbook tax credit equal
to 15% of $65 or $20 for each month they were entitled
15% federal non-refundable tuition to claim an education tax credit as a full-time or part-time
tax credit. student, respectively.
The federal education and textbook tax credits have been
eliminated for tax years after 2016. Provincial credits,
however, may still apply.
The transition rules for federal and provincial tuition,
education and textbook tax credits are complicated.
If they apply to you, consult your tax advisor.
Should a medical student not be required to use their
entire tuition credit in the current year to reduce their tax
owing to nil, these remaining credits may be transferred
to an eligible person (e.g., a spouse or common-law
partner or, under certain restrictions, a parent or
grandparent) up to a maximum of $5,000.
5Tax Tips for the Physician and Physician in Training
Students can carry forward indefinitely unused tuition tuition tax credit receipt will be available in late February
and education tax credits. This allows them to use the 2018). Those taxpayers will be able to access the receipt
credit when they have sufficient income (i.e., usually by logging into their MCC-Online account. The tax receipt
during residency). Any amount not used in the current will appear in their account and will be available to print.
year by the student and not transferred to an eligible
person will be automatically available to carry forward. Note:
Tax Examination
Tips fees paid
for the Physician andfor the United
Physician States
in Training 6
However, once income is sufficient to use the unused Medical Licensing Examination (i.e., USMLE Parts I, II,
tax credits, the credits must be applied to reduce and III) have been disallowed by the CRA.
taxes payable.
Qualification for the education tax credit will be detailed SCHOLARSHIPS AND BURSARIES
on the respective resident or student’s Form T2202A. If you receive money from scholarships, fellowships and
Although Form T2202A does not need to be filed with the bursaries, you can exclude these funds from your income
return, it must be available if requested by the CRA. if they are related to your enrolment at a designated
educational institution in a program that would otherwise
allow you to claim the full-time education tax credit. The
PROVINCIAL TAX CREDITS AND TUITION amount of money received cannot exceed what would
CASH-BACK PROGRAMS reasonably be required to support you in the program.
A number of provinces offer tax credits and incentives to Part-time students are also eligible for the scholarship
university graduates who wish to live and work in their exemption; however, the maximum exemption is
respective provinces. Be sure to consult your tax advisor generally limited to the lesser of the scholarship amount,
to determine the impact these incentives may have on or $500 plus the cost of tuition and program material.
your personal income tax return.
As medical students are generally enrolled in full-time
programs, which entitle them to an education tax credit,
CaRMS APPLICATION REGISTRATION FEES all scholarships and bursaries should generally be tax-
All applicants to the Canadian Resident Matching Service exempt. Residents and fellows may also benefit from
(CaRMS) are required to pay a registration fee and tax-free status of all scholarships and bursary income
applicable taxes. The fee for the match includes if they are, in fact, entitled to an education tax credit.
applications to eight programs. There is a charge for However, even though a post-secondary program that
each additional residency program selected above the consists principally of research will be eligible for the
initial eight. Per its website, CaRMS states that because education tax credit, the scholarship exemption will be
it “provides an application service and not actual available only if the program leads to a college diploma,
educational services, it does not meet the eligibility or a bachelor’s, master’s or doctoral degree. Therefore,
requirements to be certified as a private education post-doctoral fellowships will generally be considered
institution and is therefore unable to provide official tax taxable.
receipts.” However, these receipts should be retained
and provided to your accountant or tax preparer. You are not required to report any exempt scholarship
and bursary amounts on your income tax return.
However, you may wish to retain supporting
EXAMINATION FEES documentation (e.g., Form T4A), in case it is requested
The Medical Council of Canada (MCC) grants a by the CRA.
qualification in medicine known as the Licentiate of The provisions of the Income Tax Act (Canada)
the Medical Council of Canada (LMCC) to graduate regarding bursaries and scholarships can be confusing.
physicians who have satisfied the eligibility requirements If in doubt, discuss your particular situation with your
and passed the Medical Council of Canada Qualifying tax accountant.
Examination Parts I and II. The MCC registers candidates
who have been granted the LMCC in the Canadian
Medical Register. MEDICAL OFFICER TRAINING PLAN
According to the website for the Medical Council of During medical training, many physicians join the
Canada at the time of publication of this document, Canadian Forces as part of the Medical Officer Training
examination fees are eligible for a tuition tax credit. In Plan (MOTP). Not only do these physicians remain
addition, certain ancillary fees, such as centre change with the Forces after medical training but a significant
request fees or late fees—up to a maximum total of percentage apply to do specialty training as active
$250—are also eligible. Tuition tax credit receipts are members of the Armed Forces. Furthermore, it is not
made available in late February of the year following the uncommon for these physicians to serve overseas in
year in which the examination was taken (i.e., the 2017 a variety of high-risk operational missions.
6Tax Tips for the Physician and Physician in Training
If you are a member of the Canadian Forces serving in a MEDICAL AND DENTAL EXPENSES
deployed operational mission that is assessed for risk The first year of residency can be the best time to incur
allowance pay at level three or higher (as determined by any medical, dental and eye care expenses that you may
the Department of National Defence), you can deduct have avoided during medical school. Not only could
from your taxable income the amount of your mission- some of these costs be partially or fully covered by your
related employment earnings up to a maximum rate of Tax Tips for the Physician and Physician in Training 7
employer’s health insurance, but also you may be able to
pay earned by a non-commissioned member of the claim a portion of the expenses (i.e., the portion that is
Canadian Forces. not paid by an insurance plan) as a non-refundable
On May 18, 2017, amendments to the Income Tax Act medical expense tax credit.
(Canada) were proposed with the intention to exempt the For 2017, qualifying medical expenses in excess of either
salaries of all Canadian Armed Forces personnel deployed $2,268 or 3% of your net income (whichever is less) are
on named international operations (regardless of the eligible for a 15% federal non-refundable tax credit, which
mission’s risk score) from federal income tax, up to and can be used to reduce your taxes payable. Your income in
including the pay level of lieutenant-colonel. This is a your first year of residency will likely be the lowest of your
change from the tax relief provided in present legislation, future career, and the latter restriction (i.e., 3% of your
which is based on the risk score of a particular mission, net income) will likely apply to you in that respective tax
with no relief for lower-risk missions. This measure is year. Nevertheless, exercise caution if you have significant
intended to be retroactive to January 1, 2017. tuition and education tax credits that you are carrying
Be sure to speak with your tax advisor if this applies to forward from prior years. Available tuition and education
your situation. tax credits must be used before any medical expenses to
reduce your taxable income. Talk to your tax advisor if
you have any concerns.
INTEREST ON STUDENT LOANS
The CRA also allows the deduction of medical expenses
All students may claim a 15% federal non-refundable for any 12-month period ending in the year of the tax
tax credit on payments of the interest portion of loans return. You may claim medical expenses for yourself,
negotiated and still existing under either the Canada your spouse or common-law partner and your or your
Student Loans Act, the Canada Student Financial spouse’s or common-law partner’s children who are not
Assistance Act or a similar provincial/territorial loans age 18 before the end of the taxation year. In certain
program. Interest paid on any other loans such as bank circumstances, you may also be able to claim a credit for
loans or lines of credit are not eligible for this credit. allowable medical expenses you (or your spouse) paid
Provincial non-refundable tax credits may also apply. for another eligible dependant. Certain restrictions apply;
If you had eligible student loans in 2017, the financial therefore, be sure to consult a tax advisor.
institution handling your Canada or provincial student In the last few years, CRA has made many changes to
loans will mail you, in early 2018, a statement of the allowable medical expense including allowing:
actual interest paid on these loans during the year. This
statement or receipt should be kept as support for the
interest paid.
••phototherapy equipment for treating psoriasis or
certain other skin conditions
BOOKS AND INSTRUMENTS ••medical marijuana if the person is authorized under the
Controlled Drug and Substances Act to purchase or
Since income received during medical school or produce this drug
residency is generally income from employment,
students and residents, for the most part, cannot deduct ••vehicle modification to enable wheelchair-bound
individuals to drive a motor vehicle
the cost of books and instruments. When you begin
practice, you may transfer these items to your business
at their fair market value. The business may then be able In addition, the 2017 federal budget stipulated that claims
to deduct or depreciate these items (as applicable) to for reproductive technologies where the patient did not
achieve a tax benefit. Keep all your receipts for books have a medical condition preventing conception are now
or instruments. allowable medical expenditures. Such costs for 2007 and
later years are allowed and the taxpayer may request
adjustments of previous returns. If you feel this may
apply to you, consult your tax advisor.
7Tax Tips for the Physician and Physician in Training
In a 2017 Tax Court appeal in Alberta, alternative medical
treatments, including massage therapy, were disputed as
Government
eligible medical expenditures. Eligible medical expenses
are those provided by a “medical practitioner,” which
Benefit Programs
requires regulation of that respective health care provider
by legislation and varies by province. In this case, EMPLOYMENT INSURANCE
Tax Tips for the Physician and Physician in Training 8
massage therapists are regulated in British Columbia, AND CANADA PENSION PLAN
Ontario, Newfoundland and New Brunswick, so their CONTRIBUTIONS
respective fees would be eligible for a federal tax credit. Residents, fellows and some medical students are
In other jurisdictions, such as Alberta, massage salaried employees and, as such, are required to make
therapists are not regulated and such a claim was denied contributions to both employment insurance (EI) and the
in the proceedings. For those interested, CRA provides a Canada Pension Plan (CPP). Employees will not only find
listing of medical practitioners on its website. these deductions on their pay stubs but also see them
listed on the T4 form they receive from their employers
Recently, the CRA has considered the eligibility of every year. Both CPP and EI contributions qualify for
additional expenses: non-refundable federal and provincial tax credits.
••Special dietary requirements. Although there is no
provision to allow a taxpayer to claim the cost of
Since the employer must match the employee’s CPP
contributions, physicians who are self-employed are
organic food as a medical expense, individuals with obligated to contribute both the employee and the
celiac disease may claim the incremental costs employer share.
associated with the purchase of gluten-free products
as a medical expense. Self-employed physicians are not required to make EI
contributions. However, recent changes in the EI rules
••Service animals. The cost of acquiring and caring for
a service dog or other animal is eligible as a medical
allow self-employed taxpayers, as defined in recent
measures, to voluntarily enter into an agreement with the
expense for an individual who is blind or profoundly Canada Employment Insurance Commission to become
deaf; has severe autism, diabetes or epilepsy; or has eligible for special benefits.
a severe and prolonged impairment that markedly
restricts the use of his/her arms or legs.
AVAILABILITY OF EMPLOYMENT INSURANCE
You can find an extensive list of eligible medical expenses BENEFITS
on the CRA website.
Since residents and fellows have paid EI premiums, those
physicians who have completed their program of study
REFUNDABLE MEDICAL EXPENSE SUPPLEMENT but find themselves unable to find work may be eligible
and may apply for employment insurance benefits.
Once you have determined that there is an amount
Recipients of EI benefits whose income exceeds $64,125
eligible for a non-refundable medical expense credit,
may be required to repay a portion of their benefits.
you may be entitled to an additional refundable amount.
However, a claimant who was paid regular EI benefits for
Although certain conditions must be met, this medical
less than one week in the past 10 years prior to the
expense supplement will apply whether or not you have
taxation year, as well as those receiving special benefits,
tax payable. For 2017, a refundable medical expense
including maternity, parental or sickness benefits, are not
supplement amount of up to $1,203 is generally available
required to repay benefits regardless of their income. Any
to individuals over the age of 18 who have incurred high
possible repayment is made via the federal income tax
medical expenses and have combined family
return, and a deduction in the calculation of net income
employment and business income of at least $3,514.
will be allowed.
Many provinces have a unique medical expense
supplement calculation on their respective provincial
worksheets that accompany each provincial T1 personal
income tax return package.
8Tax Tips for the Physician and Physician in Training
MAXIMUM EI AND CPP CONTRIBUTIONS premiums payable by employees on the new higher
For 2017, the maximum employee CPP contribution is earnings limit. A gradual phase-in beginning in 2019 and
$2,564.10 (based on maximum pensionable earnings of completed in 2025 is proposed.
$55,300), while the 2017 maximum annual EI premium
amount is $836.19 (based on maximum insurable WORKING
Tax Tips forINCOME TAX and
the Physician BENEFIT
Physician in Training 9
earnings of $51,300).
Low-income individuals over the age of 18 may claim the
For 2018, the EI premium rate will increase from 1.63% Working Income Tax Benefit (WITB), a refundable tax
to 1.66% and the maximum insurable earnings will credit equal to 25% of their working income over $3,000,
increase to $51,700 for a maximum annual EI premium subject to a maximum of $1,043 for a single individual
of $858.22. For 2018, the maximum employee CPP and $1,894 for a family or a single parent. Working
contribution is $2,593.80 (based on maximum income includes both employment and/or business
pensionable earnings of $55,900). income and the credit is reduced by 15% of the
individual’s adjusted net income over $11,838 or a
family’s or single parent’s adjusted net income over
EMPLOYMENT INSURANCE CHANGES $16,348. Of note, a supplement to the regular WITB is
Per the 2017 federal budget, a new caregiver benefit will available to taxpayers who qualify for the Disability
provide eligible caregivers up to 15 weeks of EI benefits Tax Credit.
while they are temporarily away from work to support
or care for a critically ill or injured family member. In an October 24, 2017, news release, in conjunction with
the 2017 Fall Economic Statement, the Department of
In addition, enhanced EI parental benefits will allow Finance announced that the Working Income Tax Benefit
parents to choose to receive EI parental benefits over an (WITB) will be further increased starting in 2019, as part
extended period (up to 18 months) at a lower benefit rate of the enhancement of the Canada Pension Plan.
(33% of average weekly earnings). Also, women will now
be able to claim EI maternity benefits up to 12 weeks WHO IS INELIGIBLE?
before their due date, instead of the previous standard The WITB is not available to individuals who were
of eight weeks. enrolled as full-time students at a designated educational
institution for more than 13 weeks in the taxation year,
unless the individual had an eligible dependant.
PROPOSED ENHANCEMENTS TO THE CANADA
PENSION PLAN
FIRST-TIME HOME BUYERS’ TAX CREDIT
On June 20, 2016, the federal Department of Finance
announced that the federal, provincial and territorial First-time home buyers purchasing a qualifying home
finance ministers had reached an agreement in principle may claim a federal non-refundable First-Time Home
to strengthen the CPP commencing January 1, 2019. Buyers’ Tax Credit (FTHBTC) equal to 15% of up to
$5,000 in the year of acquisition. This can result in a tax
The proposed bill envisions an increase in CPP retirement savings of up to $750. To qualify as a first-time home
benefits and maximum pensionable earnings as well as a buyer, a buyer and his or her common-law spouse or
deduction, rather than a tax credit, for the increased CPP partner may not have owned or lived in another home
owned by either spouse in the current or four preceding
calendar years and must occupy the home as a principal
residence within one year of the purchase date. The home
must also qualify under the Home Buyer’s Plan. When
two people jointly buy a qualifying home, the total
First-time home buyers purchasing a FTHBTC claimed cannot exceed $5,000.
qualifying home after January 27, The credit is also available in respect of a home acquired
by an individual who is eligible for the Disability Tax Credit
2009, may claim a non-refundable (DTC), or by an individual for the benefit of a DTC-eligible
relative, if the home is acquired to enable the DTC-eligible
First-Time Home Buyers’ Tax Credit person to live in a more accessible dwelling.
(FTHBTC) of up to $5,000 in the Similar incentives may also be available in certain
provinces, including British Columbia, Saskatchewan
year of acquisition. This can result in and Nova Scotia.
a tax savings of up to $750.
9Tax Tips for the Physician and Physician in Training
Tax Credits For salaried physicians of Quebec, Ontario, Manitoba,
New Brunswick, Saskatchewan, Alberta, British Columbia
and Deductions and Newfoundland and Labrador, CMPA fees (less any
rebate from a provincial reimbursement or other
for Practising program) should generally be deductible. For salaried
Tax Tips forof
physicians the Physician
the andprovinces
remaining Physicianand
in Training 10
territories (i.e.,
Physicians Nova Scotia and Prince Edward Island as well as Nunavut,
the Yukon and the Northwest Territories), the net fees
paid may be deductible as an employment expense if the
UNION, PROFESSIONAL AND OTHER DUES physician obtains a completed Form T2200 from their
Amounts paid for membership (required to maintain a employer stipulating that CMPA membership is a
professional status recognized by statute) in medical condition of employment and the employee does not
associations or the college of physicians and surgeons of receive reimbursement for their expenses.
a respective province or territory are generally deductible
for tax purposes. Union dues, such as those paid to a Whether you are in residency or not, it is important to
provincial residency association (e.g., PARO, Resident know that in all jurisdictions in Canada, provincial/
Doctors of Saskatchewan, Maritime Resident Doctors, territorial governments and medical associations or
etc.) are also generally deductible. Your official receipts federations have negotiated reimbursement agreements
from the union or society are not required to be filed with that are intended to offset some of the cost of liability
your tax return; however, be sure to retain them in case protection. This long-standing arrangement reflects an
they are requested by the CRA. agreement between physicians and governments to
include, in lieu of other payments for clinical services,
Other payments for membership in professional some of the cost of liability protection in the overall
organizations may be deductible as a business expense. compensation of physicians. For further details, contact
If in doubt, contact your tax advisor. your provincial or territorial medical association.
Note: Be sure to discuss the deductibility of CMPA
MALPRACTICE (CMPA) PREMIUMS premiums with your tax advisor.
The annual membership fee paid to the Canadian Medical
Protective Association (CMPA), less any rebate from a CALCULATING TAXABLE BUSINESS INCOME
provincial reimbursement or other program, is generally
deductible as an expense against business income Income earned from limited locums or from instructing
earned as a self-employed medical practitioner. However, Advanced Trauma Life Support (ATLS) or Advanced
for employees (e.g., residents or salaried fellows), to be Cardiovascular Life Support (ACLS) courses is taxable.
deductible for tax purposes, the Income Tax Act (Canada) However, reasonable expenses incurred to earn that
requires that annual dues be required to maintain a income may be deductible when calculating business
professional status recognized by statute. income. Your tax specialist can help ensure all eligible
expenses are claimed.
You may also want to consider paying a reasonable salary
to a spouse or child for their services in helping you
earn your self-employment income. This could result in
income-splitting advantages if that family member is in
Whether you are in residency or not, a lower marginal tax bracket than you are.
it is important to know that in all Be sure to speak with your tax advisor prior to
implementing any income-splitting strategy.
jurisdictions in Canada, provincial/
territorial governments and medical CELL PHONE USE
For residents and medical students who are required to
associations or federations have obtain and maintain cell phones in the performance of
their duties, the percentage of airtime expenses that
negotiated reimbursement agreements reasonably relates to earning employment income may
be deductible as an employment expense. The amounts
which are intended to offset some paid to connect or license the cell phone and the cost of
of the cost of liability protection. fees for internet service, however, are not deductible.
Tax Tips for the Physician and Physician in Training 10Tax Tips for the Physician and Physician in Training
Past discussions with representatives of the CRA have MOVING EXPENSES
revealed that the requirement for a cell phone should be If you have relocated at least 40 kilometres closer to a
expressly stated in the contract of employment. However, new work location or to attend full-time post-secondary
a situation where the necessity for a cell phone is tacitly education in the past tax year, you may be able to deduct
understood, outside of the contract, may be acceptable. allowable moving expenses against employment income
Nevertheless, the requirement for a cell phone should be Tax Tips for the Physician and Physician in Training 11
earned at the new location and, for students, against
documented on Form T2200. Be sure to retain all taxable scholarship or grant income.
receipts, records and vouchers for eligible employment
expenses in case they are requested by the CRA. Allowable moving expenses that cannot be deducted in the
current year, due to an income limitation, may be carried
In recent years, the CRA has commented on the issue of cell forward to a following tax year and applied against income
phone and data usage for employment purposes. As cell in that year. Although you are not required to file receipts,
phone minutes can be linked directly to employment you must be able to provide them to the CRA upon request.
activities, a deduction may be available. When a cell
phone is used exclusively for employment, with no For purposes of deducting expenses incurred in a move
personal use, the CRA indicated that a basic service to a school location, it is important to keep in mind that
plan may reasonably reflect the actual cost and can such moving expenses cannot be deducted if your only
be deductible. income at this location is scholarship, fellowship or
bursary income that is entirely exempt from tax.
However, when there is personal use, the allocation
between personal and employment costs must be Eligible moving costs include:
supported by documentation of the use of minutes and
data. Although a breakdown of minutes may be provided
by a supplier, a similar breakdown of data used (between
••Travel costs, transportation costs for belongings and
meals during travel, as well as lodging for a reasonable
personal and employment) is typically not available. As a period while you are waiting for the new residence
result, the CRA stated that, in such a case, no portion of (usually up to 15 days).
the costs incurred for data would be deductible.
••Lease cancellation costs as well as the costs of selling a
former residence, including advertising, notarial or legal
fees, real estate commissions and mortgage penalties
(i.e., if the mortgage was paid off before maturity)
are eligible.
••Ifyour
you or your spouse or common-law partner has sold
old residence, you may also deduct the cost of
any taxes on transfer or registration of title to a new
residence (exclusive of any goods and services value-
If you have relocated at least added tax), together with legal fees associated with the
purchase of the new residence.
40 kilometres closer to a new work
location or to attend full-time post- ••Costs of obtaining utility connections and
disconnections, and of revising documents to reflect
the change of address should also be eligible.
secondary education in the past tax
year, you may be able to deduct ••Ifmove,
you are unable to sell your residence prior to the
eligible expenses may also include mortgage
interest, property taxes, insurance premiums and utility
allowable moving expenses against costs (up to a $5,000 maximum) paid on the vacant
old residence for the period during which reasonable
income earned at the new location. efforts were made to sell that residence.
Note: The deductibility of moving expenses is a complex
issue and should be discussed with your tax advisor.
Additional information regarding moving expenses is
available on the CRA website.
11Tax Tips for the Physician and Physician in Training
CHARITABLE DONATIONS
Historically, the first $200 of eligible donations made to a
If You’re a
qualifying charity was entitled to a federal non-refundable
tax credit equal to 15%, with any excess contributions
Salaried Employee
entitled to a non-refundable tax credit of 29% (which is CANADA EMPLOYMENT
Tax Tips for the Physician and Physician in Training 12
equal to what was formerly the highest rate of personal TAX CREDIT
tax for federal purposes). That being said, as a result of
the new top tax bracket of 33% that took effect in 2016, All employees can claim a federal
every dollar of eligible donations in excess of $200 will non-refundable employment tax credit to help cover their
garner a non-refundable tax credit at a rate of 33% to the work-related expenses. Taxpayers may claim a credit
extent that the individual has income that is subject to equal to 15.0% of their employment income for the year,
the new top rate of 33% (otherwise a maximum credit of up to a maximum of $1,178. The maximum amount is and
29% will continue to apply). will continue to be indexed for inflation thereafter.
If you and your partner make separate contributions to
VEHICLE USE
charity, consider claiming all your donations on a single
return; you will only have to deal with the lower tier once If your employer requires you to use your own vehicle
(as opposed to twice if donations were claimed away from your ordinary site of employment (i.e., your
individually). This leaves more money above the $200 respective department at the hospital) and you did not
limit eligible for the higher-tier tax credit. receive a reimbursement or tax-free allowance to cover
your costs, you may be entitled to claim a deduction for
If you’re a first-time donor, you may be entitled to a 40% the portion of your vehicle expenses incurred to earn
federal non-refundable tax credit for donations of $200 employment income. For example, a number of family
or less and a 54% federal non-refundable tax credit for medicine residents are required to use their vehicles to
the portion of donations over $200, but not exceeding perform house calls away from their “home” hospital and
$1,000. Certain conditions apply. The first-time donor’s have completed the necessary documentation to claim a
super credit is a temporary measure set to expire pro-rata share of automobile expenses.
after 2017.
If you qualify, you can claim the employment portion
of all operating costs related to the vehicle: gas, oil,
PUBLIC TRANSIT PASSES repairs/maintenance, insurance, licence fees, cleaning
If you use public transit, you may be able to claim a and depreciation. Interest on car loans and leasing costs
federal non-refundable tax credit equal to 15% of the cost are deductible within certain limits. You will need to
of eligible public transit passes. You can claim this credit track and record the number of kilometres used for
for yourself, your spouse or common-law partner, or a employment purposes. You will need to file Form T777
child under the age of 19 years on December 31. with your tax return, and your employer will have to sign
Form T2200 to verify you were required to use your
Per the 2017 federal budget, however, the federal public automobile for work. Both forms are available from any
transit tax credit will be eliminated as of June 30, 2017. CRA office or the CRA website at http://www.cra-arc.
Therefore, any public transit costs incurred after this date gc.ca/E/pub/tg/t4044. Although you are not required to
will not be eligible. file Form T2200 with your return, be sure to retain this
form in case it is requested by the CRA.
12Tax Tips for the Physician and Physician in Training
Additional Tax As on-call stipends for physicians are not uncommon,
this ruling may have a significant impact on those
Considerations respective physicians. In addition, the amounts of the
on-call premiums, either alone or in combination with
for Practising other GST/HST-chargeable activities (e.g., director
Tax Tips for
stipends, the Physician
teaching and Physician
or researching roles,inpreparation
Training of 13
Physicians legal reports to insurance companies, block and annual
fees, expert medical opinions, cosmetic surgical and
medical procedures, etc.) may exceed the $30,000 GST
GOODS AND SERVICES TAX/HARMONIZED SALES TAX threshold (over a period of four consecutive quarters), at
The GST is a value-added tax instituted by the federal which point the physician may be required to register and
government on January 1, 1991, throughout the country. collect GST/HST.
When some provinces decided to harmonize their
provincial sales tax with the federal government’s to save GST/HST is complex, and the application of the above-
on tax administration costs, the HST was instituted. HST noted interpretation is still ongoing. If you feel GST/HST
is a combination of the 5% federal goods and services tax obligations may apply to you, see your tax advisor.
and the provincial sales tax.
INCORPORATION
As most services provided by physicians are considered
exempt services under the Excise Tax Act, physicians are Fortunately, many residents completing their training will
unable to claim input tax credits for the tax they pay, have an opportunity to incorporate their future medical
which may result in an increased cost of operations. practice. One of the most significant benefits of
Physicians may wish to review their contractual and incorporation is tax deferral, as the tax rate applied to
billing arrangements to ensure they’re satisfied with the active business income earned and retained within a
tax status of those services and consider restructuring corporation can be significantly less than personal
them to reduce the amount of unrecoverable HST that income tax rates. For 2017, if a corporation qualifies as a
may be payable. For further advice, consult with your Canadian-controlled private corporation (CCPC), the first
tax advisor. $500,000 federally (provincial small business limits may
vary) of active business income may qualify for a small
In 2016, the CRA commented that a stipend paid by a business deduction and a reduced overall federal
hospital to a medical specialist for agreeing to stay close corporate tax rate of 10.5%. In a statement made in
to the hospital, so as to be available on an on-call basis, October 2017, Minister Morneau announced plans to
was taxable consideration for the supply of property to lower this rate to 10.0% in 2018 and to 9.0% in 2019. The
the hospital rather than for a supply of an exempt general federal corporate tax rate on income exceeding
medical service. Although any consideration that can be the small business deduction is 15%. Provincial taxes,
directly linked to a specific patient may be exempt, this which vary by province, must also be calculated on the
interpretation appears to suggest that the bulk of “on- business income.
call” stipends may attract GST/HST.
While professional incorporation will continue to be
advantageous for many physicians, these potential
benefits will be altered by tax proposals presented in
the July 18, 2017, federal consultation paper on private
corporations. However, at the time of writing this
publication, the proposed measures have yet to be
entirely finalized by the Department of Finance and many
unanswered questions remain. If you are incorporated, or
One of the most significant benefits are considering incorporating your medical practice, you
should discuss the implications of these proposed
of incorporation is tax deferral, as measures with your financial advisor and tax accountant.
the tax rate applied to active business
income earned and retained within
a corporation can be significantly
less than personal income tax rates.
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