There are certain expenses you can claim that will be deducted from your income, thereby helping to reduce your taxable income.
Typical income tax deductions include:
- registered retirement savings plans (RRSPs)
- union or professional dues
- books and instruments
- malpractice insurance
- child care expenses
- employment expenses
- moving expenses
- medical officer training program
It is very important to keep all your documents associated with these expenses to provide support for your deductions in case Canada Revenue Agency wants to see them.
A registered retired savings plan (RRSP) is a plan registered with Canada Revenue Agency (CRA) which encourages you to save for your retirement.
What are the benefits of investing in an RRSP?
The benefits of RRSPs include that they grow tax-free and are only taxed upon withdrawal from the plan (tax deferral). As well, they reduce your taxable income, generally in the year you make the contribution. They also provide income splitting opportunities through spousal RRSP contributions and pension income splitting.
How much can I invest in an RRSP?
The 2023 RRSP contribution limit is 18% of your previous year’s earned income, up to a maximum of $30,780, less your prior year pension adjustment. The 2024 RRSP contribution limit will be a maximum of $ 31,560. The limit increases every year due to inflation.
If you have unused contribution room from previous years, that amount is carried forward indefinitely and may be used in future years.
What is the contribution deadline?
The RRSP contribution deadline is 60 days after the end of the year, which is generally March 1.
Can I use my RRSPs to help finance the purchase of a home?
Yes. As part of the Home Buyers’ Plan, you may be able to withdraw up to a maximum of $35,000 in a calendar year. People commonly do this to finance the down payment on a home because they can withdraw money from their RRSP without it being taxed, assuming they meet the repayment conditions.
The money withdrawn must be repaid over a period of 15 years and for each year of repayment, you have to repay 1/15 of the total amount you withdrew until it is repaid in full. If you follow these conditions, the amount withdrawn is not taxed.
When does the repayment period begin?
Your repayment period starts the year after you made your withdrawals.
Can I use my RRSPs to help finance education?
RRSPs can also be used to finance the post-secondary education of you or your spouse or common-law partner as part of the Lifelong Learning Program.
Much like the Home Buyers’ Plan, RRSP withdrawals made for the Lifelong Learning Plan are not taxed, assuming you meet the repayment conditions. In this case, the repayment period is 10 years, not 15. This also means you must repay 1/10 of the money withdrawn every year until the full amount is repaid.
What is the age limit for contributing to RRSPs?
The age limit is 71. At the end of the year where you turn 71, you must convert the RRSP into a registered retirement income fund (RRIF), if you have not already done so.
First Home Savings Account (FSHA)
The FHSA is a registered account that allows qualifying individuals to save funds specifically for the purchase of their first home. A qualifying individual is a Canadian Resident who is 18 years or older and is a first time home buyer. A first time home buyer is someone who has not lived in a home that they own or that is owned by their spouse/common-law partner in the current or previous 4 years.
What are the benefits of investing in a FHSA?
This new registered plan allows prospective first-time home buyers the ability to save up to $40,000 within this account. Contributions to the plan are tax-deductible like an RRSP and deductions can be carried forward for up to 15 years.
How much can I invest in a FHSA?
The FHSAs annual contribution limit is $8,000, with the lifetime contribution limit of $40,000 per individual. You can carry forward up to $8000 of unused contribution room from prior years that can be used in future years. You only generate new contribution room as you contribute to the account.
Note that contribution room and potential carry-forward amounts only start accumulating once the FHSA has been opened. Therefore, for those interested and eligible individuals, it is recommended to open the FHSA as soon as available to begin the accumulation of contribution room. Please speak to your financial institution to learn more.
When can I withdrawal from my FHSA?
To make a qualifying withdrawal from your FHSA, you must be considered a first-time homebuyer or have a written agreement to buy or build a qualifying home before October 1st of the year after the year of withdrawal and intend to occupy the home as a principal residence. Withdrawals to purchase a first home would be non-taxable like a TFSA.
Non qualifying withdrawals (ie: not used for the purchase of your first home) can be made at any time but will be included in your income in the year of the withdrawal.
When do I repay my FHSA withdrawal?
Unlike RRSPs, withdrawals from a FHSA do not need to be repaid.
Union or Professional Dues
The membership fees you pay to medical associations such as the College of Physicians & Surgeons of Nova Scotia are generally deductible. As well, the union dues paid to a provincial residency association like MaRDocs are also generally deductible.
Other payments for membership in professional organizations relevant to your practice may qualify as a business expense. Contact us if you are unsure about whether a certain fee would qualify as an acceptable deduction.
Books & Instruments
Since income received during medical school or residency is generally income from employment (as opposed to self-employment income), for the most part, students and residents cannot deduct the cost of books and instruments.
However, when you begin your practice, you can transfer these items to your business at fair market value and then deduct or depreciate these items to achieve a tax benefit. It is a wise idea to keep your receipts from these transactions, although reasonable estimates might be fine with Canada Revenue Agency.
As well, books and instruments that you purchase as part of running your medical practice also qualify as a deductible business expense.
As a self-employed doctor, the annual premium you pay to the Canadian Medical Protective Association (CMPA) for malpractice insurance is generally deductible, less any rebate from a provincial reimbursement or other program.
I am a salaried physician. Can I claim my malpractice premiums?
The net premium meaning the difference between the annual premium you pay and any rebates you receive from your provincial association such as MSI may be deductible, assuming CMPA membership is a condition of your employment and you are not reimbursed for it. To do this, you will need to get your employer to fill out a form known as a T2200. This is also true for physicians in P.E.I.
Child Care Expenses
The cost of daycare, babysitters, boarding schools and camps may be deductible.
How much can be claimed?
The amount you can claim depends on the age of the children:
- children under 7: $8,000 a year (maximum)
- children 7 to 16: $5,000 a year (maximum)
What if I have a disabled child or children?
If you have a child or children who meet the criteria of the disability tax credit, you can claim up to $11,000 a year for each child meeting the criteria.
Who should make the claim?
The deduction must be claimed against the income of the spouse or common-law partner with the lowest net income. The exception is when this individual is at school, disabled, separated from you or is in prison. Also, the deduction cannot exceed two-thirds of that person’s earned income.
What if I spend more than the limit for one child, but am under the limit for another child?
Canada Revenue Agency (CRA) does not attach specific child care expenses to specific children. This means that as long as the total childcare expenses do not exceed the defined limits per child multiplied by the number of children, all childcare expenses should be allowed.
What about money spent on a nanny?
The costs spent paying for a full-time nanny may qualify as an eligible child care expense.
What about money spent on medical or hospital care?
These do not qualify as eligible child-care expenses. However, they may qualify as medical expenses.
What about money spent on educational or recreational activities?
Generally, you cannot claim these. However, certain activities may be accepted by CRA if you demonstrate the primary purpose of the activity is to provide childcare, thereby enabling you to work.
As an employee, if you have to use your own vehicle for work and your employer doesn’t reimburse you or provide a tax-free allowance for doing so, you may be able to claim a tax deduction for the portion of vehicle expenses you incur to earn employment income.
Driving from home to work and work to home does not usually qualify as an eligible expense.
What vehicle expenses can I claim?
Assuming you qualify, you can claim:
- license fees
- depreciation (within certain limits)
- interest on car loans and leasing costs (within certain limits)
What do I need to do to claim vehicle expenses?
For mileage, use a logbook to help you track and record the number of kilometres used for employment purposes. As well, keep receipts and records for all of the claimable expenses listed above.
Will I need any supporting documentation from my employer?
Your employer will have to sign a form known as a T2200 to verify you were required to use your vehicle for work.
What about cell phones for medical students and residents?
Cell phone expenses do not qualify as eligible employment expenses.
Moving expenses may be deducted if you have moved at least 40 kms to be closer to a new work location or to attend full-time post-secondary education in the past tax year.
What can I deduct?
You can deduct allowable moving expenses against the employment income you earned at the new location.
If you are a medical student, you can deduct allowable moving expenses against taxable scholarship or grant income. Allowable moving expenses which cannot be deducted may be carried forward to a following tax year and applied against the income in that year.
As a medical student, why is it important to claim moving expenses?
Claiming eligible moving expenses will reduce your taxable income, which will increase the tuition credit that you can carry forward into future years or transfer to a parent.
What qualifies as an eligible moving expense?
Some examples include:
- travel costs
- transportation costs for belongings
- meals during travel
- lodging for a reasonable period while you are waiting for your new residence (usually has a 15-day maximum)
- the costs of selling your former residence, including advertising, legal fees, real estate commissions, mortgage penalties
If you are unable to sell your residence prior to moving, you are allowed to claim up to $5,000 of eligible expenses paid to maintain the vacant, former residence for the time where reasonable efforts were made to sell the residence. Eligible expenses you can claim include:
- mortgage interest
- property taxes
- insurance premiums and utility costs
Some of the fees associated with purchasing a new residence may also qualify as a moving expense. These include:
- legal fees for the new residence
- the costs of obtaining utility connections and disconnections
- revising documents to reflect the change of residence
- Deed transfer tax
Are the above lists exhaustive?
No. If there is a cost which appears to be an eligible cost of moving to a new location, even if it isn’t listed in Canada Revenue Agency’s tax forms, it may qualify.
Medical Officer Training Program
During medical training, many doctors join the Canadian Forces as part of the Medical Officer Training Program (MOTP). One of the requirements of this program is to serve with the Forces for a period of time once medical training is done.
If you serve as part of a deployed operational mission classified as involving a high degree of risk, you are entitled to deduct your earnings from the mission against your taxable income.
How will I know if I can deduct my earnings from a high-risk mission?
Your T4 slip has the answer. If an amount appears in box 43 of the slip, then this situation applies to you. Deduct this amount on line 24400 of your tax return.