For use in preparation of 2020 tax returns
As a medical resident, your tax returns may be relatively simple, but the process is likely to become much more complex as your career progresses.
What’s more, federal and provincial income taxes will be one of the most significant expenses you incur during your professional career. By taking advantage of all available deductions and tax credits, you can minimize the taxes you pay and maximize your cash flow and financial position.
Federal income tax brackets
2020 taxable income
Federal tax rate
2021 taxable income
Federal tax rate
$214,369 and up
$216,512 and up
This guide can help you understand which tax credits, expenses and other deductions may be available to you. It also covers the government benefit programs you may be eligible for, and much more.
A. Employment expenses and credits
- Union, professional and other dues
- Employment insurance premiums
- Moving expenses
- Canada employment tax credit
- Vehicle use
- Scholarships and bursaries
- Tuition amount
- Exam fees
- Interest on student loans
- Provincial tax credits and tuition cashback programs
C. Family, child-care and caregiver deductions and credits
- Claim your spouse’s or common-law partner’s unused tax credits
- Claim the spouse or common-law partner amount
- Claim an amount for an eligible dependant
- Canada caregiver tax credit
- Child-care expenses
D. Pension and savings plans deductions and credits
E. Other tax deductions and credits
- Carrying charges
- Home buyers’ amount
- Medical expenses
- Refundable medical expense supplement
- Disability tax credit
- Charitable donations
Government COVID-19 support
If you were eligible for the Canada Emergency Response Benefit, the government might have provided $2,000 per four-week period for a total of 28 weeks. Taxes weren’t withheld when the benefit was paid to you, so you may have taxes owing on that amount.
A. Employment expenses and credits
Amounts paid for memberships in medical associations are generally deductible for tax purposes provided they are required to maintain a professional status recognized by statute. Union dues are also generally deductible. You do not need to file your official receipts from the association or union with your tax return, but be sure to keep them in case the Canada Revenue Agency (CRA) asks to see them.
Residents are salaried employees and, as such, are required to make contributions to Employment Insurance (EI). You’ll see these deductions on your pay stubs and on the T4 slip you receive from your employer every year. These contributions qualify for non-refundable federal and provincial tax credits.
Amount: For 2020, the maximum annual EI premium amount was $856.36 (based on maximum insurable earnings of $54,200).
Access to EI benefits
Because you pay EI premiums, if you complete your program of study and are unable to find work, you may be eligible for EI benefits. You also qualify to receive special benefits — including maternity, parental or sickness benefits — if you have worked the required insurable hours.
If you relocated 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.
If you have allowable moving expenses that can’t be deducted in the current year because you haven’t earned enough income, you may be able to carry them forward and apply them against income in another tax year. Retain your receipts in case the CRA asks for them.
- Note: Moving expenses can’t be deducted if your only income at your new location is scholarship, fellowship or bursary income that is entirely tax-exempt.
Eligible moving costs include the following:
- travel costs, transportation costs for belongings, meals during travel and lodging for a reasonable period while you are waiting for the new residence (usually up to 15 days)
- lease cancellation costs and 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)
- any taxes paid on the transfer or registration of title to a new residence (exclusive of any goods and services value-added tax), together with legal fees associated with the purchase of the new residence, if you or your spouse or common-law partner has sold your old residence
- costs of utility connections and disconnections and of revising documents to reflect your change of address
- mortgage interest, property taxes, insurance premiums and utility costs (up to a $5,000 maximum) paid on your vacant old residence if you were unable to sell it, provided you made reasonable efforts to sell it
The rules for moving-expense deductions can be complex. You can find more information on the CRA website, but we suggest that you talk to a tax advisor before including these deductions on your tax return.
As an employee, you can claim a federal non-refundable employment tax credit to help you cover your work-related expenses. You can claim a credit equal to 15% of your employment income for the year, up to a maximum of $1,245 for 2020. (The maximum amount is indexed for inflation every year.)
If your employer requires you to use your own vehicle away from your ordinary site of employment (e.g., your department at the hospital) and you did not receive a reimbursement or tax-free allowance to cover your costs, you may be entitled to claim a deduction for the portion of your vehicle expenses incurred to earn employment income. For example, some family medicine physicians are required to use their vehicles to perform house calls away from their “home” hospital or clinic and have completed the necessary documentation to claim a pro-rata share of vehicle expenses.
If you qualify, you can claim the employment portion of all of the vehicle’s operating costs including gas, oil, repairs, maintenance, insurance, licence fees, cleaning and depreciation. Interest on car loans and leasing costs are deductible within certain limits. You will need to track and record the number of kilometres used for employment purposes and the total number of kilometres driven in a calendar year.
Required forms: You will need to file Form T777 with your tax return, and your employer will have to sign Form T2200 to confirm you were required to use your automobile for work. Although you are not required to file Form T2200 with your return, be sure to keep it in case the CRA wants to see it.
If you’re a resident or a fellow, you may benefit from the tax-exempt status of all scholarships and bursary income if you are considered a full-time student at an educational institution. The scholarship exemption is available for a post-secondary program that consists principally of research only if the program leads to a college diploma or a bachelor’s, master’s or doctoral degree. Because of this, post-doctoral fellowships are generally considered taxable.
You don’t need to report any exempt scholarship and bursary amounts on your income tax return. However, you may want to keep supporting documentation, such as Form T4A, in case the CRA asks for it.
The provisions of the Income Tax Act (Canada) about scholarships and bursaries can be confusing. If you’re in doubt, talk to your tax advisor.
Tuition fees paid during a residency program are eligible for a federal 15% non-refundable tuition tax credit, which can be used to reduce your taxes payable.
Keep in mind that fees paid for application, admission, use of library or laboratory facilities, examinations (including re-reading) and diplomas, as well as mandatory computer service fees and certain academic fees, qualify as eligible tuition fees.
Other tuition fees, such as for Advanced Trauma Life Support (ATLS) courses and certain Licentiate of the Medical Council of Canada (LMCC) preparation courses, may also qualify for the tax credit. Contact your course administrators for more details, and be sure to obtain all appropriate documentation for these courses from them.
Note: Federal education and textbook tax credits were eliminated for tax years after 2016. Provincial credits, however, may still apply.
Your qualification for the tuition tax credit will be detailed on your Form T2202. Although you don’t need to file Form T2202 with your return, keep it in case the CRA asks for it.
If you have unused tuition credits
If you don’t use your entire tuition credit in the current year to reduce your tax owing to nil (you can’t use the credit to generate a refund), any remaining credits can be transferred to an eligible person — such as your spouse or common-law partner or, under certain restrictions, a parent or grandparent — up to a maximum of $5,000.
Another option if you have unused tuition tax credits is to carry them forward and use them when you have sufficient income, in later years during residency or in practice. Any amount you don’t use in the current year and don’t transfer to an eligible person will automatically be available to carry forward. Once you have enough income to use the carried-forward tax credits, you can apply them to reduce your taxes payable.
The Medical Council of Canada (MCC) grants a qualification in medicine known as the Licentiate of the Medical Council of Canada (LMCC) to graduate physicians who have satisfied the eligibility requirements and passed the Medical Council of Canada Qualifying Examination Parts I and II. The MCC registers candidates who have been granted the LMCC in the Canadian Medical Register.
According to the MCC website, at the time of publication of this document, examination fees are eligible for a tuition tax credit. Certain ancillary fees, such as centre change request fees or late fees — up to a maximum total of $250 — are also eligible. Tuition tax credit receipts are made available in late February of the year following the year in which the examination was taken (i.e., the 2020 tuition tax credit receipt will be available in late February 2021). You can access your receipt by logging into your physiciansapply.ca account, where your tax receipt will be available to view and print.
You can claim a 15% federal non-refundable tax credit on any interest paid in 2020 or in any five previous years (if not previously claimed) on loans negotiated and still existing under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a similar provincial or territorial loans program. Interest paid on any other loans, such as bank loans or lines of credit, are not eligible for this credit. Provincial non-refundable tax credits may also apply.
Proof of interest paid: If you had eligible student loans in 2020, the financial institution handling your Canada or provincial student loans will mail to you, in early 2021, a statement of the actual interest paid on the loans during the year. Keep this statement or receipt in case the CRA asks to see proof of interest paid.
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 income tax return.
C. Family, child-care and caregiver deductions and credits
If your spouse or common-law partner has little or no income, they may have tax credits, including provincial credits, you can use when completing your tax return. The tax savings can be substantial.
Schedule 2 of your income tax return outlines the non-refundable tax credits that can be transferred from one spouse to the other.
- How is a common-law relationship defined?
Two individuals living in a conjugal relationship are usually deemed to be common-law partners if they have cohabited continuously for at least one year or have a child together (whether natural or by adoption). It is your responsibility to declare your status properly. Failure to do so may result in lost benefits, assessed interest charges and potential future penalties for making false returns.
If you were married or in a common-law relationship at any time during 2020 and either you or your spouse or common-law partner earned less than $13,229, the other spouse or common-law partner may claim a non-refundable spouse or common-law partner amount for federal tax purposes.
Amount: For 2020, the amount of this credit is calculated by subtracting the spouse’s or common-law partner’s net income from $13,229 and multiplying the remainder by 15%. This can translate into federal tax savings of up to $1,984 ($13,229 x 15%). Generally, a similar provincial credit will also be available.
If at any time during the year you were single or separated from your spouse or common-law partner and you supported an eligible dependant, you may qualify for the same additional maximum $13,229 federal tax credit available to married or common-law taxpayers who support their spouse.
- Note: A taxpayer who has been married during the year can claim the $13,229 amount only once. That is, you may be eligible to claim the personal amount for a spouse and for another dependant under the eligible dependant rules, but you cannot make both claims in the same year.
If you are supporting an eligible family member who has a physical or mental impairment, you may be entitled to claim the Canada caregiver credit. This federal non-refundable tax credit can be claimed by a caregiver for a dependant with a physical or mental impairment who is an eligible relative, such as a spouse, common-law partner, child, parent, grandparent, sibling, uncle, aunt, niece or nephew. There is no requirement that the dependant live with the taxpayer. The caregiver credit does not permit a claim for dependants without physical or mental impairments.
Amount: For 2020, the caregiver credit provides a maximum credit of $7,276 per infirm dependant but is reduced dollar-for-dollar by the dependant’s net income over $17,085. Also, depending on your relationship to the dependant you may be eligible to claim an additional caregiver credit of $2,230; for details, see the CRA website.
If you claim a spousal amount or eligible dependant amount, only you can claim the caregiver credit for that dependant. In other circumstances, however, it may be shared by multiple caregivers who may support the same dependant, as long as the total claim does not exceed the maximum amount for that dependant.
With certain restrictions, you can deduct the cost of daycare, babysitters, boarding schools and camps, to a maximum of:
- $8,000 a year for children under 7 at the end of the year
- $5,000 a year for children age 7 to 16
- $11,000 a year for children who qualify for the disability tax credit
- $5,000 for children over 16 who do not qualify for the disability amount but who have a mental or physical impairment
The deduction must be claimed by the spouse or common-law partner with the lowest net income, except when this person is at school, disabled, separated from their spouse or in prison. Also, the deduction cannot exceed two-thirds of that person’s earned income.
In practice, the CRA generally does not attach specific child-care expenses to specific children. That is, as long as total child-care expenses do not 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.
What is not an eligible child-care expense?
- Payments for medical or hospital care do not qualify as eligible child-care expenses. Instead, these payments may qualify as medical expenses (if eligible).
- As a general rule, you cannot claim fees for skating lessons, music lessons or other recreational/educational activities. Depending on the circumstances, certain children’s activities may be accepted by the CRA if you can demonstrate that the primary purpose of the activity is to provide child care, thereby enabling you to work. Be sure to speak with your tax advisor for further details.
TIP: Make sure you keep proper receipts for child care, so your claims aren’t denied upon review or audit by the CRA.
D. Pension and savings plans deductions and credits
A registered retirement savings plan (RRSP) is a plan registered with the CRA that is designed to encourage you to save for your retirement. RRSP contributions can be deducted from your taxable income, to the extent that you have the available contribution room.
The money in your RRSP grows tax-free and is taxed only when you withdraw it from the plan. In other words, benefits include both tax savings (i.e., tax deductions for contributions) and tax deferral (i.e., growth and earnings are taxed only upon withdrawal from the plan).
Contribution limit: The RRSP contribution limit is 18% of your previous year’s “earned income” up to a maximum of $27,230 in 2020. The maximum contribution will be $27,830 for 2021 and will be indexed in future years for inflation. Your contribution room may have to be reduced by any pension adjustments. You may also have unused contribution room from prior years that you can carry forward indefinitely and use in future years.
Contribution deadline: For 2020 RRSP deduction purposes, the contribution deadline is March 1, 2021.
Other benefits of RRSPs
The benefits of an RRSP also include estate planning and income splitting in retirement, the latter via spousal RRSP contributions or possibly with pension income splitting. Provided certain conditions are met, you may also be eligible to withdraw funds from your RRSP without incurring tax to purchase a qualifying home (as part of the Home Buyers’ Plan) or to finance your post-secondary education (as part of the Lifelong Learning Plan). Generally, you have up to 15 years to repay these funds to your RRSP. If you have not already done so, discuss retirement planning and the benefits of RRSPs with your financial advisor.
Canada Pension Plan (CPP) contributions qualify for non-refundable federal and provincial tax credits. For 2020, the maximum employee CPP contribution was $2,898 (based on maximum pensionable earnings of $58,700).
As an employee, you are required to make contributions to the CPP. You’ll see these deductions on your pay stubs and on the T4 slip you receive from your employer every year.
E. Other tax deductions and credits
Expenses you incur to earn investment income (in non-registered accounts) are deductible for tax purposes. Examples include investment management fees, fees for investment advice, and interest paid on money borrowed for income-earning investment purposes.
- If buying your first home: First-time homebuyers buying a qualifying home can 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. 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 and must occupy the home as a principal residence within one year of the purchase date.
The home must be a qualifying home, which includes single-family houses, semi-detached houses, townhouses, mobile homes, condominium units and apartments. When two people jointly buy a qualifying home, the total credit claimed cannot exceed $5,000.
- If buying an accessible dwelling: The credit is also available (with no first-time requirement) for homebuyers who are eligible for the disability tax credit and for those buying a home for the benefit of a relative who is eligible for the disability tax credit, if the home is acquired to enable the person to live in a more accessible dwelling.
Similar incentives are also available in certain provinces, including Saskatchewan, Quebec and Nova Scotia.
The first year of residency can be the best time to incur any medical expenses (including dental and eye care expenses) you might have avoided while in medical school. Some of these costs could be partially or fully covered by your employer’s health insurance, and you may also be able to claim what’s not covered as a non-refundable medical expense tax credit.
Amount: For 2020, you can claim a 15% federal non-refundable tax credit on qualifying medical expenses in excess of either $2,397 or 3% of your net income, whichever is less.
- Note: Be careful if you have significant tuition tax credits that you are carrying forward from prior years. Available tuition tax credits must be used before any medical expenses to reduce your taxable income. Be sure to talk to your tax advisor to determine your best course of action.
The CRA also allows you to deduct medical expenses for any 12-month period ending in the year of the tax return. You may claim medical expenses for yourself, your spouse or common-law partner, and your or your spouse’s or common-law partner’s children who are under 18 years old before the end of the taxation year. In certain circumstances, you may also be able to claim a credit for allowable medical expenses you (or your spouse) paid for another eligible dependant.
Certain restrictions apply, so we recommend you talk to your tax advisor.
What medical expenses are eligible?
In the last few years, the CRA has made many changes to allowable medical expenses, including allowing the following:
- phototherapy equipment for treating psoriasis and certain other skin conditions
- medical marijuana and marijuana seeds, for those who have a prescription and purchase from a legal and licensed facility
- vehicle modification to enable wheelchair users to drive
- reproductive technologies for patients who did not have a medical condition that prevented conception
- the cost differential for gluten-free products for people with celiac disease (provided a medical practitioner certifies in writing that a gluten-free diet is required)
- the cost of buying and caring for a service dog or other service animal for people who are blind or profoundly deaf; have severe autism, diabetes or epilepsy; or have a severe and prolonged impairment that markedly restricts the use of their arms or legs
TIP: You can find an extensive list of eligible medical expenses on the CRA website.
If you are eligible for a non-refundable medical expense credit, you may also be entitled to an additional refundable amount. Although certain conditions must be met, this medical expense supplement
applies whether you have tax payable or not.
Amount: For 2020, a refundable medical expense supplement amount of up to $1,272 is generally available to people over the age of 18 who have incurred high medical expenses.
Worksheets: Many provinces have a medical expense supplement calculation on their respective provincial worksheets that come in your T1 personal income tax return package.
Canadian taxpayers suffering from a severe and prolonged impairment may be eligible to claim a disability tax credit on their personal income tax return.
Amount: For 2020, the federal non-refundable tax credit is 15% of $8,576.
A person is eligible for the disability tax credit when the following requirements are met:
- the person has a severe and prolonged mental or physical impairment (the impairment has lasted or is expected to last at least one year),
- the impairment markedly restricts the person’s ability to perform a basic activity of daily living, or the person must dedicate a certain amount of time to life-sustaining therapy, and
- a doctor or other accepted medical professional has certified in writing that the two conditions above are true.
If you have a mental or physical impairment, contact your tax accountant and medical professional to discuss whether filing a disability tax credit claim makes sense for you.
Your first $200 of eligible donations to qualifying charities qualify for a federal non-refundable tax credit of 15%. Any contributions over and above that amount entitle you to a non-refundable tax credit of 29%. This tax credit rate increases to 33% if you have enough taxable income to be subject to the top 33% federal income tax rate.
TIP: Combine your claims: If you and your spouse or common-law partner make separate charitable contributions, consider claiming all your donations on a single return.
This way you will qualify for the lower tier (15% rate on the first $200) only once, as opposed to twice if donations are claimed individually, and more of your contributions will be eligible for the higher-tier tax credit.
We hope you’ve found this guide helpful. However, please remember that tax planning is a complex process and that the information in this guide does not replace advice from a professional tax advisor. We suggest that you talk to a tax professional to ensure you’re taking advantage of all the tax benefits available to you.
The tax legislation, tax rates and credit amounts in this guide are based on information available as of January 1, 2021 (except where otherwise noted).
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.