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What are tax tips for medical students?

For use in preparation of 2021 tax returns

A student wearing earphones using his mobile phone.

Are you a medical student with little or no income?

You may not need to file an income tax return, but did you know that it’s still worth doing? You may qualify for the GST/HST credit, a quarterly payment to people with low or modest incomes. You’ll also be able to carry forward certain other tax credits into future years and use them to reduce your taxable income then.

“I need help with my tax return.”

If you’re a medical student, you can get your basic tax return completed for free by the accounting firm MNP. Here are some documents you should gather:

  • Prior year’s notice of assessment
  • Prior year’s tax return (if you filed one)
  • Current year tax slips, such as T3, T4 and T5
  • T2202 tuition slip
  • Any donation slips

“I’ll do my own tax return.”

Doing your own tax return is easier than ever with tax software. Most software you pay for, but there are also free ones and pay-what-you-want — see the Canada Revenue Agency’s list of certified providers.

The software will take you through questions in an interview style, and often it’s as easy as filling in the blanks. Everything is calculated for you.

This guide can help you understand which tax credits, expenses and other deductions may be available to you.

 A. Education

  1. Scholarships and bursaries
  2. Tuition amount
  3. Exam fees
  4. Interest on student loans
  5. Moving expenses

B. Family and child-care deductions and credits

  1. Claim your spouse’s or common-law partner’s unused tax credits
  2. Claim an amount for supporting a spouse/common-law partner
  3. Claim an amount for supporting an eligible dependant
  4. Child-care expenses

C. Other tax credits and deductions

  1. Medical expenses
  2. Refundable medical expense supplement (for those with high medical costs)
  3. Disability tax credit

Conclusion

 

A. Education

1. Scholarships and bursaries

Your scholarships and bursaries may be tax-exempt — meaning you don’t need to report the money on your tax return. Money received in 2021 from scholarships and bursaries is tax-exempt if you were enrolled in 2020, 2021 or 2022 as a full-time qualifying student.

Note that the amount exempted must be reasonable. In other words, it can’t exceed what would reasonably be required to support you in the program.

Part-time students: You’re also eligible for the scholarship exemption, but the maximum exemption is generally $500 plus the cost of tuition and program material. If your scholarship is less than $500, then that lower amount is your limit.

You may want to keep supporting documents, such as Form T4A, in case the Canada Revenue Agency (CRA) asks for them.

2. Tuition amount

Your tuition fees during medical school are eligible for a federal 15% non-refundable tuition tax credit, which can be used to directly reduce your taxes payable. (“Non-refundable” tax credits can reduce your taxes to zero, but will not result in a refund.) If you attend a medical school outside of Canada, those tuition fees are also eligible.

What to include: You can include the following in your claim for the tuition credit:

  • tuition fees, including
    • Advanced Trauma Life Support (ATLS) courses
    • Medical Council of Canada (LMCC) preparation courses

Forms you need: To claim your tuition fees, you must get one of the following forms from your educational institution:

  • Form T2202 Tuition and Enrolment Certificate
  • Form TL11A Tuition and Enrolment Certificate — University Outside Canada
  • Form TL11C Tuition and Enrolment Certificate — Commuter to the United States
  • Form TL11D Tuition Fees Certificate – Educational Institutions Outside Canada for a Deemed Resident of Canada

Contact your course administrators about the form you need. Although you don’t need to file the form with your return, keep it in case the CRA asks for it.

If you have unused tuition credits: You may find you’re not able to use your entire tuition credit in the current year. This can be the case when you have little or no income, thus little or no tax owing. (Remember that you can’t use the tuition credit to generate a refund — you can only reduce your tax owing to nil.) If you have unused tuition credits, you can do one of the following:

  • Transfer: You can transfer any remaining credit 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.
  • Carry forward: If you don’t transfer the unused credit, it is automatically carried forward, to be used when you have enough income (for example, during residency).

3. Exam fees

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 Part I (Part II was eliminated as of June 2021). 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, exam fees are eligible for the tuition tax credit. Certain ancillary fees, such as centre change request fees (for a change of exam location) or late fees — up to a maximum total of $250 — are also eligible.

If you took the exam in 2021, your tuition tax credit receipt will be made available in late February 2022. You can find your receipt by logging in to your physiciansapply.ca account.

4. Interest on student loans

COVID-19 and student loans: In April 2021, the federal government announced that no interest will accrue until March 31, 2023, on the federal portion of Canada Student Loans. That said, you may nonetheless have student loan interest paid that is eligible for a tax credit on your 2021 tax return.

Tax credit for interest paid: If you paid interest during 2021 or during the five preceding five years 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, you can claim a 15% federal non-refundable tax credit on that interest (if not previously claimed). Provincial non-refundable tax credits may also apply.

Watch out: Interest paid on a personal loan or line of credit does not qualify for the tuition tax credit.

If you have interest payments to deduct but you have no taxes payable for this year, do not claim the interest paid on your current tax return. Instead, carry it forward and claim it on any of your tax returns in the next five years. Note that unlike other tax credits, such as the tuition tax credits, the CRA does not keep track of the carry-forward amounts for you.  

Proof of interest paid: If you had eligible student loans in 2021, the financial institution handling your Canada or provincial student loans will mail to you, in early 2022, 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.

5. Moving expenses

If you moved at least 40 kilometres for full-time post-secondary education in 2021, you may be able to claim a tax deduction for your moving expenses. These expenses can only be deducted, however, from taxable scholarship or grant income. In other words, if your scholarship, fellowship or bursary income at your new location is entirely tax-exempt, your moving expenses cannot be deducted. (If you work part-time while studying at your new location, you could deduct moving expenses from that taxable employment income.)

Moving expenses can include things like:

  • transportation and storage costs
  • travel expenses
  • temporary living expenses
  • the cost of cancelling a lease

If you have moving expenses that you can’t deduct in the current year because you don’t have enough taxable income, you may be able to carry them forward to another tax year.

TIP: Keep your receipts in case the CRA asks for them.

B. Family and child-care deductions and credits

1. Claim your spouse or common-law partner’s unused tax credits

If your spouse or common-law partner has little or no income, they may have tax credits, including provincial credits, that 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 a natural or adopted child). 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.

2. Claim an amount for supporting a spouse/common-law partner

If you were married or in a common-law relationship at any time during 2021 and either you or your partner earned less than $13,808, the other partner can claim a non-refundable spouse/common-law partner amount for federal tax purposes.

Amount: For 2021, the amount of this credit is calculated by subtracting the low-income spouse/partner’s net income from $13,808 and multiplying the remainder by 15%. This can translate into federal tax savings of up to $2,071 ($13,808 x 15%, if the spouse/partner had no earnings). Generally, a similar provincial credit will also be available.

3. Claim an amount for supporting an eligible dependant

If at any time during the year you were single or separated from your spouse/common-law partner and you supported an eligible dependant, you may qualify for the same maximum $13,808 federal tax credit available to married or common-law taxpayers who support their spouse.

Note: A taxpayer can claim the $13,808 amount only once. That is, you may be eligible to claim the personal amount for a spouse (item 2, above) and for another dependant under the eligible dependant rules (item 3), but you cannot make both claims in the same year.

4. Child-care expenses

Amount: 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 who are 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

Which spouse claims the deduction? The deduction must be claimed by the spouse/partner with the lower 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.

Note: 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.

TIP: Make sure you keep proper receipts for child care so your claims aren’t denied upon review or audit by the CRA.

Ineligible child-care expenses: The following do not qualify as child-care expenses:

  • 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.

 

C. Other tax credits and deductions

1. Medical expenses

If you incurred any medical expenses (including dental and eye care expenses) that are not covered by an insurance plan, you may be able to claim them as a non-refundable medical-expense tax credit.

Amount: For 2021, you can claim a 15% of qualifying medical expenses in excess of either $2,421 or 3% of your net income, whichever is less.

What expenses are eligible? You can find an extensive list of eligible medical expenses on the CRA website. Beyond the usual prescription drugs and medications, dental services and many medical devices, here are some eligible medical expenses that are often overlooked:

  • Medical cannabis: you will need a prescription to claim this.
  • Gluten-free products: people with celiac disease can claim the difference in cost of these products, which can be expensive.
  • Out of country medical services: if you travel outside Canada to get medical treatment, you may be able to claim the cost of the treatment.
  • Travel expenses (more than 40 kilometres) to get medical services.
  • Fertility-related procedures.

Any 12-month period: The CRA allows you to deduct medical expenses for any 12-month period ending in the year of the tax return.

Eligible family members: You can claim medical expenses for yourself, for your spouse or common-law partner, and your or your spouse’s children who are under 18 before the end of the taxation year. In certain circumstances, you may also be able to claim medical expenses for another family member who is dependent on you (or your spouse) for support. Restrictions apply, so talk to your tax advisor.

2. Medical expense supplement (for those with high medical costs)

If you are eligible for a non-refundable medical expense credit, you may also be entitled to an additional refundable amount. “Refundable” tax credits can provide you with a refund — so although certain conditions must be met, this supplement applies whether you have tax payable or not.

Amount: For 2021, a refundable medical expense supplement amount of up to $1,285 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 worksheets, which come in your T1 personal income tax return package.

3. Disability tax credit

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 2021, the federal non-refundable tax credit is 15% of $8,662.

Who is eligible: You can claim the disability tax credit if:

  • you have 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 your ability to perform a basic activity of daily living, or you 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.

Ask your doctor whether they can certify that you have a qualifying impairment, and talk to your tax advisor about whether claiming this tax credit makes sense for you.

 

Conclusion

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, 2022 (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.