10 Tax Tips for Medical Residents
Congratulations on finishing your medical degree! This is a tremendous feat and one of the best parts of being done, is the fact that you now you get to go start residency and make some money. As a new resident and member of the workforce, here are 10 things to consider with regards to your taxes and finances:
1. Moving expenses – if you have moved 40 km or more to be closer to your residency, you may be able to deduct those expenses against the income you make as a resident. Things that qualify for moving expenses include, but are not limited to:
- The cost of travel to your new home
- Meals while travelling
- Packing and shipping belongings
- Costs to buy and/or sell a home
2. Tuition – over the years you have accumulated tuition credits while going to school. These are available for you to use to reduce taxes now that you’re done school. But be sure you don’t forget to use the last credits for the year you graduate. If you’re worried about what that balance will be, it’s no trouble at all. Carry forward balances are tracked and available from the CRA.
3. Student loan interest tax credit – if you’re required to repay government student loans in residency, the tax on those loans can be included on the tax return to get additional credit. Interest on loans from other lenders, such as your bank, do not provide a tax credit.
4. Interest on student loans – Banks historically have provided better interest rates on student lines of credit, even after you include the tax credit, which made it an easy decision to pay off government student loans with the bank’s line of credit.
In the 2019 federal government’s budget, they decreased the federal interest rate on student loans from prime + 2.5% to prime. With the 2.5% reduction in federal loan interest, paying off government loans may not actually save you interest going forward.
5. Union dues – your union dues payable to your professional society (i.e. CMA) are deductible for tax, as well as obtaining and renewing your medical license.
6. Out of pocket expenses – you may be required to pay for some of your own travel, equipment or accommodation. If so, your residency program can provide you with a T2200 that allows you to deduct eligible expenses on your return.
Keep in mind, however, that any expenses you have been reimbursed for (i.e. travel) cannot also be deducted.
7. Did you buy your first home? – now that you’re working, you may have opted to buy a home, rather than rent. If this is your first home, you can take advantage of the first-time home buyers’ credit.
8. Charitable donations – during school, your income is generally small or non-taxable from scholarships, so any donations you made to charities while you were in school may not have provided any tax benefit. These charitable donations can be used for five years after the contribution was made. You can now take advantage of these donations in residency.
9. Investing – tax-free savings accounts (TFSA) are a better option for investing in residency than an RRSP. A contribution to your RRSP is a direct deduction to your taxable income but has a limit. When you’re done residency and are in a higher tax bracket, the RRSP becomes a more valuable investing tool.
10. Get an accountant – this list is a great starting point to save you some money. But you probably don’t do your taxes yourself. An accountant knows all the latest money-saving tricks you’re eligible for.
At Avail CPA, we can help you navigate your new financial situations. Contact us with your questions and we can help make sure you make the best choices for your situation, not just for April.