Tax Return Preparation
The most important part of preparing your Tax Return is to keep all receipts, T-slips (T3, T4,T5) and forms. Having a folder for each tax year is a good wy to do this. The most important credit for residents is by far the tuition payments you make during your university education, which can be carried forward indefinitely until you make enough income to use them up. Other important receipts include but are not limited to: memberships (e.g. CMA/OMA, CPSO, CCFP/Royal College, etc.); charitable contributions, which can be carried forward for 5 years; RRSP contributions; and car usage for out of town rotations or between hospitals (requires a special form-talk to Human Resources at your base hospital). Of special note, licensing fees such as the LMCC, CCFP or Royal College exams are not classified as tax deductions or credits.
The income tax owed depends on income. The table below lists Federal and Ontario marginal tax rates for salary. For residents who have accumulated tuition tax credits in excess of $20,000, you will not need to pay any income tax during the first six months of your residency term. Most residents opt to pay the taxes tht their employer calculates and receive the amount returned in full as an income tax refund. Others get the Canada Revenue Agency (CRA) to direct the employer not to collect income tax. This is done by filling out a "Form T1213-Requet to reduce deductions at source", available at your local CRA office. Sometimes the hospital paymaster will stop deducting tax without this for, but you need to speak to them directly. If you are successful with this option, keep in mid that you must let the paymaster know in the New Year to begin collecting taxes again, usually by filling out a new deductions form like the one you filled out when you started residency.
The combined federal and Ontario marginal income tax rates for 2010, allowing for the basic personal amout credit of $10,382 are as follows:
$10,382 to $37,106 21.1%
$37,107 to $40,979 24.2%
$40,971 to $65,345 31.2%
$65,346 to $74,214 33.0%
$74,215 to $76,986 35.4%
$76,987 to $81,941 39.4%
$81,942 to $127,021 43.4%
Over $127,022 46.4%
Each year the marginal personal tax brackets change because they are indexed for inflation.
For 2010 the maximum CPP contribution for the year is $2,163.15 (2011: $2,217/60). The maximum CPP contributions occur when employment income is at least $47,200 ($48,300 in 2011). The maximum EI contribution for 2010 is $747.36 (2011: $786.76). The maximum contributions for EI occur when employment incoe is at least $43,200 ($44,200 in 2011).
For more information visit the Canada Revenue Agency web site.
If you filed tax returns as a medical student, you should already be receiving a GST Tax Credit. You may continue to receive the tax credit for the first two years of residency if your income and your spouse's combined income is below $35,000. After that income may exceed the maximum allowed to qualify for the credit. The amount of the credit varies based on individual circumstances, but is usually in the $50-$100 range.
There are two options to filing your Tax Return: doing it yourself, or enliting the aid of a tax consultant, of which an accountant is only example. If you or your parents have been filing taxes for years and you know your situation to be relatively straightforward with no surpises, it's quite likely that you can do your taxes without the aid of an accountant or tax preparer. A number of tax preparation software programs are available wihch reduce the chances of making an error. An added benefit is that you can submit your tax return via internet if you qualify, saving on paper and ensuring youget your refund quickly. Once you file your return, you must keep a copy of the return (on disk is fine) and your receipts for seven years in the event that the CRA requests more information or requests an audit.
If you haven't filed taxes before it's a good idea to get an accountant to help you. S/he can file returns for previous years, and having any old tax receipts helps.
For more information regarding tax returns, click here to read the latest edition of PAIRO Tax Tips.