On April 7, 2022, the Federal Government released a budget with two new proposals for first time home buyers.

 

1. Tax-Free First Home Savings Account (FHSA)- Effective 2023

The ‘Tax-Free First Home Savings Account’ (FHSA) will become available to Canadians starting in 2023.

 

The proposed features of the FHSA are described below. The government is likely to announce further details which could alter the current interpretation of the rules.

 

This program allows you to make tax deductible contributions of up to $40,000 to an FHSA. The funds can subsequently be withdrawn for the purchase of a house on a tax-free basis.

 

The FHSA program is different from the RRSP Home Buyers’ Program (HBP), which is another program designed to assist Canadians in saving for the purchase of a first home. Details and a comparison of both programs are included below.

 

FHSA 

 

Eligibility Requirements:

  To be eligible, you must:

• • Be a Canadian resident

  • Be 18 years of age

  • Have not lived in a home that you owned in any of the prior 4 years

Program Conditions:

• • The maximum annual contribution limit is $8,000

  • The maximum lifetime contribution limit is $40,000 

    • Therefore, it takes at least 5 years to ‘max out’ your FHSA

  • You can only make non-taxable withdrawals from an FHSA for one property in your lifetime

  • You cannot use both the FHSA and HBP for the same property

  • If you don’t use the funds in your FHSA within 15 years of opening the account for the purchase of a qualifying home, you must either withdraw the funds on a taxable basis, or transfer them to your RRSP on a non-taxable basis. This does not impact your RRSP contribution room.

  • You may transfer funds from your RRSP to an FHSA, subject to the annual and lifetime contribution limits. This does not reinstate your RRSP contribution room.

Note: Unused contribution room does not carry over into the following year.

I.e:  In year 1, you contribute $8,000 (annual maximum).  In year 2, you only contribute $3,000. In year 3, your contribution room is still limited to $8,000; you do not get to contribute $13,000 because you did not utilize the full contribution limit in year 2.

Your lifetime limit is still $40,000 – you don’t ‘lose out’ on contributing the $5,000 that you did not contribute in year 2. It will now take at least 6 years to reach the lifetime contribution limit.

 

RRSP Home Buyers Program:

 

You can ‘borrow’ up to $35,000 from your RRSP for a down payment on your first home provided you are eligible.

Eligibility Requirements

To be eligible, you must:

• • Be a Canadian resident

  • Be 18 years of age

  • Have not lived in a home that you or your spouse own in any of the prior 4 years

  • Have contributed the funds to your RRSP at least 90 days prior to withdrawal.

 

This program requires you to repay the borrowed funds back to the RRSP over 15 years. The funds will also become taxable income to you in the future when you withdraw them (presumably, in retirement).

 

COMPARISON OF HBP and FHSA

 

Similarities: 

• • Like an RRSP, contributions to and FHSA are tax deductible. It has not yet been announced whether the deduction must be taken in the year of purchase, or if it can be deferred to a future taxation year when the advantage of a deduction may be higher. 

    • There can be a tax benefit to deferring your deduction until your first or second year of practice, when income is significantly higher. 

 

Differences:

• • With an FHSA, you are limited to purchasing $8,000 per year, with a lifetime maximum contribution of $40,000. With an RRSP, you are limited by your RRSP contribution room.

  • With the FHSA, it takes at least 5 years to contribute the lifetime maximum of $40,000. With an RRSP, if you have enough contribution room, you can contribute a lump sum of $35,000 and withdraw it under the HBP, as long as you do so 90 days prior to making a qualifying withdrawal. 

    • Therefore, if you have a short time horizon for making a house purchase, the RRSP home buyers’ program may be more beneficial for you.

    • If the time constraints are not concerning, the tax advantages of the FHSA outperform the RRSP HBP.

  • You can only make qualifying tax-free withdrawals from your FHSA once in your lifetime. The RRSP HBP can be used more than once, if you qualify.

  • The maximum qualifying withdrawal from an FHSA is $40,000, whereas the maximum qualifying withdrawal under the HBP is $35,000.

  • You do not need to repay FHSA withdrawals. Thus, the $40,000 down payment is effectively tax free. With the RRSP, you must repay your withdrawal over a 15-year period, under the conditions of the program.

 

                In Summary:

	ATTRIBUTES	FHSA	RRSP HOME BUYERS PROGRAM
	ARE CONTRIBUTIONS DEDUCTIBLE?	YES	YES
	MAX ANNUAL CONTRIBUTION	$8,000	YOUR RRSP LIMIT
	MINIMUM TIME REQUIRED TO MAXIMIZE CONTRIBUTION ROOM	5 YEARS	90 + DAYS
	NUMBER OF TIMES PROGRAM IS AVAILABLE TO YOU	ONCE IN YOUR LIFETIME	UNLIMITED, AS LONG AS YOU QUALIFY (DID NOT OCCUPY A HOME YOU OR YOUR SPOUSE OWNED IN 4 PRIOR YEARS)
	MAX CONTRIBUTIONS FOR DOWN PAYMENT	$40,000	$35,000
	REPAYMENT TERMS	N/A	OVER 15 YEARS

 

2. First Time Homebuyer Credit – Effective on purchases made on or after January 1st, 2022

Previously, when an individual purchased a first home, they were eligible for a tax credit of $5,000 (equivalent to $750 in tax savings).

The 2022 Federal Budget has doubled the credit from $5,000 to $10,000, which now provides the taxpayer with $1,500 in tax savings.

 

If you have questions about the above, please contact us.

 

* This article is based on details available as of the release date of the 2022 Federal Budget. Content is for informational purposes only, and is not intended to be used as professional advice. Each taxpayer’s circumstances are unique. Bokhaut CPA makes no representation as to the accuracy and completeness of the information in this article, and will not be liable for any errors or omissions in this information. 

 

How to Organize Yourself for Personal Tax Filing

 

Step 1: Be Aware of Your Income & Expenses

 

As a self-employed physician, fee-for-service income can come from a variety of sources, including various health authorities (WRHA, NRHA, IERHA, etc.), private billings, and government agencies. As such, tracking the various income streams be challenging, depending on your time and organization skills.

Some agencies will report fee-for-service income on a T4A slip. This slip is like a T4, except it reports income where no tax was withheld. Other fee-for-service sources, such as clinics, may handle billings on your behalf and prepare reports to summarize billings, collections, and overhead. While these reports are of helpful come tax time, it is unlikely that all of your income sources will provide you with income summaries/slips. This means that you may need to take a more active role in tracking your fee-for-service income.

If your writing resembles this, try tracking via excel:

You may wish to employ a billing service provider or submit and track your billings personally. Regardless of the reports available to you, or the method of billings/collections, it is important to keep track of total gross income (inclusive of billings earned but not yet collected) and any administrative fees incurred.

If you have numerous sources of fee-for-service income, it may be beneficial to set up a separate bank account to be used for these deposits and related business expenses. Doing so is advisable as it clearly distinguishes business transactions from personal transactions. This also provides separate business documentation that you can provide your accountant) in order to protect your privacy. Its none of your accountant’s business that you spent $234.04 on McDonalds in just 3 months. It’s been a long winter.

In addition to keeping track of your fee-for-service income, you are also responsible for tracking your business expenses in order to claim them. Generally, you are able to claim any reasonable business expense which had been incurred to earn business income.

In order to substantiate your reasonable business deductions, you will also need to maintain the records for each expense that has been claimed. Typically, records consist of receipts which identify the seller, date of purchase, and a description of the items/services purchased.

 

 

Step 2: Record Keeping

 

Your tax records need to be maintained for a period of 6 years from the end of the calendar year to which they relate.

Records for your income and expenses can be stored in the following formats:

• Paper: Storing physical copies of documents is an acceptable format.  However, consideration should be given to the environment in which paper documents are stored so as to avoid possible deterioration or damage.

• Electronic: Electronic records are also acceptable as long as the information is clear and all of the transaction details are present in the electronic copy.  It would be best to keep a backup copy to hedge against possible file corruption, or loss of another nature.

Ultimately, there is no superior method for the organization of your medical practice’s tax records. Whether you use an excel tracking log, sort documentation in a physical folder according to type of expense/transaction, or employ a third party to store and organize your files, the completeness of your tax reporting will depend on the type of information you include. The goal is not a colour coded binder that gets delivered to your accountant’s door every March 15^th, wrapped in a bow – though we would most certainly appreciate it. The goal is efficient, accurate, and complete tax reporting that makes use of every deduction available to you.

As accountants, we prepare your returns based on the information you provide. Understanding what you should include within your medical practice’s tax records is critical to minimizing tax and optimizing results.

Happy tax season! 😊

Unfortunately, a child care tax deduction can only be used to reduce taxable income to NIL; if there is any additional child care deduction that would reduce income further, that portion will be ‘lost’. Reducing a spouse with minimal income to nil income could allow for additional non-refundable credit transfers to the higher income spouse, so claiming these deductions (even when no tax is owing for the lower income spouse) can still provide a tax benefit.

 to The most frequent questions we receive from resident physicians relate to their ability to claim various tax credits and deductions. This is often complicated by their participation in various assistance or rebate programs and the continuing cost of their medical education and licensing. 

 

Q1. Can I claim exam fees as a resident physician?

Board Exams/Exam Fees 

Exam fees are not a deductible expense, but can be claimed as tuition on your tax return. The following list of (non-exhaustive) exam fees qualify for tuition treatment:

• LMCC/MCCQE
• Royal College of Physicians and Surgeons Manitoba – Specialty Examinations
• Royal College of Physicians and Surgeons Manitoba – Subspecialty Examinations

Note that you will require an official receipt or letter in order to claim the above as tuition. 

 

Q2. Can I still claim the Manitoba rent credit if I receive rent assist?

Rent (and Rent Assist)

Usually not.

The maximum rent credit one can receive in Manitoba is $525; in order to get the maximum credit, you need to have paid rent of at least $3,500 in the tax year.

However, for every dollar of rent assist that you receive in the year, you lose $1 of rent credit.

Therefore, if you received $525 or more in rent assist, you will not be eligible to claim any of the credit. 

You must however, report the rent paid and assistance received in order to qualify for rent assist on a go forward basis.

Q3. Is Malpractice Insurance a deductible expenditure?

CMPA Dues

Malpractice insurance is a required expenditure in order to practice medicine in Canada. So, is it deductible?

The answer is yes, partially. 

The PARIM collective agreement stipulates that the cost of CMPA insurance is to be split on a 75%/25% basis between Shared Health and the Resident, to a maximum of $625/year for residents.

Any amount above that is to be paid by Shared Health.

When you make payment for CMPA dues, it is charged in full. Despite being reimbursed at a later date by Shared Health, your receipt will show the full cost of the annual dues, not your portion.

For this reason, the amount that you can claim on your tax return will differ from the amount on your receipt.

Q4. Can I claim child care expenses if my spouse has no income, or lower income than the childcare expenses? 

Child Care

Child care expenses must be claimed on the return of the spouse with lower income. So, what happens if your spouse has no income, or lower income than the childcare expenses? 

Unfortunately, a child care tax deduction can only be used to reduce taxable income to NIL; if there is any additional child care deduction that would reduce income further, that portion will be ‘lost’.

Luckily, there are a few exceptions to the rule.

For example, the spouse with higher income can claim a child care deduction in the tax year if: 

1. Their spouse was a student 
2. Their spouse was in jail

If either of these scenarios applies to you, you may claim child care expenses on your own tax return. Hopefully it is for reason 1.

In the absence of one of those exceptions, reducing a spouse with minimal income to nil income could allow for additional non-refundable credit transfers to the higher income spouse, so claiming these deductions (even when no tax is owing for the lower income spouse) may still provide a tax benefit.

 

 

 

* Content is for informational purposes only, and is not intended to be used as professional advice. Each taxpayer’s circumstances are unique. Bokhaut CPA makes no representation as to the accuracy and completeness of the information in this article, and will not be liable for any errors or omissions in this information.