costar Posted May 24, 2013 Report Share Posted May 24, 2013 Does anyone know how tuition tax credits work? Is it better to start claiming them in PGY1 or waiting until you make more money? I heard a while ago that the tax deductions are made to your lowest tax bracket, what does this mean? Link to comment Share on other sites More sharing options...
rmorelan Posted May 24, 2013 Report Share Posted May 24, 2013 Does anyone know how tuition tax credits work?Is it better to start claiming them in PGY1 or waiting until you make more money? I heard a while ago that the tax deductions are made to your lowest tax bracket, what does this mean? actually you don't have a choice - you have to use them up as soon as you can which likely does mean your PGY-1 year etc. Doesn't matter anyway because tax credits like tuition give you tax relieve equal to the lowest marginal tax rate usually (say overall 20%, which means 100K of tuition will save you 20K in tax). Since the rate is fixed it makes no sense delaying even if you could (why would you agree to get the same amount of money but in the future vs right now. Get it now so you can pay of debits, or invest it - either way you get more out of them that way). That rate is what they mean as your lowest tax bracket by the way - is just overall (federal plus provincial) around a 20% reduction but of course higher marginal tax brackets charge you more than 20%. Link to comment Share on other sites More sharing options...
costar Posted May 24, 2013 Author Report Share Posted May 24, 2013 awesome thanks Dr. Rmoreland, you're a gem to this forum! Link to comment Share on other sites More sharing options...
youngdad Posted May 24, 2013 Report Share Posted May 24, 2013 Knowing your tuition credits will leave you in a non-tax paying situation at the end of the year, why not ask to have no tax deducted from your checks? This way you have the money each month and can deal better with your monthly bills and growing interest. Just fill out form T1213 on the CRA website, complete it and send it back to them with a copy of your most recent Notice of Assessment. It states the amount of your tuition credits right on it. The CRA will then send you a form that you give to your HR/payroll office and voila! No tax deducted from your checks! Disclaimer: I have never done this before, just trying this year. I don't know of any hang-ups/complications. Link to comment Share on other sites More sharing options...
BoyInTheBubble Posted May 24, 2013 Report Share Posted May 24, 2013 Knowing your tuition credits will leave you in a non-tax paying situation at the end of the year, why not ask to have no tax deducted from your checks? This way you have the money each month and can deal better with your monthly bills and growing interest. Just fill out form T1213 on the CRA website, complete it and send it back to them with a copy of your most recent Notice of Assessment. It states the amount of your tuition credits right on it. The CRA will then send you a form that you give to your HR/payroll office and voila! No tax deducted from your checks! Disclaimer: I have never done this before, just trying this year. I don't know of any hang-ups/complications. It works smoothly. Someone in your payroll department should be able to assist you. If you are smart with your money, it's better to take the money and pay off debt, earn interest, invest, etc then to wait for it. Money now is always worth more than money later (but it is only a year away). That being said, you have to prepare for the possibility that you OWE money at tax time. (For example, Ontario's Health Premium that is increased relative to income.) And you lose the joy of opening a letter with a huge tax return! Link to comment Share on other sites More sharing options...
rmorelan Posted May 25, 2013 Report Share Posted May 25, 2013 Knowing your tuition credits will leave you in a non-tax paying situation at the end of the year, why not ask to have no tax deducted from your checks? This way you have the money each month and can deal better with your monthly bills and growing interest. Just fill out form T1213 on the CRA website, complete it and send it back to them with a copy of your most recent Notice of Assessment. It states the amount of your tuition credits right on it. The CRA will then send you a form that you give to your HR/payroll office and voila! No tax deducted from your checks! Disclaimer: I have never done this before, just trying this year. I don't know of any hang-ups/complications. That is exactly what I think you should do - otherwise you are just giving an interest free loan to the government for 16 months for no reason. That is costing you interest on your own LOC. Of course you need discipline to not just waste the money. Link to comment Share on other sites More sharing options...
costar Posted May 25, 2013 Author Report Share Posted May 25, 2013 My friend and I were talking about your example Rmoreland. 1) If you start with 100k of tuition credits, 2) then if you earn 50k in PGY1, 3) and pay 15k in taxes for PGY1, do you just claim 15k of your tuition tax credits and be left with 85k in tax credits for the next few years? Is this right? Link to comment Share on other sites More sharing options...
Jochi1543 Posted May 25, 2013 Report Share Posted May 25, 2013 Disclaimer: I have never done this before, just trying this year. I don't know of any hang-ups/complications. I've always done it. Never found myself in a situation where I made way more money than I had expected (I wish!), but you basically just have to pay the extra tax charges on a pretty short notice. If you have a LOC, it's not a huge issue. Link to comment Share on other sites More sharing options...
rmorelan Posted May 25, 2013 Report Share Posted May 25, 2013 My friend and I were talking about your example Rmoreland. 1) If you start with 100k of tuition credits, 2) then if you earn 50k in PGY1, 3) and pay 15k in taxes for PGY1, do you just claim 15k of your tuition tax credits and be left with 85k in tax credits for the next few years? Is this right? Unfortunately no The way tax credits work is you only get a portion of them back as a tax relief - under your scenario for instance University would not only be free but you would actually be paid effectively to do go to school - all your tuition PLUS the monthly bonus of about 580 for a full time student would be paid back to you eventually in tax relief. Paying off loans would be trivial. That would be really nice. The government is nice but just not that nice - with tuition tax credits and indeed all tax credits you get a percentage - in this case about 20% as tax relief. The government effectively helps out a bit but no where near the full amount. In your case you would get 100K x 0.20 = 20K of ultimately tax relief. In your first year you would still pay no tax (which is great as you are just starting out etc) but it would us up 75K of your credits (75Kx20% = 15K). Ok technically you would still pay a little tax actually with the health tax and other minor things but I am trying to keep it simple The following year you would still have another 5K reduction from what is left. Now one other wrinkle - you PGY1 year starts in July - that is NOT the start of the tax year which is Jan - this is actually important as in your first TAX year you earn only about 25K with an 10-11K personal exception that everyone gets - a low income so low tax. The tax on the remaining 15K (25-10) is at the lowest tax rate and equal to the tax credit rate of 20% approx, so you use up about 15K of your credits in year one - not bad actually. Tax year two you use up a lot more then (your income in year two is around 55K base - 1/2x51K + 1/2x59K. So you get basically 2 tax returns were you pay no tax and even a bit of carry over to your third tax return. By then you pay tax like everyone else but if you are a family doc you are now practising, or if you are a 5-6 year program person your salary has bumped up into the mid 60s. Oh and right now PAIRO is continuing to fight to see if we can claim tuition tax credits in residency as they belief we continue to be full time students for tax purposes. If true we would get continuing 1.5K of tax relief a year ultimately, which would be nice. Link to comment Share on other sites More sharing options...
rmorelan Posted May 25, 2013 Report Share Posted May 25, 2013 I've always done it. Never found myself in a situation where I made way more money than I had expected (I wish!), but you basically just have to pay the extra tax charges on a pretty short notice. If you have a LOC, it's not a huge issue. yeah in our case if you are using that tax relief to pay down the LOC anyway that then it wouldn't matter - put in the large X and maybe have a vastly smaller Y to pay at a time when you expect that possibility. With a salary that is fixed and only the call bonus variable between residents it is hard to have any truly large missing chunk anyway. Link to comment Share on other sites More sharing options...
nexus Posted June 19, 2013 Report Share Posted June 19, 2013 Knowing your tuition credits will leave you in a non-tax paying situation at the end of the year, why not ask to have no tax deducted from your checks? This way you have the money each month and can deal better with your monthly bills and growing interest. Just fill out form T1213 on the CRA website, complete it and send it back to them with a copy of your most recent Notice of Assessment. It states the amount of your tuition credits right on it. The CRA will then send you a form that you give to your HR/payroll office and voila! No tax deducted from your checks! Disclaimer: I have never done this before, just trying this year. I don't know of any hang-ups/complications. What is the actual amount you put down in the "Other" section under "Deductions from income and non-refundable tax credits" on the T1213 form? Is it the full amount of your carry-over tuition credits from previous years (for e.g. 100k)? or are you supposed to put down the actual amount of reduction you would receive (e.g. ~20% of 100k = 20k)? Oh and right now PAIRO is continuing to fight to see if we can claim tuition tax credits in residency as they belief we continue to be full time students for tax purposes. If true we would get continuing 1.5K of tax relief a year ultimately, which would be nice. What is the consensus on that currently? Are we still considered full-time students as residents? Based on looking at some past threads and the CMA document (http://www.cma.ca/multimedia/CMA/Content_Images/Practice_Management/English/PDF/tax-tips-2013-e.pdf), it seems like we do qualify as full-time students? I'm asking this mainly for the purposes of filling out Federal & Provincial TD-1 forms, just wondering if I should leave the tuition, education, and textbook amounts empty or not... Link to comment Share on other sites More sharing options...
NLengr Posted June 19, 2013 Report Share Posted June 19, 2013 My center issues t2202a forms to residents for tuition tax credits. You get credit for the small amount of tuition paid, plus 12 months of full time student status. Revenue Canada has no problem with this. You can look up the CRA ruling online if you dig enough. I don't know what PAIRO is saying they are fighting for since its already in place. Link to comment Share on other sites More sharing options...
Don'tBdenied Posted June 25, 2013 Report Share Posted June 25, 2013 There's also a retention rebate in some provinces that you can claim after you graduate if you are working in those provinces. I know MB, SK and I think the maritime provinces have them too... basically, the previoulsy less popular locales. Here is a link to the MB one, which you can apparently start getting while you are in school now even. http://www.gov.mb.ca/tuitionrebate/ Link to comment Share on other sites More sharing options...
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