A medical doctor is doing his residency to become licensed to practice medicine in Canada. The Health Authority provides financial assistance to the resident physician in the form of a loan with terms set out in Article 3 “Schedule B” of their agreement, “Conditions of Payment”. The physician receives this money in bi-weekly instalments over the term of the residency program.
Here’s the cruncher. the Health Authority issued a T4A Box 48 “Fee for Services” for this income received during the 2024 tax year resulting in a $14K amount owing in taxes.
Typically you wouldn’t report a loan amount since it will be repaid. However, this T4A Box 48 has been reported to CRA, and in my mind must be reported on my client’s tax return. Was the T4A reported in error? Should it be amended to cancel the slip? Do we report the income on Line 13699 “Professional Income” and declare the full amount an expense leaving Line 13700 Net Professional Income = $0.00?
Any thoughts are appreciated. Thanks.
I had my client send me his letter of offer and also the Collective Agreement to further understand the dynamics at play. The letter of offer states that “Financial support equivalent to the current first year resident (PGY1) rate”.
The Letter of offer and the Collective Agreement specifies that upon completion of the one year residency program to which this loan agreement applies, the physician must provide the equivalent of 4 years full-time Return of Service commitment to the Health Authority. This portion will be paid as a Fee for Service General Practitioner (GP) based on physician’s assigned location to practice. The Letter of offer does not state anything about Fee for Services for the one year residency loan income.
If the physician successfully completes the 4 years of service, the full amount of the loan will be forgiven. If the contract is prematurely terminated, even by 4 years minus one day, then the full amount of the loan plus interest must be repaid.
With this additional information, what is the best approach to deal with the T4A Box 48 Fee for Services income obtained during this 1-year residency loan period?
Never had anything like this. My clients are paid as a hospital employee, issued a T4 with all deductions taken. Employment expenses consist of all dues & practice insurance paid, plus any other applicable expenses.
But, your situation is exactly the same as those business COVID loans. Since they were provisionally forgiven based on one condition, the amount of the loan was recognized in income in the year the loan was made. If it was not repaid on time, a corresponding deduction was allowed for the year of default. I’d say your resident’s situation is exactly the same, and the hospital has correctly issued a T4A and put the assistance in box 48. In 4 years time when the loan is forgiven, there will be no tax consequences. So, you’d enter the T4A as usual and choose to report it on a T2125. The T2125 will be pre-populated with the amount from the T4A and you will enter his expenses - all dues and fees, including hospital fees allowing him to work at a particular hospital, liability insurance, professional fees, all the usual things. I had a doctor who needed hospital privileges at various hospitals in his geographical area, and each one took a chunk of cash. Sure adds up fast. It amazes me how people seem to consider doctors at the upper end of income. I’ve seen GP’s paying upwards of 30% of their gross in office overhead - salaries, rent, supplies. Then there’s hardware and training on the provincially mandated software they use to submit claims to actually get paid. They almost have to start out with a good nest egg.
A year ago, I was a guest at the local hospital and needed a PICC line so I could get twice-daily IV’s at the VON clinic. I chatted with the anesthesiologist while he was getting his equipment set up at the bedside and getting my line installed. I asked him how long to get his MD after an undergraduate degree. Then, how long to do the anesthesiology training, then how long of a course to install PICC lines. After we talked, I said, “So, it took you roughly 12 years before you saw your first nickel?” He thought for a bit and then agreed with me. I later found out that he was unsatisfied that they had no one on staff to install PICC lines and they had to send patients to another hospital to have one installed. So, he bought the equipment, took the course, and started doing them himself. Haven’t had to send a patient out to another shop since. During my time in hospital, I developed a lot of respect for all health care workers. Me and the cleaning lady were on a first name basis. Had to have an NG tube a few times. Once, a new resident asked the nurse if he could insert it with her supervision. He was quite proud of himself when he got it in correctly and at the correct depth. Lots of fun things to do in a hospital. Coming out alive is the best part.
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I appreciate your reply, @jhd.hemeon. Thank you.
Good reminder about the CEBA loans. Linking this to CEBA was a huge help. I found this CEBA loans tax interpretation which put me onto ITA subsection 12, which then helped me generalize it specifically to my client’s situation.
10 November 2020 External T.I. 2020-0861461E5 - TI – Tax Treatment of Loan Forgiveness under CEBA | Tax Interpretations
I sent my client a message that this income is taxable, and the forgiveness part means that he can claim a deduction if he defaults on the agreement ending it prematurely since the amount would already be claimed as income. I also let him know that he can file an election with CRA to postpone claiming 2024’s Self-Employment income to 2025’s taxes (ITA subsection 12(2.2)) whereby he can apply it to expenses he incurs as a practicing physician (he completes his residency in June and starts practicing as a physician in July 2025). I suggested that he needs to consider his 2025 financials on whether it would be better tax wise to claim this 2024 assistance income on 2024’s taxes, or claim it in 2025.
Very much appreciate your assistance. Thank you. I also had a good laugh about your “guest” visit to your local hospital. I shared your post with my wife who is a nurse, and she equally thought it was a great post and enjoyed your humour, especially the ending punch line! 