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Alberta physicians: Relaunch grant and lower corporate tax rate

In late June, the Alberta government announced a new, one-time grant for small and medium-size businesses that had to close or curtail operations under COVID-19 restrictions.

The Small and Medium Enterprise Relaunch Grant gives affected businesses up to $5,000 to help them get up and running again. This is a grant, so it doesn’t need to be repaid. However, it is considered a taxable benefit so you would report the income on your annual tax return.

1. Are you eligible?

As a physician, you may be eligible if:

  • you are a self-employed physician in Alberta (sole proprietor or incorporated);
  • your practice was in operation on February 29, 2020; and
  • your revenues declined at least 50% in April and/or May 2020 compared with April 2019, May 2019 or February 2020.

If you’re unsure about your eligibility, consult your accountant for help.

2. How much can you get?

You would get 15% of one month’s pre-COVID revenues, up to a maximum of $5,000. To get the maximum grant, your normal revenues would need to be at least $33,333 per month, or $400,000 per year. (“Revenues” means practice income before deducting overhead.)

Example: Dr. Ansari is a family physician in Calgary. Her revenues are typically $375,000 a year.

To help her meet the minimum 50% reduction in revenues, she should choose the highest revenue for the pre-COVID month and the lowest revenue for the COVID month.

Pre-COVID revenues: Choose the highest

April 2019 $29,000
May 2019 $30,000
Feb 2020 $31,250

COVID revenues: Choose the lowest

April 2020 $10,000
May 2020 $13,500

Dr. Ansari should choose February 2020 for pre-COVID revenues and April 2020 for COVID revenues. The resulting 68% drop in revenues makes her easily eligible for the grant. She would receive 15% of $31,250 (February 2020 revenues), or $4,688, which she would need to pay income tax on next year.

The grant will clearly not replace the loss of income many Alberta physicians have experienced but could help pay some overhead costs.

Here are some examples of the grant one might get, based on annual revenues:

Pre-COVID annual revenues 15% grant
$160,000 ($13,333/month) $2,000
$240,000 ($20,000/month) $3,000
$320,000 ($26,667/month) $4,000
$400,000+ ($33,333/month) $5,000

3. How do you apply?

All applications must be made through the online application portal. Go to the Alberta government’s website for the relaunch grant and follow the steps. These include setting up a MyAlberta Digital ID account if you don’t have one already.

The application period will close August 31 or four weeks after the start of Stage 3 of Alberta’s Relaunch Strategy — whichever is later.

If you’re unsure about your eligibility, consult your accountant for help.

Corporate tax rate drops

As part of Alberta’s Recovery Plan, the province reduced its portion of the corporate tax rate to 8% from 10% effective July 1, 2020. This is the third drop since June 2019, when it was 12%.

The corporate tax rate is the general rate, not to be confused with the lower small business tax rate. This latest reduction should benefit incorporated physicians in Alberta who earn more than $500,000 or have lost access to the small business tax rate because of their high investment income in their corporation.

With every $100,000 of income above $500,000, an incorporated physician in Alberta will now pay $2,000 less in corporate tax.

  Small business   tax rate Corporate tax rate
Federal 9% 15%
Alberta 2% 10% -> 8%
Combined 11% 25% -> 23%

A medical professional corporation typically pays tax at the small business tax rate on up to $500,000 of net practice income. The general corporate tax rate applies to the income above that limit.

Example: Dr. Shin is an incorporated ophthalmologist in Edmonton. She has net corporate taxable income of $700,000, which is taxed as follows:

  • $500,000 at 11% small business tax rate = $55,000 tax
  • $200,000 at 23% general corporate tax rate = $46,000 tax

Her taxes at the small business rate have not changed, but her portion at the general corporate tax rate has dropped by $4,000 per year. (Note that in 2020, it would only go down by $2,000 since the change is effective July 1 — if we assume a December 31 year-end for her corporation.)

Physicians who have associated companies, group arrangements, or partnerships (e.g., radiologists) may be subject to the general corporate tax rate at income levels below $500,000. The same is true for professional corporations that exceed the federal passive income threshold.

If you have questions about how your cash flow impacts your investment or financial planning, talk to an MD Advisor*.

*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.