On April 7, Finance Minister Chrystia Freeland tabled the 2022 federal budget (Budget 2022) with no new tax measures that will significantly impact a physician’s practice — whether they are incorporated or not.
Here are highlights that will be of interest to physicians and their family members. Please note that these measures are proposals only until they receive royal assent and become law.
Incorporated physicians: Small business deduction
If you’re an incorporated physician, you get access to the small business tax rate on the first $500,000 of your professional income. There are two ways this access can be reduced: if your passive income is more than $50,000 a year, or if the taxable capital in your corporation is more than $10 million.
Budget 2022 is proposing changes to the taxable capital criteria. This is not something that will likely impact an incorporated physician’s access to the small business tax rate.
If you want to make sure that this proposed change will not affect your corporate tax rate, please speak with your accountant or tax advisor.
Tax-free first home savings account
If you’re saving for your first home, the new tax-free first home savings account (FHSA) will be a powerful way to do so. If you are 18 or over and you do not currently live in a home that you own and have not owned a home within the past four years, you will be able to open an FHSA and contribute up to $8,000 annually, to a lifetime limit of $40,000. Your contributions will be tax-deductible (similar to RRSP contributions), and income earned in the FHSA will not be taxable.
You will have 15 years from the time of opening your FHSA to use the funds to purchase your first home. After that time, the FHSA must be closed and the funds can either be withdrawn as taxable income, or be transferred tax-free to an RRSP or RRIF. The proposed effective date for the new FHSA is some point in 2023. Note that you won’t be able to use both the FHSA and homebuyer’s plan to purchase the same qualifying home.
Home buyer’s tax credit
Currently, if you’re a first-time home buyer, you can get a home buyer’s tax credit of $5,000. Budget 2022 proposes to double this to $10,000, which would give you a tax rebate of up to $1,500. The measure is intended to be effective January 1, 2022.
In certain circumstances, this credit may also be available if a home is purchased by or for the benefit of an individual who is eligible for the disability tax credit, even if the first-time home buyer condition is not met.
Multigenerational home renovation tax credit
Like many Canadians, you may be caring for elderly family members or other adults with a disability. Budget 2022 introduces a new multigenerational home renovation tax credit, to be used for the construction of a secondary, self-contained dwelling for the person you are providing care to. This measure is proposed to apply for 2023 and subsequent years, for work performed on or after January 1, 2023.
This refundable tax credit would apply to eligible expenses incurred for qualifying renovations to your home. The value of the credit would be 15% of the lesser of eligible expenses and $50,000.
You have to be the parent, grandparent, adult child or grandchild, brother, sister, aunt, uncle, niece or nephew (or a spouse/common-law partner of any of these qualifying relations) of the senior or adult disabled person.
Home accessibility tax credit
If you’re renovating your home to make it more accessible, you can currently get a tax credit of up to $10,000 for eligible expenses. To be eligible, you must either be claiming the disability tax credit or be 65 years or older at the end of the tax year.
Budget 2022 proposes to increase the annual expense limit for the home accessibility tax credit to $20,000. This measure could apply to expenses incurred in the 2022 and subsequent taxation years.
Increasing loan forgiveness for doctors and nurses in rural and remote communities
If you’re a family medicine resident or physician and you work in certain rural or remote communities, you may currently qualify for the Canada Student Loan forgiveness program, which forgives up to $8,000 per year or $40,000 total in student loans.
Budget 2022 proposes to increase the loan forgiveness to up to $60,000 for doctors and $30,000 for nurses working in rural or remote communities.
Reducing the surgery and procedures backlog
Budget 2022 confirms the commitment to transfer an additional $2 billion to provinces to address the backlog of persons waiting for surgeries and procedures.
MD Financial Management will continue to monitor any new developments with respect to the changes proposed in the 2022 federal budget. If you have questions about how you, or your financial plan, may be affected, please contact your MD Advisor* for more information.
* 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.