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2020 was different: Is your financial planning strategy still appropriate?

Father sitting with two children and cat at desk, while working.

As a physician, you spent much of 2020 adjusting to a new normal in both your personal and professional life. You have a window of opportunity right now to review your financial planning strategy and look for any adjustments you could make. Deadlines are fast approaching for things like income tax and RRSP contributions — but also applying for COVID-19 benefits. You’ll need to act now while these important opportunities are still available.

The reality is that COVID-19 has had a significant impact on Canadian physician households and their finances. Practices have been disrupted, elective procedures cancelled, and some clinics closed temporarily or permanently. Many physicians continued to pay staff during closures and had to continue covering fixed expenses like licensing fees, insurance premiums, rent, and mortgage payments.

There is some good news. You can still take steps to minimize the impact of 2020 on your finances, even if you’ve put it off until now. It’s not too late to get back on track and properly adjust your strategy. In fact, there may be planning opportunities this year that didn’t exist in other years. The sooner you act to make those key decisions to reduce taxes and make use of the government support measures available to you, the better the outcome could be.

To do that you need to keep one important thing in mind: When it comes to physicians and financial advice, one size does not fit all.

Generic financial advice doesn’t take into account the specifics of your personal life, your specialty, your career stage, your type of practice or the current environment. In fact, generic advice could potentially do more harm than good, especially as you try to minimize the impact of 2020 on your finances.

The pandemic has underscored the need for physician-focused advice. Below are a few examples of how the impacts of COVID-19 have made planning more urgent.

It’s not just about RRSPs

When it comes to saving for retirement, physicians are different from other professionals — financial outliers, if you will. For one thing, because they start practising later, physicians start saving for retirement later. What’s more, many are trying to do this while paying off large amounts of debt and covering practice expenses. While registered retirement savings plans (RRSPs) present a standard planning opportunity to reduce taxes and save, RRSPs are not always ideal for physicians.

The past year is a case in point. Compared with other professionals, physicians have been disproportionately impacted financially by the pandemic. A survey by the Canadian Medical Association revealed that 91% of physicians experienced a reduction in patient care because of it. If your personal income dropped in 2020, then you might need to change your RRSP strategy this year. You should seek advice about what would be best: this could be making your RRSP contribution but saving the tax deduction for a future year; or redirecting the contribution to a more short-term priority.

Consider household planning opportunities

One benefit of planning at the household level is that it can open up other opportunities. For example, if you or your spouse are facing reduced income due to COVID-19, you might be able to income-split with a spousal RRSP — a move that could pay off down the road by reducing your household tax in retirement. Spousal RRSPs allow the higher income earner to contribute to an RRSP set up to benefit their spouse. The higher income earner gets the tax deduction for the RRSP contribution, and the eventual withdrawal will be taxed in the hands of the lower income earner.

Ideally, in retirement you want to spread income as evenly as possible across members of the household to maximize the amount you keep after tax. By including a spouse or partner in the planning today, you could enjoy significant tax savings in the future.

Physicians are entitled to government COVID-19 benefits

You’ve been supporting your family, your staff and your patients through this unprecedented time. And you’ve seen other business owners in the same situation apply for government support. You can and should do the same. After all, like any other small business, your practice supports the Canadian economy: these benefits are designed for you, too.  

If you haven’t yet applied, there may still be time to do so. You’ll be retroactively paid for any un-collected support payments you’re eligible for, which could add up to a significant sum. 

Canada Emergency Wage Subsidy (CEWS)

It’s not too late. If you retained your staff during the pandemic lockdown, despite a drop in practice activity and income, you may qualify for this subsidy on wages you’ve paid to date. These would include wages paid from March 15 until December 19, 2020. The Government of Canada has announced it intends to extend the program until June 2021. The CEWS is available to all business owners, including physicians (incorporated or not) with employees who experienced a decline in revenues. Remember, this benefit is generally taxable in the fiscal year it’s accrued/received, so depending on your corporate year-end, it could be a way to defer the income recognition and resulting income tax. Get the right advice so you can plan appropriately now.

Canada Emergency Response Benefit (CERB)

Another government benefit you might be entitled to is the CERB, which covers the period from March 15 through October 3, 2020. (For those who applied through the CRA, coverage ends September 26, 2020.) The CERB is for Canadians whose personal income has been significantly reduced by COVID-19. If you stopped earning a salary or stopped paying yourself a salary due to COVID-19, you may qualify for this. Likewise, if you have family members who are employees and you had to stop paying them or reduce their salary, they may qualify. Again, this benefit is taxed in the year it’s received and presents another tax planning consideration. It’s not too late to apply, but you need to act now: the retroactive deadline is December 2, 2020.

Canada Emergency Business Account (CEBA)

Finally, the CEBA is an interest-free loan to help small businesses like yours cover your operating costs during COVID-19. It’s a $40,000 line of credit with no interest until December 31, 2022. What’s more, $10,000 of that is eligible for loan forgiveness if you repay $30,000 by that date. That $10,000 could offset lost income or cover extra expenses you’ve experienced due to COVID-19. The federal government has expanded the CEBA program to include an additional interest-free loan of $20,000. Up to $10,000 of this will be forgivable if repaid by December 31, 2022. The deadline to apply is March 31, 2021.

It’s not too late for advice

It’s been a tough year for physicians. Now is the perfect time to talk to an MD Advisor*. Don’t settle for generic advice that doesn’t apply to your profession. Instead, reach out to MD Financial Management for advice that is physician-focused and all about you. Let’s shine some light on the best financial planning strategies for your personal situation as a physician.

Contact an MD Advisor and discover the difference thoughtful planning and physician-focused advice can make.

* 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.