How 2016 Tax Changes Affect Some Incorporated Physicians

December 22, 2016

The federal government’s changes to tax rules for professionals (including physicians) who practise in some complex corporate and partnership structures have now become law.

If you are an incorporated physician working with other physicians in a group medical practice, the new rules may affect your eligibility for the small business tax deduction.

CMA and MD spoke up for physicians

In response to these proposed changes in the federal budget, the Canadian Medical Association (CMA) undertook a major advocacy effort on behalf of physicians negatively affected by these changes, including appearances before both the House of Commons Standing Committee on Finance and the Senate Finance Committee.

MD Financial Management contributed to this effort by providing detailed financial analysis, prepared in part through consultation with some of its physician clients.

Physicians—marshalled by the CMA to speak out against the changes—sent more than 2,000 letters and emails to parliamentarians.

What could this tax law mean for you?

About 20% of incorporated physicians will be affected.


incorporation diagramIncorporated physician income which is channelled through an affected structure,(for example, a partnership or certain group corporations), could now be subject to the general corporate tax rate, as access to the small business deduction must now be shared.

 

Depending on your province of residence and other factors, including your method of compensation, this could more than double your corporate taxes. However the corporate tax increase might be offset by reduced personal taxes.

Ultimately, the combined changes to your personal and corporate tax rates will depend on your situation.

If you think these changes affect you…

Start by doing these three things:

  1. Speak with your physician group. Determining what, if anything, your physician group will do in response to the legislation should be your priority. Be aware that changes to the group might impact your income as well as your corporate tax.
  2. Meet with your lawyer and tax advisor. They can help analyze your situation, determine the potential impact and make recommendations. For example, you may be able to eliminate the tax consequences by adjusting only a portion of your income.
  3. Meet with your MD Advisor. Your MD Advisor may be able to further mitigate the ramifications of these changes, and provide insight into how your retirement goals may be affected.

Find out more

For more details about how the new tax law might affect you, listen to MD’s on-demand webinar Federal Budget Implications For Incorporated Physicians.

 



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