Many Canadian physicians are on the front lines of the ongoing coronavirus (COVID-19) pandemic. But many others have had to cancel elective surgeries, reduce hours at their clinics, or close down entirely to help free up room in hospitals.
Financial planning is mostly about helping you reach your personal goals — but it also includes planning for emergencies. With a pandemic of this magnitude, your emergency funds may not be enough to bridge the gap but taking certain steps now can help get you back on track.
If you’re experiencing reduced or halted practice income and need to shift your planning, here are 15 strategies that can help you get through this situation in the best way possible.
It is hard to predict how long COVID-19 will impact the world, and Canada in particular. Here are the things you can do to prepare for both the uncertainty of your income level over the next weeks and months, and the uncertainty of how long this situation will last.
Assess your cash flow and budget
- Analyze the cash flow for your practice. You are in the best position to know how COVID-19 will impact your practice income and any other income you might collect. Estimate your total income and subtract your practice expenses to determine your cash flow. Figure out how much you can reduce any variable practice expenses. Will you have enough to cover your revised business revenue and expenses for at least several months?
- Rework your personal budget. Leaving aside your essential living expenses, focus on personal expenses that you can reduce or eliminate without much impact. Of course, with all the COVID-19-related closures, some of your normal expenditures have been reduced for you (e.g., vacations, theatre, sports, dining). Do you have enough to cover your needs and your family’s?
Apply for government support
- Apply for the Canada Emergency Wage Subsidy if you have retained or rehired your employees. To be eligible, your gross revenues must have dropped at least 15% in March 2020 and at least 30% in April and May 2020. You can receive 75% of an employee’s first $58,700 regular annual earnings, up to $847 per week. The subsidy is available for up to 24 weeks, retroactively from March 15, 2020 until August 29, 2020. If your business is not eligible, you can apply for the previously announced 10% wage subsidy, paid from March 18 to June 19, 2020 to a maximum of $1,375 per employee and $25,000 per employer.
- Consider applying for the Canada Emergency Response Benefit if you have stopped earning an income due to COVID-19. Many people who aren’t eligible for EI can qualify. This is a taxable payment of $2,000 per four-week period, and is available from March 15 until October 3, 2020 for up to 24 weeks. You can apply starting on April 6 through CRA's My Account portal. Contact your MD Advisor* and accountant for more information.
Look to your insurance policies
- Review your life insurance coverage. As a physician, your ability to earn future income is one of your most valuable long-term assets. COVID-19 brings elevated risks to healthcare workers, so it’s worth talking to an insurance advisor to make sure you have enough coverage.
- Check your disability and overhead insurance. If you are sick with COVID-19 and can’t work or have to close your practice as a result of the crisis, contact your insurance provider to see what coverage you qualify for.
- Use the cash surrender value on your life insurance. If you have a permanent life insurance policy, you may have access to the cash surrender value. Note that there may be tax implications and doing this could result in a lower overall death benefit. Also, your policy may require future contributions to adequately fund it for life. Another option is to check whether you can temporarily defer premium payments on your permanent life insurance policy (which could extend the duration of your planned premium/deposit period).
Raise some emergency cash
- Apply for the Canada Emergency Business Account to borrow up to $40,000 interest-free until December 31, 2022. Your business is eligible if you paid between $20,000 and $1.5 million in total payroll in 2019. If the outstanding balance is repaid by December 31, 2022, $10,000 can be forgiven. You can apply through your financial institution when it is available.
- Borrow from your line of credit. Using a line of credit might make more sense than, say, selling some of your investments to raise emergency cash. As a physician, you may already have a line of credit secured by your home or other assets at very favourable rates. What’s more, the Bank of Canada cut its overnight rate three times in March 2020, and Canada’s six big banks followed suit by lowering their prime rate to 2.45% from 3.95% (the prime rate is the rate that banks charge their best customers). Consider using your line of credit to give your investments the time they need to rebound.
- Withdraw from your investments. If you absolutely must sell investments to increase your short-term cash flow, talk to your MD Advisor to determine which option is best for you.
- Non-registered investment account: If you sell some assets at a loss, you can use these capital losses to offset capital gains — either in the current year if you have any, in any of the preceding three years, or in any future year. Remember that while you do get to claim the capital losses, selling your equities means you’ll miss out on the recovery of their asset value.
- TFSA: Withdrawals from your tax-free savings account are tax-free, and you’ll be able to recontribute these amounts later (the amounts withdrawn will be added back into your contribution room the following calendar year).
- RRSP: Withdrawals are taxed as income, and you don’t get the RRSP contribution room back. Remember that there are withholding taxes on your withdrawals. The funds are withheld as an instalment toward your final tax liability, which will be determined when you file your income tax return for the year.
- Draw from your corporation. If you’re incorporated and have retained earnings in your corporation, talk to your MD Advisor and accountant about how best to manage a distribution. Be aware that you’ll miss out on the rebound of your investments, and that there are also corporate tax and personal compensation implications to consider.
- Wait to pay your taxes. Governments have given you some breathing room. Your personal income tax return is now due June 1 (instead of April 30), and any taxes owing are due September 1, 2020. Your quarterly tax instalments won’t need to be paid until September 1 either. Interest and/or penalties will not accumulate on these amounts. Also, some municipalities have allowed the deferral of property tax payments with no fees or interest.
- Request a deferral on your mortgage and/or line of credit payments. Canada’s six biggest banks have committed to working with their customers on a case-by-case basis during this crisis. You may be able to negotiate a deferral on these payments but do so only if necessary. That’s because interest will continue to accrue, and you will end up making a larger payment later.
- Decrease or put off your investment contributions. If you make regular or pre-authorized contributions (PACs) to your RRSP, TFSA, non-registered accounts or corporate investment accounts, you could decrease the amount that you regularly put in or temporarily halt the contributions.
Update your will and powers of attorney
- Make sure you have a will. Although it’s not a pleasant thought to confront, healthcare workers are at higher risk during this pandemic than other citizens. Taking the time to update or prepare a will can go a long way toward ensuring your assets are distributed in the way you wish — and it will minimize the burden on your loved ones — should you pass away. As part of this process, be sure to update or draw up your powers of attorney.
If you have any questions about these strategies and which options are best for you, please contact your 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.
Banking and credit products and services are offered by The Bank of Nova Scotia “Scotiabank.” Credit and lending products are subject to credit approval by Scotiabank.
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.