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Budget 2015: Highlights for Physicians, Medical Students and Residents

On April 21, 2015, Federal Finance Minister Joe Oliver tabled the Government of Canada’s budget in the House of Commons. The budget followed through on previous government promises by presenting a balanced budget and proposing that the annual contribution limit for Tax-Free Savings Accounts (TFSAs) be increased to $10,000 from $5,500 with the new limit being retroactive to January 1, 2015. Another notable announcement was the decrease in minimum Registered Retirement Income Fund (RRIF) withdrawal requirements, which will enable seniors to further preserve their RRIF retirement assets.

This summary highlights areas of the budget that may be of particular interest to physicians, medical students and residents, and provides an overview of some of the budget’s non-tax measures in the health sector.

Increased annual contribution limit for Tax-free Savings Accounts (TFSAs)

As expected, the 2015 budget increased the annual TFSA contribution limit to $10,000 from $5,500. This increase is retroactive to January 1, 2015, which means anyone who has already contributed the previous maximum amount of $5,500 for 2015 will now be able to contribute an additional $4,500 to their TFSA for 2015. We have learned that the Canada Revenue Agency (CRA) will allow financial institutions and individuals to act upon the new TFSA contribution limits effective immediately, prior to it passing through Parliament and before receiving Royal Assent.

The new annual contribution limit of $10,000 will not be indexed for inflation. TFSAs are a valuable retirement savings alternative for Canadians, including medical students and residents, physicians nearing retirement and those already retired, and incorporated physicians.

  • Medical students and residents can benefit from the flexibility offered by TFSAs. For example, because medical students and residents tend to be in a lower tax bracket, they may want to deposit funds into a TFSA and delay RRSP contributions and deductions until they are in a higher tax bracket. A TFSA could also be used for other means, such as saving for a down-payment on a house.
  • Physicians nearing retirement who are concerned that their retirement income will place them in a high personal income tax bracket (higher or similar to their current tax bracket) could fund a TFSA as well as an RRSP, and benefit in retirement from the fact that TFSA withdrawals are not subject to tax. Also, TFSA withdrawals will not affect federal income-tested benefits and credits.
  • Retired physicians who are receiving minimum RRIF withdrawals that provide more money than they need can deposit any excess amounts in a TFSA (within the TFSA’s contribution limits).
  • Incorporated physicians who have accumulated refundable taxes (Refundable Dividend Tax on Hand – RDTOH) or a capital dividend account balance in their professional corporation, could consider drawing dividends from the corporation to fund a TFSA and avoid the high corporate tax rates applied to corporate investments.

New minimum withdrawals for RRIFs

The 2015 federal budget proposed long-awaited changes to minimum RRIF withdrawal rules. Retroactive to January 1, 2015, the annual minimum RRIF withdrawal requirements will be reduced, providing a greater ability to preserve retirement savings and, potentially, have greater access to certain income-tested benefits, such as Old Age Security. Anyone who has already withdrawn more from his or her RRIF than was required for 2015 will be able to re-contribute the excess back to the RRIF in 2015 or the first 60 days of 2016. For example, under the existing rules a 75-year-old physician with an RRIF valued at $250,000 would have been required to withdraw a minimum of $19,625 in 2015. The revised factors announced in the 2015 budget will require a minimum withdrawal of only $14,550 for 2015. If the entire $19,625 has already been withdrawn, $5,075 can be re-contributed to the RRIF no later than February 29, 2016.

Changes to T1135 reporting (Foreign Income Verification Statement)

The CRA is developing a revised form (not yet released) to be used when a Canadian resident individual, corporation or trust holds specified foreign property with a total cost of more than $100,000 and less than $250,000. The new form will enable these specified foreign assets to be reported under a new simplified reporting system. The new reporting form is for taxation years that begin after 2014. The current form T1135 will remain in use when the total cost of the specified foreign property exceeds $250,000 at any time in the year.

News for incorporated and practising physicians

A number of proposals from the 2015 federal budget may be of particular interest to incorporated and practising physicians. These include:

  • Reductions in the federal small-business rate
    The 2015 budget proposes a gradual reduction in the federal small-business tax rate to nine percent by 2019 from the current 11 percent. Incorporated physicians generally benefit from the federal small-business tax rate on up to $500,000 of active business income earned within their medical professional corporations.
  • Revisions to the gross-up and dividend tax credit for non-eligible dividends
    In conjunction with the reduction in the federal small-business rate, the gross-up and dividend tax credit applicable to non-eligible dividends will also be revised. The dividend changes will help ensure that the tax paid on income earned by a corporation and distributed to an individual (shareholder) by way of dividends is similar to the tax the individual would have paid had he or she earned the income personally.
  • Consultation on active and passive income
    The federal government plans to undertake a consultation on active and passive income earned by a corporation. Under the current federal tax rules, active business income of up to $500,000 earned by a Canadian Controlled Private Corporation (CCPC) benefits from the small-business tax rate. The consultation will consider whether certain CCPCs that are currently not eligible for the federal small-business tax rate should become eligible.
  • Changes to Employment Insurance (EI)
    The 2015 budget reaffirmed the government’s commitment to implementing a seven-year, break-even EI premium rate-setting mechanism in 2017. This will ensure that EI premiums are no higher than needed to pay for the EI program over time. Any cumulative surplus recorded in the EI operating account will be returned to employers and employees through lower EI premium rates once the new mechanism takes effect.

Items of interest for medical students and residents

The 2015 federal budget proposed changes to the Canada Student Loans program that may affect medical students and residents, including:

  • Reducing the expected parental contribution
    The 2015 budget proposes reducing the expected parental contribution under the Canada Student Loans Program needs-assessment process. Reducing the parental contribution better recognizes the financial realities faced by Canadian families.
  • Helping working students
    The Canada Student Loans Program currently reduces support to working students for every dollar earned over $100 per week. The 2015 budget proposes removing this penalty for working by eliminating in-study student income from the Canada Student Loans Program needs-assessment process. This change will ensure that medical students can work and gain valuable experience while attending school without having to worry about a reduction in their financial assistance.

Information for seniors and persons with disabilities

A number of announcements were included in the 2015 budget that, while they might be of personal interest, may have more relevance to physicians when they are considering the needs of their senior and disabled patients. These include:

  • New Home Accessibility Tax Credit for seniors and persons with disabilities
    The 2015 budget proposes a new permanent Home Accessibility Tax Credit for seniors and persons with disabilities. The credit will apply to eligible expenditures for work performed and paid for, and/or goods acquired on or after, January 1, 2016. The proposed 15 percent non-refundable income tax credit will apply on up to $10,000 of eligible home renovation expenditures per year, and provide up to $1,500 in tax relief. Eligible expenditures include improvements that enable seniors and people who are eligible for the Disability Tax Credit to be more mobile, safe and functional within their own homes. Examples of eligible expenditures include costs associated with the purchase and installation of wheelchair ramps and walk–in bathtubs.
  • Longer Compassionate Care Benefits
    As of January 1, 2016, the 2015 budget proposes extending Employment Insurance Compassionate Care Benefits to six months from six weeks to help provide financial assistance to people who have to be away from work temporarily to care for a family member who is gravely ill.
  • Legal representation measure extended for Registered Disability Savings Plans
    The 2015 budget proposes extending, until the end of 2018, the temporary federal measure that allows a qualifying family member to become the plan holder of a Registered Disability Savings Plan (RDSP) for an adult individual who might not be able to enter into a contract.

Changes to charitable giving

Measures were announced in the 2015 budget that provide an exemption from capital gains tax on the sale of private shares or real estate to an arm’s length party if the proceeds are donated to a registered charity within 30 days. This measure will apply to individual and corporate donations made from sales that occur on or after January 1, 2017. Physicians with philanthropic intentions may benefit from implementing this new approach to charitable giving.

Other personal tax measures

In addition to the changes outlined above, a number of personal tax measures were announced in the 2015 budget, including:

  • Adult Fitness Tax Credit
    The federal government intends to establish an expert panel to study the potential scope of an Adult Fitness Tax Credit to support Canadians in making healthy choices.
  • Increased Lifetime Capital Gains Exemption for farm and fishing business owners
    The 2015 budget proposed increasing the Lifetime Capital Gains Exemption (LCGE) to $1M on dispositions of qualified farm or fishing property. This measure will apply to dispositions made on or after April 21, 2015.

Non–tax related measures related to the health and financial sectors

Other items from the 2015 budget that may be of particular interest to physicians include:

  • Increasing transfers for healthcare by a projected $27 billion over the next five years.
  • Providing $14 million over two years for the Canadian Foundation for Healthcare Improvement to help identify efficiencies in the health system.
  • Renewing the mandate of the Mental Health Commission of Canada for another 10 years beginning 2017 – 18.
  • Providing up to $42 million over five years, starting in 2015 – 16, to help improve seniors’ health by establishing the Canadian Centre for Aging and Brain Health Innovation.
  • Providing $2 million in 2015 – 16 to support stakeholder consultations on a Canadian Autism Partnership.
  • Investing $2 million annually ongoing for mental wellness teams in First Nations Communities.
  • Creating a new tax–free Family Caregiver Relief Benefit to recognize the vital contributions of informal caregivers to the health and well–being of veterans.
  • For more information

    In the coming months, and as further details are made available, MD Financial Management Inc. will continue to monitor any new developments with respect to changes proposed in the 2015 federal budget. If you have questions about how you or your individual financial plan may be affected, please contact your MD Advisor for more information.

    The full 2015 federal budget, including additional proposals and economic developments, is available online.

    About MD Financial Management

    MD Financial Management, with more than $40 billion in assets under administration, is a wholly owned subsidiary of the Canadian Medical Association. MD is dedicated to serving physicians and their families. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. For a detailed list of these companies, visit