As you complete your training, you’re preparing to take on your new role, and your financial situation is about to change.
Your income/billings will rise significantly and it’s natural to want to start working toward the financial goals you have, such as paying down debt, buying a home or saving for retirement. While your income will increase, there may be considerable expenses as you begin to practice — and that could result in your higher earnings not going quite as far as you hope.
Here are 6 expenses that you may not have thought about.
Although some fees are optional, there are a few of them, and they can add up quickly. You may have been paying some of these fees as a resident, but the costs increase substantially when you begin practising.
- Annual fee for medical licensing in your province or territory1
- Provinces: $600 in New Brunswick; $1,625 to $1,950 in other provinces
- Territories: $200 to $215
- CMPA fees
- CMA/PTMA fees are optional in some instances, but recommended
- In conjoint provinces, membership includes the CMA fee while in non-conjoint provinces, the CMA fee is discretionary2
- Canadian Medical Association: First year in practice, $98; $195 in full practice
- Provincial and territorial medical associations: ranges from $1,000 to $3,000 in full practice
- National specialty society fees are optional but recommended
- These fees are often low for physicians in training, but increase when you begin practising and can range from $150 to $1,000 per year
2. Debt repayment
If you borrowed funds for medical school and/or for your residency/fellowship, your debt is probably at its highest point now — as you begin to practise.
If part or all of your debt is from government student loans, you may have already started paying these back after you completed your full-time studies.
If you have a student line of credit, you may have made only interest payments until now. Some banks let you “capitalize the interest,” meaning that you don’t have to make interest payments while you remain in school and for a period of time after your residency or fellowship ends (called the “grace period”). This grace period ranges from 12 to 24 months, depending on the lender. However, the interest continues to accrue on the funds you borrow and that increases the amount you have to pay back later.
After your grace period, you’ll have to start paying back the principal (the original amount you borrowed) and the monthly interest, which could be a large sum to manage.
3. Costs to incorporate your practice
If you will be setting up your own practice (rather than taking a salaried position), you may decide to incorporate. Incorporating can allow you to manage your income stream, increase your wealth and save money through tax deferral, which is why many self-employed physicians in Canada opt to go this route. Not every physician will make this choice, however — and not every physician will make it when they begin to practice. See if incorporation is right for you.
The cost to incorporate includes legal and set-up fees, along with ongoing accounting, administration and compliance costs. These first-year fees will normally come in at a few thousand dollars for a simple situation and increase if your needs are complex.
While start-up costs won’t recur in later years, you’ll still need to plan for annual administrative fees. You’ll also have to set aside funds for disbursements, including fees for the professional licensing body, a corporate minute book and corporate registration.
4. Personal disability insurance
Many physicians in Canada are self-employed, with no paid sick leave. This reality means it’s important to have a plan to replace your lost income if you become ill or injured to an extent that you can’t work.
Disability insurance is designed to replace part of your earnings if you suffer an accident or illness that prevents you from working. The cost is based on individual factors such as age, gender, smoking status and general health.
Disability insurance can be very complex, and it’s important to get coverage that’s keyed to your situation and needs. Check first with your provincial and territorial medical association. Some allow you to convert your resident disability insurance into practising coverage with no health check required.
5. Legal costs
For new physicians, another expense to plan for is the cost associated with the legal review of the various contracts you’re entering into. For example, before you sign an employment contract, it’s usually wise to pay an employment lawyer for an independent review of the contract’s terms and conditions. Spending some money at the outset, to clarify expectations and assumptions, can turn out to be much cheaper than the costs associated with getting out of a contract when things don’t work out.
Depending on your work situation, you may encounter leases, group practice contracts with cost-sharing agreements, and more — which is why you should set aside funds for legal costs.
6. Income tax
As a new in practice physician, you are likely to have self-employment income, whether you’re incorporated or not. As a resident physician, you earned a regular salary and income tax was deducted from each paycheque — but once you start practising, both the way you’re paid and how you pay your income tax could change.
If you’re self-employed, you’ll usually bill your provincial ministry of health on a fee-for-service basis. Then you’ll deduct the expenses associated with running your practice from your gross billings, and pay personal income taxes on your net earnings.
In your first year as a self-employed physician, the Canada Revenue Agency probably won’t require you to remit any income tax instalment payments. But be prepared: when you file your personal tax return after your first (partial) year of practice, you could owe a large amount of income tax. As you continue in practice, you’ll need to start setting aside money for your quarterly instalment payments. It’s important to make sure you have a way to remit the amount owing when it’s due. Consult your accountant for details on your tax situation.
Putting your financial plan in place
An MD Advisor* can form an important part of your team as you enter this exciting new phase. Learn how MD Financial Management can provide financial guidance for your next steps as you launch your career.
2 Conjoint: Saskatchewan, New Brunswick, P.E.I., Yukon, Northwest Territories; non-conjoint: British Columbia, Alberta, Manitoba, Ontario, Nova Scotia, Newfoundland & Labrador; no PTMA in Quebec, members join CMA directly. Source: Canadian Medical Association.
* 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.