Welcome news for some of Ontario’s incorporated physicians

November 19, 2018 Angela Campbell

           

The Ontario government announced on November 15, 2018 that it will not be adopting federal tax measures to limit the small business deduction for corporations based upon passive income. 

This announcement was in response to the federal government’s passing of legislation that will phase-out the ability of corporations to access the small business tax rate as the corporation’s passive income exceeds $50,000 and to fully eliminate access when passive income reaches and exceeds $150,000.  These changes will apply in 2019 onwards.

What does this recent announcement mean for Ontario’s incorporated physicians?

Most incorporated physicians are subject to the small business tax rate on their practice income and will pay tax at the following rates for 2018 and 2019:

Small business tax rate

Ontario

Federal

Combined

2018

3.5%

10%

13.5%

2019

3.5%

9%

12.5%

Some incorporated physicians are not eligible for the small business tax rate so are subject to the general corporate tax rate (for reasons other than the passive income change) and will pay tax on their practice income at the following rates for 2018 and 2019:

General corporate tax rate

Ontario

Federal

Combined

2018

11.5%

15%

26.5%

2019

11.5%

15%

26.5%

Beginning in 2019, Ontario’s incorporated physicians who have lost access to the small business tax rate on their practice income due to the passive income changes will pay tax at the following rates:

Federal general rate/Ontario small business tax rate

Ontario

Federal

Combined

2019

3.5%

15%

18.5%

Many practicing physicians (retired physicians are not impacted) who had access to the small business tax rate should be able to retain access to it avoiding a yearly tax increase of as much as $70,000. 

This announcement means that an incorporated physician who is impacted by the passive income changes could save as much as $40,000 in taxes annually from what would have been payable had Ontario adopted the federal measures.

What should you do now?

It’s important to determine whether your corporation will be impacted in 2019 by the passive income changes.  For additional information on the passive income changes, how to determine their impact and for strategies on mitigating their consequences, click here.

If you have any questions about how you or your financial plan may be affected, please contact your MD Advisor.

About the Author

Angela Campbell

Angela Campbell, CPA, CA, is Assistant Vice President with the Taxation Services Team at MD Financial Management. She and her team of tax professionals provide tax solutions, tax planning and tax compliance for the MD Group of Companies.

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