The 2021 federal budget (Budget 2021) was tabled on Monday, April 19, by Finance Minister Chrystia Freeland. Of note is that the budget didn't introduce many new tax measures that will significantly impact a physician’s practice — whether they are incorporated or not. In fact, there were no changes to either personal or corporate tax rates.
Here are highlights that will be of interest to physicians and their family members. Please note that these measures are proposals only until they receive royal assent and become law.
Immediate expensing of capital assets
If you have a medical professional corporation that buys a capital asset for your practice, you currently deduct a portion of the purchase price (capital cost) from your taxable income each year, over several years. Budget 2021 proposes a temporary measure that will let you fully expense certain capital assets immediately, up to $1.5 million per year. This would reduce the amount of current taxes payable. (For associated groups of companies, the $1.5 million annual limit would have to be shared.)
Canada Emergency Wage Subsidy (CEWS)
If you’re an employer who is currently eligible for the CEWS, you’ll be interested to know that Budget 2021 proposes to extend the program to September 25, 2021 (and through November 20 if required). However, the subsidy rates would gradually decrease starting June 6, 2021. If you hadn’t previously qualified and are currently experiencing hardship, consider reviewing the eligibility requirements to see if you could benefit now.
Canada Recovery Hiring Program
If you’re an eligible employer who needs to hire new employees or rehire employees, Budget 2021 introduces the Canada Recovery Hiring Program. The subsidy is up to 50% on the incremental remuneration (i.e., generally the difference between remuneration for the qualifying period and the baseline period) paid to eligible employees between June 6 and November 20, 2021. An eligible employer would be able to claim either the Canada Recovery Hiring Program subsidy or the CEWS for a particular qualifying period, but not both.
Disability tax credit
Budget 2021 proposes to expand eligibility for the disability tax credit (DTC), and as a physician, you may begin receiving more applications for DTC to be filled out on behalf of patients. Proposed changes include expanding the list of mental functions used to assess eligibility for the DTC; and expanding access for patients receiving life-sustaining therapy that may not have qualified previously.
Starting January 1, 2022, Budget 2021 proposes a tax on select new luxury goods acquired for personal use. The luxury tax would apply to the portion above $100,000 for luxury vehicles and personal aircraft, and above $250,000 for personal-use boats. If you’re thinking about buying luxury goods over these threshold amounts, consider buying them in 2021 or buying previously owned items when the luxury tax is in effect.
Interest on student loans
If you have a Canada Student Loan, Budget 2021 proposes making these interest-free until March 31, 2023. If you have other debt, especially high-interest debt, pay these off first and leave your Canada Student Loan until last.
Post-doctoral fellowship income
If you’re a post-doctoral fellow, your income is fully taxable but it has not been considered “earned income” (like salary/employment income) for RRSP purposes. Budget 2021 proposes to change this, which means your fellowship income can help you generate RRSP contribution room. The measure would be for income received in the 2021 and subsequent taxation years. However, you would also be able to go as far back as the 2011 taxation year and request an adjustment to your RRSP room for 2011–2020. Before you contribute additional amounts to your RRSP, review your eligibility with your tax advisor.
National child-care program
To ensure all families have access to high-quality and affordable early learning and child-care programs, Budget 2021 proposes to invest $30 billion over the next five years and a further $8.3 billion after that. By the end of 2022, this is expected to result in a 50% reduction in average fees for these services in all provinces (except Quebec, which has its own program). By 2026, it should result in a maximum fee of $10 a day for all regulated child-care spaces in Canada.
Old Age Security
If you’re receiving the Old Age Security pension and will be 75 or older as of June 2022, you’ll get a one-time payment of $500 in August 2021. And beginning July 2022, Budget 2021 proposes to introduce an increase to regular OAS payments of 10% on an ongoing basis for those 75 or over.
MD Financial Management will continue to monitor any new developments with respect to the changes proposed in the 2021 federal budget. If you have questions about how you, or your financial plan, may be affected, please contact your MD Advisor* for more information.
* 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.