Healthcare Group
Collins Barrow KMD LLP
Frequently Asked Questions

FAQ

Healthcare Professionals

MD Residents

     


    Healthcare Professionals 


    Go to Top


    Should I incorporate my practice?

    In the majority of cases, professionals can save thousand of dollars each year by incorporating.

    However, there are circumstances where incorporation does not make sense.  Incorporating your practice has additional administrative obligations, incorporation and annual accounting and legal costs, and registration/licensing fees.  The “cost” of having the corporation may outweigh the tax savings a corporation can offer you.

    As a rough guideline, if you meet all three of the following criteria, incorporation may not make sense:

    1. You earn less than $250,000 per year after expenses.
    2. You have no one to income split with.
    3. You need every dollar earned to pay for personal expenses or debt.

    The above criteria are general in nature and may not fit your particular situation or needs.

    It is best before you incorporate to contact an accountant with experience in professional corporation’s to evaluate your personal situation and help you determine if incorporation makes sense for you.

    Please contact our office if you would like to meet with one of our professional staff to discuss incorporating your practice.

     

    What are the advantages of incorporating?

    Go to Top

    There can be many benefits of incorporating your practice into a professional corporation (PC)

    The following are some of those benefits.

    1. The PC is a separate legal entity which can help divide your practice and personal affairs.  This may allow you to better budget and manage your finances and records.
    2. The PC has limited liability for creditors; however, you still have liability from professional negligence and malpractice claims and government remittances such as payroll deductions, corporate tax and HST,
    3. The PC may allow you to income “split” with other shareholders using dividends (Medicine Professional Corporations and Dentistry Professional Corporations only),
    4. The PC may allow you to income “smooth”,
    5. The PC may allow you to “defer” personal taxes,
    6. Dividends paid by the PC can be “cheaper” than a salary or personal professional earnings, and
    7. Other perks, such as health care plans, life insurance, office-in-home, club memberships, etc.

    Not all of the above benefits may apply to you, so please contact our office to meet with one of our professional staff to discuss the potential benefits of incorporating of your practice. 

     

    Are there disadvantages to incorporating?

    Go to Top

    Yes, there are disadvantages to incorporating your practice into a professional corporation (PC)

    The following are some of those potential disadvantages.

    1. The PC is a separate legal entity that should not be inter-mingled with your personal finances at any time;
    2. As a separate legal entity, the PC will increase your administrative obligations such as recordkeeping, filing of corporate tax returns, preparation of corporate financial statements, filing of T4 and T5 slips (as applicable), etc.
    3. The corporation typically has higher annual legal and accounting fees due to the extra work required to file the financial statements, corporate tax and other returns, updating of the corporate minute book.
    4. The corporation continues to exist until it is “dissolved”.  This means you cannot stop using the corporation and stop filing corporate tax returns until the corporation is dissolved.

    There may be other disadvantages applicable to your particular situation, so please contact our office to meet with one of our professional staff to discuss the potential disadvantages of incorporating of your practice.  

     

    How do I incorporate my practice?

    Go to Top

    The following are the general steps to incorporating a Professional Corporation (PC):

      • Consult with an accountant experienced with PC’s.  Just because you can incorporate does not mean that incorporation is the best plan for you.  Your accountant can help you determine if incorporation makes sense for you and recommend a corporate structure that best suits your tax planning needs. 
      • Incorporate using a lawyer or legal service that is familiar with PC incorporation and the different legal and regulatory requirements the PC must meet regarding Articles of Incorporation, share structure, shareholders, etc.  (Note:  The Ontario Medical Association (OMA) has an incorporation service for Medicine Professional Corporations which may suit your incorporation).
      • Apply to your professional regulatory body (such as the College of Physicians and Surgeons or Royal College of Dental Surgeons of Ontario) for authorization to practice using the PC.

    After receiving authorization from your regulatory body, you are able to use your PC to earn income; however, there are additional steps you have to take to ensure your PC is properly set-up to earn income.  These additional steps are described in other FAQ’s in this section.

    Please contact our office to meet with one of our professional staff to discuss incorporating of your practice. 

     

    Who is allowed to be a shareholder of my corporation?

    Go to Top

    If you are a Physician or a Dentist you are allowed to have spouses (possibly including common-law spouses), children (including step-children), and parents (of the physician only) as shareholders.

    No siblings, grandchildren, grandparents, aunts, uncles, or other extended family members are currently allowed as shareholders.

    If you are a healthcare professional other than a physician or dentist, only “members” are allowed to be a shareholder of your corporation.

    At no time is another corporation allowed to be a shareholder of a professional corporation.

    You should consult a lawyer and/or and accountant with experience in Professional Corporations before incorporating to ensure the appropriate persons are able to be shareholders of your particular corporation. 
     

    What is a Corporate Minute Book?

    Go to Top

    A corporate minute book forms part of the corporation’s permanent records.

    The minute book includes the Articles of Incorporation (and subsequent Articles of Amalgamation if applicable), the corporate by-laws, documents the corporate share structure and shareholders, appoints the officers and directors, and includes the annual resolutions of the corporation.

    The minute book has to be updated annually to document the decisions of the board of directors and shareholders.  These resolutions include approving the dividends declared during the year, approving the bonuses declared in the year, approving the financial statements, and many other annual resolutions and reporting requirements. 

    While you are able to prepare these resolutions yourself, we recommend having an accountant or lawyer assist you with the annual updating of your corporate minute book. 



    What is income splitting?

    Go to Top

    If properly structured, income splitting allows income from a higher income individual and having it claimed as income of a lower income individual.

    With a professional corporation (PC), this income is typically split by paying a salary or a dividend to another person.

    A salary can be paid to any person who provides services to your practice.  A salary can be paid while you are an unincorporated professional, so there is no difference with a corporation paying a salary.  Generally, a salary is limited to the reasonable services a person provides to the corporation.  As such, the salary allows a relatively small amount of income to be split with another person.

    On the other hand, a dividend can be paid by a PC to a shareholder.  Typically, there is no limit on the amount of dividends a PC can pay since the dividend is a return on investment and no services have to be provided to the corporation.

    A dividend can allow many thousands of dollars of income to be split with a spouse, child or parent (if allowed as shareholders of the PC).  These dividends can result in thousands of dollars of tax savings annually.

    Please contact our office to meet with one of our professional staff to discuss incorporating of your practice. 
     

    MD RESIDENTS



    Why should I file a tax return?

    Go to Top

    It is required by law that you file a tax return.

    When you are a student, and while you are working as a medical resident, you will earn tuition credits that can be carried forward to future years to reduce your tax. You are also able to transfer tuition credits to your parents or spouse up to the prescribed maximum.

    There are also a number of tax credits and benefits you will not be eligible to receive unless you file a return.  These may include:

    • GST/HST credit;
    • Ontario Energy and property tax credit;
    • Canada Child Benefit

    Finally, if you do end up owing tax and file late, then CRA will assess you a penalty and interest on the balance owing.  The penalty on a first offence is 5% of the balance owing plus an additional 1% for each full month the return is late up to 12 months.  If you were assessed a late filing penalty in the last 3 years then your penalties double to 10% and 2% per month for up to 20 months.  This means your penalty could be 50% of the tax owed on your return, plus interest. 

    The only way to guarantee you do not owe tax and do not get hit with a penalty is to file on-time.

    If you need assistance with filing your tax return please contact our office.

     

    What is the difference between a tax credit and a tax deduction?

    Go to Top

    A tax deduction saves tax at your marginal tax rate.  Your marginal tax rate is the amount of tax you pay on the next dollar of income.  

    A tax credit saves tax at the lowest tax rate. 

    For example, how much tax would be saved with a $1,000 tax deduction vs. a $1,000 tax credit (using Ontario 2016 tax rates, including surtax)?

    Taxable Income

    Deduction

    Credit

    $45,000

    $310

    $200

    $83,000

    $315

    $210

    $90,000

    $430

    $230

    $141,000

    $460

    $230

    $200,000

    $480

    $230

    $220,000

    $520

    $230

    $250,000

    $535

    $230

    Typical tax deductions include RRSP contributions, moving expenses, union and professional dues, employment expenses and childcare deductions.

    Typical tax credits include tuition and education amounts, first time home buyers plan, child fitness and child arts credit, medical expenses, student loan interest credit and public transit amount.

    Please contact our office if you have questions about what deductions or credits you may be entitled to.

     

    What type of expenses can I deduct as an MD resident?

    Go to Top

    The expenses that you are able to deduct as a resident are fairly limited and include:

    • union and professional dues required to maintain your professional status recognized by statute (e.g. Ontario Medical Association and College of Physiciansand Surgeons of Ontario),
    • CMPA insurance, net of reimbursements, and
    • certain employment expenses as allowed by your employer.

    To deduct employment expenses as an MD resident you must obtain a Declaration of Conditions of Employment (T2200) from your employer.  This T2200 will indicate the types of expenses that you are allowed to deduct.  These expenses normally include:

    • office supplies,
    • cell phone (not including data); and
    • auto expenses. 

    Employment expenses may also include travel expenses (airfare, hotel, etc.) where your employer requires you to travel for employment, such as secondments to another hospital (possibly as an elective).  However, travel expenses for training courses and non-required conferences are not deductible as employment expenses.

    If you have questions about what expenses you can deduct as an MD Resident, please contact our office.

     

    What auto expenses can I deduct as an MD Resident?

    Go to Top

    The rules for deducting auto expenses can be complex and time consuming.  The general rule is any employment use of your vehicle, that is not commuting, can be deducted.   You should make a decision whether it is worth you claiming expenses.  If your employment use is small or if you were reimbursed for part of your auto use, then it may not worth your time to calculate the amount of deductible expenses.

    Commuting is driving back and forth from home to your principle place of employment.  Commuting is considered to be personal use by CRA.  If you have multiple hospital or clinical locations, typically you choose one of those locations as your principle place of employment.  This generally allows driving from home to the other hospitals/clinics and the driving between the hospitals/clinics during the day to be considered employment use.

    You should maintain or recreate a log book of your employment use (km’s) for your vehicle.  You should also record the total mileage travelled by the vehicle during the year.  It is best to note the odometer reading on your vehicle on the first day of each year and “back-track” to the total kilometres at the start of the next year (e.g. 52,345 km on January 1, 2016 less 42,345 km on January 1, 2015 = 10,000 total km driven during the year).

    The mileage log for employment use and the total mileage will allow you to calculate the percentage used for employment.  For example, if you drove 1,000 km for employment and 10,000 km total in the year then your employment use is 10%.

    This employment use percentage is then applied to a “pool” of all auto expenses you paid during the year.  The result is your deductible auto expenses.  The pool for auto expenses can include:

    • Fuel
    • Repairs and maintenance (including car washes)
    • Insurance
    • Licensing fees (for vehicle only)
    • Automobile Association (e.g. CAA)
    • Interest on vehicle loan (if your vehicle is financed or if loan taken out to purchase car)
    • Lease payments if your vehicle leased or Capital Cost Allowance (depreciation) if your car is owned.

    For example, let’s say your auto expenses totalled $8,100 for the year including $1,200 for fuel, $300 for repairs, $1,400 for insurance, $75 of licensing fees and $5,125 of allowable lease expenses.  Using the 10% employment use we calculated above, your deductible auto expense to report on your tax return is $810.

    Parking is a special type of auto deduction that is 100% deductible; however, you are only allowed to deduct the parking if it is away from your principle place of employment.

    Finally, what do you have to keep for receipts and proof of payment?  You must keep all receipts and keep the log as proof of your auto expense deduction.  Credit card statements alone are not considered sufficient evidence.  It is best to keep your fuel and other auto related receipts in a folder or envelope marked “2016 auto expenses” so you can quickly and easily tabulate your auto “pool” at the end of the year.

    Please contact our office if you have questions about what auto expenses you can deduct as an MD Resident.

     

    What do I need to do if I receive a per km auto allowance from the clinic/hospital/university?

    Go to Top

    If the auto allowance is a per km (mileage based) reimbursement then you have a decision to make for reporting auto expenses on your personal tax return. You can either:

    1. Not report the auto allowance and not claim any auto expenses; OR
    2. Report the auto allowance on your tax return as a reduction in the allowable auto expenses you can claim;

    The determination is made by which option gives you the greatest benefit on your return. 

    For example, using the $810 of deductible auto expenses calculated in the example above; let’s assume you received either a $400 per km allowance or a $1,000 per km allowance. 

    For the $400 reimbursement, the first option is to not report the $400 of income and not report the $810 of expenses.  The second option is to take an $810 deduction and report the $400 auto allowance as income.  The second option is best in this case because you have a “net” deduction of $410 on your tax return which will save you taxes overall.

    The opposite is true for the $1,000 per km allowance.  In this case, the first option of not reporting the per km allowance and not reporting the $810 of deductible auto expenses will save an $190 “net” income inclusion on your tax return.

    If you receive any per km allowances in the year, you must keep track of these to help determine whether to claim, or not claim, your auto allowance and expenses on your tax return.

    Finally, any flat auto allowance or directly reimbursed auto costs (i.e. you submit a fuel receipt of $65.00 for reimbursement) must be reported as a reduction to your deductible auto expenses on your tax return.  It is only the “per km” allowances where you have a choice to claim or not.

    Please contact our office if you have questions about auto allowances as an MD Resident.

     

    Can I deduct travel expenses for CaRMS and other job interviews?

    Go to Top

    No.   Travel expenses for CaRMS interviews and other job interviews are considered to be a personal non-deductible expense.

     

    I am moving to start residency. Can I claim moving expenses?

    Go to Top

    If you are moving 40 km closer to a new work location then you can likely claim a moving expense deduction on your tax return.  The deductibility of the expenses is generally restricted to moves within Canada and the expenses are only deductible from income earned from the new location.  If you do not earn income at the new location until the subsequent year then this year's moving expenses can be carried forward and claimed next year.

    For a list of typical deductible moving expenses, and other helpful guidance, you can visit the CRA website and search for the T1-M “Moving Expense Deduction” form.  The current T1-M form can be found at http://www.cra-arc.gc.ca/E/pbg/tf/t1-m.

    Do not send the moving expense receipts to CRA with your tax return; however, you must keep copies of all moving receipts in case CRA requests to see them.  As a warning, CRA loves to request moving expense information, so please keep all receipts from your move and complete the T1-M form as accurately as possible or CRA may reassess you and you will have to pay back some of the tax deduction, plus interest from the moving expense claim.

    If you need assistance with your moving expenses, please contact our office.

     

    Can I deduct professional examination fees?

    Go to Top

    Yes and no. 

    The professional examination fees are not a deduction for tax purposes; however, starting in 2011, professional examination fees to obtain a status recognized under provincial or federal statute can be claimed as a tuition credit.

    Generally the examining organization will issue a receipt stating the examination is eligible to be claimed as a tuition fee.  This receipt does not have to be issued on a T2202A slip.

    Generally the examination fees for LMCC Part I and II, RCPSC assessments and examinations and CCFP examinations are allowable as tuition and these organizations will issue you a receipt. 

    USMLE or foreign professional examinations are not eligible for a tuition credit and are not able to be deducted.

    Please contact our office if you have questions about what examination fees may be claimed as a tuition credit.

     

    Can I deduct my disability and life insurance premiums as an MD Resident?

    Go to Top

    No.   Disability insurance premiums should never be deducted against your personal or professional income.

    Any payments receive from your disability insurance, if properly structured by your insurance agent, should be non-taxable when received.  If you deduct the premiums from your income then you could taint the policy and make any payments received from the policy taxable.

    Also, disability insurance premiums should always be paid from your personal bank account.  If incorporated, the corporation should never fund these premiums since they are a personal expense.

    Life insurance is also not deductible for tax purposes as any payment of the policy is non-taxable under the Income Tax Act (ITA). 

    If you incorporate there may be an opportunity for your corporation to pay for the life insurance premiums, but there are risks involved.  Please see the advantages and disadvantages to holding life insurance in a corporation FAQ for more information.

    Please contact our office or your insurance agent if you have questions about your disability or life insurance policies.

     

    Can I defer my tuition and education credits to claim in a future year?

    Go to Top

    No.  

    The Income Tax Act (ITA) has credit ordering provisions.  These provisions force you to claim the tuition and education amounts each year to reduce your tax owing.  This means you cannot defer the tuition amounts to a future year if you earn income and need to use the credits this year.

    Also, there would be no significant benefit to deferring the tuition and education credits.  As outlined in the tax deduction vs. tax credit FAQ, the tuition credit is applied at the lowest tax bracket of approximately 20%.  So, even if you were in the top tax bracket, the credit amount would be almost the same as if you were in the lowest bracket.

    Please contact our office if you have questions about tuition and education credits.

     

    What happens if I get married or become common-law with my partner during the year?

    Go to Top

    Common-law under the Income Tax Act (ITA) is generally when you have lived with a person in a conjugal relationship for a continuous period of at least one year.  The timeframe is shortened for a common-law couple who have a child together.  Whether you are in a common-law relationship is a question of fact.

    When you are married or have a common-law partner, your tax returns are “tied together” and your “family income” is used to determine your (and your spouse/partners) eligibility for certain programs, benefits and credits.  The personal tax returns are still individually filed since there is no joint filed tax return in Canada.

    Some common examples of programs, credits and benefits that change when you are married or become common-law include:

    • GST/HST credit;
    • Ontario Trillium Benefit (used to be the Ontario Sales and Property Tax credit);
    • Canada Child Benefit;
    • Spouse or Common-law partner amount (if your spouse has very low income, you can claim a portion of their basic personal amount as a spousal amount);
    • Public transit amount (can combine “family” public transit amounts onto one return).
    • Childcare expenses (lower income spouse must claim childcare expenses on their return unless they meet an exception);
    • Medical expenses (can combine “family” medical expenses onto one return);
    • Charitable donations (can combine “family” charitable donations onto one return);
    • Tuition and education credits (can transfer part of tuition paid in the year to your spouse or partner);

    You should be especially careful with your GST/HST credit, Ontario Trillium Benefit and/or Canada Child Benefit.  Generally, if both spouses/partners have taxable income, a change in marital status usually reduces the benefits you are entitled to receive.

    If you become married or common-law during a tax year you should inform the CRA of your marital status change using an RC65 Marital Status Change form.  This form can be found at http://www.cra-arc.gc.ca/E/pbg/tf/rc65/README.html.  If you instead report your marital status change on your tax return at the end of the year, you may have to repay a portion of the benefits you received during the year.

    You should also report any marital status changes to your accountant when you file your tax return, including the date and nature of the change.  It is important for your accountant to have this information to properly complete your tax returns and allocate benefits and credits between you and your spouse/partner.

    Please contact our office if you have questions about a marital status change and the potential impact on your tax return(s).

     

    Can I earn professional income while I am an MD Resident or Fellow?

    Go to Top

    Yes, you are able to earn professional income outside of your Residency contract if you are properly qualified and licensed under an independent practice certificate.  If you are earning professional income then you must carefully track your income and expenses for the year to report on your personal tax return.  DO NOT assume your sources of income will give you a summary of your billings. It is your responsibility to maintain accurate and complete records.

    You MUST report all income earned from your professional service, including any mileage reimbursements (which reduce your allowable auto expense claim) and any per diem amounts received. The reporting of this income is on the accrual method (not the cash method).  This means you must claim the income on your tax return on the day you earn the income rather than the day you receive payment.  For example, if you receive a $1,000 payment on January 15, 2017 for locum coverage provided on December 30, 2016 this income is claimed on your 2016 tax return (since it was earned December 30, 2016). 

    It is best to seek advice from a qualified accountant before you start earning professional income.  Your accountant can help guide you on how to track your income and expenses (including what expenses may be deductible from your income), keep proper records and help you with any other questions you have about earning professional income.

    You should also consider opening a separate “business” bank account to keep your professional income and expenses separate from your personal transactions.  A separate bank account (and possibly separate credit card) can help you keep your professional and personal transactions separate and help you organize and summarize your professional income for reporting on your personal tax return.

    Please contact our office if you are earning professional income during your residency or fellowship.

     

    Can I incorporate while I am an MD Resident or Fellow?

    Go to Top

    Yes and no. 

    You are not able to put your MD resident or fellowship employment income through a corporation.  As noted above, to earn professional income outside of your Residency contract you must be qualified and licensed to practice medicine under an independent practice certificate. Generally, this licensing does not occur until you complete your residency.

    If you can be licensed to practice medicine before you complete your residency or fellowship then you may be able to incorporate and earn your “professional medical practice” income through the corporation.

    However, it may not make sense for you to incorporate based on the “Should I incorporate my practice” FAQ’s above.

    Typically an MD will wait to incorporate until they have completed their residency or fellowship unless they can earn a significant amount of professional income that is income split with a very low income spouse or eligible family member through the corporation.

    For example, assume an MD fellow has a spouse earning no income.  The MD fellow earns $80,000 of salary and $40,000 of professional “moonlighting” income (after professional expenses).  In this case, the expected tax savings from incorporating are approximately $6,000 (after incorporation and higher accounting costs for running the corporation).

    Please contact our office if you have completed, or are about to complete, your residency or fellowship.  Our team of professionals can help determine if incorporation makes sense for you.

     

    Should I consolidate my student loans?

    Go to Top

    If you have a government student loan and a student line of credit then you should only consolidate if you are able to reduce your interest rate by more than 20%. 

    This is because only interest paid on government student loans qualifies for the student loan interest tax credit which is worth 20% (in Ontario) of your interest paid.

    For example, assume you have a $100,000 government loan at 6% and your student line of credit is at 4% (a 33% difference).  If you keep the government loan, your after-tax interest cost is approx. $4,800 ($6,000 of interest less a $1,200 tax credit).  If you move the $100,000 to the student line of credit then your after-tax interest cost is approx. $4,000 ($4,000 interest less $0 of tax credit).  In this case, you are better off by $800. To do your own comparison of student loan vs. student line of credit, please see our calculator here.

    If you only have non-government loans or lines of credit then they do not qualify for the student loan interest tax credit and you should strongly consider consolidating your loans if it lowers your interest rate.

    You should not consolidate your loans if your student line of credit does not have available credit (or additional credit cannot be extended to you) or if there is a government recruitment program that waives the interest costs or repays a portion of the student loans. 

    If you need assistance with your decision please contact our office.

    Go to Top

    Is it better to pay down debt or contribute to an RRSP?

    There is a debate whether it is better to pay down debt or contribute to an RRSP.  Please refer to the attached article written by Doug Greenhow for the London Free Press for his opinion on the debate.

    If you need more guidance or have questions about what option may be best for you, please contact our office.