Self-Employed Physician: Key Tax Considerations
- No taxes are withheld from pay.
- Reasonable expenses incurred to produce income are deductible.
- Manitoba’s highest marginal tax rate is ~50.4% on income over ~$246,000.
- Tax is calculated on net business income (income – expenses = net income)
Planning for Tax Liability
- Separating business and personal finances can simplify tax preparation. Consider using a business-only credit card.
- Using a simple online tax calculator and speaking with your accountant can help you to prepare for your tax liability.
- Consider paying down your LOC throughout the year with the funds you would otherwise be saving for tax, then draw on the LOC for your tax payment.
- This strategy reduces overall interest cost, as you have less borrowed throughout the year.
- This makes sense as long as you can continue to borrow on the LOC. The strategy becomes more valuable when interest rates are high.
Retirement Planning: Investment Vehicles
Non-Registered Accounts
| Non-Registered Personal Account | Medical Corporation | |
|---|---|---|
| Tax Deductible Contributions? | No | No |
| Contribution Limits? | No | No |
| Tax Rate Before Contribution | ~50% | 9% |
| Taxed on Investment Returns? | Yes | Yes |
Key Points
- Non-registered accounts allow you to invest after tax dollars.
- Personal tax is much higher than corporate tax, reducing the amount of investable dollars ‘after-tax’.
- Medical corporations pay less tax upfront, allowing more to be invested ‘after-tax’
- No max contributions to either personal or corporate investment.
Registered Accounts
| RRSP | TFSA | FHSA | |
|---|---|---|---|
| Tax Deductible? | Yes | No | Yes |
| Contribution Limits? | Yes | Yes | Yes |
| Taxed on Returns? | No | No | No |
| Good for House Saving? | Yes (up to $60K) | Yes | Yes (up to $40K) |
RRSP
Tax-deductible, grows tax-deferred, withdrawals are taxed. Contribution room = 18% of prior year income, up to a limit ($~30,000).
TFSA
After-tax contributions. Investment growth and withdrawals are tax-free. Annual limit is fixed and carries forward if unused.
FHSA
Tax-deductible contributions, tax-free withdrawals for first home. Lifetime contribution limit: $40,000.
You only begin accumulating room in the year that an FHSA account is opened.
Maximum contribution room earned in a year is $8K; to maximize the account, requires 5 calendar years of contributing.
Incorporation Overview
A medical corporation is a separate legal entity that can earn income, own property, and pay taxes. Physicians act as both shareholders and employees.
- Contracts for services are between the corporation and the hospital/clinic.
- Practice expenses are deductible under similar rules as self-employment.
Should You Incorporate?
If you earn more than you need for personal use and can leave funds in the corporation, incorporation generally makes sense.
You should consult with a tax professional prior to incorporating. Note that the information above is informational, and not intended to be used as tax advice.
If you would like to consult with Bokhaut CPA LLP, please contact us directly:
Disclaimer: This information is for general guidance only. Consult a CPA before acting on any tax strategy. Bokhaut CPA LLP disclaims liability for any errors or omissions contained herein.