Self-Employed Physician: Key Tax Considerations

• No taxes withheld from pay.
• Reasonable expenses are deductible against business income.
• Manitoba’s highest tax bracket is ~50% (income over ~$250K).
• Tax is based on net business income (billing/stipends LESS expenses = net income)

How to Plan for Tax Liability

• Consider separating personal and business finances (e.g., use a dedicated business credit card) to simplify record keeping and tax reporting.
• Speak with your accountant get an estimate of your tax liability, or use an online tax calculator.
• *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 is sensible 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 accounts invest after-tax dollars.
• Personal tax is higher than corporate tax, reducing the amount of investable dollars ‘after-tax’ in a personally held account.
• Corporations pay less tax upfront, allowing more to be invested ‘after-tax’.
• Corporate structures allow you to income split with spouse in retirement (when Dr. Is 65+)
• There is no contribution limit annually to either personal or corporate investment accounts.

Registered Accounts

RRSP

Contributions are tax deductible and grow tax deferred. Withdrawals are taxable.

Contribution limit is based on 18% of prior year income, up to a maximum amount (at current, maximum is ~$30K), plus prior unused amounts.

TFSA

Contributions are not tax deductible. Growth and withdrawals are tax-free. Annual limit is fixed (currently $7K) and carries forward when unused.

FHSA

Contributions are tax deductible and withdrawals are tax free. The account is limited a maximum of $40,000 for qualified first-time homebuyers.

You only begin accumulating room in the year that an FHSA account is opened.

Maximum contribution room earned in a year is $8K; maximizing the account requires 5 calendar years of contributing.

**If you have a spouse, you both may use the FHSA and Home Buyers’ Program.

Incorporation Overview

A medical corporation is a legal person that can contract, invest, and earn income. As the physician, you function as both an owner (shareholder) and employee of the corporation.

• The corporation contracts with healthcare institutions, and you work on its behalf.
• The corporation pays for and deducts practice-related expenses, including wages to you.

Should You Incorporate?

If you can earn more than you need for personal use and can leave funds in the corporation, incorporation generally makes sense.

“It depends: Do you earn more than you need for personal living and debt obligations?”

Always consult with a CPA to assess if incorporation is beneficial based on your personal and financial circumstances.

Disclaimer: This material is provided for informational purposes only and does not constitute professional advice. Tax rules are subject to change. Bokhaut CPA LLP disclaims any liability for errors or omissions.