The proposed increases to capital gains taxes have caused concern among Canadian physicians, according to the head of the Canadian Medical Association (CMA). These increases could have a significant financial impact on doctors, potentially leading some to leave the profession. The proposed changes include increasing the capital gains inclusion rate from one-half to two-thirds. This means that more of the income generated from the sale of an asset, such as property or a stock, will be taxed. The first $250,000 of capital gains will continue to be taxed at a 50% inclusion rate for individuals. However, for corporations, the new 67% rate will apply to the first dollar of capital gains. This is significant for physicians because many operate their practices as small businesses through medical professional corporations, making them more exposed to changes in capital gains rules than salaried workers. In 2017, it was estimated that 66% of physicians practiced through corporations. Kathleen Ross, the CMA president and a B.C. family physician, stated that physicians across Canada are feeling the strain of high patient counts, rising expenses, and limited government funding. She added that the proposed tax changes would add to the challenges faced by the profession, leading some physicians to consider leaving or exploring other career options. A CMA survey conducted in 2021 found that the mental health of doctors had declined during the pandemic, with 47% describing themselves as ‘flourishing’, down from 63% in 2017. The decline was particularly pronounced among doctors working in remote communities and those in the early stages of their careers. Governments have traditionally encouraged physicians to incorporate for financial reasons. David Burnie, a certified financial planner at Ryan Lamontagne Inc. in Ottawa, explained that tax deferral was a major advantage for doctors using professional corporations. For example, a doctor reporting all revenue and expenses as an individual could face personal income tax rates in the highest brackets, exceeding 50% in Ontario. In contrast, an incorporated practice would be taxed at a small-business corporate rate of approximately 12% in Ontario. A doctor could then receive a small salary or be paid through dividends, both of which would place them in a lower tax bracket. Mr. Burnie said that excess income could remain in the corporation, invested, and withdrawn later, possibly during retirement. He noted that the changes to capital gains taxes would impact physicians when selling investments held within the corporation, selling shares of the corporation, or selling commercial real estate if the clinic relocates or closes upon retirement. In an attempt to partially offset these impacts, the government has increased the lifetime capital gains exemption on the sale of small-business shares from $1 million to $1.25 million. The budget also introduced additional relief for small businesses in certain sectors, but these do not apply to professional corporations. Dr. Ross emphasized that the capital gains changes would particularly impact physicians’ retirement savings, as they are held within the corporation. The most affected doctors will be those who have worked for many years and accumulated the largest nest eggs. The CMA is urging the federal government to exclude medical professional corporations from the capital gains changes. Ontario Premier Doug Ford and the province’s medical association have also expressed concerns about the new tax measures. Katherine Cuplinskas, a spokesperson for Finance Minister Chrystia Freeland, stated that the changes were intended to ensure that different types of income are taxed more evenly. She said, ‘We are changing the capital gains inclusion rate because it’s not fair that a nurse pays a higher marginal tax rate than a multimillionaire.’
Capital Gains Tax Increases Strain Canadian Physicians
