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Incorporation Tax Changes for 2016

How 2016 Tax Changes Could Affect Incorporated Physicians

The  federal government’s changes to tax rules for professionals (including physicians) who practice in some complex corporate and partnership structures has now become law.

As a medical resident, you will not be impacted by the tax changes, but it is important to understand what these new rules could mean for affected structures, like group medical practices, going forward.

For incorporated physicians working with other physicians in a group medical practice, the new rules could mean their eligibility for the small-business tax deduction might be affected.

CMA and MD spoke up for physicians

In response to these changes in the federal budget, the Canadian Medical Association (CMA) undertook a major advocacy effort on behalf of physicians, including appearances before both the House of Commons Standing Committee on Finance and the Senate Finance Committee.

MD Financial Management contributed to this effort by providing detailed financial analysis, prepared in part through consultation with some of its physician clients.

Physicians – marshalled by the CMA to speak out against the changes- sent more than 2,000 letters and emails to parliamentarians.

What could this change mean for incorporated physicians?

About 20% of incorporated physicians will be affected. Read Incorporated Physicians: Are You Affected by the 2016 Federal Budget? to find out more.

Incorporated-physician income that is channelled through an affected structure (a partnership or certain group corporations) could now be subject to the general corporate tax rate, as access to the small-business deduction must now be shared.

Depending on a physician’s province of residence and other factors, including method of compensation, this could more than double corporate taxes. However, the corporate tax increase might be offset by reduced personal taxes.

While these changes will not affect medical residents, if you have questions about what these new rules mean for physicians, please speak with your tax or financial advisor.

This article is courtesy of MD Financial Management (md.cma.ca). As CMA members, medical residents have access to objective financial advice through MD Financial Management.

The information contained in this document is not intended to offer 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. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit md.cma.ca. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. MD Financial Management Inc. is owned by the Canadian Medical Association.

author: Melissa Nilan