# Odds Trudeau will end personal corps for doctors/dentists?



## coghlan (Nov 8, 2009)

What is the likelihood that Trudeau will end the special corporate tax treatment of the incomes of doctors and lawyers?


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## OptsyEagle (Nov 29, 2009)

No one can confidently answer that question, except perhaps Justin Trudeau and at his age and experience I suspect he will do what his advisors tell him to do.

So if I were one of his advisors, I was smash the special corporate tax treatment for those you mentioned until they were almost dust and then I would sweep the remaining rubble into the garbage can where it belongs.

Getting past my non useful illustrated opinion, one needs to ask, why are those corporate tax benefits there in the first place? If you look at what they do, they simply give benefit to an owner of a corporation to leave money inside the corporation. In my opinion they are designed to give incentive for the owner of a corporation to expand and hopefully create jobs. Since many doctors and lawyers have expanded and created jobs, the government decided to allow them to participate. The idea was a good one but unfortuneately not every doctor, dentist, lawyer, etc., uses the extra money they have from the reduced taxation, to expand in this manner. This is where the abuse is. Why are they being taxed less then someone else who earns the same income but cannot participate in this scheme?

I believe the proposed idea is to disallow these benefits (small business deduction) for corporations that don't employ a certain number of non-arms length employees. I think they are talking about 3 or more to get the deduction but don't quote me on that. This would include the slew of computer and other one person consultants, that are currently getting these undeserving tax breaks...when compared to any other working Canadian in income bracket.


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## Just a Guy (Mar 27, 2012)

Ahh, but what if the corporation is a virtual one, no employees but many contractors? They are still creating jobs, not keeping the money for themselves...I have a couple of these, and many a manager, lawyer, banker, accountant, worker, designer, custodial, etc. Would experience a drop in income should I disappear.

Many a nurse, secretary, bookkeeper, graphic design person, record keeper, custodian, accountant, lawyer, etc. Are employed by doctors. How many do you hire and pay for?


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## OptsyEagle (Nov 29, 2009)

The employee that goes to work and then goes on to spend his after tax money is technically creating jobs. A self employed individual does everything you state as well.

Anyway, you make some good points. Glad I don't have to decide these things.

Obviously my point and the point of the legislation is to put a stake in the heart of the person that is taking the tax benefits and then simply spending the money on himself and his family, either now or in retirement. That is not what these tax rules were designed for.

I also heard they are thinking about implementing a kiddie tax. That is where they will take the dividends one pays to his 6 year old and taxes them at the highest tax bracket. Again, I am in agreement here. Paying a dividend to a 6 year old or a trust for a six year old is a tax dodge. 

Anyway, I did not come up with them and I am only going on the rumours I have heard and adding my comments. Glad to hear any opposing ones as I am sure the government is as well.


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## Just a Guy (Mar 27, 2012)

The laws are actually pretty good, you may not pay the government but you don't usually get to keep the money. The system is designed so that you can either give it to the government for them to distribute or you can choose where you spend it and get a tax credit. Either way, the money needs to be spent into the economy, you can't keep it for yourself.

That being said, you can benefit by spending the money on "things" like a vehicle, computer, etc. Or on "services" like an accountant, bookkeeper, lawyer, etc. Which can give you more time, and thus benefit more than if you gave it to the government.

Of course there are the more "grey" areas of the tax code, but they could always be denied by CRA at any time...

As for six year olds, I know a few who do some serious work on farms and things...besides, they'd get up to the personal exemption tax free even if they were taxed at higher rates.


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## OptsyEagle (Nov 29, 2009)

Sure, but the money you spend on the bookkeeper will be tax deductible in any structure, but the money you spend on a big screen TV for yourself, should not be. With the current rules the corporate guy pays a very low tax on his business income, saves the money in his corporation and then in retirement pays himself a big dividend, almost tax free and goes out and buys himself a big screen TV.

That is the unfairness they are trying to rectify. I am also sure they can rectify the personal exemption for minors while they are at it, but you do point out the the zig zag problem. When the government zigs the taxpayers will zag. This is a very difficult problem to fix. Easy in theory, very difficult in real life.


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## wendi1 (Oct 2, 2013)

Well, I am one of the one-person corporations to which y'all refer.

Would I rather have a pension, EI, training, a career path, and a steady job? Sometimes, to be honest.

Would I have to raise my rates substantially if the tax treatment changed? Yup. 

I mostly work for the feds, so the money would come from you and me anyway.


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## OptsyEagle (Nov 29, 2009)

Everything eventually comes from you and me, when it is all said and done. It is just how much comes from you and how much from me that we end up arguing about.

Listen, I am being two faced here since I know that if I owned a corporation I could easily come up with an equally large list of reasons why the current system is fair and right. I have said in other threads that instead of raising the taxes on some guy who earned $1,000,000 last year and paid 30% of it in taxes, we should reduce his taxes to 25% and provide him with a system where he/she can earn $3,000,000 next year. $750,000 of tax revenue is a lot better then $300,000. My point is that we need to think twice before increasing the taxation on our most productive part of society, so that we can distribute it to our least productive part of our society. That is not the most overly sustainable model but it is the one every country seems to want to utilize.

That being said, lowering the taxes on someone who makes a $1,000,000 by 5%, just to see that taxpayer get $50,000 more per year to spend on himself, with no incremental improvement to society, is not a very good model either.

Again, it is easy to identify the problems but much more difficult to come up with the solutions. Definitely one of the reasons I did not go into politics.


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## GoldStone (Mar 6, 2011)

The path to a medical career is brutal torture. Doctors deserve every bit of tax breaks they get and then some.

Lawyers on the other hand...


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## Just a Guy (Mar 27, 2012)

That's not a big screen tv, that's a computer monitor...one they probably wouldn't have bought had it not had a tax benefit...then the salesman would be out a fat commission.


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## OptsyEagle (Nov 29, 2009)

GoldStone said:


> The path to a medical career is brutal torture. Doctors deserve every bit of tax breaks they get and then some.
> 
> Lawyers on the other hand...


If we give doctors a tax reward for what they do or have done, should we include all the plastic surgeons as well? Except for a small number required for real medical purposes, you could fire the rest of them for all I cared. I certainly do not want them to be rewarded with my tax money for the unnecessary work they do. Dentists go to school for a long time as well. Should we include them in this reward system.

I think the tax system would be better used as an incentive system then something to provide a reward.

As for lawyers. I don't like them much either but they only exist because we live in a world where human beings cannot be trusted to be honest, ethical, offer full and complete disclosure, and be law abiding. So who is really at fault here?


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## lonewolf (Jun 12, 2012)

I heard of a government worker in the medical field getting 30,000 for moving to move to a city in BC a few years latter gets big money for moving fees to move back.


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## GoldStone (Mar 6, 2011)

OptsyEagle said:


> If we give doctors a tax reward for what they do or have done, should we include all the plastic surgeons as well? Except for a small number required for real medical purposes, you could fire the rest of them for all I cared. I certainly do not want them to be rewarded with my tax money for the unnecessary work they do. Dentists go to school for a long time as well. Should we include them in this reward system.


I don't have an answer about plastic surgeons or dentists. But I object to the way you framed the issue: _"dentists go to school for a long time as well"_. Your wording trivializes the amount of effort and commitment required to become an MD in this country. The length of training is only a small part of the challenge. The path from the start to the finish is insanely hard. Just getting into a medical school is damn nearly impossible, and that's the easiest part of the journey. Medical residents work live slaves for relative peanuts. And when they finally get their license, they often face unemployment or underemployment, because governments ration the number of available positions (even though patients face lengthy waits).

I stand by my assertion: MDs deserve every tax break they currently have and then some.




OptsyEagle said:


> I think the tax system would be better used as an incentive system then something to provide a reward.


I am not sure what you mean. Can you clarify?


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## OptsyEagle (Nov 29, 2009)

GoldStone said:


> > Quote Originally Posted by OptsyEagle View Post
> >
> > I think the tax system would be better used as an incentive system then something to provide a reward.
> 
> ...


I am not arguing with your assertions about the hard work and effort and wonderful things doctors do. What I am saying is that our tax system is not the right place to show our appreciation. That should be done in the fees the doctors are allowed to charge for their services. We can even agree that they deserve a raise and perhaps should be allowed to extra bill, because of this difficulty in becoming a doctor. 

Whatever, we agree that their reward should be, I will not agree that they should get tax benefits in addition to it. Where does it stop. Should we give them their own roads so they don't have to deal with rush hour traffic? Provide their children with individual teacher tutoring. I mean come on. I have never met too many doctors that were not currently in the upper echelons of Canadian income ranges. That's their reward.


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## GoldStone (Mar 6, 2011)

OptsyEagle said:


> I am not arguing with your assertions about the hard work and effort and wonderful things doctors do. What I am saying is that our tax system is not the right place to show our appreciation. That should be done in the fees the doctors are allowed to charge for their services. We can even agree that they deserve a raise and perhaps should be allowed to extra bill, because of this difficulty in becoming a doctor.
> 
> Whatever, we agree that their reward should be, I will not agree that they should get tax benefits in addition to it. Where does it stop. Should we give them their own roads so they don't have to deal with rush hour traffic? Provide their children with individual teacher tutoring. I mean come on. I have never met too many doctors that were not currently in the upper echelons of Canadian income ranges. That's their reward.


They start making good money in their thirties, assuming they can find a position. Yes, they are paid very well. But if you remove the existing tax breaks, they would be hit with a 50%+ marginal tax rate. I think it would be extremely unfair, considering they earn very little in their twenties.

Want to tax doctors at the same tax rate as everyone else? Streamline the path from the start (high school graduation) to the finish (full MD license). The path as it currently exists is too long and arduous.


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## Islenska (May 4, 2011)

Currently can't anyone open their own corp/holding company regardless of occupation?


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## Eclectic12 (Oct 20, 2010)

GoldStone said:


> ... But I object to the way you framed the issue: _"dentists go to school for a long time as well"_. Your wording trivializes the amount of effort and commitment required to become an MD in this country ... And when they finally get their license, they often face unemployment or underemployment, because governments ration the number of available positions (even though patients face lengthy waits).


Really?

The people I know who have gone through this process have complained about the work involved ... but unemployment or underemployment is not one of the complaints.

Having been without a GP for roughly twenty plus years, I find it hard to believe there is under employment rampant out there.


Cheers


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## OptsyEagle (Nov 29, 2009)

Also, who doesn't struggle in their 20s. The problem with the rest of the population is that they not only struggle to make ends meet in their 20s, but get to continue to struggle in their 30, 40s and 50s.

In any event, the point GoldStone keeps missing is that his issues are best addressed by the income the doctors are paid (provincial governments), not in some extra tax benefits (federal government) on top of it. Basically he is complaining to the wrong department, in my opinion...and that is all I am trying to say.


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## heyjude (May 16, 2009)

I was one of those doctors with a corporation, now a holding company. My company pays all taxes due, never fear, but at a pace that does not make me a pauper before my time. As a physician I had no pension. NADA. The corporation allowed me to save for a modest retirement. Without it, I would have ended up working indefinitely to pay the new, higher personal income taxes. 

There comes a point when taxes act as a disincentive to work. I hope the government will bear that in mind. 

By the way, yes, unemployment is a problem in the medical profession. Not every physician is a family practitioner. 

http://news.nationalpost.com/health...cant-find-residencies-and-full-time-positions


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## OptsyEagle (Nov 29, 2009)

Again, nothing said here is specific to Doctors. 70% of Canadian do not have a pension and most are not allowed to funnel their earnings through a corporation, either.

Everything thing stated about a doctors life is important, but I still don't believe they deserve extra tax benefits. Either they are not earning much money and won't end up paying much tax anyways...or they are earning a lot of money and definitely should contribute to the country that helped provide their ability to do it.


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## Eclectic12 (Oct 20, 2010)

lonewolf said:


> I heard of a government worker in the medical field getting 30,000 for moving to move to a city in BC a few years latter gets big money for moving fees to move back.


I've read of low service areas in Ontario offering more than a $30K annual income boost, extra money to move and in rural areas, free accommodation. Then there's the special recruitment boards (part funded by city council and private companies) that among other things, run tours to see the medical facilities/community amenities. 

Keep in mind that this is not Northern Ontario or the Territories where this is being done but in South Western Ontario ... about an hour from Toronto. 

Some of the these steps/incentive programs go back twenty years. 


Cheers


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## Eclectic12 (Oct 20, 2010)

heyjude said:


> ... By the way, yes, unemployment is a problem in the medical profession. Not every physician is a family practitioner.


Which raises the question why people an hour from Toronto can't find a doctor, why there there is still a special doctor recruitment board that *private* companies are chipping in to fund and why a referral to a specialist means a three plus month wait. At least the referral to a specialist from the emergency room meant an appointment only a month and a half later.

On the other side of the coin, my co-worker's wife who switched from targeting being a GP to being a specialist meant heavy recruitment from several hospitals as well as recruitment to move to the US.


I will read the article in detail but there seems to be something wrong. From what my co-worker's wife described, the educational requirements plus residency were minimal to become a GP. The specialty was what added far more. Yet the article is talking about being blocked from being a GP despite finding a residency, training five years for a specialty and 2015 reports of numerous people unable to get a GP (my wife being one of them).

It will be interesting to delve into the detail but as I recall, the OMA president was recently bemoaning that everyone was heading for the higher paying specialties and ignoring becoming a GP. 

Certainly my co-worker's wife has commented that her specialty has boosted her income tremendously ... though she seems to have been proactive to keep tabs on whether the specialty was in demand in North America.


Cheers


*PS*

I would have to check but I suspect some of the friends who are teachers may or may not have sympathy. For them, it was get a degree, get a teaching degree then leave Ontario or spend a decade on year to year contract in a different field before full time teaching was a possibility.


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## Charlie (May 20, 2011)

I hope they don't make changes to this. 

Per here: https://www.ic.gc.ca/eic/site/061.nsf/eng/02804.html 55% of small businesses have fewer than 5 employees and 75% have fewer than 10. Number of employees is just too arbitrary a bar for determining who is 'deserving' of a break.

They've introduced a bunch of rules to crack down on 'personal services corps" -- where you're really an employee masquerading as a company and they should continue on that path and double down on reasonableness of salaries to related people and paying personal expenses through the corp. (they've already nixed dividends to kids). 

I think it would be a mistake to shake up the tax system that much and harmful to the small entrepreneur. 

There are a few doctors and dentists benefiting here -- but I think the fallout is greater than the fix. Lawyers/Accountants/others who work in partnerships split the business limit with their partners. I think there are enough rules to mitigate any abuses and a big change will be press release driven rather than good policy.


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## Mechanic (Oct 29, 2013)

Well if anything can be screwed up, Trudeau will no doubt take care of it. From what I have seen so far, the guy is a complete idiot, more interested in building a base of new voters than in running a successful country. Of course we mustn't forget all the photo opportunities at home and abroad. Eventually it won't matter, as soon as his term is up he will be gone, set for life and it will be up to another party to recover. The country should have a probationary period for elected positions, just like most corporations do. After 3 or 6 months, the performance is reviewed and a decision (vote) can be made whether the person stays in the position for the full term. The way it is now, the elected person can cause as much damage as they like for their term and then just sit back and collect a ridiculous ongoing pension, what a farce. I became a citizen of this country by choice and paid my own way, created employment here and contributed to the economy. Watching the current mess, maybe I should just give up and move on before the place really gets past the point of recovery.


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## CPA Candidate (Dec 15, 2013)

coghlan said:


> What is the likelihood that Trudeau will end the special corporate tax treatment of the incomes of doctors and lawyers?


There is no special tax treatment other than that afforded to all small business corporations, the small business deduction.

That being said the small business deduction is not being used in the spirit it was intended with professionals, to tax a lower rate in order to allow greater funds for reinvestment and growth (and eventual hiring). It's intended as a stimulus but doesn't work if there is no reinvestment after lower tax treatment. My dentist has never expanded his practice in 20 years.

Honestly, I wouldn't be opposed to ending the SBD for doctors and such; these are not the types of businesses envisioned when these tax policies were created. Their are already rules for corporations to dissuade using it as an additional source of RRSP space, the additional refundable tax on interest/rents and Part IV tax on dividends. This would just be one more step to finally stop the practice of accumulating funds in a corporation in a deferral scheme.


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## Davis (Nov 11, 2014)

But what about the potential for exporting dentistry services? Surely your dentist could expand into new markets! There are a billion Indians with rising incomes. He could tap into that market if his taxes were low enough! ;-)


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## houska (Feb 6, 2010)

CPA Candidate said:


> There is no special tax treatment other than that afforded to all small business corporations, the small business deduction.
> 
> That being said the small business deduction is not being used in the spirit it was intended with professionals, to tax a lower rate in order to allow greater funds for reinvestment and growth (and eventual hiring). It's intended as a stimulus but doesn't work if there is no reinvestment after lower tax treatment. My dentist has never expanded his practice in 20 years.
> 
> Honestly, I wouldn't be opposed to ending the SBD for doctors and such; these are not the types of businesses envisioned when these tax policies were created. Their are already rules for corporations to dissuade using it as an additional source of RRSP space, the additional refundable tax on interest/rents and Part IV tax on dividends. This would just be one more step to finally stop the practice of accumulating funds in a corporation in a deferral scheme.


I unfortunately agree with you.

As an incorporated professional (not doctor or dentist), from a self-interested point of view I'd of course prefer taxation of small business to continue as-is. But I've never really understood why it is in the public interest to tax me at less than 1/2 of what I'd pay as an employee, purely as a reward for being sufficiently well-off to be able to defer actually spending the money. 

It's actually a very funny-set up. As if the government and I formed an investment fund, with me as the GP and the government as the LP. Their contribution is the reduced up-front taxes. At wind-down, we share proceeds roughly equally. During the fund's lifetime, as GP I get paid a management fee structured as the highly preferential tax treatment of declared dividends (if you otherwise have low personal income). The government is entitled to a yearly dividend itself, which come from the fact that investment income in the "partnership" does not benefit from graduated tax rates.

I completely understand why the government may feel such "investment funds" are not in the public interest. The flip side is that if this type of preferred treatment is removed, my incentive to work hard is correspondingly reduced.


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## Nerd Investor (Nov 3, 2015)

A lot of doctors, dentists etc. are self-employed. So you'd essentially be penalizing them if they were not allowed to incorporate. 
I can't see this going away.


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## Charlie (May 20, 2011)

Dentists are actually more 'small business' than many. 

They are responsible for getting clients, they hire staff, they buy expensive equipment, sign leases, buy client lists, often set their rates etc. Not sure they're less of a business than someone who runs a store, or provides consulting services or repairs cars. It costs an awful lot to set up a dental practice. And the practices are bought and sold -- again, an indication that there is an actual business there. 

You could make the argument for doctors for whom the majority of revenue comes from one source. Especially if most of their services are hospital based.


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## atrp2biz (Sep 22, 2010)

The question is always 'is there a purpose to incorporation aside from tax deferral'? For many PCs, the answer is yes. Although a PC does not provide liability protection against professional claims, there are still other non-professional liabilities that would protect shareholders from personal liability. With this in mind, not providing the SBD to PCs but to other small businesses would potentially be discriminatory to PCs.

However, there are other, more complicated PC structures that are created solely for the SBD (arguments about being able to recruit high-performing professionals aside). One common way for a partnership not to have to share the SBD amongst its partners is the partner/service PC structure--both owned by the professional. The partner PC is the partner of the partnership, while the service PC bills the partner PC through a service agreement. The service PC now has full access to the SBD which would otherwise not be there through only the partner PC. I could see the current government taking steps to eliminate this ability.


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## Davis (Nov 11, 2014)

the point of the tax break is to help small businesses get established, grow, and create jobs. Medical and dental practices don't fit that description. yes, they are small businesses, and doctors and dentists work hard, but what is the policy rationale for given them a tax break?


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## houska (Feb 6, 2010)

Davis said:


> the point of the tax break is to help small businesses get established, grow, and create jobs. Medical and dental practices don't fit that description. yes, they are small businesses, and doctors and dentists work hard, but what is the policy rationale for given them a tax break?


One could make the argument that it is good to promote entrpreneurialism, which involves the taking of risks typically more than steady employment. Therefore the deduction is to sweeten the deal to promote more entrepreneurialism, which benefits the economy in more ways than just "creating jobs". But I agree with you that this probably wasn't the intent, and for some of the beneficiaries (including myself, see my post above) it is just a windfall.

However, I also think the doctor/dentist example is a bit of a red herring. My dentist graduated about 10 years ago from dental school, took out debt to build a modern clinic as a rear addition to his house. He employs a "nurse" (not sure this is the right term - she works four hands with him when he's doing procedures), 3 dental hygienists who are part of his practice, his wife full time and daughter part time as receptionists/admin. Feels like exactly the sort of risk taking, entrepreneurialism, and job creation we want to be supporting. My doctor friend essentially works part time at 2 hospitals, bills OHIP, has no staff and no equipment (just a sizable insurance policy) - very worthwhile, but feels a lot less entrepreneurial. It's the nature of the business model that *should* matter, not the profession or even how big the official payroll is. But that's hard to legislate cleanly.


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## OptsyEagle (Nov 29, 2009)

houska said:


> It's the nature of the business model that *should* matter, not the profession or even how big the official payroll is. But that's hard to legislate cleanly.


Amen.

I believe what you described with the example of the Dentist, is exactly why these tax benefits were extended to these types of professionals, in the first place. The fact that they are looking at revamping the rules tells me that way too many non-entrepreneurial cases currently exist. Cases where we simply have a high income professional getting a tax break, that provide no more spin off benefits to the economy, then that which another high income professional provides, that does not get these same tax benefits.


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