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Physicians and medical professionals who are self-employed often face high personal tax rates, which can go up to 53.3% in Ontario. To mitigate these taxes, many medical professionals choose to incorporate their practice into a physician-professional corporation or medical-professional corporation. Incorporating provides several benefits, including lower corporate tax rates, tax deferral, and income splitting opportunities such as hiring family members as employees and choosing between salary and dividend payments.
Aside from incorporation, there are other tax planning opportunities available to physicians and medical professionals.
1) One such opportunity is the Spousal Registered Retirement Savings Plan (RRSP), where a higher-earning spouse contributes to the RRSP of the lower-earning spouse to reduce overall taxes. Later, when the lower-income spouse withdraws the income, it will be considered the income of the spouse who holds the accounts, not the person who contributed the fund.
2) Tax-Free Savings Accounts (TFSA) are another tool that can be used to split income. the higher-income spouse can give funds to the lower-income spouse to contribute to their TFSA. The funds in the TFSA grow tax-free and are not subject to tax upon withdrawal. This strategy can help reduce overall taxes paid by the couple by shifting income to the lower-income spouse’s TFSA.
It’s worth noting that attribution rules do not apply to TFSA, but there is a 3-year attribution rule for spousal RRSPs. Additionally, the spousal loan strategy involves charging interest to the lower-earning spouse, which can then be invested to generate income at a lower tax rate.
3) A Family Trust: For physicians and medical professionals looking to transfer income to family members, a family trust can be established, with investment income earned by the trust being distributed to family members with lower incomes. However, specific tax rules must be considered when assessing whether a family trust will fit with one’s financial plan.
Overall, there are several tax planning tools available to physicians and medical professionals, and each entity or person’s needs should be assessed individually. If you’re a medical professional looking for assistance with tax planning, the Source Accounting Team is available to help.
If you are a physician, dental surgeon, or other medical professional and need assistance with tax filing, tax planning, accounting, and bookkeeping, the Source Accounting Team will be happy to help. Please get in touch with us at info@sourceaccounting.ca or call 647-930-8130 for further details.
Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.
