Achi news desk-
The Canadian Medical Association claims the Liberals’ proposed changes to capital gains taxation will jeopardize doctors’ retirement savings, but some financial experts insist corporate professionals are not as doomed as they say they are.
Prime Minister Justin Trudeau’s government presented a federal budget last week that proposes to make two-thirds rather than half of capital gains – or profits made on the sale of assets – taxable.
The so-called inclusion rate increase would apply to capital gains over $250,000 for individuals, and all capital gains realized by corporations.
As doctors typically incorporate their medical practices and invest for retirement within their corporations, the association notes that its members will now face a higher inclusion rate on all capital gains they earn, including on retirement investments.
It remains unclear, however, how much of an impact Canadian doctors are facing.
Jean-Pierre Laporte, CEO of Integris Pension Management Corp., argues that doctors can fully shield their retirement savings from capital gains taxation.
Laporte says incorporated professionals such as doctors can sell investments and open a registered pension scheme. Contributions to the scheme would be taxable, which means that the individual would not pay any tax on the capital gains they earn.
“If a medical professional corporation is concerned about increasing corporate taxes because of this budget change, a solution that has been around for years … is to have the corporation set up a registered pension plan,” Laporte said.
Doctors would still have to pay income taxes on the money they receive in the form of a pension, as is the case with other Canadians who have a pension.
There are also limits on how much one can contribute to a pension scheme, meaning doctors will still pay more tax on personal investments.
“Ultimately, these measures will affect them. But it’s nowhere near the extent that’s made in the news,” Laporte said.
Nicole Ewing, director of tax and estate planning at TD Wealth, says whether opening a pension plan makes sense depends on an individual’s circumstances.
“It’s not a one-time decision. There are ongoing compliance and administrative requirements. And there are limits to how you can get out of that in the future. So, making sure you go into something like that with your eyes wide open is really important to understand,” Ewing said.
As for how much the new capital gains tax rules will affect doctors, Ewing said it’s too soon to tell.
“I think it’s premature at this point to draw any conclusions about what the impact would be,” Ewing said.
In a statement, the Canadian Medical Association echoed Ewing’s comments, noting that opening a pension plan might make sense for some people.
“Although some individuals can benefit from (an individual pension scheme), there are a number of variables to consider,” said the CMA, noting that there are limits on contributions that can be made.
The Liberal government has argued that the proposed changes to capital gains taxes are about fairness and ensuring that those who earn their income through capital gains are equal to other sources, such as employment.
Historically, doctors who incorporate their practices have benefited from lower tax rates which made it easier to save money in the first place.
Experts who help manage their finances say many doctors take full advantage of registered retirement savings plans and tax-free savings accounts, which are unaffected by capital gains taxation.
They also note that by incorporating their practices, they benefit from a lower tax rate – in Ontario, it’s just 12 per cent on the first $500,000 of taxable income.
Trudeau and Finance Minister Chrystia Freeland have dismissed the doctors’ plea to reconsider the capital gains tax changes, arguing that the revenue the tax change generates is needed to fund things like housing and health care for all.
“I think Canadian health care professionals recognize, perhaps more than anyone else, how important these investments are,” Freeland said Tuesday.
“They are huge and I think it is entirely appropriate, it is very fair to ask those who do the best in our society to pay a little more to fund them.”
The government estimates that only 0.13 per cent of Canadians in any given year will have to pay more in capital gains taxes as a result of the changes.
The federal government expects the increase to the inclusion rate to generate $19.4 billion in revenue over five years.
This report was first published by The Canadian Press on April 25, 2024.
– The Canadian Medical Association funds a fellowship that supports journalism positions at The Canadian Press. CP is fully responsible for the editorial content created under the initiative.
