Financial Planning Seminar
Presenter: Franca Matsos
Date: July 30th, 2008
MD Mission Statement
We will assist CMA members, their families and sponsored clients to
achieve their financial well-being by providing professional,
objective financial advice and competitive, quality products and
services throughout their lifetime.
‘For physicians…by physicians’
About MD Financial Group
 MD Financial Group provides advice to over 100,000 clients
and over 30,000 physicians.
 Over $22 billion of assets under management.
 Over 200 investment professionals in 47 offices across Canada
to serve physicians and their families.
Products and Services:
MD Management

Financial Planning

Risk Management, Estate Planning, Portfolio Analysis
and Optimization, Cash Flow Analysis, Retirement
Planning, Incorporation Analysis

Mutual Funds

Fixed Income

Discount Brokerage

Stocks, Bonds, GIC’s, Mutual Funds, Equity Research,
Online trading

Family Trust

IPP’s
Products and Services, Continued
 Physician Services Group

Practice Solutions

Healthcare Software

Tenant Lease Services
 MD Private Trust

Estate Planning, Professional Executor, Trust Management
 MD Life

Tax planning, tax deferral, estate preservation, corporate
savings
 MD Private Investment Management

Strategic and Tactical Asset Allocation, Discretionary Money
Management
Life as a Resident
Financial Issues You Face As You Start Residency
 Possible negative cash flow
 Start repaying debt
 Possible relocation
 Possibly starting to contribute to RRSPs
 Additional issues that will differ from person to person
Scope of Financial Planning
 Debt management
 Cash management (budgeting)
 Retirement planning (RRSP & Non-RRSP)
 Investment choices
 Tax planning
 Life and disability insurance
 Estate planning (Wills, POA, Executor)
Role of Financial Consultants
 Assess your overall financial health

Gather and review data related to your finances
 Practice preventative financial health

Create and monitor your personal financial plan
 Know when to refer to a specialist

Advise regarding needs for accountant, lawyer, insurance
broker, practice management, etc.
 Financial planning includes family members
Evaluating Insurance Needs
 Resident Contract (PAIRO)

2x annual income (life insurance)

70% of gross income (disability insurance)

Limitation of disability coverage = any occupation definition

PAIRO coverage ceases upon completion of residency
Insurance needs likely to increase with increased
income and lifestyle
Life & Disability Insurance
 The primary purpose of insurance is to protect your most valuable asset
- your earning power
 Is a very important aspect of every financial plan
 Insures you against the risks of:

becoming disabled - unable to work / earn income

premature death
FAQ - Disability Insurance
 When do I need it?
 Regular occupation vs Own occupation?
 What elimination period should I choose
 Why is a FIO important?
 What are the other essential riders?
 Private vs Group medical association plans

Portability? Quality? Cost vs value?
Disability Insurance What & How Much
What if I become disabled?
y Income Replacement:

Insurance benefit should replace 60-70% of pre - tax
income
y Office Overhead Expense

Pays for overhead expenses (rent, utilities, wages)
incurred during disability period

More important for GP than a specialist
Recommendation
 In most cases, it makes sense to start with a 30 day elimination
period, especially if you are:

single

have substantial level of debt / high loan payments

have a young family
 Once your practice is established and you’ve paid down your
debt / built an emergency fund you can request a longer
elimination period to reduce your premium
Definitions of Disability
Own Occupation:
 The benefits are payable as long as the insured is unable to
perform the major duties of their own occupation. The insured
may choose not to work in another occupation, even if able to
do so.

Better suited for Specialists
Definitions of Disability
Regular Occupation:
y Is a much more restrictive definition. After two years of
receiving benefits, if the insured is able to perform his/her
regular occupation, the insurer can stop / reduce benefit
payments.
Benefit Period
 Is the length of time benefits are paid during the period of
disability
 Usually expressed in years i.e. 5, 10, to age 65 or lifetime
 The longer the benefit period, the higher the cost
 Benefits to age 65 is recommended
Must have Options
Riders & Benefits

Cost of Living Adjustment


Fixed % or linked to CPI
Guaranteed Future Insurability
No further proof of insurability required if you buy
additional coverage in the future


Retirement Protection

Funds to supplement RRSP
Disability Insurance Options
 Association plans (such as OMA)
y Advantages: Group Insurance (savings of 40-50% in premiums)
y Disadvantage: limited portability among provinces, premiums
increase every 5 years
y OMA Essentials plan - no evidence of insurability required - limited
coverage available
 Individual policies (Unum, Canada Life, etc…)
y Advantages: unlimited portability and flexibility, premiums are fixed
to age 65
y Disadvantages: higher premiums (initially)
FAQ - Life Insurance
Life Insurance:
y Who needs it?
y How do I calculate how much I need?
y Term Insurance - pros /cons?
y Universal Life - pros / cons / when to buy?
y Mortgage Insurance - Is it good? Options?
y Where can I get objective unbiased advice?
Life Insurance
 Insures against the risk of pre-mature death
 Can be used to provide for financial dependants, payoff debts
(credit lines, mortgages) & estate planning purposes
 Your needs will vary throughout your life stages
Types of Life Insurance
Term Insurance
 For ‘temporary’ needs (short-term)
 Lowest initial premium level
 Premium increases at the end of each term
 Offers terms of 1, 5, 10 & 20 years or to age 99
 ‘Face value’ only
Types of Life Insurance
Permanent Insurance - Universal Life
 Lasts for life (estate planning)
 Includes insurance plus tax sheltered investment
 Greater flexibility
How Much Do I Need?
Payoff household debt
 Mortgage, Credit Lines, Student loans, etc.
Provide for capital requirements
 Funeral expenses, legal fees, income tax, child care & education,
emergency fund
Replace income
 On average, 70% of gross family income less surviving spouses income
 Index for inflation
Life Insurance Analysis
 Step 1: We help you review your cash-flow & net- worth,
family dynamics
 Step 2: Analyze existing coverage
 Step 3: Determine your goals - short & long term
Case Study #1
Dr. A is married and has 2 young children. Both he and his
wife are 30 years old and the children are 6 months and 2
years old. He is a resident making $60,000 and his wife earns
$40,000 for a total household income of $100,000. They
have a total debt of $320,000 including a mortgage. Their
lifestyle currently is $70,000 which will probably double to
$140,000 within the next 5 years. They would like to ensure
that their children’s education needs are accounted for. They
plan to retire at 65. For illustration purposes we have used
2.1% inflation and 6.0% rate of return in our calculations for
insurance.
Case Study #1 - Solution
 Therefore, the need is calculated at $2,500,000
insurance for the doctor to cover debt and income
replacement. A recommendation for OMA insurance for
the maximum of $1,000,000 and $1,500,000 term policy
with a third party insurer would be made.
 Insuring the spouse for $1,000,000 is also recommended
to cover the additional household costs and allow the
doctor to take some time off work.
Case Study #2
Dr. B is married and has 2 young children. Both he and
his wife are 30 years old and the children are 6 months
and 2 years old. He is a resident making $60,000 and
his wife is not employed outside the home. They have a
total debt of $320,000 including a mortgage. Their
lifestyle currently is $50,000 which will probably double
to $100,000 within the next 5 years. They would like to
ensure that their children’s education needs are
accounted for. They plan to retire at 65. For illustration
purposes we have used 2.1% inflation and 6.0% rate of
return in our calculations for insurance.
Case Study #2 - Solution
 Therefore, the need is calculated at $3,500,000
insurance for the doctor to cover debt and income
replacement. A recommendation for OMA insurance for
the maximum of $1,000,000 and $2,500,000 term policy
with a third party insurer would be made.
 Insuring the spouse for $1,000,000 is also recommended
to cover the additional household and child care costs
and allow the doctor to take some time off work.
Case Study #3
Dr. C is single. He is 30 years old. He is a resident
making $60,000. He has a total debt of $320,000
including a mortgage. His lifestyle currently is $50,000
which will probably double to $100,000 within the next 5
years. He plans to retire at 65. For illustration purposes
we have used 2.1% inflation and 6.0% rate of return in
our calculations for insurance.
Case Study #3 - Solution
 Since PAIRO insurance is for double his income there is
no need for additional insurance, unless there is a family
history that would be a concern for qualifying for
insurance in the future.
The Real Estate Market: Should You Buy A Home Or Rent?
Mortgage Fundamentals
Mortgage Pre-Approval
 What is a mortgage pre-approval?
 Why should you have a pre-approval?
 What is the difference between a mortgage pre-approval and
actual financing?
•
Mortgage Fundamentals
 Term
 Time during which your interest rate is locked-in and will not
change (3 months to 10 years)
 Amortization
 Period over which your loan will be repaid (up to 25 years)
 Pre-payment
 Annual over-payment that you are entitled to make directly
towards the principal balance
•
Mortgage Fundamentals (continued)
 Payment frequency
 Monthly is most common
 You can also choose to “accelerate” your payments
either weekly or bi-weekly
Types of Mortgages
 Variable rate mortgage
 Loan which carries a floating interest rate, similar to your line of
credit
 Capped variable rate
 Same as above but with a ceiling or pre-set limit on the maximum
interest rate you would pay over the term
 Fixed rate mortgage
 Loan which has a set interest rate that will not change over the
term

Types of Mortgages (continued)

Open mortgage
Open loan, payable in full at any time, available for 6 months to 1
year
 Closed mortgage
Closed loan with a pre-determined maximum annual overpayment
amount (usually between 10-20%)
Finding the Right Mortgage
Determine your tolerance to risk
 Over the long term, a variable mortgage could save you thousands in
interest payments, but you need a cash flow that can tolerate
payment fluctuations
 Alternatively, fixing your payment at a higher $ value/month, still
gives you lowest rate & allows you to budget payments
Four steps to help determine what you can afford
1. Prepare a statement of your Net Worth and Cash Flow
 To help establish your debt ratio & determine your capacity for a
mortgage
2. Debt Ratios - 2 different calculations
 GDS - Gross Debt Ratio
 32% of gross income towards mortgage debt service
 TDS - Total Debt Service Ratio
 40% of gross income towards total debt service
Buyer Beware!
A debt ratio calculation alone does not take into account all of
your short- and long-term financial goals!
Four steps to help determine what you can afford
2. Determine how you will finance the down payment
 20% or more for a conventional mortgage (no mortgage insurance)
 Less than 20% will require mortgage default insurance (between
0.5% and 3.10% of the value of the mortgage loan) from Canada
Mortgage and Housing Corporation (CMHC) or Genworth Financial
Canada
Four steps to help determine what you can afford
2. Determine how you will finance the down payment (cont)
 Home Buyers’ Plan
 First-Time Home Buyers can borrow up to $20,000 taxfree ($40,000/couple) from their RSP
 For all the details, speak to an MD Financial Consultant
Four steps to help determine what you can afford
3. Estimate all of the other one-time and ongoing costs
 Appraisal, inspection, water quality, survey, lawyer
 Land transfer tax, PST, GST (new house)
 First-time Home Buyers’ are eligible for a refund of up to
$2,000 of the land transfer tax paid
 Moving costs, pre-paid bill reimbursement, utilities/services hook
up
 Ongoing costs include property taxes, house & life insurance,
maintenance; condo fee (where applicable)
Four steps to help determine what you can afford
4. Establish your objectives for price & housing requirements
 Price - Use the goals established in your MDM financial plan to buy a
house that you can afford & ENJOY
Four steps to help determine what you can afford
4. Establish your objectives for price & housing requirements
 Housing Requirements:
 What type of home - single family, condo, town home?
 What features are important - # rooms/bathroom, size of
kitchen?
 Where do you want to live - close to the hospital, out in the
country?
 What amenities are important - shopping, schools, recreation?
 Build or buy?
 If you buy, what is excluded/included - appliances, lighting
fixtures?
 If you build, what is excluded/including - front walk,
driveway, deck, landscaping, air conditioning?
Assemble a team of pros that you trust
Real Estate Agent
Are they experienced in type of home/location of choice?
Lawyer or Notary
To review offer, do title search, draw up mortgage documents, tend to closing
details
Insurance Broker
For property insurance
MD Insurance Consultant
Reassess your life insurance requirements
Building Inspector
To conduct “physical” on the property
MDM Financial Consultant
To integrate home buying into your personal financial plan
Debt Management
Resident Debt Analysis
 Common medical student / resident
 debt load:
$100,000 - 200,000
Debt Management
 Student loans / Credit lines
y
What is the interest rate? (fixed or variable)
y
When does the repayment schedule start (blended payments)?
y
What is the amortization of the loan (repayment period)?
y
Will the credit line remain revolving or converted to a term loan?
Debt Repayment Strategy
 Variables to consider:
 Cash-flow (discretionary income)
 Other debts (mortgage, higher interest credit cards)
 Short / Medium term goals
 Interest rate environment (increasing or decreasing)
 Interest rate expense
The Cost of Debt
$100,000 Debt
Mo Pmt Int Cost
Amortized 3 yrs @ 6.25% =
$3,050 $9,797
Amortized 5 yrs @ 6.25% =
$1,941 $16,472
Identify Financial Needs
 What is the best use of my spare money? (discretionary
income)
 RRSP contributions
 Debt Reduction
 Additional insurance coverage (life & D.I.)
 Saving for short-term goals (vacation)
As a Resident, what should I do...?
 Maximize my debt repayment?
 Maximize my RSP contributions to avoid the “high cost of
delay”?
 A combination of both?
Consider...
 Long-term growth of RSP
 Interest expense of carrying debt
 Tax savings created by RSP contributions
 Short, medium & long-term goals
 Current economic trends & conditions (i.e interest rates, market
cycle, estimated ROR)
Bottom Line:
 This is one of the trickiest questions to answer
 Everyone is under a different set of circumstances
 We meet with you one-on-one to determine how best to direct your
discretionary money
Tax Planning
Resident Issues
 Filing a tax return as a resident
 How to increase discretionary income
 Incorporation
 Questions & Answers
FILING A TAX RETURN
AS A RESIDENT
(An Employee)
Tuition Fees & Education Credits
 Creates a non-refundable tax credit
 Means you save the same amount of tax (i.e. 21%)
regardless of “when” and “who” claims
 Need to obtain a T2202A slip (most Universities now providing
on-line rather than mailing)
 Provides “education” credits of $400 per month
 Contact post-grad department for letter to accompany tax
return as many residents are being audited
 Consider potential transfer to spouse or parent
62
Improve your cash flow – Tax forms to be aware of
There are two forms you need to be aware of: TD1 and
T1213. If you have significant tuition and education tax
credits being carried forward, you can indicate on these forms
that the credits be applied to your current income rather than
applying for them at the end of the tax year. This results in
less tax being taken off at source. This allows you to apply
this money towards debt repayment and/or lifestyle needs. It
usually translates to about $10,000/year assuming a $50,000
income and assuming sufficient tax credits being carried
forward.
Moving Expenses
 Claim for school or work
y Against corresponding income including scholarships,
fellowships, research grants
y Need to move 40kms or more closer
 Type of Expenses that can be claimed
Movers, travel costs, meals, lodging
 Need to retain receipts
Government typically asks for these
64
Scholarships and Bursaries
 Typically reported on a T4A slip
 Residents and fellows should benefit from tax-free status of all
scholarships and bursary income if they are, in fact entitled to
an education tax credit
 Qualification for the education tax credit will be detailed on the
respective resident or student’s Form T2202A
65
Employment (Residents)
 Income - report on the cash basis (T4)
 Expenses - very restricted - employer pays for most
 Deduction for employment expenses - must be authorized via
T2200 form signed by employer - generally includes automobile,
parking, dues & fees
66
Employment (Residents)
Can I deduct…?
 Exam costs vs. membership fees
 Travel costs during interviews
 Moving expenses
 CMPA coverage
 Medical library and equipment
 Personal computer, cell phone, palm pilot
67
Incorporation – the Right Choice
for Your Practice?
Agenda
 Tax deferral
Integration, examples, maximizing the benefit
 Income splitting
Different income levels, different family members
 Important considerations
 Questions for your financial planner, accountant and lawyer
The Tax Deferral Advantage
All tax calculations are for illustrative purposes only and are based on tax
legislation enacted or proposed as of March 1, 2008 (unless otherwise indicated).
All calculations are based on average 2008 tax rates. Actual tax amounts will
vary according to your specific facts and circumstances.
MD Management does not intend to provide taxation, accounting, legal or similar
professional advice to clients or potential clients. The information contained in
this document is not intended to offer such advice, nor is it to replace the advice
of independent tax, accounting and legal professionals.
2008 Ontario Tax Rate Comparison
Corporation
Individual
Active Business Income
<$400,000
16.50%
46.41%
$400,000 - $500,000
25.00%
46.41%
>$500,000
33.50% *
46.41%
Interest
48.67%
46.41%
Non-eligible dividends
33.33%
31.34%
Eligible dividends
33.33%
23.96%
Capital gains
24.33%
23.21%
Investment Income
* In addition to the general rate of 33.50%, a provincial surtax of 4.25% will apply on income in the range of $500,000 to
$1,500,000. The impact of this surtax is to gradually claw back Ontario’s small business deduction, completely offsetting any
benefit of the deduction at an income level of $1,500,000. The increase of the Ontario small business limit from $400,000 to
$500,000 is only a proposal and is subject to change until it is enacted into law. Tax rates are current as of May 1, 2008.
For internal use only
2008 Ontario Tax Rate Comparison
Corporation
Individual
Active Business Income
<$400,000
16.50%
46.41%
$400,000 - $500,000
25.00%
46.41%
>$500,000
33.50%
46.41%
Interest
48.67%
46.41%
Non-eligible dividends
33.33%
31.34%
Eligible dividends
33.33%
23.96%
Capital gains
24.33%
23.21%
Investment Income
Total tax example: Corporate small business rate x Personal non-eligible dividend tax rate
1- ((1-0.1650) x (1-0.3134))
(1-0.5734) = Total tax of 42.66%
For internal use only
Integration
A general tax policy which aims at ensuring that income
earned and distributed by a Canadian Controlled Private
Corporation (CCPC) bears virtually the same amount of total
tax as would apply to the same income earned by an
individual taxpayer directly.
Simplified Case - In Favour of Incorporation
 Mary, a single GP, is considering incorporating her medical practice
 In order to meet her current lifestyle needs, Mary, along with the help
of her accountant, has determined that she would need to pay herself
a salary of $117,000 from the corporation
 This salary level also allows for continued RRSP contributions
Illustrative Tax Rates
Personal Tax Rates
first $38,000
25.00%
over $38,000 up to $76,000
35.00%
over $76,000 up to $123,000
40.00%
over $123,000
45.00%
Corporate Rates
first $400,000
16.00%
over $400,000
34.00%
The Numbers
Unincorporated
Income (after expenses)
Salary
Professional fees (for the Corp)
Net income
150,000
150,000
Corporation
Year 1
Year 2+
150,000
150,000
(117,000)
(117,000)
(4,000)
(1,000)
29,000
32,000
Corporate net income
Taxes - corporation
After-Tax Income (Retained in Corp.)
29,000
(4,600)
24,400
26,900
Personal income
Taxes - personal
Net salary
150,000
(51,400)
98,600
117,000
(36,800)
80,200
117,000
(36,800)
80,200
98,600
104,600
107,100
Combined Personal & Corporate
After-Tax Income
Deferral advantage
6,000
32,000
(5,100)
8,500
Calculations are based on illustrative income tax rates noted on Slide 8.
Income
Taxed
Corporately
Taxed
Personally
The Numbers – MD Tax Deferral Worksheet
PROVINCE
Ontario
NON-INCORPORATED
INCORPORATED
Net Practice Income
RRSP Contribution (enter as neg.)
150,000
0
Taxable Income
150,000
Net Practice Income
Required physician salary (estimate)
Yearly Incorp. costs (enter as neg.)
Corporate Taxable Income
Federal Tax
Federal Tax Abatement (Quebec)
Provincial Tax
Provincial Surtax
Total Tax Payable
(33,100)
0
(13,700)
(5,000)
(51,800)
Corporate Tax Payable
Lifestyle Needs (enter as neg.)
(80,400)
Yearly Non-reg Investment
17,800
Yearly Corporate Investment
Annual Deferral Advantage
150,000
(117,000)
(1,000)
32,000
(6,000)
26,000
8,200
Calculations in worksheet are based on 2007 income tax rates proposed or in effect as of Sept. 1/07
Mary Considers Incorporating
Conclusion:
 Mary will benefit from a tax-deferral on savings retained in the
corporation
 RRSP contribution room will allow for additional tax deferral which
affects the salary vs. dividend decision
 Incorporation is a valid option for Mary
Simplified Case - Against Incorporation
 John is a young GP, married to Julie. They have 3 children and a large
mortgage on their principal residence.
 To meet John’s cash flow needs, the corporation pays him a salary of
$117,000 as well as a dividend distribution equal to the funds
remaining in the corporation.
 John is not eligible for the spousal tax credit (due to Julie’s income
level).
The Numbers
Unincorporated
Income (after expenses)
Salary
Professional fees for the corporation
Net income
150,000
150,000
Corporate net income
Taxes - corporation
After-Tax Income
Dividend Distribution (non-eligible)
Funds retained in Corporation
Personal salary income
150,000
Personal non-eligible dividend income
Taxes - personal
(51,400)
Net income
98,600
Combined Personal & Corporate
After-Tax Income
Increase (decrease) in savings
98,600
Incorporated
Year 1
Year 2+
150,000
150,000
(117,000)
(117,000)
(4,000)
(1,000)
29,000
32,000
29,000
(4,600)
24,400
24,400
0
32,000
(5,100)
26,900
26,900
0
117,000
24,400
(44,400)
97,000
117,000
26,900
(45,200)
98,700
97,000
98,700
(1,600)
100
Income
Taxed
Corporately
Taxed
Personally
Calculations are based on illustrative income tax rates noted on slide 8.
John Says No to Incorporation
Conclusion
 No savings retained in the corporation means no tax-deferral
 Due to additional expenses related to incorporation, there are
minimal tax savings
 Incorporation for John would mean more administrative work
and very little (if any) tax savings
Key Considerations
 In order to defer taxes, earnings must be retained within the
corporation.
 The tax deferral advantage is greater when funds retained in the
corporation are taxed at the small business rate rather than the
general corporate rate.
 Should still consider RRSP contributions and the new Tax Free
Savings Plan (TFSA).
Realizing the Benefits of Tax Deferral
 Reducing tax now so you can invest the money and make more money
can be, at least partially, a temporary benefit.
 Turning tax deferral into tax savings
y To maximize the amount you will receive personally, drawing the money
out at the right time is essential.
y It may be possible to withdraw a certain level of funds and incur little or
no tax.
The Income Splitting Advantage
All tax calculations are for illustrative purposes only and are based on
tax legislation enacted or proposed as of March 1, 2008 (unless
otherwise indicated). All tax calculations are based on average 2008 tax
rates. Actual tax amounts will vary according to your specific facts and
circumstances.
Share Ownership Regulations
 Legislation governing incorporation differs between provinces and
includes restrictions on who can own shares of your medical
professional corporation

Can family members, trusts, or even other corporations own
shares?
 Speak to your legal advisor about the regulations in your province.
Simplified Case - The Income Splitting Advantage
 Back to our example with John who has high cash flow needs
which prevent him from realizing deferral benefits.
 Again, we assume the corporation pays John a $117,000 salary
so that he can maintain his RRSP contributions
 Julie, John’s wife, earns no income
The Numbers
Unincorporated
Corporation
Year 1
Income (after expenses)
Salary
Professional fees for corporation
Corporate net income
150,000
Taxes - corporation
Available for deferral (or paid as a div.)
Salary - John
Taxes - John
Non-eligible dividend income - Julie
Taxes - Julie
After-Tax Income
Increase in After-Tax Income
150,000
(49,000)
101,000
Year 2+
150,000
(117,000)
(4,000)
29,000
150,000
(117,000)
(1,000)
32,000
(4,600)
24,400
(5,100)
26,900
117,000
(36,800)
24,400
-
117,000
(36,800)
26,900
-
104,600
107,100
3,600
6,100
Calculations are based on illustrative income tax rates noted on Slide 8.
Income
Taxed
Corporately
Taxed
Personally
The Numbers – MD Income Splitting Worksheet
Province
British Columbia
Current Situation - Non-Incorporated
Client
Spouse
Adult Child
Other
Net Practice Income (after expenses and salaries paid to family members)
Salary from Medical Practice
Other ordinary income
150,000
Total Income
150,000
-
-
-
Federal Tax
Federal Tax Abatement (Quebec only)
Provincial Tax
Provincial Surtax
Total Tax Payable
(33,100)
(15,700)
(48,800)
-
-
-
After-Tax Income
101,200
-
-
-
-
Calculations in worksheet are based on 2007 income tax rates proposed or in effect as of Sept. 1/07
Incorporation
Corporation
Net Practice Income
Incorporation Costs (enter as negative)
Salary
Corporate Taxable Income
Corporate Tax
Available Cash for Distribution
Non-Eligible Dividends Allocation
Eligible Dividends Allocation
Total Income
Taxable Income
Federal Tax
Federal Dividend Tax Credit
Federal Alternative Minimum Tax
Federal Tax Abatement (Quebec only)
Provincial Tax
Provincial Dividend Tax Credit
Provincial Surtax
Provincial Alternative Minimum Tax
Total Tax Payable
After-Tax Income
150,000
(1,000)
(117,000)
Client
Spouse
Adult Child
Other
117,000
32,000
(5,600)
26,400
(26,400)
-
26,400
-
-
-
117,000
117,000
(23,600)
(10,900)
(34,500)
26,400
33,000
(3,700)
3,700
(1,400)
1,400
-
-
-
82,500
26,400
-
-
SUMMARY OF AFTER-TAX INCOME
Client
Current Situation
101,200
Incorporation
82,500
Potential Yearly Income Splitting Advantage (Disadvantage)
Spouse
26,400
Adult Child
-
Other
-
Total
101,200
108,900
7,700
The Numbers (other examples)
Unincorporated
Income (after expenses)
Salary
Professional fees for corporation
Corporate net income
200,000
Taxes - corporation
Available for deferral (or paid as div.)
Corporation
Scenario 1
Scenario 2
200,000
(150,000)
(1,000)
49,000
200,000
(125,000)
(1,000)
74,000
(7,800)
41,200
(11,800)
62,200
Taxed
Corporately
Taxed
Personally
Salary - John
Taxes - John
Non-eligible dividend income - Julie
Taxes - Julie
200,000
(71,500)
150,000
(51,400)
41,200
(2,000)
125,000
(40,100)
62,200
(6,300)
After-Tax Income
128,400
137,800
140,800
Increase in After-Tax Income
9,300
12,300
Calculations are based on 2008 illustrative income tax rates noted on slide 8.
Income
Key Considerations
 Income splitting with a spouse and/or adult child who is in a
lower tax bracket than yourself could provide for very attractive
tax savings.
 Provincial rules on share ownership in a medical corporation
may impact the ability to split income with family members.
 Kiddie tax rules negate the benefits of income splitting with
minor children.
 Speak with your tax advisor about attribution rules which could
also negate the benefits of income splitting.
Important Considerations
Incorporation Myth #1
 Greater expense deductions?

No — same general rules for deduction of expenses

Expenses incurred to earn income

Amount of expense is reasonable

Proof of payment required
 Other Considerations:
Medical / Dental expenses (Health & Welfare Trusts)
The use of cheaper after-tax corporate dollars

Non-deductible expenses (i.e. 50% of meals & entertainment)

Repayment of business debt
Incorporation Myth #2
 Limited Liability
No — physicians still liable for professional acts
Limited liability for corporate creditors
The Real Advantages
 Tax-deferral
 Income splitting
 The use of sophisticated products

Individual Pension Plans for retirement planning

Health & Welfare Trusts

Universal Life insurance policies for estate planning
Important Questions
Questions for Your Accountant
 Have you incorporated many physicians?
 What expenses can I pay from the corporation?
 In my particular situation, how much tax can I save by
incorporating?
 How sensitive to change are these savings?
 How can I benefit from the use of Universal Life insurance or an
Individual Pension Plan?
Questions for Your Accountant
 How will I set up the books?
 What dividend/salary mix should I have?
 What legal structure should I have for my situation?
 What range of fees will I be expected to pay?
Questions for Your Lawyer
 Have you incorporated many physicians?
 What are the limitations of incorporation in this province?
 What happens to the corporation in case of marital breakdown?
 How much will your fees be?
Questions for You
 How much debt do I have?
 Am I a good saver?
 Does my lifestyle allow me to “leave” a sufficient amount of
money in a corporation over a long-term period?
 Am I willing to split income with my spouse and/or children?
Questions for You
 Am I well-organized financially?
 Do I handle financial complexity well?
 Am I risk-averse?(in terms of changes to the legislation)
 Do I have a good relationship with my accountant/lawyer?
What Next?
Incorporation is a complex issue. Our goal is to ensure that you
receive valuable advice tailored to your specific situation. We will
work with your current advisor to ensure this is achieved
Be sure to consult:
y MD Management Financial Consultant
y MD Insurance Consultant
y MD Estate and Trust Advisor
y Accountant
y Legal counsel
Questions
Contact Us
Franca Matsos
franca.matsos@cma.ca
MD Financial:
mdfinancial.cma.ca
click on “Students/Residents”
1 800 267-2332
MD Financial Banking Solutions:
mdfinancial.cma.ca
click on “Banking Solutions”
Practice Solutions:
cma.ca/practicesolutions
Canadian Medical Association:
cma.ca
1 888 855-2555