CONFIDENTIAL
Accounting, Tax and Other Planning
for MD Residents entering practice
July 23, 2015
CONFIDENTIAL
www.cbhealthcaregroup.com
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CONFIDENTIAL
WHO AM I and WHAT IS COLLINS BARROW KMD LLP?
Brandon D. Gilbert, CPA, CA, BMath, MAcc
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Partner since 2012, practicing since 2003
90% + of practice is healthcare related
Born and raised in Southwestern Ontario
Married to Donna, also a CPA, CA
Son Brody, who is an active toddler, 2nd baby on the way.
Collins Barrow KMD LLP
 Member of Collins Barrow
– 8th largest CA firm in Canada
– Offices in over 55 cities across the country
– A local firm with National reach
 Well known knowledgeable partners and staff
 Diverse experience in business, agriculture, healthcare, etc.
 Large client base of Physicians, Dentists and PC’s throughout
Ontario, with 300+ PC’s, 175+ MD residents.
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CONFIDENTIAL
WHY ARE WE HERE?
 Basics of Tax
 Income and Expenses as Professional/MPC
 What is a Medicine Professional Corporation
(MPC) and should you have one?
 Random knowledge
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Banking arrangements
Buying that house and mortgage vs. invest in MPC
TFSA’s
Disability and life insurance thoughts
Legal Easy
Top 11 financial tips.
CONFIDENTIAL
IF YOUR FRIEND JUMPED OFF A CLIFF…
 You are not the same as friends/colleagues
 Facts and circumstances are important
 The “Crystal Ball” effect
(no one can predict future, build in flexibility and
update plans as situation changes)
 If it sounds too good to be true
 Do not hide information from advisors
 Advisor interpretations and opinions
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CONFIDENTIAL
WHEN TO THINK ABOUT TAXES
 You should think about taxes all the time.
 Major life changes
–Birth;
–Marriage;
–New Job/Practice/Corporation;
–Moving;
–Investing;
–Wills;
–Inheritance;
–Gifts;
–Separation/Divorce;
–Death;
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CONFIDENTIAL
THE ROAD TO BECOMING A PHYSICIAN
Medical Student
MD Resident
Fellowship
Practicing
Physician
Medicine
Professional
Corporation
(MPC)
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CONFIDENTIAL
MARGINAL TAX RATES - EXAMPLE FOR TAX DEFERRAL
Marginal personal rates
$0K to $44K = 20 - 24%
$45K to $89K = 31 - 39 %
$90K to $137K = 43.4%
$138K to $149K = 46.4%
$150K to $220K = 48%
over $220K = 49.5%
Corporate rates
15.5% up to $500K (scheduled to decrease to 13.5%)
26% over $500K
Investment income = ~ 47%
Maximum Tax Deferral (49.5% - 15.5%) = 34.0%
CONFIDENTIAL
GENERAL TAXATION RULE FOR PROFESSIONAL INCOME
 Professional income is taxable
when earned (accrual method)
not when received (cash method).
– e.g. service provided December, paid in February
CONFIDENTIAL
GENERAL RULE/RESTRICTION FOR PROFESSIONAL EXPENSES
 Expenses deducted on the Accrual basis
– e.g. February conference and flight; paid in December.
 Expense for purpose of earning income
 Must be reasonable
 Allowed under Income Tax Act of Canada (ITA)
– Some “professional” expenses denied under ITA
(workspace-in-home, certain insurances, auto
cost/lease, etc.)
CONFIDENTIAL
ACCOUNTING FOR INCOME AND EXPENSES
 Your responsibility to keep receipts and records.
 By default:
– Deposits are taxable
– Payments (expenses) are non-deductible
 Keep all business receipts
(credit card and bank statements not sufficient)
 KISS principle and make it a habit
CONFIDENTIAL
TYPICAL EXPENSES FOR A HEALTHCARE PROFESSIONAL
 Accounting, legal and other professional fees
 Automobile (commuting to work is personal)
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Fuel
Repairs and maintenance (including car washes)
Insurance
Licensing fees (for business vehicle only)
Automobile Association (e.g. CAA)
Parking
Interest on vehicle loan (if your vehicle is financed)
Capital cost allowance (depreciation) [restricted for “luxury” vehicles]
Lease payments (if vehicle leased) [restricted for “luxury” vehicles]
Expense is limited to total business use kilometers vs. total kilometers
driven in the year (% business use)
 Bank charges for practice bank account;
CONFIDENTIAL
TYPICAL EXPENSES FOR A HEALTHCARE PROFESSIONAL
 Credit card fee for practice credit card, if any
 Subscriptions, periodicals, journals for practice (no
personal newspaper or magazine subscriptions);
 Meals & entertainment for practice
business/promotion
 Gifts for staff, residents and/or colleagues
 Interest on line of credit to finance practice assets/
operations (NO interest for student LOC is allowed)
 Medical and drug supplies for office/patient use
CONFIDENTIAL
TYPICAL EXPENSES FOR A HEALTHCARE PROFESSIONAL
 Private Health Service Plan (PHSP) premiums and
Health Care Spending Account (HCSA) contributions
(restrictions if you have employees);
 Professional association fees and dues including CMPA
malpractice insurance (net of any rebates)
 Office supplies and expenses
 Office insurance and Prof. overhead expense insurance
 Salaries to spouse, secretary, employees, or temporary
office staff, subcontracts for billing agent, nurse.
CONFIDENTIAL
TYPICAL EXPENSES FOR A HEALTHCARE PROFESSIONAL
 Shared overhead or cost-sharing expenses/payments
 Telephone/telecommunication
– Cell phone (note: home phone not deductible unless 2nd
line for business or long distance for business)
– Pager (if unreimbursed)
– Internet (including home internet)
– iPhone, Blackberry, cell phone
 Professional development, continuing medical
education, seminar and other course expenses;
 Travel, conference, meetings (separate meals out and
add to meals & entertainment category)
CONFIDENTIAL
OTHER EXPENSES FOR A HEALTHCARE PROFESSIONAL
Office-in-home (workspace in home)
 Not deductible if unincorporated and have an outside “principal
place of business”
 Expense based on proportion of office vs. entire house on
“square footage” or “equivalent room” basis.
 Actually has to look like an office.
 Expenses can include:
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Mortgage interest (NO principal)
Rent
Gas and Electricity
Insurance
Property taxes
Security System monitoring
Repairs and maintenance specific to the office or of a general nature only
(e.g. repair to a roof, furnace, hot water heater)
CONFIDENTIAL
OTHER EXPENSES FOR A HEALTHCARE PROFESSIONAL
Amortization/Depreciation (Capital Cost Allowance)
 Deduct a percentage of cost of a “Capital” asset each year
 Can add assets at start of practice at fair market value.
 Capital assets last more than one year, such as:
– Computer equipment (cl. 52 = 55%)
 Laptops and home computers (if used in business),
 iPads (tablets) and iPods (if used in business)
– Office equipment including desks, chairs, printers, lamps,
degree/diploma framing (cl. 8 = 20%)
– Medical library and textbooks (cl. 8 = 20%)
– Computer software (incl. EMR software) (cl. 12 = 100%)
– Medical Instruments and equipment (cl. 8 = 20% or cl. 12 =100%)
– Buildings for practice (cl. 1(a.2) = 6%)
– Leasehold improvement (cl. 13 straight-line for 1st term + 1st renew)
CONFIDENTIAL
HOW LOW CAN YOU GO? HOW HIGH SHOULD YOU STOP?
Objective:
Minimize tax, maximize income/savings
Create and stick to personal spending budget
–Live within your income
–Plan for long term savings and pay off debts
–Build in flexibility
Be realistic and do not live beyond your means
Work with accountant to estimate taxes in
advance.
CONFIDENTIAL
WHAT IS A CORPORATION
 Separate legal entity
 Limited liability – BUT professionals not
shielded from professional negligence claims
 Corporate roles
 Shareholders
 Directors
 Officers
 Employees
CONFIDENTIAL
BENEFITS OF INCORPORATING
 Income “split”
 Income “smooth”
 Tax deferral
 Other perks
CONFIDENTIAL
INCOME SPLITTING OVERVIEW
 Objective: shift high-tax income to low-tax family
 Maximum tax savings = 29% of the income
 Methods:
–Salary (employee “role”)
Deductible expense, but CPP “cost”
Do not need to be incorporated
Salary must be “reasonable”, paid regularly
–Dividend (shareholder “role”)
Paid from after-tax corporate income
Simpler, can be sporadic
CONFIDENTIAL
INCOME SPLITTING – EXAMPLE OF SAVINGS WITH SPOUSE
Net
Income
After-Tax Income
Annual
Professional
No
Tax
Corporation Corporation Savings
$300,000
$208,500
$192,000
$16,500
$400,000
$261,400
$242,500
$18,900
$500,000
$312,800
$293,000
$19,800
Assumes doctor salary of $140,000, spouse salary of $12,000, maximum RRSP
contributions, extra $3,500/year admin costs for PC and full income splitting of
remaining after-tax corporate funds as dividends using 2014 tax rates.
CONFIDENTIAL
INCOME SPLITTING – EXAMPLE WITH SPOUSE + ADULT CHILDREN
Net
Income
Tax
Savings
Spouse
One
Child
$40,000
Two
Children
$80,000
$300,000
$16,500
$28,700
$38,000
$400,000
$18,900
$33,300
$47,200
$500,000
$19,800
$34,600
$50,600
Assumes doctor salary of $140,000, spouse salary of $12,000, maximum RRSP
contributions, extra $3,500/year admin costs for PC and full income splitting of
remaining after-tax corporate funds as dividends using 2014 tax rates.
CONFIDENTIAL
INCOME SMOOTHING OVERVIEW
 Drawing a consistent personal cash flow from
the corporation instead of “random” draws:
 Controls spending
 Assists budgeting
 Easier to manage
 Taxes consistent
 Taxes minimized
 Saving for retirement, a leave of absence, or
your children’s education
CONFIDENTIAL
AFTER-TAX CASHFLOW AMOUNTS – Dividend Income
Dividend Personal
paid
tax paid
$ 66,000 $ 6,000
$ 82,700 $10,700
$109,500 $19,500
$137,700 $29,700
$157,200 $37,200
After-tax
Cash
$ 60,000
$ 72,000
$ 90,000
$108,000
$120,000
Per
Month
$ 5,000
$ 6,000
$ 7,500
$ 9,000
$10,000
$206,600
$256,800
$150,000
$180,000
$12,500
$15,000
$56,600
$76,800
CONFIDENTIAL
WHAT IS TAX DEFERRAL
Tax is not paid at the personal level until salary
or dividends withdrawn from corporation
–Concept is similar to RRSP
Owner/manager can control timing of salary and
dividend withdrawals
CONFIDENTIAL
THE THEORY OF INTEGRATION – as of January 1, 2014
Income to Corporation
Corporation Tax
Available for Dividend
Personal Tax (maximum rate)
Net After Tax Cash
$100,000
(15,500)
84,500
(33,900)
$50,600
Income to Person
Personal Tax (maximum rate)
Net After Tax Cash
$100,000
(49,500)
$ 50,500
Overall Tax Savings (0.1%)
Potential Tax Deferral (34%)
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$100
$34,000
CONFIDENTIAL
OPTIONS FOR INVESTING THE TAX DEFERRAL
Corporate investment options
 Stocks, mutual funds & ETF’s, Corporate Class,
fixed income (GIC’s / bonds)
 Real Estate and equipment for practice
 Life insurance with cash value
 Tax sheltering of investment income
 Reducing tax to estate for next generation
 Shares and loans to related corporations
 Related corp. can invest in other real estate.
DO NOT use corp to invest in any personal assets
(e.g. House, recreational properties, vehicles)
CONFIDENTIAL
OTHER POTENTIAL PERKS OF A CORPORATION
Non-taxable benefits
Club dues (golf club, social club, not gym)
Life insurance premiums
Office-in-home
Health plans
Enhanced Scientific Research tax credits for
Physicians contributing to research activities
CONFIDENTIAL
MORE DETAILS ABOUT INCORPORATION
Restrictive share ownership
–children, spouse, parents, only
Separate bank and investment accounts
–Recommend separate credit card
Must file corporate tax return
Must still file personal returns, but returns
should be simpler
CONFIDENTIAL
MORE DETAILS ABOUT INCORPORATION
Taxes paid in 3 ways:
Paid from Corporation bank account:
1. Corporate income tax instalments (monthly)
2. Salary source deduction remittances
(monthly)
Paid from personal bank accounts:
3. Personal instalments on dividends (quarterly)
CONFIDENTIAL
INITIAL AND ONGOING COSTS OF INCORPORATION
Incorporation costs (1st year only)
–Accountant fees (guidance and tax planning)
–Incorporation service or Lawyer incorporation fees
CPSO corporation registration (initial application
and annual renewal)
Additional tax and administrative complexity =
higher annual accounting and legal costs
compared to remaining unincorporated
But, most costs are tax deductible
CONFIDENTIAL
WHY WOULD I NOT INCORPORATE
Cost and additional complexity may outweigh
benefits if:
Nobody to income split with (e.g. single, dual
high income); AND
Need all income personally (debt repayment,
RRSP, TFSA, RESP); AND
No “other perks” as advantage
CONFIDENTIAL
WHY WOULD I NOT INCORPORATE – POST JANUARY 2014
Total
Income
$200,000
$300,000
$400,000
$500,000
After-Tax Income
Professional
No
Corporation Corporation
$133,800
$135,600
$185,100
$186,600
$235,700
$237,100
$286,300
$287,600
Annual
Savings
(Cost)
$(1,700)
$(1,500)
$(1,400)
$(1,300)
Assumes doctor salary of $140,000, maximum RRSP contributions, extra
$3,500/year admin costs for PC and dividends to doctor for remaining after-tax
corporate funds using 2014 tax rates (Note: no substantial tax changes in 2015).
CONFIDENTIAL
PROBLEMS AND BAD ADVICE
Incorporate when it does not make sense
Liability protection is limited
Tax planning, what is that?
The bank of Corporation
–Mortgage/Loans
–Personal spending
“Employee” actually looks after kids
In the business of medicine/dentistry
Poor investment/insurance planning/guidance
CONFIDENTIAL
BANKING ARRANGEMENTS
 Request images of cleared cheques and use
duplicate deposit book or keep ATM deposit slip.
 Pay for everything using credit cards or trackable
bank transactions.
 Paying online sometimes not the easy to track so
print online transaction confirmations.
 Set up automatic payments from credit cards and
bank statements where practical.
 Separate personal and business credit card
transactions (open new accounts for practice)
 Consider business LOC if cashflow is tight.
CONFIDENTIAL
BUY THAT HOUSE CONSIDERATIONS
Do not be house poor
Avoid CMHC as much as possible.
– Try to “rob Peter to pay Paul” by using cash from
practice and personal LOC to fund downpayment.
– Consider delaying purchase to build cash
Fixed rate mortgage rates very cheap, interest
rates will go up (but when…)
Plan to payoff in under 25 years (i.e. budget)
Never terminate a line of credit as never know
when may need it.
Talk to us first if possible
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CONFIDENTIAL
BUY THAT HOUSE – RRSP HOME BUYERS PLAN
Home Buyers Plan (HBP)
– Exception to recommendation to not contribute.
– May withdraw up to $25,000 from RRSP to purchase
your first house.
– Funds must be in RRSP for 90 days before withdrawal
$5,000 federal only non-refundable tax credit for a
“first time home buyer”
 Example: Self-employed income of $185K in 2015, $25K
RRSP contribution Feb 28, 2016, buy house June 1, 2016.
RRSP HBP withdrawal (after June 1, 2015):
Tax saved (refund) from RRSP contribution
Cash available for down payment on house
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$25,000
12,000
$37,000
CONFIDENTIAL
MORTGAGE VS. INVESTING IN CORPORATION
$500,000 mortgage @ age 35
Corp has $44,800/yr. extra cash
3% after-tax return and 3% mortgage rate
33% tax to make base mtge, 37.5% tax on extra
Corp advantage is $51,000@ age 59
–$95,000 @ age 80 with growth
@2% return, $(40)K @59, $(60)K @80
@5% return, $315K @59, $878K @80
CONFIDENTIAL
LOVE/HATE RELATIONSHIP WITH TFSA’s
$10,000 TFSA Contribution
TFSA rate of return 1.85%
LOC interest cost 2.85%
“Cost” to TFSA investing = $100 per year
Love funding TFSA from low tax dollars
–Inheritance, lottery, income splitting, sale of
house, cash sitting around.
CONFIDENTIAL
LEGAL EASY?
Last Will and Testament
Powers of Attorney
–Finance and Property
–Health and Personal Care
–Living will
Contracts
Purchase/sale agreements
Leases
Employees
Corporation/Incorporation (maybe)
CONFIDENTIAL
DISABILITY INSURANCE PLANNING
 NEVER deduct disability insurance against
income (and do not pay through PC).
 Increase disability insurance in “ramp-up” years
 If disabled, benefits cover current living costs
plus saving for retirement
 Beware “too much” insurance late in career
CONFIDENTIAL
DISABILITY INSURANCE PLANNING
 Get a reputable insurance agent that works with
other physicians and ask questions.
 Know the terminology or ask
– Level, Own Occ, COLA, Additional Ins. Rider
 Annual vs. Monthly ($1,655.69 vs. $1,788.12)
CONFIDENTIAL
LIFE INSURANCE PLANNING
 Term vs. Permanent
– T-10, T-20, T-100, UL, Whole Life
– YRT, Level COI
 Amount: Depends on why you need it.
 Mix and match: Reduce if financially secure
 Insure non-working spouse = one year income.
– Gives some flexibility to take time off, pay
down debt, etc.
 Consider annual premiums
CONFIDENTIAL
TOP ELEVEN FINANCIAL TIPS
1. Engage services of accountant and lawyer who knows your
profession. Call them before making any major financial
decisions or commitments.
2. Check out all your practice options and incentive
opportunities. Be comfortable before committing.
3. Learn about OHIP and other billing procedures. Maximize the
legal amount of billings, including non-OHIP services.
4. Obtain appropriate insurance coverage – disability, life,
liability, overhead from a reputable agent.
5. Systematically set aside for your tax payments. Always pay
taxes when due. NEVER FALL BEHIND!!
6. Keep all of your receipts and records. Know when you can
destroy them or what you have to keep longer.
CONFIDENTIAL
TOP ELEVEN FINANCIAL TIPS
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9.
Consider incorporating and/or paying a lower income spouse
a salary to save taxes.
Do not invest in tax shelters or other risky investments. Your
best investments are your RRSP, TFSA, (MPC) and paying
down personal debt.
Pay down personal debt to reasonable levels, then maximize
your RRSP, then invest inside the corporation and consider
TFSA contributions.
10. Avoid the temptation to spend immediately on big-ticket
items, such as an expensive vehicle or house. Save up
significant down payments first.
11. Set your lifestyle at a level which reflects your income last
year, not at what you anticipate you might make this year.
This way, your spending won't "get ahead" of your income.
CONFIDENTIAL
THANK YOU!
Interested in hearing more?
Schedule a meeting with us
Brandon Gilbert, CPA, CA, BMath, Macc (bdgilbert@collinsbarrow.com)
Dave Wells, CPA, CA, CFP, BBA (dwells@collinsbarrow.com)
Mike Bondy, CPA, CA, CFP, TEP, BA (mbondy@collinsbarrow.com)
Doug Greenhow, CPS, CA, CFP, BMath (dgreenhow@collinsbarrow.com)
Collins Barrow Chartered Accountants
495 Richmond St. at Dufferin Ave, London
(519) 679-8550
www.cbhealthcaregroup.com
CONFIDENTIAL
TM
Clarity Defined.
This presentation is for information purposes only and includes tax information current to July 23,
2015. This presentation is not intended to substitute for obtaining accounting, tax, financial or legal
advice from a qualified professional. We assume no liability or responsibility for any errors or
omissions and users are cautioned this presentation may not be appropriate for their purposes.