Tax changes un­fairly pe­nal­ize doc­tors

Physi­cians might de­cide to go south of the bor­der if in­cor­po­ra­tion taxes in­crease

The Hamilton Spectator - - COMMENT - DR. CHARLES SHAVER

“It is un­fair to now claw back th­ese ben­e­fits. It is also disin­gen­u­ous — scur­rilous even — to paint physi­cians as wealthy tax cheats ex­ploit­ing ‘loop­holes’.” - An­dre Pi­card, Au­gust 1, 2017 in the Globe and Mail.

Lib­eral Fi­nance Min­is­ter Bill Morneau on July 18 announced pro­posed changes to taxes on small busi­nesses and pro­fes­sional cor­po­ra­tions. Th­ese could cre­ate a 73 per cent ef­fec­tive tax rate on earn­ings from in­vest­ments held in­side pro­fes­sional cor­po­ra­tions. Alan Ac­tan, a fi­nan­cial colum­nist warned that, “They call into ques­tion the pur­pose, re­ally, of hav­ing a cor­po­ra­tion.” Jim Warren stated that the tax in­creases would “kill much of the en­trepreneurial spirit in Canada and thou­sands of jobs cre­ated by small busi­nesses.”

Th­ese pro­pos­als could have a ma­jor ef­fect on physi­cian man­power, other pro­fes­sion­als such as lawyers, den­tists, ac­coun­tants, en­gi­neers, and ar­chi­tects, as well as their pa­tients and clients.

Re­call some his­tory: In 2005, the Cana­dian Med­i­cal As­so­ci­a­tion gen­eral coun­cil passed a mo­tion spurring the CMA to lobby for pen­sions for physi­cians. The ef­fort was led by Dr. Mary Fer­nando, an Ot­tawa fam­ily physi­cian. On June 15, 2009, there was an “MD Pen­sion Ac­tion Day.” Al­though doc­tors in Europe had group pen­sion plans, Ot­tawa re­fused to change the tax laws, as Cana­dian MDs were deemed to be self-em­ployed, in­de­pen­dent con­trac­tors.

On­tario doc­tors just signed a bind­ing ar­bi­tra­tion agree­ment prior to ne­go­ti­a­tions, but re­call that about a year ago, Health Min­is­ter Dr. Eric Hoskins agreed, but only if they re­lin­quished their rights to in­cor­po­rate in­di­vid­u­ally.

On­tario doc­tors have had the right to in­cor­po­rate since 2002. It was not a gift, but was in lieu of fee in­creases. Now 69 per cent of On­tario and 60 per cent of Cana­dian physi­cians are in­cor­po­rated. Yet Ot­tawa seems pre­pared to vi­o­late an agree­ment de­signed to sta­bi­lize fees and con­trol pro­vin­cial health ex­pen­di­tures.

The cli­mate in On­tario has been poi­sonous. ECG in­ter­pre­ta­tion fees are now less than half that of other prov­inces. Be­sides monthly billing claw­backs of 4.5 per cent, fol­lowup fees were slashed by 30 per cent for med­i­cal spe­cial­ists see­ing pa­tients with some 30 “chronic dis­eases” such as di­a­betes mel­li­tus, de­men­tia, COPD, and con­ges­tive heart fail­ure.

MDs lack the fringe ben­e­fits of union­ized em­ploy­ees (and politi­cians) and some pay huge over­head costs. Now they are also likely to be de­prived of the fi­nan­cial ben­e­fits of in­cor­po­ra­tion. Iron­i­cally, Pi­card adds, “Ot­tawa wants to limit the cap­i­tal gains ac­crued … This limits a physi­cian’s abil­ity to save for the fu­ture, which seems like a short-sighted pol­icy mea­sure ... if (gov­ern­ments) adopt mea­sures that make in­cor­po­ra­tion unattrac­tive and im­pos­si­ble to ac­cu­mu­late re­tire­ment sav­ings, then they need to pro­vide an al­ter­na­tive, such as salaries and pen­sions.” Thus, the fed­eral and pro­vin­cial Lib­eral gov­ern­ments have truly cre­ated a “Catch-22” sit­u­a­tion for physi­cians.

This may well cause some older physi­cians to re­tire pre­ma­turely. Younger, more mo­bile ones may “vote with their feet” and move south of the bor­der. A re­cent re­port pre­dicts a short­fall of 34,600 — 88,000 physi­cians in the U.S. De­spite Don­ald Trump, the im­passe over Oba­macare, con­cerns over guns, drugs, racial strife, etc., there are still many clean, safe, smaller cities — es­pe­cially in the Mid­west — which would prove at­trac­tive, es­pe­cially with hous­ing prices of of­ten 10 — 20 per cent that in the GTA.

In ad­di­tion, con­sider the likely un­in­tended con­se­quences on other pro­fes­sion­als and their pa­tients and clients:

About 66 per cent of On­tario den­tists are in­cor­po­rated. Un­like physi­cians, they can set their own fees, at least in pri­vate of­fices. Many pro­vide dis­counted care to cer­tain groups such as those on so­cial as­sis­tance, refugees, First Na­tions per­sons, chil­dren, vet­er­ans, etc. If they were un­able to charge var­i­ous gov­ern­ment agen­cies more to com­pen­sate for th­ese tax changes, how many den­tists would to­tally opt out of ser­vic­ing th­ese groups? Would pa­tients in group in­sur­ance plans now face greater out-of-pocket costs for den­tal care?

Some 43 per cent of Cana­dian lawyers are in­cor­po­rated. How many — if the tax changes were im­ple­mented — would con­tinue to work for Le­gal Aid On­tario? What would be the in­creased cost to hos­pi­tals and to var­i­ous gov­ern­ment agen­cies that re­quire le­gal ser­vices?

Of note is that shortly af­ter they were announced, Fed­eral Con­ser­va­tive leader An­drew Scheer vis­ited the clinic of Dr. Kul­vin­der Gill, a fam­ily physi­cian in Bramp­ton. He toured the clinic, and spoke to all the staff so as to fully com­pre­hend the neg­a­tive ram­i­fi­ca­tions of th­ese new tax changes on doc­tors and on pa­tient ac­cess to care. Also sup­port­ive is PC Health Critic Jeff Yurek.

As Mil­ton Fried­man warned, “One of the great mis­takes is to judge poli­cies and progress by their in­ten­tion rather than re­sults.”

Ot­tawa physi­cian Dr. Charles Shaver was born in Montreal. He grad­u­ated from Prince­ton Univer­sity and Johns Hop­kins School of Medicine. He is cur­rently chair of the Sec­tion on Gen­eral In­ter­nal Medicine of the On­tario Med­i­cal As­so­ci­a­tion.

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