Tax changes unfairly penalize doctors
Physicians might decide to go south of the border if incorporation taxes increase
“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.