Province spurred doctors to exploit tax loophole

The Ontario government tried to get something for nothing by urging doctors to take advantage of a federal tax loophole, and now it’s biting us all.

As tends to happen, when governments try to get something for nothing.

Finance Minister Bill Morneau’s midsummer proposal to change tax treatments for some small businesses is worsening into a battle royale, with MPs fretting about protests, Conservative finance critic Pierre Poilievre smelling blood and demanding committee hearings, and doctors threatening to walk.

The main thing Morneau’s proposing is to give the Canada Revenue Agency the authority to say, “OK, doc, you paid your 18-year-old kid $30,000 as an employee of your orthopedic-surgery business last year. What did she do?” If she cleaned the office or kept the files in order, no problem. If her main contributions were moral support and stuffing some of your top-marginal-tax-rate income into her much lower tax bracket, an auditor will rightly say she’s not a real employee and make you knock it off.

Remember that the key issue isn’t whether some people can run their professional lives as the owners of one-person corporations or not. It’s whether they can put other people on their payrolls or install them as co-owners in exchange for no work.

Finance Canada estimates $250 million a year could be recouped. Morneau bills the move as pursuing “tax fairness for middleclass Canadians.” Certain upper-class Canadians do not see it that way. They see their incomes and savings being attacked.

There are valid reasons for solo workers to structure their businesses as corporations instead of sole proprietorships — limiting legal liability is a big one — but hiring relatives as pretend employees for tax purposes isn’t among them.

Last February, Ontario’s doctors turfed the leaders of the group that serves as their union, the Ontario Medical Association. The last crew were too conciliatory, too cosy with the government for the membership, and have been replaced by harder line spokespeople for doctors’ interests. The docs don’t have a contract and for years have chafed at the government’s unilateral changing — and cutting — of the fees they get for the work they do.

We’ve now got doctors, substantially all of whose income comes from taxpayers by way of government, complaining about the government’s crushing of entrepreneurs, quoting Hayek, warning about creeping tyranny and raging about social-justice warriors holding the levers of power. They’re declaring themselves about ready to go Galt, or at least to New York state.

It’s weird, but the angriest opponents of Tommy Douglas’s medicare plan in Saskatchewan once upon a time were doctors. They even went on strike to try to stop it. Some today would make a whole lot more money if health care were private and understandably aren’t happy about having their incomes determined by government fiat.

Here’s the thing. In Ontario especially, the provincial government has encouraged doctors to take advantage of this feature of the tax system, giving them a new legal right to incorporate a decade ago and pointing them toward the federal treasury. According to OMA numbers, two-thirds of them followed the directions. That made high-earning doctors happy, boosting their takehome pay without costing the province.

Whatever is wrong with the doctors’ arrangement, the Ontario government was complicit in creating it, benefitted from it for years, and now can’t control its disappearance. When we eventually make a new deal for doctors’ fees, expect them to demand many more millions of provincial dollars in the pot.