Feds’ tax tweaks for docs clash with Ontario tactics

The federal government is planning to suck millions of dollars out of Ontario doctors’ pockets with tweaks to the tax system, destabilizing their shaky relationship with the provincial government and maybe leading them to work less.

“What I would hope is that they would take a thoughtful, measured response to this and say, how is this going to affect tiny medical businesses? How is it going to affect patient care?” said Dr. Shawn Whatley, the president of the Ontario Medical Association, Monday.

There’s a really good argument for cracking down on “incomesprinkling,” one of the moves federal Finance Minister Bill Morneau promised last week.

It’s part of an effort to “close loopholes and address tax planning strategies that give unfair tax advantages,” Morneau said.

One of these strategies, which is completely legal, is for a big earner to set up a corporation. A corporate structure built around one income adds some complication to the bookkeeping but brings tax and legal advantages. The problem, Morneau says, is that some people set up corporations and give their families ghost jobs, either as partners or “employees” who don’t do much if any work.

The government has figures showing that this technique for avoiding taxes has risen year by year and now the feds want to recapture an estimated $250 million in taxes lost to income sprinkling.

Morneau’s plan is hard to argue with: if you’re on the payroll of a small corporation, the revenuers will have the authority to ask the owner to show what work you do.

The problem is that the Ontario government deliberately opened incorporation as a tax shelter for doctors not all that long ago.

“In lieu of fee increases, the provincial government allowed physicians in Ontario to incorporate around the 2004 mark,” said Whatley.

It meant doctors could use a corporate structure to sign leases, take out loans to buy equipment, pay staff and build a business they could one day sell. It was also a way for the provincial government to increase doctors’ take-home pay without actually paying them more.

Now it’s biting them all in the behinds.

Whatley has a family northeast of Toronto and is one of the 20,500 doctors the OMA says have incorporated. The association has about 40,000 members.

“This will not encourage doctors to work harder,” Whatley said. “There’s no way this won’t affect patient care.”

From doctors’ perspective, it’s a lot like the province’s efforts to cut the fees it pays for procedures, like cataract surgeries, that technology has made simpler and speedier. And its efforts to push uncomplicated medical treatment to less extensively trained health workers: If midwives instead of obstetricians handle routine pregnancies and nursepractitioners instead of family doctors handle sinus infections and sprained wrists, that’s cheaper for the government but it also creams off a bunch of doctors’ easier cases. Those doctors are now four years into a dispute that has seen the health ministry unilaterally roll back a bunch of fees, several times.

They’re still paid very well, but the job is tougher and the rewards less than they used to be.

When Whatley’s predecessors made a deal on a new contract with the province after secret negotiations, the OMA’s members were so angry they rejected it and turfed the association’s leaders out. Whatley and his new guard are more militant.

Although this directly affects the economics of Ontario’s health system, Premier Kathleen Wynne said on an Ottawa swing last Friday that she’s staying out of it.