Accounting Side of Medicine

7/29/2019 Accounting Side of Medicine

1/32

CONFIDENTIAL

The Accounting Side of Medicine

UWO MD Business Interest Society

February 10, 2012


2/32

CONFIDENTIAL

2


3/32

CONFIDENTIAL

The Road to being a Physician

Medical Student

MD

Resident

Practicing

Physician

Fellowship

Medicine

Professional

Corporation


4/32

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;

4


5/32

CONFIDENTIAL

Taxes as a Resident or Fellow

Generally employment income (some exceptions)Income tax, CPP, EI, other deductions withheld

Receivenet

amount every pay period

Receive a T4 every yearFile tax return before April 30th

Calculate taxes owingReceive credit taxes withheld during yearDifference is payable or refundable

Deductible expenses generally minimal


6/32

CONFIDENTIAL

Tax Credit vs. Tax Deduction

Tax credit worth equivalent of deduction in lowesttax bracket = 20%

Tax deduction worth amount of deduction xmarginal tax rate (maximum 46%)

Usual Tax Credits to the Resident or Fellow

Tuition, Education, Textbook Tax CreditMust apply credit against income taxes (cannot defer)

Examination Fees (e.g. RCPSC)

Medical Expenses & DonationsStudent Loan Interest Tax Credit


7/32

CONFIDENTIAL

Possible Tax Deductions to the Resident or Fellow

Automobile ExpensesCell phone (business use airtime)

Malpractice (CMPA) Membership FeesMembership & Union (PAIRO) duesMoving Expenses

Travel costs during interviewsFor Residency/Fellowship positions NoFor ultimate Practice site No

Other IssuesMoonlightingSelf-employed Fellowships


8/32

CONFIDENTIAL

What is a Corporation?

Separate legal entityLimited liability BUT professionals not shielded

from professional negligence claimsCorporate roles

Shareholders

DirectorsOfficersEmployees


9/32

CONFIDENTIAL

Benefits of Incorporating - Overview

Income splitIncome smooth

Tax deferralDividends cheaper than salariesOther perks


10/32

CONFIDENTIAL

Income Split - Overview

Objective: shift income to low income familymembers.

Maximum tax savings = 26% of the income shifted.Methods:Salary (employee role)

Deductible expense.Do not need to be incorporated to pay a

salaries to family members.Salary to family must be reasonable

Dividend (shareholderrole)Paid from after-tax corporate income


11/32

CONFIDENTIAL

Income Split Example of Savings with Spouse

After-Tax Income AnnualTotal Professional No Tax

Income Corporation Corporation Savings

$300,000 $212,500 $195,500 $17,000

$400,000 $269,500 $249,000 $20,500

$500,000 $326,500 $302,500 $24,000

Assumes doctor salary of $132,400, spouse salary of $24,000, maximum RRSPcontributions and full income splitting of remaining after-tax corporate funds asdividends using 2012 tax rates.


12/32

CONFIDENTIAL

Income Split Example with Spouse + Adult Children

Tax One TwoTotal Savings Child Children

Income Spouse $40,000 $80,000

$300,000 $17,000 $28,000 $36,500

$400,000 $20,500 $32,300 $44,600

$500,000 $24,000 $35,700 $48,000

Assumes doctor salary of $132,400, spouse salary of $24,000, maximumRRSP contributions and full income splitting of remaining after-tax corporatefunds as dividends using 2012 tax rates.


13/32

CONFIDENTIAL

Income Smooth - Overview

Drawing a consistent personal cash flow from thecorporation instead ofrandom draws has several

potential benefits:Controls spendingAssists budgeting

Easier to manageTaxes consistentTaxes minimizedSaving for retirement, a leave of absence, oryour childrens education


14/32

CONFIDENTIAL

Income Smooth When Earnings Low or Interrupted

Corporations allow shifting of personal income toperiods where actual earnings may be lower

Example:maternity leave or sabbatical - no income coming

into the corporation but you can still drawdividends to create a personal income


15/32

CONFIDENTIAL

Tax Deferral - Overview

Small Business DeductionSmall Business Deduction on up to $500K of

income (after deducting expenses)Small Business Corporate Tax Rate only 15.5%

Theory of Integration

Investing the Tax Deferral


16/32

CONFIDENTIAL

Tax Deferral

Tax is not paid at the personal level until salary ordividends withdrawn from corporation

Owner/manager can control timing of salary anddividend withdrawalsConcept is similar to RRSP tax is deferred until

withdrawal of cash into personal hands


17/32

CONFIDENTIAL

Tax Deferral

Corporate ratessmall business = 15.5% (up to $500K)

big business = 26%Investment income = 46%

Marginal personal rates$0K to $43K = 20 - 24%$43K to $85K = 31 - 39 %$85K to $132K = 43.4%

over $132K = 46.4%

Maximum Tax Deferral = 46.4% - 15.5% = 30.9%


18/32

CONFIDENTIAL

Theory of Integration

Income from Corporation $100,000Corporation Tax (15,500)Available for Dividend 84,500Personal Tax (maximum rate) (27,500)Net After Tax Cash $57,000

Income from Corporation $100,000Personal Tax (maximum rate) (46,400)Net After Tax Cash $53,600

Potential Tax Deferral (31%) $30,900

Overall Tax Savings (3.4%) $3,400


19/32

CONFIDENTIAL

Investing the Tax Deferral - Options

Corporate investment optionsStocks, mutual funds, fixed income (GICs /

bonds) Life insurance with cash value

Tax sheltering of investment income

Reducing tax to estateReal Estate and equipment for practiceWorking capitalShares and loans of related corporations Investing in personal use assets (e.g. House,

recreational properties, vehicles) inside acorporation generally not recommended


20/32

CONFIDENTIAL

Using Corporation as part of Retirement Plan

Use corporation as an income supplement afteremployment ends but before RIF conversion at

age 71Pay dividends for retirement income requirementsbeyond minimum RIF withdrawals and government

pensionsContinue to income split in retirement by takingdividends from corporation


21/32

CONFIDENTIAL

Other Perks

Non-taxable benefits Club dues Life insurance premiums Office-in-home Health plans

Enhanced tax credits for Academic Physicians contributingto research activities

Individual Pension PlanHigher contribution limits than RRSPsMore expensive to administer and reduced flexibility

Generally not recommendedLifetime Capital Gains Exemption ($750k tax free gains)

No practical benefit to physicians since their practiceshave no goodwill value.


22/32

CONFIDENTIAL

Initial and Ongoing Costs of Incorporation

Incorporation costs (1st year only)Lawyer feesAccountant fees

CPSO corporation registration (initial applicationand annual renewal)

Additional tax and administrative complexity =higher costs

Costs are tax deductible


23/32

CONFIDENTIAL

More Details about Incorporation

Naming conventions are restrictive (e.g. John DoeMedicine Professional Corporation)

Restrictive share ownershipchildren, spouse, parents, only

Separate legal entityCorporation Minute Book

Articles of IncorporationBylawsResolutionsLedgersShare subscriptions, Ledgers, Certificates

Separate bank and investment accounts


24/32

CONFIDENTIAL

More Details about Incorporation Contd

Withdrawals from corporation must be formalizedas salaries or dividends with T4s and T5s prepared

to report themMust provide balance sheet and reconcilecompany accounts on an annual basis

Income flows to corporationExpenses paid from corporationMust file corporate tax returnMust still file personal returns, but simpler


25/32

CONFIDENTIAL

More Details about Incorporation Contd

Taxes paid in 3 ways:Corporate income tax instalments (monthly)

Salary deductions and payroll remittances(monthly)Personal instalments on dividends (quarterly)


26/32

CONFIDENTIAL

Why would I not Incorporate?

Cost and additional complexity may outweighbenefits if:

Nobody to income split with (e.g. single, dualhigh income);Net income under $250,000; ANDNeed all income personally (debt repayment,RRSP, TFSA, RESP)


27/32

CONFIDENTIAL

Why would I not incorporate - Example

After-Tax Income AnnualTotal Professional No Tax

Income Corporation Corporation Savings

$200,000 $125,500 $123,400 $ 2,100

$250,000 $154,000 $150,200 $ 3,800$300,000 $182,500 $177,000 $ 5,500$400,000 $239,400 $230,500 $ 8,900

$500,000 $296,300 $284,000 $12,300Assumes doctor salary of $132,400 and paying all remaining funds as dividendsusing 2012 tax rates.


28/32

CONFIDENTIAL

Top Ten Financial Tips

1. Check out all your practice options and incentiveopportunities. You are in demand and in a good positionto negotiate.

2. Spend the time to properly educate yourself on OHIP andother billing procedures. Maximize the legal amount ofbillings to which you are entitled, including non-OHIPservices.

3. Engage the services of an accountant and lawyer whoknows your profession. Call them before making anymajor financial decisions or commitments.

4. Obtain appropriate insurance coverage disability, life,

liability, overhead.5. Systematically set aside for your tax payments. Always

pay taxes when due.

CONFIDENTIAL


29/32

CONFIDENTIAL

Top Ten Financial Tips

6. Pay down your personal debt to reasonable levels, thenmaximize your RRSP and TFSA contributions, theninvest inside the corporation.

7. Do not invest in tax shelters or other risky investments.Your best investments are your RRSP, TFSA, andpaying down personal debt.

8. Consider incorporating your practice and/or paying a

lower income spouse a salary to save taxes.9. Avoid the temptation to spend immediately on big-ticket

items, such as an expensive vehicle or house. Save upsignificant down payments first.

10. Set your lifestyle at a level which reflects your incomelast year, not at what you anticipate you might make thisyear. This way, your spending won't "get ahead" of yourincome.

CONFIDENTIAL


30/32

CONFIDENTIAL

How Can Collins Barrow Help You?

Professional income statement and personal tax returnpreparation for unincorporated physicians

Comprehensive assistance with the entire incorporationprocess

Ongoing corporate accounting and tax servicesTax minimization and cash flow planning for you, your

corporation and your familyAdvising on partnerships, professional corporations,

associations and cost-sharing arrangementsRetirement and Estate planning

Ontario MD Resident basic personal tax return preparationat no charge

CONFIDENTIAL


31/32

CONFIDENTIAL

Thank-you!

Brandon Gilbert, BMath, MAcc, CAPartner

Collins Barrow Chartered Accountants495 Richmond St. at Dufferin Ave, London(519) [email protected]

www.cbhealthcaregroup.com

CONFIDENTIAL


32/32

CONFIDENTIAL

Clarity Defined.TM

This presentation is for information purposes only and includes tax information current to February 10,2012. This presentation is not intended to substitute for obtaining accounting, tax, financial or legaladvice from a qualified professional. We assume no liability or responsibility for any errors oromissions and users are cautioned this presentation may not be appropriate for their purposes.

Date post:	04-Apr-2018
Category:	Documents
Upload:	lkjdslfjal
View:	218 times
Download:	0 times

Accounting Side of Medicine

Documents