Ottawa's plan to change tax rules for professional corporations is ill-conceived, sexist and will ultimately harm patient care, the president of the Canadian Medical Association says.
"I don't think the Department of Finance understands the ramifications of these changes on physicians and other small businesses," Granger Avery, president of the CMA, said in an interview.
"This will have a deleterious effect on patients because it will make it more difficult for many physicians to practise in Canada."
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About 60 per cent of Canadian physicians are incorporated; they are independent contractors paid on a fee-for-service basis, not salaried employees.
In July, federal Finance Minister Bill Morneau released a policy paper that proposes three significant changes to how private corporations are taxed:
- Income splitting: Current legislation allows professional corporations to “sprinkle” income to adult family members through dividends. The new rules would make it more difficult to split income, especially to family members under the age of 25. Many physicians use this provision to provide an income to a spouse who is stay-at-home or works part time, or to fund their children’s postsecondary education.
- Passive income: Business income is taxed at about 15 per cent, but once it is paid out in the form of salary, it’s taxed at a regular rate – almost 50 per cent for a high-income earner. Almost all physicians retain a significant portion of their income within the corporation. By doing so, they can defer paying income tax until they use the money to pay themselves a pension, or for maternity or disability leave. The proposed changes would eliminate much of the deferral advantage.
- Converting regular income into capital gains: The tax reforms would prevent converting dividend income into capital gains – which means paying a lower tax rate. However, few physicians use this tax measure.
Dr. Avery said physicians are up in arms because they do not have pensions or benefits and the tax changes will make it near impossible for them to save for retirement, to finance maternity or parental leave, to work part time while raising a family (or support a spouse doing so) and to repay debt accrued during their studies.
Most shocking of all, he said, is how the tax changes disproportionately hurt female physicians with children. "For a government that professes to support equality and feminism, this is particularly disappointing," Dr. Avery said.
"It also underscores the paucity of thought and analysis that has gone into these proposals."
The Canadian Medical Association, which represents 85,000 physicians, residents and medical students, is holding its 150th annual meeting in Quebec City this week.
The sesquicentennial celebrations are muted, however, because doctors are feeling beleaguered and under attack.
In addition to the costly tax changes, many physicians are dispirited by labour disputes. In Ontario, for example, doctors have been without a contract for more than three years and, during that time, have seen their fees reduced unilaterally.
Dr. Avery said that, increasingly, he is "hearing doctors say they're looking south of the border and telling their kids to not go into medicine. That's sad."
A creaky health system, spending cutbacks, technological changes and shifting patient expectations have also placed a lot more pressure on physicians and how they practise.
A survey found that 54 per cent are showing signs of burnout. The rate of suicide among physicians is three times the national average.
"If a private business had those statistics, we would fire the management. In Canada, we can't seem to get the manager of the health-care system to support the workers," Dr. Avery said.