Young physicians at the beginning or early stages of their careers are well-versed in the workings of the human body, but when it comes to the fundamentals of running a business… well, let’s just say they usually have lots of basic questions.
When should I incorporate?
Do I need separate business and personal bank accounts and credit cards?
What types of expenses can I claim?
RRSPs?
I need a receptionist and a nurse. What are my obligations to them and the Canada Revenue Agency?
These are typical of the questions GGFL’s Claudia Rosianu hears regularly.
Rosianu, GGFL’s assurance and advisory services principal, specializes in physician finances and understands that the business of running a doctor’s office without the right financial guidance can be overwhelming.
Should I incorporate?
It depends.
“Incorporation for tax-deferral purposes only works now if you are able to retain funds within the corporation,” says Rosianu. “If you are taking most of the money out to cover personal expenses, there is no difference between being incorporated and being self-employed and paying personal taxes.”
Incorporation isn’t recommended for physicians carrying high student debt into the early years of practice, she adds.
“For example, a young doctor with $200,000 in debt and wanting to buy a house would probably have to wait five or 10 years before incorporating. Specialists start with a higher income, so likely wouldn’t have to wait that long.”
“Incorporation for tax-deferral purposes only works now if you are able to retain funds within the corporation.”
The tax rate for net income up to $500,000 kept within a corporation is 12.5 per cent. So how much has to stay in the corporation to make incorporation worthwhile?
The bare minimum, after all expenses are paid, is $50,000, says Rosianu, but $100,000 is the more commonly recommended amount.
It also costs money and time to run a corporation.
Legally, a corporation must have a separate bank account but incorporated or not, keeping separate personal and business bank accounts and credit cards is both wise and recommended.
I am buying or leasing a new car. Can I claim it?
When a personal car is used for business, CRA allows claims for the business use of the car, but not the car itself. For the first 5,000 kilometres of business travel, CRA allows 55 cents per kilometre and 49 cents for the rest.
If more than 50 per cent of a vehicle’s use is for business, the better option might be for the company to own or lease it.
Incorporated or not, opening a physician’s office also comes with many administrative questions – OHIP billing, payroll obligations including CPP, salaries, employment insurance and tax deductions, for starters. Most medical services, except the solely cosmetic, are exempt from HST.
“We recommended calculating everything to be paid to CRA and setting up automatic monthly direct payments,” says Rosianu. “Doctors are busy people and this is one less thing to think about.”
There are many claimable expenses, such as insurance, professional memberships, conferences, six employee social events a year (if all employees are invited) and business lunches. But not golf club membership green fees – golfing physicians often ask that question!
“The golden rule for all expenses,” says Rosianu, “is that they have to be reasonable and they have to be incurred to earn income.”
The know-how necessary to keep physicians financially healthy might not be brain surgery, but it can be cumbersome and complicated.
The bottom line? Get professional help. It will save a lot of headaches.
