Ottawa’s proposed tax increases on some capital gains, announced in this week’s federal budget has some family doctors worried, as they warn the changes may affect their ability to save for retirement.
“We don’t get pensions, we don’t get retirement funds, we don’t get insurance or sick days. We have to save up for our own retirement and for our own families,” said Canadian physician Dr. David Poon, who started a Facebook group ‘Professional Corporation Advocates’, which aims to rally professionals, especially doctors, against the changes.
“This is essentially a retroactive tax on our savings.”
The changes to how capital gains are taxed have been proposed as the government eyes ways to make up for some of the big spending measures announced in Tuesday’s budget.
According to the federal budget, the inclusion rate — the portion of capital gains on which tax is paid — for individuals with more than $250,000 in realized capital gains in a year will increase to two-thirds from one-half.
People realizing up to $250,000 in capital gains will continue to pay tax on 50 per cent of their capital gains. For corporations and trusts, however, there is no threshold. The inclusion rate for them will increase to two-thirds for all realized capital gains.
“The vast majority of family doctors and just doctors in general in Canada are practicing through what’s called a professional corporation,” explained Don Carson, a chartered accountant.
“And they have been using a professional corporation for various reasons, one of which is really to help assist and saving for retirement.”
Carson said that any excess dollars not needed for daily expenses for doctors and their families are invested in things like marketable securities and rental properties.
Dr. Poon added: “This is an affront to doctors. It is grossly inappropriate to lump us in with these ultra wealthy.”
The budget document stated that for 99.87 per cent of Canadians, personal income taxes on capital gains will not increase and described this example.
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“A nurse in Ontario earning $70,000 would face a combined federal-provincial marginal tax rate of 29.7 per cent. In comparison, a wealthy individual in Ontario with $1 million of income would face a marginal tax rate of 26.8 per cent on their capital gains. This is not right.”
Trevor Tombe, an economist at the University of Calgary, said the federal government’s argument rested on treating capital gains and other means of income, such as dividends, equally. He said previous to these changes, there was a tax advantage to distributing value through capital gains, even if it didn’t otherwise make sense.
“The argument here is strictly about treating dividends and capital gains similarly,” he said.
“What that means is that any kind of prior financial arrangements that people undertook to take advantage of the fact that capital gains were preferentially treated, those arrangements aren’t as attractive anymore.”
He added: “We want people to choose capital gains, dividends, interest, wages… those income streams make sense for fundamental reasons, not for gaming aspects of the tax system.”
Some groups representing family doctors have also been raising concerns over the new rules.
The Ontario Medical Association in a statement on Friday said the proposed changes “will negatively impact physicians in Ontario and ultimately affect access to patient care.”
“The OMA has already heard from many of its members who have raised serious concerns about how this additional and unnecessary tax will affect their practices,” the statement read.
Global News also reached out to the Canadian Medical Association (CMA) for its reaction to the changes but it did not have anyone available to comment.
The College of Family Physicians of Canada told Global News in an email Friday: “the CFPC does not have a position on income on investments for Family Doctors.”
The proposed changes also come at a time when Canada is facing a family doctor shortage and burnout, which Poon worries could be exacerbated by the federal government’s capital gains proposal.
“I cannot think of a better way to disincentivize physicians to work, to decrease productivity and to harm the already strained health-care system than to increase taxes on doctors,” he said.
With files from Global News’ Bryan Mullan
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