Debate Over Capital Gains Taxation Impact on Doctors’ Retirement Savings
The recent proposal by the Canadian government to adjust capital gains taxation has sparked a debate concerning the financial future of incorporated professionals, particularly physicians. The Canadian Medical Association has raised concerns that these changes could significantly affect doctors’ retirement savings. The proposed federal budget aims to increase the taxable portion of capital gains from one-half to two-thirds for profits exceeding $250,000 for individuals and for all corporate capital gains.
Physicians often incorporate their practices, which allows them to invest for retirement within their corporations. The new budget would subject these investments to a higher inclusion rate, potentially diminishing the retirement nest eggs of many medical professionals. Despite these concerns, some financial experts suggest that the situation may not be as dire as it seems.
Jean-Pierre Laporte, CEO of Integris Pension Management Corp., advises that doctors can protect their retirement savings from the new tax rates by establishing a registered pension plan (RPP). Contributions to such a plan would be tax-deductible, negating the capital gains tax on earnings used to fund the pension. “If a medical professional corporation is concerned about increasing corporate taxes because of this change to the budget, a solution that’s been around for years … is to have the corporation set up a registered pension plan,” Laporte explained.
However, it’s important to note that there are limits to pension contributions and physicians will still face income taxes upon receiving pension payments. Nicole Ewing, director of tax and estate planning at TD Wealth, emphasizes the importance of understanding the long-term implications and administrative responsibilities that come with opening an RPP. She also cautions that it is too early to assess the full impact of the new tax rules on doctors.
The Liberal government defends the proposed changes as a measure of fairness, aiming to level the playing field between income earned through capital gains and other sources. They argue that incorporated physicians have historically enjoyed lower tax rates, facilitating easier savings accumulation. Furthermore, financial experts point out that doctors often maximize their use of registered retirement savings plans and tax-free savings accounts, which remain unaffected by capital gains taxation.
Despite resistance from some medical professionals, Prime Minister Trudeau and Finance Minister Chrystia Freeland stand firm on the necessity of the tax change, citing the need for revenue to fund essential services like housing and healthcare. They also stress that only a small fraction of Canadians will be affected by the increased taxes. Over the next five years, the government anticipates generating $19.4 billion in revenue from the adjustment to the inclusion rate.
