physician incorporation - does the CF/DND allow this?

[resolute]

Greetings,

I have done a few searches, and I am pretty sure this topic has not been covered previously on these forums.

I am a family medicine resident under MOTP, preparing to graduate in June, and then start my first posting (location still TBD).  Today, I was at a "medical practice management" conference, much of which does not really apply to people in a salaried work environment.  However, one of the major themes was "the tax advantages of being incorporated."  Apparently, in some salaried work environments (e.g. at academic centres), physicians can request for their pay to be deposited directly into their corporate account instead of a personal banking account.  My question is, does anybody know whether DND / CF allows this?

I imagine this question can best be answered by any MO's who may have tried this.  Alternatively, non-medical personnel who are involved in finance / admin / payroll might also be able to shed light on this topic.

I apologize in advance if this is an inappropriate location for such a post, and I trust that the moderators will re-locate it and/or delete it as required.

Thanks for your consideration. 

 

[captloadie]

From a finance point of view, it could be done as your pay will go into whatever account you provide. However, from a tax point of view, I'm not sure this would work. I think you would need to have an outside practice separate from DND to be incorporated, and even then, as your salary based on being a DND employee, I don't think the Canadian Revenue Agency would allow it. Did the seminar talk about whether these doctors were "contracted" vs being salaried? I ask, because anyone of us non medical types could incorporate ourselves and try to do the same thing if it were allowed.

Just my thoughts.

 

[PMedMoe]

Out of curiosity, I did a quick Google search and found this:

Ontario Business Incorporating

It would seem to me that the business must be incorporated and thus the employees are.  I don't think one can do it as an individual.

The CF is not a business, so as captloadie said, you would have to have (or be part of) an outside practice.  In that case, I would think that only your salary from that practice could be deposited, but not your CF pay.

Just my  :2c: since I didn't really look too far into it.

 

[Snakedoc]

I thought I'd just chime in and swerve outside my lane a bit.

My understanding is that individuals can be incorporated (essentially a business with one employee) which may help with tax implications and liability issues if being sued in terms of protecting personal assets to a certain extent.  I believe that civilian physicians actually do this all the time as technically when physicians work in hospitals, due to the way the Canadian healthcare system is structured, they are not employees of the hospital but essentially independant contractors since they are being paid by the government and not the hospital.

Also, I've heard that CF physicians can earn an income outside of the CF by moonlighting or taking shifts at hospitals outside their work schedule.  However, I agree with the previous posters that I would think for tax purposes, this would only work for your income outside of the CF as within the CF health system (different from the civilian system), you are considered an employee and not an independant contractor/corporation etc. whether your salary is being deposited to a corporate account or not.

Just my  :2c:, swerving back into my lane now.

 

[dapaterson]

As a CF member, you cannot incorporate and have payments directed to your corporation vice yourself.  Your pay and related compensation are determined by Treasury Board.  Dealings with corporations are handled as contracts for services and are very different from compensation of CF members.

However, should you work on the side (with permission, of course) at a local clinic or hospital, you can direct any compensation from them to a corporation.

Note that many of the tax benefits of incorporation are not material to CF doctors.  For example, CF doctors have a defined benefit pension plan, where doctors in private practice do not, and thus engage in a variety of techniques to reduce their current tax burden and save for retirement.  Similarly, the CF benefit plans for members and their dependants (such as medical and dental) do not require elaborate tax planning to maximize their utility and minimize their cost in after tax dollars.  Finally, the Government of Canada indemnifies its practicioners for their actions in the scope of their employment which reduces the need to limit liability through a corporate structure.  (Again, for clarity, non-duty work outside DND/CF will not be covered and may require such mitigation measures and malpractice insurance - current CF doctors can provide greater clarity on this issue).

In brief:  DND/CF pays CF members, and contracts for services from contractors.  There is a question of liability to serve, as well - contractors are bound only by the terms and conditions of their contract; CF members are liable to follow all legal orders.


Or, think of it this way: with 4 years of med school behind you, all paid by the CF, that means in 21 years you can retire from the CF with a pension.  Based on current pay scales for doctors (assuming you retire as a Maj, maximum IPC), that would be roughly $90K per year (2010 dollars - it will go up with inflation)  in pension income - plus whatever you earn in private practice.

 

[resolute]

Thank you to all for your replies.

I do happen to know that a large proportion of physicians do incorporate, and the vast majority of these corporations are "individual" although sometimes there are partnerships (often between spouses who are both physicians).  There are sometimes employees (e.g. nurses, receptionists), but often not.

Medical corporations are unique from others in that they cannot be used to shield physicians from malpractice suits, etc.  The only "protection" that exists would be if say, a patient slipped on an icy pathway in the clinic parking lot and injured themselves, or other things that pertain to the strictly "business" aspects of medical practice.

If it turns out that the bulk of my earnings (i.e. my CF salary) cannot be placed in a corporation, it probably won't be worthwhile ... I mean, how much moonlighting can I possibly do?  Especially with unpredictable postings, deployments, etc.

And I agree that many of the traditional advantages of a corporation are redundant while operating in the CF environment.  However, the thing that intrigued me the most is the ability to "leave money in the corporation" as a tax shelter rather than "realizing all of one's income" or using 100 % of your salary.  For salary earned in the upper tax bracket, it is something like a 47 % taxation rate.  For money left in the corporation, there is only about a 17 % tax rate.  So, a physician living "within his/her means" could elect to leave some money in the corporation to pay for expenses, invest in stocks, etc., and have much less of a loss at source.

I guess I will either have to wait to hear from a currently practicing MO who IS incorporated, which would be definitive proof that it is possible, or else wait for a "yea" or "nay" from somebody in the CF pay structure who can attest that salary can / cannot be transferred to a corporate account in this fashion.

Thanks anyway ... I realize this might not be a very 'satisfying' way to end the thread (of course, other replies might still be forthcoming), but there definitely is nobody in my chain of command (at least in the 2 levels of above me that are 'visible' to me) who knows the answer to this, so I wasn't sure where to turn.  There is a significant amount of "homework" involved in setting up a corporation, including the hiring of a specialist accountant and/or lawyer, etc, so if it IS a possibility for me, I'd like to start researching various options.

If I find out for sure either way in the next little while, I'll try and post back here to "close things off" for anybody else in the future who might have a similar query.

Cheers.

 

[Blackadder1916]

. . .
I guess I will either have to wait to hear from a currently practicing MO who IS incorporated, which would be definitive proof that it is possible, or else wait for a "yea" or "nay" from somebody in the CF pay structure who can attest that salary can / cannot be transferred to a corporate account in this fashion.

While I am now retired from the CF, it is unlikely the answer has changed in the nearly 25 years since a young (and freshly graduated) MO first asked me this question.  I was the HAO back then and had recently jumped through a number of hoops to ensure that one of the civilian physicians (who was a professional corporation) under contract had his pay go to his p.c. instead of him as an individual employee.  Like you, that MO had recently attended a seminar and wanted to hide from the taxman (or more rightly stated, illegally expense many of his personal items through pre-tax p.c. money) - it especially galled him since the civvy working in the BHosp was able to do so.

As a member of the CF, you will be an "employee" for tax purposes.  Deductions will be made at source and your employment income (unlike the "business" income of the contracted civvy doc of my tale) will be reported by a T4 slip.  Whether you want to incorporate for other reasons is up to you but your military salary will not be allowed to be included as business income.

 

[Pusser]

From a pay accounting perspective, you can have your salary allotted anywhere you like.  However, it's still salary and income tax (and CPP, EI, etc) will be deducted at source.  After that, what you do with your money is between you and the Canadian Revenue Agency.  That's where you should be asking the question, but don't tell them that what you are doing in the CF is a "practice" because it's not.  You will be a salaried member of the CF, whose occupation is the provision of medical services.

 

[resolute]

Blackadder,

Thank you for this contribution.

I don't quite understand the negative tone of your response, but I hope you are not implying that I want to "illegally expense" things. 

I am sensitive to the fact that, in some cases, corporations might allow one to do things that are technically legal but "morally questionable."  I'm not trying to be greedy or dishonest, but even with CF subsidy, I have incurred significant debt in my 13 years of post-secondary education ... I just want to be a good steward of resources.  It would also be nice to have more cash left for altruism (e.g. donations to places like Haiti).

Suffice to say, I do not any have shady intentions.

Cheers.

***

Pusser:  most concise and helpful reply yet.  Thanks...that makes sense.  You have me 90% convinced - I'll try and contact the CRA to confirm, but I (sadly) think you must be right.

 

[Indig]

Just a few comments, directed to you as well as future MOs:

Provinces contract out medical services.  As such, they can be contracted to individuals, or corporations, so doctors outside can incorporate.
CF hires employees.  MOs are employees, and are treated as such by the laws.  One would then deduce that your income cannot be given to a corporation.  Also, you are a CF member - how could the chain of command discipline you if you were simply contracted?  how could they use unlimited liability of a non-physical entity (corporation)? 

As a MO, compared to being a family physician, also remember that you have absolutely no overhead.  Your medical equipment is purchased by CF, your IT equipment maintained and updated by CF.  Your office rent and utilities, your receptionists and filing assistants - all paid for by CF.  Your education paid for, even more important with the incredibly high tuition.  Monetarily, I'd think losing a few thousand bucks per year to the taxman pales in comparison with the reduction in cost incurred by you.  Not to even mention how your pension would be easily double the average Canadian income...

 

[motto]

Just wanted to send a few comments to this, albeit a late addition...it is entirely reasonable to incorporate! 

I incorporated immediately after graduating and have definitely saved tens of thousands of dollars in taxes...everything can be written off and investments can be made with the corporate funds.  Of course, only moonlighting funds can be placed into the corporate account, but most new physicians should be moonlighting at least one shift per week on the side to keep gaining/maintaining skills and this makes enough income to warrant incorporating. 

Definitely worth it - - just ask MD Management to suggest an accountant to you and they'll be well versed on physician corporations...sit and have a chat for an hour to get all of your questions answered.

 

[captloadie]

If a physician is maintaining their skills at a civilian institute (some members here get awfully upset when you say moonlighting), other than the fees to incorporate, and I guess outside medical insurance, what expenses would a CF MO incur that (s)he could claim?