Federal tax changes

Pen and glasses on a table

Federal tax changes

In med-2017, the Canadian government proposed changes to the rules governing how private corporations are taxed. The new rules would have been seriously detrimental to the many Nova Scotian physicians with private corporations.


Doctors Nova Scotia met with physicians and conducted a physician survey. The information provided by concerned doctors helped inform the association’s position.

Doctors Nova Scotia advocated against the proposed changes by hosting a physician town hall with politicians, writing letters to MPs and MLAs, providing written submissions to and making an appearance before a Senate Committee, and by conducting interviews with the media. 

Despite strong opposition from Doctors Nova Scotia and individual physicians, the federal government proceeded – with some amendments – to change how private corporations are taxed.

The amendments made by the federal government to its original proposal show that the collective advocacy efforts of Doctors Nova Scotia, physicians and members of the small business community resulted in meaningful change. 

Tax changes implemented

Budget 2018 did follow through with draft tax legislation that limits the advantages of accumulating significant passive investments within a private corporation. However, the details included in Budget 2018 were significantly better than expected after the July and October 2017 announcements. 

Changes

The federal small business tax rate for 2018 is 10% (down from 10.5% in 2017) and will further decrease to 9% in 2019.

The Business Limit – Reduction proposes to reduce the business limit on a straight-line basis for Canadian Controlled Private Corporations (CCPCs) having investment (passive) income greater than $50,000.

  • For every $1 of investment income in excess of $50,000, the small business reduction will be reduced by $5.  
  • For CCPCs, there will be no business limit (small business deduction) with investment income greater than $150,000.

Budget 2018 proposes that a refund of Refundable Dividend Tax on Hand (RDTOH) be available only in cases where a private corporation pays non-eligible dividends.

The new rules on Business Limit – Reduction could affect some incorporated physicians, although not many as most physicians likely have less than $50,000 in investment (passive) income in a year.  With this new rule, physicians would reduce the business limit benefit for investment income greater than $50,000.  

What you need to know

Experts believe that the majority of physicians will be minimally impacted by the new rules on passive investments. Those at the very highest compensation levels will be most affected.
Changes to taxation rules around income sprinkling will continue to affect physicians. 
Individual situations are very different. Speak with your accountant about your own situation as soon as possible.

Next steps

Doctors Nova Scotia will continue to advocate for better compensation for physicians in the province, as compensation issues are compounded by the tax changes. Although the tax changes affect physicians across the country, Nova Scotia’s physicians are hardest hit because this province’s physician compensation rates are the lowest in the country. The province gave physicians the right to incorporate in lieu of rate increases, so the provincial government should help offset physician losses.