Tax Saving Strategies for Medical Doctors in Canada

As a medical doctor or physician in Canada, you may not be aware of some of the unique tax saving strategies that are available to you. It is possible that you have unclaimed tax write offs and that your medical practice is not claiming it’s fair share. The following tax tips outlined below in this article could substantially help to decrease your tax liability.

Corporate Life Insurance

The benefits of Corporate Life Insurance and what can it do for doctors?

It acts as a tax shelter for investments and can also be used to create pension income for retirement.

In the event of your death, your Corporate Life Insurance Policy could provide a cash payout to your family that is virtually tax free.
By using a Corporate Life Insurance Policy, there are a number of ways that these objectives can be accomplished.
One of the benefits is that you would not be subjected to paying income tax from investments that you made inside your corporate life insurance policy.

Upon your retirement, you can be paid dividends from the policy as the primary shareholder.

The way it works is that the corporation acts as a beneficiary of the policy, therefore proceeds that may come from the insurance company can be paid tax free to your estate through the corporation’s dividend account.

Meals and Entertainment Expenses for Medical Doctors

Meals and Entertainment expenditures can be deducted from professional or business income, as the Income Tax Act allows for a deduction of 50% which includes the following:

• Meals with colleagues for meetings and discussion of treatment techniques
• Meals purchased by a doctor for their interns
• Deductions for occasional entertainment expenses with partners

Vehicle Expenses for Physicians

By driving from one workplace to another, physicians can claim a portion of their vehicle costs, including:

• Vehicle depreciation (see below)
• Fuel and oil costs
• Repairs and maintenance
• Parking
• Toll fees
• Insurance
• Vehicle Lease payments

Vehicle depreciation

The way this works is that it is based on the percentage that you drive your vehicle for business-related purposes, against the total kilometers that were driven in a total year.

Therefore, for example, if the total kilometers driven in a year is 20,000 km, and the number of kilometers used for business travel totals to 5,000 km, then you would be entitled to a 25% deduction on the vehicle expense.

However, if your vehicle is registered under your personal name, and your practice is through a corporation, your corporation can pay your car allowance tax free for the kilometers driven for business purposes in a given tax year. In 2020, for the first 5,000 kilometers driven in a tax year, this is calculated at 59¢ per kilometer and at 53¢ per kilometer for any distance above 5,000 kilometers during that same tax year.

Eligible business-related driving includes the following:

• Traveling between workplaces
• Visiting patients
• Traveling for a business meeting, to the bank or to your accountant’s office

Expenses for Marketing

You can also deduct your advertising or marketing expenses, such as social media presence and content marketing costs. Just be aware that this type of deduction is not solely limited to basic advertisements. It is important to keep records of all your marketing expenses as there are many things that can be deducted in this area.

Computer Software, Hardware, and Technology

As new technology and software emerges and is phasing away with paper based medical practices, even though the transition may be tough, the good news is that any costs related to new technological hardware, software and hosting fees, etc., can all be deducted. Therefore, it is advantageous to move toward electronic medical records as it is not only highly beneficial to the patient and the doctor, it also offers a deduction at year’s end.

Mortgage interest and Home Office Expenses

As technology advances allowing for virtual visits, such as secured email messaging and communication with patients, using the home office has become increasingly popular with doctors. Therefore, many things can also be deducted as home office expenses. Some include utilities, property taxes, insurance, internet, office equipment and even the mortgage interest.

Travel Expenses

It is also possible to deduct any business-related travel expenses, for example, such could include training seminars, conventions, or out of town conferences.

Bring the Simple Stuff In-House

If you have simple lab work equipment at your location, then all this can be deducted. If you don’t offer an in-practice lab, then it might be a great investment that could help increase your practice’s profits by offering a valuable service, while simultaneously allowing for more tax deductions.

Purchase Your Building

This may not always be feasible, however real estate can be a great investment if you are in a position to buy the building where you practice from. Given the current surge in the market, now is a great time to own the place where you work. It also has many tax benefits such as the ability to deduct many expenses such as mortgage, interest, property taxes, repairs and maintenance, and other costs.

Disclaimer:
This article only provides information in a general nature and is only as current as the date in which it is posted. It is not updated and therefore may no longer be current. This document should not be relied upon as it does not claim to, nor provide advice on legal or tax matters.

All tax situations are specific in nature and will likely differ from the situations that are presented in the article. It is advisable that you seek and consult a tax professional if you have any specific legal or tax questions.

This document is intended to provide general information on a particular subject or subjects(s) and this article is not an exhaustive treatment of such subject(s). In accordance, the information in this document is not intended to constitute or replace accounting, tax, legal, investment, consulting, or other professional advice or services.

Before any decision is made, or any action taken which might affect your personal finances or business, you should consult a qualified, professional adviser.