CMA president ‘deeply concerned’ about capital gains tax change

There has been pushback on these tax changes, but the government points to exemption increases, for example, lifetime capital gains that apply to small businesses and say that this is a question of fairness and that’s why they’re doing this. It’s you say it’s not fair to doctors. How will this affect doctors, despite those other changes the government has made? But I think it’s really important that we understand the the structure of professional corporations is different. So as as a professional incorporated physician, I am not going to be eligible for the small business lifetime exemption under the the way that it’s written right now, the Personal Capital gains exemption of 250,000 a year isn’t going to apply to me as a professional corporation either. So this means that our capital gains inclusion rate inside of the corporation will immediately go from 50% to 66% on the first dollar that we removed. And and bear in mind that these are vehicles that were established in conjunction with governments over the last 15 to 20 years. And we were encouraged to incorporate in lieu of fee increases to try and build savings towards our retirements because as you know, physicians largely don’t have access to an employer retirement program. OK, so the, the not qualifying for the lifetime capital gains exemption is an important point because I spoke to Doctor Paul Healey about this on Friday. Who who, who administers a Facebook group for doctors talking about their financial concerns. And the impression I got from that conversation was that doctors couldn’t sell because there was no market for their practices, because family doctors on such demand, they can just set themselves up and and there’s no shortage of business to come their way. But you’re saying because of the nature of your incorporation, you can’t sell and qualify under the terms of that exemption. Am I understanding that correctly? You’re, you’re correct and it is nuanced and I’ll, I’ll certainly say that. But the, I’m a family physician. I incorporated my practice as a family physician and I run my office, my expenses, my employees, everything that I, that I fund is funded out of that professional corporation. I pay myself a salary on which I actually do pay the normal taxation rates as you would expect. And, and then what I do is save whatever else I can for, for my retirement. So now putting these rules in place after the game, so 1520 years in some cases down the road where physicians have been preferentially saving for their retirement in a vehicle that we were told was, was the way to go. Now it’s a, it’s essentially an 8% claw back on our, on our retirement investments. This is, this is definitely not fair, but the government is looking for a fairness in taxation. You know, going after the after family physicians and other incorporated physicians is not the right approach, right? So they’ve made the argument that these changes broadly, maybe not the specific impact on, on doctors and practices like yours are about generational fairness, making wealthier people and companies pay a fair share to help pay with the for the opportunities of a younger generation. That’s increasingly getting cut out of sort of the life that that older generations have achieved. But the knock on effect of this, as you say, is, is say 8% of your retirement income is essentially now will be lost to taxes under this. So where does this leave doctors, particularly those getting close to the retirement age? Because I suppose if your early career, you can change how you do your income mix and focus more on RSPS and TFs as through savings, but people who may be getting your retirement with the bulk of their savings in capital gains, what do you do? So it’s a really great question. I think that we actually need to have a conversation with the government to have a, a look specifically at the professional practice incorporation and the, and the impacts that this, that this change has and have a hard look. I’ve, I’ve heard from physicians close to retirement that are saying there’s really no incentive for me to continue to practice. I spoke to a young physician earlier today who saw, you know, little to, to no incentive for setting up practice in Canada and considering moving elsewhere. So our worry is really that we’re going to struggle more to recruit and retain physicians working in Canada at a time where the health force is beleaguered, mothballed, and really struggling to deliver on services to Canadians. I can understand why a younger doctor might look at this and say maybe it’s time for me to go somewhere else. Maybe it’s time for me to go to a bigger wage environment to grow. But why would a doctor nearing retirement say there’s no incentive for me to keep working? There’s still income to be made. There’s still a salary to be drawn. What would be the disincentive for someone at that point in their career? So there are many options for physicians to work outside of providing frontline clinical care. And, and unfortunately, there’s there’s options. And as long as we have options and we’re not incentivizing the type of, of frontline community care services that we want to, to incentivize, there’s, there’s going to be a challenge and it, it is concerning. So what shut down your practice and go do locums and draw salary, that sort of a thing, a shift the way you provide care? Is that what someone might do at that point in their career? Well, I know one particular physician who’s actually shifted to selling online goods. This is, there’s lots of options. Physicians are, are intelligent, well educated people and there’s, there’s very little incentive to continue to, to make the, the contributions to the healthcare system when we’re, when we’re being singled out in this way. OK, I, I will confess, I never expected an answer of moving to online sales as the, as the alternative because of this. But what, what’s your sense of what this could do to the overall recruitment and retention picture? Because you know, we we have talked to to many people about the the challenges and recruiting people into family medicine just broadly across the country, but also sort of a post pandemic burnout that has hit so many people in the medical profession. And as you say, doctors are in that top couple of percent of employable people on earth with high mobility options. Where do you think this potentially leaves? Would this really truly drive people out of the country and out of the profession at at scale? I think it’s a, it’s a giant disincentive. We know that what we need in in Canada, we need more primary care offices. We need more family physicians setting up in those communities, establishing a, a place that that communities can come for care. If we have no incentive to come in and work as hard as we do, as family doctors carry that load, provide the infrastructure for the healthcare system and at the end of the day be taxed at a higher rate on our retirement savings. This is this is tremendously disincentivizing. So what’s the the solution here? Doctor Ross, have you had a conversation with anyone in government about this, about whether there is some sort of a carve out for the medical profession that’s possible here? Because it doesn’t seem like they’re willing to walk back the entire package. And I don’t have a clear sense if if the conservatives are are willing to roll these changes back either. So, so what’s the path forward here, do you think? So I’ve, I’ve sent out a, a request to meet with Minister Freeland’s office to sit down and actually discuss through the specific implications for medical practice that’s incorporated and waiting to hear back. I, I hope that that will happen soon. But, but clearly with the Prime Minister making the comment that they made earlier today, it still does speak to the fact that they’ve, they’ve missed the point when it comes to, to medical practice incorporation. There’s a, there’s a missing link there, there, there are carve outs for taxes on capital gains for the entrepreneurial sector, for the family business. It it seems within the realm of the doable that medical practices could be treated in a similar fashion. Is that going to be your primary argument or is it going to be about repeal and rollback? I think we have to have a conversation about what’s possible specifically for for physicians. We, we want to incentivize physicians to work in Canada. We need physicians to continue to work in Canada and and I keep saying we’re not going to be able to recruit our way out of the challenges that we face right now. And that means working with the physicians that are established in practice to to keep them there. And those are the conversations we need to have. The government just as a final point, they they they point to the $200 billion they’ve agreed to give the health system through their agreements with the provinces rolling out of the next number of years as an example of their commitment to healthcare. But we still are at a situation doctor where there’s about 6,000,000 Canadians who say they don’t have consistent access to a family doctor. So where does this potentially leave the system if you can’t get a resolution with the government on this? You know, it’s a really great question. I’m, I’m very concerned, I’m deeply concerned for how we staff our our physician workforce in the future if this, if this doesn’t provide some leeway. And I am deeply concerned for the state of retirement income for those physicians that are nearing retirement and now being taxed, you know, an additional 8%. And, and bear in mind, this is no different than those defined pension plans that you may contributing to for your employer. And you can imagine being told that no, we’re just going to tax now 8% more and, and you’d be fine with that. I think we just have to have that conversation. Kathleen Ross, the president of the Canadian Medical Association, thank you so much for your time today. My pleasure. Thank you.