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Julie Seberras: Thank you everybody for joining today. Our topic for today is going to be the implications of the federal budget for incorporated physicians. And these are based on the proposals that were put forth in the federal budget on March 22nd of this year. And of course, any of the proposals, just a reminder, that they do not officially take effect until they’ve received royal assent. So today I’m joined by my colleagues from MD Financial Management, our partners at the CMA, as well as we’ve partnered with Deloitte to provide us with some task expertise for today’s presentation. My name is Julie Seberras, and I am a Financial Planning Lead at MD Financial Management. I’m also joined by my colleague Lowell Thiessen, who is a Wealth Lead at MD Financial Management as well. Joining us from our partners at CMA is John Feeley, who is the Vice President of Member Relevance, and Azin Moradhassel, who is the Strategic Advisor for Patient and Public Engagement. And from Deloitte we are joined by David Mason, who is a Task Partner and Mohamed Sheibani, who is the Tax Senior Manager. So, just a little bit about MD Financial Management to get us started. At MD we provide full financial planning for Canadian physicians and their families. We do provide total wealth management strategies using our MD Expert Office. This includes all elements of financial planning, including investments, insurance, estate and trust, banking and borrowing, as well as guidance, branch or medical practice incorporation, which, of course, is the topic for today. So, getting into our presentation, we are joined by our partners at CMA who have been working tirelessly on behalf of physicians on this particular topic. So we’re going to turn it over to John Feeley to walk us through your observations and their efforts.

John Feeley: Good afternoon. I’ll provide you with a brief update on CMA’s work to represent its membership on this issue. CMA has been highly active on the incorporation file since the election period. This may not be well known, however, two parties included proposals to alter the incorporation framework in their election platforms. In response, our advocacy efforts started in October by sharing our concerns with senior bureaucrats responsible for managing the transition briefings for the new government. Following the election, the Liberal government announced a commitment to alter the incorporation framework, specifically, with respect to professionals. This was released in our ministerial mandate letter in November. Since then, CMA has intensified its efforts to educate the newly elected government on the value of the incorporation framework to medical professionals. Our focus was on raising awareness about the small business perspectives of practice. These efforts yielded important results. The 2016 federal budget represents next outcomes. The federal government recognized the contribution of healthcare professionals as small businesses. This represented an important advocacy win for us. With this recognition, the government maintained professionals’ access to the incorporation framework and the associated taxation advantages. However, the budget included technical changes to eligibility for the small business deduction. The CMA is highly concerned that these measures may impact physicians incorporated within academic health science centres, and similar group structures common among certain specialties, for example, oncology, radiology, and anesthesiology. We recognize that many of these group structures have specifically been formed to meet the responsibilities and requirements of alternate funding agreements with the provinces, and/or to smooth out revenue between members of the practice and support the provision of comprehensive service delivery. We estimate that approximately 10,000 to 15,000 physicians may practice in group medical structures such as these. As such, we continue to be highly active on this issue. The time is of the essence. In parallel to our efforts, to undertake a rapid impact assessment, we are advancing a multi-tier advocacy strategy. We are meeting with key political officials in the finance portfolio as well as senior officials at Finance Canada. We are working collaboratively with MD Financial Management as well as territorial medical associations. Our core objectives are to ensure CMA provides its members with timely information about the changes and our efforts, educate all decision-makers about the potential impacts to medical practice, including unintended negative consequences, and seek clarification from Finance Canada about the policy intent of the measures with the aim of mitigating the impact by ensuring clarity for members. We will be highly active in the weeks ahead, as this measure makes it way through the formal parliamentary process. Azin Moradhassel, my colleague, and I would be pleased to address any questions at the close of this discussion.

Julie Seberras: Thank you so much John for all of the efforts of the CMA on behalf of Canadian physicians and all of your efforts going forward. So, up next I’m going to turn it over to Deloitte, who we’ve partnered with for their tax expertise to discuss various MPC structures and the impact of these based on the 2016 federal budget. I’m going to turn it over to Dave Mason.

David Mason: Thanks Julie. Thanks to CMA and MD Financial Management for inviting us today to speak to you. We want to spend some time looking at the changes proposed in budget 2016 to the small business deduction. Small business deduction allows certain corporations to get a much lower rate of tax on corporate income than a regular corporation. And, depending on the province, there can be anywhere from three to 11 or 12% difference between the two rates. So we will talk about the impact that these changes have had. We’ll also discuss briefly the impact of the change in personal tax rates. So, personal tax rates have gone up by 4% for incomes over $200,000. And that will impact on your planning, and will impact on some of the benefits that you have from incorporation. And also, there were some changes to the small business rate itself. So the small business rate did go down by half a per cent for 2016. It was expected that it was going to continue to go down in future years; however, that has been announced that it will not go down further than where it is now. So we will explain what is impacted, what structures are not impacted, and as we see as we go through the discussion, you'll see that there’s even some good news coming out of the tax changes over the last several months. We’ll then provide some numerical examples to show you the impact of the tax changes, both positive and negative, and finally conclude with just some general tax finding topics. In the slide you see in front of you, this is the simple situation where we have a doctor who is providing services directly to the patients or to another organization unrelated, and receiving income for those services. There is no impact as the result of budget 2016. There is, however, the impact of the change in tax rates above $200,000. So this doctor's income is about $200,000. The tax rate for 2016 will be 4% higher than what they had last year. Several provinces now have rates above 50% on the marginal dollar of income. In this slide, we see a doctor who is incorporated, has set up a medical professional corporation, and that professional corporation is providing services to patients and billing what is government or through clinics . The good news here is that the government did not attack this structure. There was great concern that that was likely to happen coming up to the budget. However, because of the hard work of CMA, and others, that change didn’t happen. And in fact, we ended up in a situation where this structure does not have an impact to it. The other good news is that there was no change to the income-splitting rules. So if you have family members as shareholders, you still have the ability to split income. Now, in some provinces, I understand you may not be able to have that, or in some provinces you may not be able to have trust in shareholders, but where you can have other shareholders in your PC, that still is largely split income and get tax income out of the corporation at a lower tax rate, which is beneficial. We were quite concerned that the government would take a run at income splitting in the last budget. The next slide, we have two doctors, spouses, common law partners, both with their practices MPCs and providing services, medical services to patients. Again, same as it appears on this slide, this structure has not been impacted by the new rules. You have to be careful, if there's a possible ownership where doctor "A" owns more than 24% of the other doctor's medical corporation, then they'll have to split the small business deduction. As long as the situation is as we see here, it will not be impacted by this. In the next slide, we see a situation where there is a group of doctors working together, but they're just doing a cost-sharing arrangement. So in this case, the doctor's medical deduction of corporation is actually providing services directly to their clients, to their patients, but they're splitting the cost. So whether it’s rent cost, other costs, costs of administration, that's all being shared, but they're actually billing directly for their services. In that case the PCs will be able to claim the small business deduction on the income they earn as a result of the structure. In the next slide, we see probably the most popular structure out there, which has been impacted. This is a situation where we have a partnership with doctors. The individual doctor’s a partner; they have a PC, which provides services to the partnership. Under the old rules, the PC was able to claim the small business deduction on the income they had earned from the partnership. However, under the rules proposed in budget 2016, that small business deduction will have to be split based on their proportionate share of income coming from the partnership. This type of structure was used by doctors often working in group settings and hospitals or university settings, but also by many other types of professionals as well. So a number of other professionals, groups of professionals, outside of doctors are also impacted by these new rules. In the next slide, we've changed the partnership for a corporation. We have a group corporation and we get a very similar result to what we had with the partnership. A PC here will have to share the small business deduction with the other PCs involved in the group corporation. And lastly, in this slide we see that there's a potential partial impact. So the PC, which is providing services directly to patients, those services will be unaffected by the new rules, and so the PC will be able to click claim the small business deduction on income earned and that is demonstrated by the green line that you see. However, the PC is also providing services to a partnership for which the doctor is a partner and a corporation of which the doctor is a shareholder. In those cases, the amount that the PC can claim as a small business deduction is going to be restricted. I'd like to now turn it over to my colleague, Mohamed Sheibani, to go through some numerical examples and discuss some other points that are relevant to this discussion.

Mohamed Sheibani: Thank you, David. Today we're going to run through three different scenarios with some numerical examples for everyone's benefit. So the first one you see on here is one where someone is self-employed, and we're trying to highlight what happens from 2015 to 2016 with the proposed changes. As you'll see here, the impact on the bottom line, it assumes a few things and we'll continue holding the assumptions for the rest of the presentation. The first one being that the net income earned by this position is $300,000. We are using Ontario as residency for the physician, primarily due to the fact that Ontario has one of the higher tax rates among the provinces, so we thought this would be a good benchmark comparison. The other consideration is that there are no other shareholders for the purposes of the calculation. So, assuming it's a single physician and not benefiting for any income splitting. So as we walk you through these different benefits, and Lowell will walk through some later, the understanding here is this is really the bare minimum of the benefits you're able to achieve from having your PC. And then, the last assumption we're making is that you're saving approximately $50,000, and your after-tax cash that you're getting is $121,000. That's $10,000 a month, assuming that is your after-tax spending cash, including the personal tax you have to pay to get that money out of your corporation. So, as a benchmark we were showing here someone who does not have a corporation and is self-employed, and as you'll see, the main difference that's occurred is there's $3,000 more tax on all of their income that's over the $200,000 threshold. The next scenario we run through is one that shows a physician who's practicing through an MPC, requiring again $121,000 after-tax cash to spend, and the main difference there, is there is actually a benefit to that physician, since they're under the $200,000 tax increase, they're saving approximately close to $5,000 a year by having this structure. So for those that have the PCs that are not part of a group, as you'll see through these numerical examples, there's an increased benefit of having a corporation versus not having a corporation. And we get this question a lot, should we be maintaining our corporations, or should we be winding this up. The next scenario we're going to run through is one where there is an impact. So we're assuming a physician is part of a group of 20 other physicians. They're each earning $300,000 equally and then again the same after-tax spending requirement. One point that's important to highlight here is we're assuming everyone's earning an equal proportion of that income, of $300,000. The primary reason for that is that the way the allocation happens amongst partners, without getting too technical, it's actually based on your percentage of the profits. So if you have 80% of the profits, you get 80% of the small business deduction. It's not equally amongst the partners. So that can differ in your results, depending on how much of the partnership income you're receiving. So on this assumption again, first we're showing the self-employment income if you do not have a PC versus, under the old rules that Dave mentioned, where you were able to get the small business deduction, you will see here that there was a deferral benefit of $45,000 . Under the new rules, the small business deduction is limited to 5%, 1/20, so the idea there is your deferral benefit goes down to $30,000. So the budget impact is a $16,000 limit to the amount of benefit you're getting, but the key point is there's still a $30,000 benefit to having this structure. And it's really an 11% difference in Ontario, for example, of having the small business deduction versus not having it. So with that, we just wanted to kind of summarize a bit of the impact and really what the next steps would be for people. So the first thing is that the fact is that the sky's not falling here. There are some impacts to physicians, however, you're still better off with your structure potentially than not. So with that, what we'd normally recommend for our clients, is what we do is we start with the status quo calculation, which is really to determine and we've seen a whole bunch of numerical examples, they may not be relevant for you depending on your situation. So the first step is really to view a calculation as to whether the impact in the budget, to determine whether anything further is even required. The second step is to look at alternative structures; the one thing we want to stress here is these rules are very complex. Dave and I are actually both members of a task force from Deloitte across the country looking at how this impacts physicians, lawyers and other groups as Dave mentioned, are impacted by these rules, and they are very complex rules. So we do not recommend simply trying to switch over to one that you feel is more beneficial for you than others, because there are regulatory, there are at tax rules that need to be taken into consideration. Other groups we've talked with about hospital rules that have an impact. You really need to understand the whole picture and there is some work that needs to be done around that. And then the last thing is really looking at what is the overall efficiency. As you're going through all this work, which a lot of people don't like doing very regularly, looking at your overall efficiency, looking at your overall financial plans, there may be other opportunities where you're able to benefit from other tax savings, what is in net tax benefit, where do you have your investments, where do you have your life insurance, a lot of things you're able to transfer. So all these different things as a part of this process, you're able to potentially find additional benefits for yourself and for your family. So, we recommend that people take this as an opportunity to explore other alternatives, since you're spending the time with your advisers at MD and your accountants or with Deloitte to kind of do that.

Julie Seberras: Thank you so much Mohamed and David. That's some great insights around how these changes will impact our tax-planning strategy. The first tax planning is just one element of a full financial plan, and at this point in time I'm going to turn it over to my colleague Lowell, who will provide some key considerations as it relates to your financial plans. And of course, this information is general information and for more detailed information on your own individual plan, contact your MD Advisor.

Lowell Thiessen: Thank you, Julie. This part of the presentation looks forward at some of the ripple effects of these changes to those who are impacted. Let's begin with some generalizations for illustration purposes. Looking at the total tax picture, the bottom line, the concept of integration is that total tax should be the same whether income is earned directly or through a corporation. Practically, this means the primary reasons to incorporate a medical practice remain in tax: first, deferral of tax until it can be drawn out when the physician is not in the top tax bracket, retirement being the primary example; and second, distributing income to family members who are not in the top tax bracket. Both of these strategies are depending on current tax—the top line, where tax circumstances can certainly make a big difference. Generalizing, let's assume the small business rate is current tax for 15%, leaving 85-cent dollars for their other uses. General corporate tax rates take 28%, leaving 72-cent dollars, and the sole proprietor would have 50-cent dollars. Here are some examples that help illustrate the directional impact of moving from the small business rates into the general corporate rates on your financial plan. Notably, something that is negatively impacted might still be a good strategy and vice versa. Starting with corporate savings, applying the generalization approach, a corporation with $100,000 of net income before tax would be able to save $85,000 with 85-cent dollars under small business rate tax rates. All is how equal , that would drop to $72,000 based on general corporate rates. Still better than $50,000 if they were earning it personally at the top personal rates, but corporate savings will decrease. Salary and dividends are, to a degree, two sides of the compensation decision. Higher corporate tax rates tend to encourage salaries and discourage dividends. In part, this is extenuated by salary-related components, like RSPs and CPP. Registered retirement savings plans represent 100-cent dollars, so the current tax advantage versus corporate savings is increasing. Opting out of Canada Pension Plan by a dividend is also less powerful as a strategy, as the corporate dollars are reduced when moving from 85 cents to 72-cent dollars. Debt repayments are negatively impacted, but it is still likely the right strategy. It takes longer to repay business debt using 72-cent dollars, but it's still faster than using 50-cent dollars. Permanent life Insurance is similar. The dollars used for this strategy are less powerful. But that doesn't mean these strategies should be abandoned. Conversely, an individual pension plan, which is sometimes described as a supercharged RRSP, will certainly relatively be more powerful. But the complexity and cost likely still make its use an exception not the norm. Hopefully, that gives you a sense of where these directional guidelines are coming from. I want to say again this is directional, not definitive. Please also keep in mind that it will likely take some time to sort through these. For example, even if you change compensation to salary now, RSP room takes effect a year later. Notably, some of you will also have additional complications. There's Quebec legislation scheduled for next year, which is a good example. Many of these themes might apply more broadly or increase the complexity further.

Julie Seberras: Thank you so much Lowell. So, lots of great information today and I'm sure that there are some questions from our listeners today. So there is a Q-and-A session on the right side of the window. This is where you can submit your questions and we will do our best to answer all of the questions we can in our remaining 30 minutes or so. And just a reminder to keep your questions general in nature, and any questions specific to your own situation should be directed to your advisor. So let's get the question session going. So, the first question is going to be for Lowell. What happens after retirement and death to the successor of the holding company or after the corporation ceases to be active?

Lowell Thiessen: OK. First step to this question, I suppose, is let's assume it's happening immediately. The new rules apply to active income of the corporation. So if there isn't any active income of the corporation, a retirement or estate, no consequences. Moving that forward a little bit, so if you're projecting into the future, let's start with retirement, because most of those will apply to the state circumstances as well. In retirement, it's quite possible that someone who the new rules apply to will have both old-rule income and new-rule income. This will mean, at minimum, some additional options in terms of the types of dividends you use in retirement; your tax professional will typically track those and as per the rules take effect, your planner would usually project your retirement plans and the state plans to applying those different options that would be available. So there will be some additional impacts if you're looking forward and you have both applying; if you retire immediately, good news I suppose is your consequences are limited.

Julie Seberras: Thanks so much Lowell. So the next question that we have coming in here is what about structures that bill collectively to a common bank account, and then distribute the income according to a practice plan, what would the effect be?

Mohamed Sheibani: That's a great question. I think it highlights what we discussed in our presentation, that it really is very dependent on the specific provincial rules, as well as the legal substance of any transaction. So the recommendations there is really have a discussion with your advisors. But if there is no agency agreement or legal agreements that kind of substantiate this as being precautionary arrangement, and it's simply done ad hoc-ly, there's a risk that CRA will deem that to be a corporation or a partnership, rather than a cautionary arrangement. So I think it's a very good way to highlight the fact that it's not as simple as that, unfortunately. You need to have a lot more substance for it to be really substantiated as a cautionary.

Julie Seberras: Thanks Mohamed. Our next question is for the CMA. Azin, can you help us out with how are the discussions going with the government around the status of doctors?

Azin Moradhassel: Sure thing, thank you Julie. Good afternoon everyone. We reinitiated our engagement with the government directly following the release of the budget. As John explained during his presentation, CMA is highly active with the government on the status of the physicians. We are currently in sessions with the finance minister's office, as well as Finance Canada, and these discussions are ongoing and underway right now. And while the outcome is yet to be determined, I can say that they are listening and trying to understand our concerns. And our goal, again as John had mentioned, is to seek clarification from Finance Canada about the policy intent of these measures with the aim of mitigating the impact by ensuring clarity for our members.

Julie Seberras: Thanks so much Azin. So our next question, if Dave or Mohamed can help us out with this one: If a group of incorporated doctors classed as in a cautionary arrangement or corporation that act as agents for the collection of fees and expenses in a common bank account, would this structure continue to be affected?

David Mason: That's a good question and again it will depend on the facts, it will depend on the legal structure. If it truly is a cautionary and truly acting as an agent, then this structure should be unaffected by the rule changes. However, you have to be careful that if the CRA were to review the various agreement situations that you have, if they were to say that the agreements were not legally effective, or that the agreements actually left you with a partnership, then that could cause an issue for the small business deduction. The partnership is really a coming together of two or more persons to pursue income. And so really you have to be careful that you don't accidentally fall into the partnership rules. So again, it's very important that you get the right advice, that you get documentation in place, and make it very clear on what the agent can do. You want the agent to have very limited ability to do anything with the process.

Julie Seberras: Thank you so much David. The next question I'm going to direct to Lowell. Lowell, can you please expand on the decreased impact of corporate-owned insurance as it pertains to the financial plan?

Lowell Thiessen: Sure. I guess I'll break that apart a little bit. Disability insurance wouldn't typically be corporate owned in order to maintain the deductibility status. So, I'm going to assume that we're talking life insurance here, and in particular I'm going to focus on permanent life insurance. The contract itself is going to stay in place. It's more an issue of the dollars that are being used to fund the contract. So, in a permanent life insurance contract, there's your ongoing premiums and occasionally those policies are pre-funded with additional payments. Any investment income on the extra money remains sheltered. That still all holds true. But what has changed if the new rules apply is you're now using 72-cent dollars instead of 85-cent dollars to pay or contribute to those insurance contracts. So you have a little bit less powerful dollars going in. That's because [for] your life insurance costs you are using after-tax dollars to fund the contract. So, a little bit less powerful dollars to use it, no direct impact on the other parameters of the contract. There are some additional insurance rules that are kicking in next year, so changes in policies et cetera, and transfers of policies, there are some additional rules, but maybe I'll leave that, that will be a good piece to pick up with your insurance specialists, insurance consultants or other advisors.

Julie Seberras: Great, thank you Lowell. So this one I'm going to turn it over to our partners at CMA. Of course they won't have a definitive answer, but what are your thoughts around whether or not the government will likely make some major proposals or changes towards MPCs in the future?

Azin Moradhassel: I'm happy to jump in on that Julie, this is Azin here. I'll say this, in the relief of this year's budget, the government did make a policy advancement with regard to MPC, and that was by recognizing the value of healthcare providers as small businesses. It was definitely a call to gain at the federal level. In the budget there was a one-line commitment to undertake a broader complication with respect to the overall tax system, which means our advocacy on the issue more generally will continue over the long term. And while we can't say definitively whether or not any changes may be proposed in the future, we can say that we're actively monitoring and will engage at any hint of proposal.

Julie Seberras: Great, thank you Azin. Our next one I'm going to turn over to Deloitte. So where there's been some positions who have been advised to form a partnership to avoid the risk of HST attribution on non-clinical income in an AHSC, but this will create problems for the shared business deduction. So how do they deal with these liabilities?

David Mason: So one of the challenges whenever you're doing tax planning for physicians is looking at HST. Because unlike other professionals, HST is an actual cost to doctors as opposed to a flow through. You can end up making a physician out-of-pocket, because of some planning that you do. So you always have to be cognizant of the impacts of HST. However, so you might have solved, in this case you might have solved an HST problem, but now you've likely created a problem with the partnership and how to split the small business deduction. You want to look at the structure and look to see if there are alternatives, which will give you the same HST answer, but give you a better answer on the small business deduction side. And that's, the trick is to try and get those two working together. And sometimes you just can't get there because of some other issues with either provincial legislation or so on, and what you have to do is consider the cost of the HST versus the cost of giving up a small business deduction.

Julie Seberras: Great, thank you David. And Lowell, did you have anything to add to that as well?

Lowell Thiessen: I'm waving my hands here. I just want to emphasize that, to add on to what was said, the critical notion to keep in mind is, can you partition part of your income separately from the rest? So it's not critical that you manage to have all of your income has escaped the HST partnership quandary. You may be able to retain your benefits if the portion that you're keeping in your corporation can escape that. I would encourage people to keep that in mind as a nuance to add on. I wholeheartedly agree with Dave's comments.

Julie Seberras: OK, just to take a step back a little bit, we're getting a lot of questions around royal assent, and how that works and timelines around that. So if I can get somebody to speak to that process?

Azin Moradhassel: I'm happy to jump in there. This is from Azin from CMA again. So the way the measures were proposed, they were proposed as part of a notice of ways and means, which is a very technical part of the budgetary process. They would come into effect as of the budget day, which was March 22. However, that coming into effect date would not be triggered until the measures are fully passed and in Canadian legislation process that includes receiving royal assent, which is kind of a proclamation that makes legislation law. And these measures have not yet advanced through the parliamentary process, and we will only be able to provide that update when they do get through the process, and we're looking at about a late May timeline to provide another update.

Julie Seberras: Great, thanks Azin. And Lowell, do you have any insights around recommendations around salary versus dividends based on these new proposals?

Lowell Thiessen: Good question. The recommendation is probably strong for me at this point. Certainly you should expect to get one from your tax advisors and planners. Guidelines though, I would encourage a review that is, the points I made, or tried to make, earlier where that the new rules, because they shift income into a situation where more corporate tax is paid up front, the current tax is higher, those 72-cent dollars are not as powerful as 85-cent dollars. Generally speaking, that means RSPs and salary are more preferential and dividends. It does not mean that's the right answer for every single person. So, absolutely review your circumstances. If you are income splitting there's reasonableness tests on dividends. You may not be able to just switch to salary. There are also certainly times like retirement where dividends are prominent, and the best approach to things, but the general high level impact of having the new rules apply to you would be, all is how equal , RSP and salary are going to look a little bit better than dividends would have in the past.

Julie Seberras: Thanks Lowell. So our next question, so John and Azin, you talked about all of the efforts by the CMA around this on behalf of physicians. So the next question that we have is whether or not the CMA is trying to persuade the government to allow an exception for academic practices or AMPs that require a partnership structure?

John Feeley: Thanks Julie, it’s John Feeley speaking. I'm going to take a crack at this. So our primary focus is really, as Azin had mentioned earlier, getting clarification on the intent. So the meetings that we have held recently have been to raise the issue, and thankfully we've had some very good fact gathering from the membership. For example, the Canadian Association of Radiologists helped draft up some practice vignettes, as well as the Canadian Anesthesology Society and other members, and these vignettes outlined the purpose. So why were these groups, medical practice groups, structured to pursue their academics and mission as well as income smoothing to deliver comprehensive services. So we've identified that, we're bringing that forward so that they would realize, or so that we can educate on the potential impact on service delivery if these proposals go through the legal process. So we're working in that direction to either get some kind of special recognition for academic health science centres and similar practices or community practices as mentioned earlier, oncology, and others.

Julie Seberras: Great, thanks John. We're treating our next question as a general question and not individual advice. Our question is, my spouse and I have a joint incorporation, joint gross income of less than $500,000. Should we split our medical professional corporation into two?

David Mason: So if your income was less than $500,000, you're able to maximize use of a small business deduction. So there's no indication that you would need to have two corporations under that scenario. And in fact what you can do, because both of you can be shareholders in the corporation, you can then pay income out to try and balance your income as much as possible. Because ideally what you want in a family unit is to have both spouses with a wealthy equipment of income. And if you have one corporation, and income less than $500,000, you can effectively do that, but also save money in the corporation for the deferral to invest. If you expect that your income will go over the $500,000, then you would want think about how you want a structure your operation going forward.

Julie Seberras: Great, thank you so much David. We do have a question around whether or not we expect changes in future budgets that can affect solutions currently being proposed. And of course in anything to do with financial planning, tax planning, anything of the sort, it's based on what we know today. And you know changes can always happen. Each and every year the federal budget comes out, they just throw a wrench in some of the strategies that we have recommended based on what we know. So change is inevitable, unfortunately, but we can only work with the information that we know as of today. Next question, for physicians that are part of a corporation, are there any negative tax implications for the corporation itself?

David Mason: So to answer that one I think it really again does depend on the specific situation. But the general idea is if there's a whole bunch of physicians in one corporation, you're only getting one small business deduction, the theory would be that there would be no negative impact by the proposed budget changes, because they're only getting one to start with. If you're having billing happen to the corporation, then also that billing would be restricted as we highlighted in our presentation. Again, really does depend on whether, not how, overall the income is being derived for each individual physician or their professional corporation.

Julie Seberras: Okay, the next one which I will turn over to Deloitte again. What are the possibilities of restructuring a practice group who will operate in a partnership to form an unincorporated association in order to allow the small business deduction?

David Mason: So this isn't possible. I believe we are looking at various structures; we're looking at the suggested best ways for various suits to operate. But again, it's very fact specific. So it depends on who you're providing services for, how you're splitting the income, why you're splitting the income. And you have to, at the end of the day, make sure that whatever is proposed works for you in your business. So we have a term called “don't make the tax tail wag the dog.” And so you have to be very careful when you're doing planning that you don't come up with something that works from a tax point of view, but is lousy for your business. So keep that in mind. But yes, you can change your structure. Again, you have to make sure that you get good advice; check the implications both for whom you're billing and also for the various parties involved.

Julie Seberras: Great, thanks David. I'm going to send another question your way. What is the parent corporation in non-profit and does it have any shareholders?

David Mason: So if you have a not-for-profit corporation, the rules are quite different as to what you can do within the corporation. So if you're doing things in the corporation which would be profit-making, even though you may not actually make a profit, CRA could consider that to be a profit-making corporation and therefore not fall within not-for-profit rules. So you got to be very careful with that. In some cases we see those types of corporations, for example, carrying on research and development activities and those are a special type of corporation, you'll often see them in university or hospital settings, where those corporations are set up specifically for that purpose. But if you have a not-for-profit corporation that is carrying on the practice of medicine, that would be something that CRA would say would typically be offside.

Julie Seberras: Great, thank you so much. The next question, I'm going to direct it to Azin from CMA. So what do you think was the government's purpose for taking away the ability to multiply the small business tax deduction in partnership or group corporations, and do you see these changes reverting in the near feature through lobbying efforts?

Azin Moradhassel: I'll just say to start with, very generally, that this proposal was part of the budget measures related to what they call tax integrity measures. Now, these are measures that the department advances on an annual basis and further refine the taxation system. One of our top priorities is to clarify the government's policy intent with these particular measures to clarify whether or not the policy intent was to apply to group medical structures or not. And that will really determine next steps from there in the timelines.

Julie Seberras: Thank you. I'm going to turn this one back over to Deloitte. So you've been in a discussion that there's going to be income in excess of $1,000,000 in the corporation, should one have more than one corporation?

David Mason: The example I think where we ended up having two corporations was assuming it’s two spouses. So, assuming that you have two physicians in one corporation, I think ideally it said, if you're under $500,000, or if you're paying it on salary to get yourself under $500,000—and that goes to Lowell's comments about salaries versus dividends. If you’re just over, or if you're spending $200,000, you're at $700,000, you can simply bonus down to get yourself and you’re not really any worse off, right. So was very dependent on the fact that the end of the day, like if you have two positions and one corporation their net income, not the gross income is $1,000,000, then they could the benefits of looking at it. Again, that's the whole status quo calculation, not so much yes /no to anything. It's more, let's understand are you actually at a $1,000,000 of net income, and if so what are your alternatives available to you. And as Dave mentioned, in some cases there may not be any alternatives available. It's not like there's always a way to get there. But just understanding how to get there and from there deciding whether you want the complexity in your life, and what you want to look at for your structure and your group.

Julie Seberras: Great.

Lowell Thiessen: Maybe I'll just jump in, sorry, it's Lowell. I'm taking more of a planning/risk management hat to that one and I'll just spin it a little differently depending on the circumstances. So if you got $1,000,000 of retained earnings, let's say you really did have that much after tax, you're doing extraordinarily well, high net worth situation, the answer is perhaps less of a small business rate in general corporate rated , it may be more about risk management. So, what if you build up large amounts of capital and there's a real estate venture involved now, or something of that sort. So maybe you've got multiple businesses that are involved. It may well be that even though you're limited to the $500,000 of small business rate on that type of circumstance, there may be a good reason to have more than one corporation. It's more of a risk management: you don't want your medical practice tainted with overlap of risk from another business venture or real estate company or something of that sort. So that sometimes the circumstances do get much more complex and it may well go beyond the ramifications of just the budget.

David Mason: And if I can add on as well, you can't create a second small business deduction just by creating another corporation. So if two corporations are owned by the same person or the same group of persons, they're going to have to share the small business deduction. So it's not a matter of I have a corporation I get to $500,000, I'll create a new corporation and get another $500,000. Those would have to share the small business deduction.

Julie Seberras: Great, thanks David. Okay, so our next question is we have a physician that owns two corporations. So one is the medical professional corporation and the other is the corporation that owns the building to which they pay rent and have a modest income. Will both corporations be impacted?

Lowell Thiessen: So the physician owns two corporations?

Julie Seberras: The physician owns two corporations.

Lowell Thiessen: They likely would have been impacted previously under the old rules, but as Dave mentioned, it's a great way that they just said, but you can't create two small business deductions, and this goes to Lowell's point about having your building a separate corporation. So it kind of sums up a lot of what's been said. But the reality is you wouldn't have gotten two in the first place, so these rule changes have not really had an impact. But again, there may be very specifics within that that may change that structure, but at a high level, again as Dave mentioned, if you owned two corporations and you're charging rent, you never actually got two small business deductions.

Julie Seberras: Great, thank you so much. So we’ll take just a couple more questions here. The next one, what is the difference between a small business corporation and a general corporation?

David Mason: So a small business corporation is a defined term in the Income Tax Act. And first of all, it has to be controlled by Canadians, or at least not controlled by a non-resident or a public corporation. And its income can be more than $500,000, but only the first $500,000 will qualify for the small business deduction.

Julie Seberras: Great, thank you. So our next question, and we might just need to slip back to a slide, but if a small business deduction is unaffected for medical professional corporations practising independently, not as part of a partnership, why did the net income go down in your example, Scenario Two? So we'll flip back to that slide, Scenario Two.

Lowell Thiessen: I think that's more about income, so I think as you look at the slide, this is a very good point, that's actually, and the net income in both is $300,000. The difference of change is in the deferral benefit that $45,000 annual you see there. That's primarily then comparing, too, if you did not have a corporation. So it's trying to highlight here that you actually have, your opportunity of having a corporation has actually gone better because you would be getting more tax as an unincorporated individual.

David Mason: And as well the change in the after-tax remaining for investment has gone up and that's because the small business rate has gone down.

Julie Seberras: Great, thank you. I do see a couple questions around life insurance as well and I think that those ones probably best to contact your MD Advisor who will partner with the insurance consultant to answer those, as it pertains to your particular situation. The next question I have here is, can a group of doctors with professional corporation be shareholders of a management corporation that is doing collective billing and cost sharing?

Lowell Thiessen: So that goes to the very detailed example again, it can be, I guess depending on the legal agreement that's in place. That's a very fine line between what the cost sharing and what's really a corporation that you've always had, that you're going to. So again, depending on that fine line that we've been highlighting throughout the presentation, the answer is yes, you can be quite sheltered under your cost-sharing company, but it can actually be acting for you, you need to be acting as an agent. Which again, it's two issues, it's legal and tax as well as obviously making sure your meeting whatever regulatory systems in your province, making sure you're on side with that or the university you're billing to. So it's a lot of moving parts, but the theory is yes, if it's a cost-sharing corporation, but it's just acting as an agent.

Julie Seberras: Great, this is going to be our last question, but I'm sure this is top of mind for many people on the call. So for those who may be affected adversely, is this the time to consider changes or should one wait for royal assent of the budget?

David Mason: My view is that as a tax advisor, is that over the next couple months you should be looking at your situation and plan for the rule changes. If the rule changes don't happen, you can then not move forward with the planning, but you should be starting to think about the rules now and what it will be looking like. It's also a good time, as Mohamed mentioned earlier, just have a checkup at your overall tax situation. So it's a good chance to think about that and perhaps improve your overall tax situation. In any event, even if those rule changes don't happen, you can still be better off because of the planning that you doing. So I would recommend that people who are in this situation, or anybody who is on the phone, think about their tax planning and think about the next few months. You don't want to leave it until December and find out there's royal assent and then all of a sudden, you're faced with new rules coming into place January 1, and you're scrambling to try and get a new structure in place in a couple weeks. Your lawyer won't appreciate that and your bookkeeper, administrators won't appreciate that either. So I really do encourage you to be able to think about it as early as we can.

Julie Seberras: Great, thank you so much. So we're coming up into the top of the hour, so we will close it here. So this presentation will be available, a playback will be available if any of your colleagues weren't able to make it today. So that should be available within the next few days or so. I want to thank all of our presenters today for the fantastic information. Once again, just a reminder, this has not yet been given royal assent, but it's never too soon to start planning and meet with your tax professional, lawyer, advisor etc. to see how this impacts your own personal situation. So thank you to all the presenters, thanks to everybody who listened today and I hope everybody has a great day.