How the capital gains tax affects medical practitioners

In case you missed the memo: as of June 25th 2024, the Canadian government is increasing the capital gains tax inclusion rate from half to two thirds of all capital gains above $250,000 for individuals, and two thirds of all capital gains earned by corporations and trusts.

According to Canadian Medical Association president Kathleen Ross, the healthcare system in general and medical practitioners in particular are an unintended casualty of the capital gains hike.

As many doctors do not have access to private pension plans, more than 50% of Canadian physicians instead incorporate their medical practices as an alternative way of saving funds for retirement—corporations that are about to be roundly targeted by the capital tax increase.

Additionally, many have expressed a concern that the increase will undermine efforts to recruit and retain physicians. By decreasing the financial attractiveness of community-based family medicine in Canada, the changes threaten the stability of the healthcare system at a time when the country is facing a severe doctor shortage.

An estimated 6.5 million Canadians are going without access to primary care as family physicians retire in droves and medical schools struggle to recruit new residents.

Read on to learn how the capital gains tax inclusion rate affects medical practitioners, and what you can do to mitigate the increased tax burden.

How the capital gains increase affects doctors

Calling all doctors: the capital gains tax inclusion rate has the potential to affect your finances in the following ways.

• Increased tax liabilities: the hike in capital gains tax inclusion rates leads to higher overall tax liabilities when you sell off investments, thereby reducing after-tax returns on those same investments. This, in turn, reduces your disposable income and can impact your long-term financial goals.
• Financial planning adjustments: you may need to reassess and potentially alter your financial and retirement planning strategies to account for the higher tax burden, which could involve diversifying your investment portfolios or seeking tax-advantaged investment options.

What medical practitioners can do to mitigate the new tax burden

Even if the capital gains tax increase was to get repealed tomorrow, the following would still be good advice:

• Diversify your investments: consider diversifying your investment portfolios to include tax-advantaged accounts like RRSPs and TFSAs. These types of investments can help shelter some of your gains from those higher taxes.
• Incorporate your investments: if your practice is incorporated, consider holding investments within your professional corporation. In doing so, you may benefit from different tax treatments and deferral opportunities compared to personal investment accounts.
• Consult seasoned tax professionals: consulting with an accounting firm worth their salt can go a long way toward helping you develop pro strategies (i.e., tax loss harvesting or restructuring investments) to optimize your tax situation—even when conditions appear less than favorable.

At the end of the day, it’s not what happens, but how you react to it – that’s what they say, anyway. In any case, we’re here to help you parse it out.