During the past month many doctors have mobilized to oppose the tax changes proposed by the Federal government for individuals who are incorporated. We say that the government should move ahead with these plans and go much further in pursuing Canadian economic equity. We recommend that our physician colleagues should resolve their financial issues through negotiations with their ministries of health.
Canada’s poverty rate is 20th out of 31 OECD countries.[1] The Canadian poverty rate went up slightly from 2005 to 2015 to 14.2 per cent representing 4.8 million people.[2] The child poverty rate was up marginally to 17.1%. Ominously senior’s poverty rates which had fallen dramatically for two decades increased from 12.0% to 14.5%.
We know that less equal societies are less healthy. Even the well to do in less equal societies have worse health than the wealthy in more equal societies. Lower income Canadians have higher rates of most health problems and it’s not because they get sick and then get poor. We could save twenty percent of our health budget if all Canadians were as healthy as the one fifth in the highest income brackets.[3]
The Federal government campaigned on a platform of tax fairness. The government implemented a new tax bracket for very high income Canadians and increased the Canadian Child Tax Benefit. This was a good start.
Finance Minister Morneau’s proposed reforms, outlined in a July discussion paper,[4] focus on individuals who are incorporated. These include over 60% of physicians.[5] These measures are estimated to increase tax revenues by $250 million. Notably, the federal government opted not to make changes in the taxation of stock options or capital gains which would have enhanced revenues by almost $1Billion and $10 Billion respectively.[6] These instruments significantly exacerbate economic inequality.
There are three main changes proposed for the taxation of Canadian Controlled Private Corporations (CCPCs). An owner will still be permitted to employ a relative but there will be tighter requirements for proof that they actually do work before salaries can be “sprinkled” upon them. It will no longer be possible to convert capital gains into dividends that would be taxed at lower rates. And, the government has opened discussion on the way in which investment income within the corporation is taxed.
These are eminently fair initiatives. In fact, University of Ottawa professor Michael Wolfson’s research reveals the current situation is increasing economic inequality.[7] Canadians in the bottom 90% are very unlikely to own a CCPC but 80% of those in the top 0.1% are CCPC owners and most have two or more. CCPC income is essentially nil for the bottom 90% but adds an average of $100,000 to the assets of the top 1% and $3 million to the assets of the top 0.01%.
Some of our medical colleagues feel angry and betrayed. They assert that provincial governments negotiated lower fees with provincial medical associations in return for allowing physicians to incorporate. They also allege that continued lower taxes for doctors are payback for the lack of pensions, maternity benefits, childcare, and other benefits,
We would say that such concerns cannot justify an inherently unfair situation in our tax code, and especially one that worsens income inequality with adverse consequences for Canadians’ health. We would urge provincial medical associations to take these issues up at negotiations with their respective provincial governments. Roughly two-thirds of income taxes are paid to the federal government and the provinces blatantly used previous deals to offload their responsibilities onto the federal government.
And we urge all physicians to support universal child care, pensions, and maternity benefits. To quote CCF founding leader JS Woodsworth, “What we desire for ourselves, we wish for all. To this end, may we take our share in the world’s work and the world’s struggles.”
Finally, the Federal government should institute new policies for stock option taxation and capital gains as part of its ongoing review of the tax code. We agree with the 1966 Royal Commission on Taxation that, “The first and most essential purpose of taxation is to share the burden of the state fairly among all individuals and families.” Please tax us. Canada is worth it.
[1] Household income in Canada: Key results from the 2016 Census. September 13, 2017. http://www.statcan.gc.ca/daily-quotidien/170913/dq170913a-eng.htm.
[2] Household income in Canada: Key results from the 2016 Census. September 13, 2017. http://www.statcan.gc.ca/daily-quotidien/170913/dq170913a-eng.htm.
[3] Health Disparities Task Group of the Federal/Provincial/Territorial Advisory Committee on Population Health and Health Security. Reducing Health Disparities – Roles of the Health Sector: Discussion Paper. 2004. See: www.phac-aspc.gc.ca/ph-sp/disparities/pdf06/disparities_recommended_policy.pdf.
[4] Department of Finance proposals for tax changes including discussion papers. July 17, 2017. See: https://www.fin.gc.ca/n17/17-066-eng.asp
[5] Canadian Medical Association. Small Business Perspectives of Physician Medical Practices in Canada. March 17, 2016.
[6] Canadians for Tax Fairness. http://www.taxfairness.ca/en/blog/hold-firm-closing-private-corporation-tax-loophole.
[7] M Wolfson, M Veall, N Brooks, et al. Piercing the Veil: Private Corporations and the Income of the Affluent. Canadian Tax Journal. 2016;64(1):1-30.