Morneau’s tax changes to negatively impact dentists and medical doctors

July 2017

According to Canadian Finance Minister Bill Morneau, new corporate tax changes proposed by the Liberals is the fair way to go about things. But the reality is, these changes may very well adversely affect the income of all dentists and medical doctors – leading some to even flee the country for better tax havens and higher net income. This change would also affect the availability of medical care, including dental services – and also impact the job market as dentists will be hiring less people in order to compensate for any reduction of income.

Morneau’s claiming that only “high income” individuals would be affected by the changes is thoughtless. Ultimately, all Canadians will be impacted. No one is exempt. A study conducted by The Fraser Institute discovered that families in the top one percent of income earned 10.7% of total income in Canada, but paid 14.7% of total taxes (an increase from 11.3% in 1997). Yet the bottom half of Canadian families earned 20.2% of total income, but paid 14.6% of taxes. For tax year 2016, the top bracket raised from 29% to 33% – the highest amongst G7 countries, (excluding France).

A small step in the right direction?

Mr. Morneau has now finally agreed to decrease the small business tax rate from 10.5 to 9%, as originally ordered by the previous Conservative government (although not until January of 2019). However, Ottawa may still choose to increase CPP payroll taxes, and a federal carbon tax may be introduced next year. In July, Morneau presented a 73% effective corporate tax rate on investment income and 40% in after-tax retirement income. This would increase taxes for dentists, other professionals and many business owners.

About 80% of dentists in most Canadian provinces are incorporated. In fact, in Ontario and Nova Scotia, the ability to do so for medical doctors was provided in exchange for a fee freeze years ago. Both provinces are barely in a position to provide major fee increases to compensate medical doctors for federal tax increases, especially when Ottawa has reduced the annual increase in transfer payments. While many medical professionals might welcome a salary with paid office overhead, malpractice insurance and a full benefits package (vacation time, study leave, sick leave, maternity leave, disability coverage, a defined-benefit indexed pension, etc.), no province could really afford this.

If Morneau’s proposals become law – and it looks as though they will – many dentists and medical doctors may retire prematurely, and others may lay off staff or shorten hours and days worked. Some mobile dentists and medical doctors may opt to relocate to the United States where President Trump has promised major income and corporate tax cuts. All these factors will play a role in causing patient wait times to lengthen.

For some time, many dentists have generously provided professional care to low-income groups at greatly reduced rates. For example, the standard Ontario fee for an extraction is $147, and the Non-Insured Health Benefits Program requires just $38. Similarly, the Interim Federal Health Program (IFHP) for refugees pays just $76 for a cleaning and exam, compared to the standard fee is $176.

What Morneau doesn’t realize can hurt us

If Bill Morneau’s law proposals become official, many dentists may quietly opt out. We also may very well see an increase in the number of migrants – as over 200,000 persons in the United States face deportation in 2018. Why put our valuable dentists and medical doctors in this unfair position, when they might otherwise provide new jobs for many of the new immigrants to Canada?

It is ignorant of Morneau to accuse dentists and other medical professionals of tax avoidance; most just regard this as discretion in the absence of benefits. The majority of physicians did not simply inherit great wealth or marry into it – rather, most achieved their financial successes through 8-10 years of post-secondary education, draining student loan debts, and long, seemingly endless days of hard work and dedication.