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Simple Wealth Strategies for Physicians: Three Areas of Wealth

25/01/2016


This article originally appeared in the BC Medical Journal.

In your life time, it is likely the three largest areas of wealth you will accumulate and access to achieve your financial goals are your home (as your principal residence), your tax advantaged Retirement Savings Plan and your incorporated Professional Practice.

Do you understand the common characteristics, as well as the differences between these?

If you don’t, you aren’t alone. Let’s start with the differences.

When you invest money:

  • In your home (as your principal residence), you normally expect to do so with “after income tax” funds.
  • In your Registered Retirement Savings Plan (RRSP) or a Pension Plan, you normally do so with “before income tax” funds.
  • Within your incorporated Professional Practice in B.C., you normally expect to do so with “after 13.5% income taxed” funds.

When you realize on the equity:

In your home (as your principal residence), you normally expect to pay no income tax.

When you withdraw money:

  • From an RRSP or Pension Plan, you normally expect to pay income tax at your personal income tax rate at that time.
  • From your incorporated Professional Practice in B.C., you normally expect to pay income tax at your personal income tax rate at that time, reduced by a credit for the income tax paid at the corporate level.

So what are the real differences? Just the timing of when the income tax is paid in each case.

The common element among all three is that the total income tax paid over time is roughly the same amount.

The opportunities are created by understanding how to use this timing to your advantage.

In future articles we will expand your knowledge around each of these three key wealth strategies.

With 16 locations throughout B.C., MNP provides support to medical professionals at all stages in their careers.

For more information contact Don Murdoch, B.C. Leader, Professionals Services at 1.877.766.9735 or [email protected].