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Second in a five-part series on what you need to know at various stages of your professional practice.
Congratulations to all of the physicians who have recently completed their residency and are now embarking on the next stage of their medical careers. You may not have heard this before but most of you are now small business owners in addition to being medical professionals.
The purpose of this article is to provide you with a basic outline of the issues you will likely need to consider in the Getting Started stage of your practice lifecycle.
1. Your practice structure will determine your requirements for income tax planning.
For most of you, when you left your residency program, you ceased to be an employee. The work you are doing as a locum or a member of a clinic will be taxed as self-employment income. Income tax and Canada Pension Plan contributions on self-employment income are not deducted “at source” and will be payable upon filing your 2016 T1 Personal Income Tax Return in the late spring of 2017. You will need to develop a savings plan for this.
You might decide to move quickly to Incorporate your medical practice, which will introduce a new corporate taxpayer into your world. You should ensure that you have adequately reviewed the benefits and costs of operating your medical practice as a corporation before doing this and understand the expanded tax responsibilities.
2. You will need to include a plan to repay any outstanding student debt.
There are minimum levels of interest / principal payments that will require cash flow from your practice and you may decide you want to increase the rate of principal payments to eliminate your student debt faster. Your debt repayment decisions need to be part of your cash flow planning.
3. You will likely start planning to purchase a home.
This is the next most common financial objective after your student debt repayment plan. You should consider using your existing Registered Retirement Savings Plan (RRSP) room to make a contribution to your RRSP that would enable you to access the RRSP Home Buyers Plan, if you qualify. The rules for qualifying as well as the rules for contributions and withdrawals are complicated and professional assistance is recommended.
Planning for the balance of your home purchase down payment will require discussions with your lender and a savings plan from your practice cash flow.
4. Other considerations.
The above comments are generally applicable to all physicians as you are getting started, but throughout your practice lifecycle, there will be issues to consider that are uniquely related to you and your individual goals and circumstances. Choosing a team of professional advisors who will take the time to get to know you and understand your goals throughout your practice lifecycle will ensure that you are getting thorough and timely planning assistance.
With more than more 12,000 Professional Services clients, MNP has developed a diverse suite of services designed to provide a collaborative, cost-effective approach to doing business and personalized strategies to help professionals succeed at every stage of their practice.
Contact Don Murdoch, B.C. Leader, Professional Services at 1.877.766.9735 or [email protected]
Related Topics:Business Structures; Doctors
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