Alta Vista, Ottawa
Alta Vista: the hospital district and the medical professional corporation
Alta Vista is built around a concentration of hospitals and clinics, and the accounting question that comes with them is corporate rather than personal. A physician billing fee for service is running a business, usually through a professional corporation, and the questions that follow are the ones every incorporated professional faces plus several that are peculiar to medicine. How to be paid out of the company. Whether family members can be part of it in any meaningful way now that the split income rules exist. What to do with the money that stacks up inside. It is also a district full of residents, fellows and salaried hospital staff whose returns look nothing like the partner down the hall.
Why Alta Vista is its own case
A medicine professional corporation in Ontario exists only with the regulator's authorisation, and its permitted shareholders are set by the profession's rules rather than by what would be convenient for tax. Ontario is unusual in allowing certain family members to hold non-voting shares in a medicine professional corporation, and for years that supported paying dividends to a spouse or adult children in lower brackets. The tax on split income rules changed that. Dividends paid to a family member who is not meaningfully involved in the business are now taxed at the top marginal rate unless the recipient falls within an exception, which strips out the benefit entirely.
The exceptions do not help most physicians. The excluded shares exception, which protects family members holding a substantial equity stake, is unavailable where the corporation's income comes from a professional business. The labour exception requires the family member to be actively engaged in the business on a regular, continuous and substantial basis, with an average of twenty hours a week during the year being the safe harbour. There is a further exception for amounts received by the spouse of an owner aged sixty-five or over, which is a genuine retirement planning tool and one of the few splitting routes still open. Everything else has to be justified on its facts.
What remains is real and worth doing properly. Income left in the corporation is taxed at a low active business rate, which is a deferral of personal tax rather than a saving, and it makes the corporation an efficient place to accumulate. The limit on that is the passive income grind: as investment income inside the company and its associated companies rises past a threshold, the amount of active income eligible for the small business rate is reduced, and far enough past it the low rate is gone. The salary and dividend mix matters too, since only salary generates RRSP room and CPP contributions, and a dividend-only strategy quietly gives up both. Medical services are largely exempt from HST, which means the corporation generally cannot recover the tax it pays on rent, equipment and supplies.
The work, as it applies here
Tax Expertise
Corporate and personal returns filed together for an incorporated practitioner, with dividends tested against the split income rules before they are declared rather than after.
Detailed Bookkeeping
Bookkeeping for a practice with fee-for-service billings and a real receivable, so year end is a close rather than a rebuild, and the shareholder loan account is accurate.
Strategic Planning
The remuneration mix, what to do with retained earnings before the passive income grind bites, and a retirement plan that does not depend on splitting income that is no longer splittable.
Questions from Alta Vista
- I am about to incorporate my practice. What does the corporation actually save?
- Less than people expect on money you spend, and a lot on money you do not. Active business income kept inside the corporation is taxed at a low rate, so every dollar you leave in has substantially more left to invest than a dollar taken personally. That is a deferral, since personal tax applies when it comes out, but a long deferral compounds. If you draw out everything you earn, the combined corporate and personal tax lands close to what you would have paid personally, and you are left carrying corporate filings, minute book upkeep and professional fees for very little.
- Can I pay dividends to my spouse from my medical corporation?
- You can pay them, but the tax result is usually the point of the exercise and it has changed. Under the split income rules a dividend to a related person who is not actively engaged in the business is taxed at the highest marginal rate, which removes the benefit. The exception for family members holding a large equity stake does not apply to a professional corporation. What is left is a spouse who genuinely works in the practice on a substantial and continuous basis, and the separate exception for a spouse once the principal owner reaches sixty-five. Anything else needs to be justified on facts you could actually produce.
- Salary or dividends out of the corporation?
- Usually some of both, and the tie-breakers are not the marginal rates. Salary is deductible to the company, generates RRSP contribution room, counts for CPP, and creates the earned income needed for child care claims and an individual pension plan. Dividends do not do any of that, but they avoid CPP contributions and are simpler administratively. A common shape is enough salary to maximise RRSP room and support any pension arrangement, with the balance taken as dividends according to what the household actually needs. It should be reviewed each year, not set once.
- Investments are building up inside my corporation. Is that a problem?
- It becomes one past a point. The small business limit that gives you the low corporate rate is reduced as the adjusted aggregate investment income earned by the corporation and its associated companies grows, and once that income is high enough the low rate is gone entirely and active income is taxed at the general rate. The consequence is that a large passive portfolio inside an operating company can raise the tax on the practice itself. Options include holding investments so that the income realised each year is managed, using a holding company structure, or funding a pension arrangement instead.
- Can I claim back the HST on my clinic's rent and equipment?
- Generally no, and this surprises people who have run other kinds of business. Most services provided by a physician are exempt supplies for HST purposes, and an exempt supplier does not charge tax and correspondingly cannot claim input tax credits on what it buys. The HST on rent, equipment, software and supplies is simply a cost. Where a practice also earns revenue from clearly taxable activities, such as certain third-party reports or cosmetic procedures, registration may be required and a portion of the input tax becomes recoverable, which makes the revenue mix worth reviewing.
- I am a resident on a hospital T4 and I also receive a research stipend. How is the stipend taxed?
- It depends on what the payment is for and how it is characterised by the payer, not on where the cheque comes from. Employment income is on the T4 and taxed as salary. A research grant is treated separately and is included in income net of the reasonable expenses you incurred to carry out the research, which means the expense records matter. A scholarship or bursary tied to a programme has its own treatment and may be partly or wholly exempt. Ask the granting body in writing which category it considers the payment to be in, and keep the answer with the return.
Reading that applies
Also covered by this page
These neighbourhoods raise the same questions as Alta Vista and are handled here.
- Elmvale Acres Built in the 1950s around the Elmvale Acres shopping centre, one of the east end's first plaza-centred suburbs.
- Guildwood Estates Wide 1950s bungalow lots on curving streets off Kilborn Avenue.
- Applewood Acres A compact postwar subdivision off Alta Vista Drive.
- Alta Vista Ridge On the height of land that gives the wider district its name, above the Ottawa Hospital's General campus.
- Riverview Park The 1950s neighbourhood beside the hospital and research campus at Smyth and Riverside.
- Heron Park A modest 1950s neighbourhood south of Heron Road toward Walkley.
- Ledbury Grouped with Heron Gate and Ridgemont in a single community association south of Heron Road.
- Ridgemont Built around Ridgemont High School on the slope east of Bank Street.
- Herongate A large 1960s rental complex south of Heron Road, partly demolished and redeveloped after 2016.
- Riverside Park A 1960s mix of apartment slabs and bungalows facing the Rideau River near Mooney's Bay.