September 15, 2017

Rt. Hon. Bill Morneau, PC,

MP Minister of Finance

Department of Finance

90 Elgin Street

OTTAWA, Ontario K1A 0G5

Dear Minister,

This letter is written out of concern for physicians which my firm serves, who operate through professional corporations. I also write to you as a concerned Canadian. I have spent the past 20 years advising healthcare professionals on tax matters in my capacity as a Chartered Accountant.

Fairness will not be achieved from the proposals becoming law as outlined in Tax Planning Using Private Corporation, as I will go on to explain. The proposals tabled will overturn a fair and economically sound system of taxation known as integration dating back to 1972, a system in which a portion of tax is paid initially at the corporate level with the remaining tax paid upon withdrawal from the corporation by individual shareholders. Effective integration already exists today between corporate and personal tax amounts paid by incorporated taxpayers, and tax paid by unincorporated taxpayers; a fact not adequately emphasized in the Department of Finance’s proposals made on July 18th. Both Conservative and previous Liberal governments have recognized the merits of integration and worked within its structure.

The historic context which granted physicians permission to practice through professional corporations (a form of Private Corporation) was a direct response to the “brain drain” of the previous decade. The desire to retain and attract physicians, shorten long patient wait times, expand limited access to healthcare across the country, and improve the health of Canadians influenced the tax policy in force today which includes income splitting (or dividend sprinkling). In the case of physicians, this was not a loophole but a taxation policy permitted in acknowledgment of the contribution physicians make to all Canadians. Proposals to undo these policies will precipitate a return to the very issues existing tax laws sought to address. Instead of being acknowledged for their unique contribution, physicians using current legal tax planning strategies have been depicted as “wealthy” or “entitled.” This serves no one’s interests, and is a most unfortunate and un-Canadian development.

I am concerned about the consequence that these measures will have on Canada’s healthcare system. The outcome of this simplistic approach is predictable: physicians will leave Canada, and many of my firm’s clients have already begun discussing this option in response to the Department of Finance’s proposed changes. Patient wait times will increase as a result. Canada’s healthcare system will suffer, leading to further calls for a two-tiered health care system to replace the Canada Health Act.

The proposed changes could have further unintended consequence of job losses to many Canadians, since a dramatic increase in taxation—rising as high as 93% in some instances—will cause physicians to lay off support staff in order to meet their increased tax obligation.

The level of one’s income is not a measure of wealth, as these proposals suggest. Capital is a fairer and more objective measure. Level of income is a simplistic, deceptive and incomplete measure of one’s ability to pay tax. For example, income level fails to account for underlying debt incurred by physicians early in their careers as a cost of entry to their profession. Income level also ignores the years of forfeited earnings in the pursuit of their highly skilled profession. Once a physician has entered the profession, the progressive nature of our tax system results in an inherent inequity to them; higher levels of tax result as income levels rise, yet your proposals do not take this inequity into consideration.

Consider one of my clients, Dr. John. He is a 45-year-old oncologist two years into his practice following 14 years of university, medical school, residency, and a fellowship. He needs to repay his line of credit accrued from those many years of study. He recently purchased a home with the assistance of his family and a mortgage which must be repaid. He must also save money for the education of his two young children expected to occur in 12 years’ time while his spouse stays at home to raise them. In addition to the daily pressure of life-and-death decisions, Dr. John has only 20 years to accomplish what most have 35 or 40 years to do, and female physicians face an even narrower window to accommodate maternity leave. Dr. John will earn $400,000 this year before expenses and income tax. He will pay approximately $180,000 in income tax in 2017 under the current tax regime, leaving him with $220,000 to cover living expenses, repay his student line of credit, pay off his mortgage, save for his children’s post-secondary education, kid’s weddings and for his own retirement.

He is not permitted employment insurance coverage as most “employed” Canadians are. He must pay long-term disability premiums in the event of illness during the course of his career, and except for the Canada Pension Plan and Old Age Security, he has no pension plan to rely on in his retirement years. His annual Canada Pension Plan premiums are twice that of an employed Canadian. He has a net worth of less than $100,000 after accounting for liabilities. Is he wealthy? If income is the measure used, then it may appear so. However, the measure of one’s income is deceptive. Dr. John is only one of many clients in the same situation, and these proposed tax changes will remove incentives for medical professionals to remain in Canada.

If fairness is at the heart of your government’s objectives, then consider available capital as the measure of wealth and not income level as the basis for taxing the wealthy. The Department of Finance’s proposals make no recommendations to increase the current capital tax rates currently set out in the Income Tax Act. I would have thought an increase in capital tax rates would have been the fair and logical way of identifying and taxing this group. If your government has no appetite for this approach, then leave the current system of integration in place at least for healthcare professionals.

Please reconsider these proposals in acknowledgment of the detrimental consequences they will have on all Canadians.

Yours sincerely,



Jonathan A. Tucker, CPA, CA, LPA

Managing Director


Jonathan Tucker

Jonathan Tucker