If you’re one of many self-employed physicians practicing in Ontario then you need to be aware of some further responsibilities with regards to your taxes. Here are some things to keep in mind.
1. When to Pay your Taxes
As a self-employed physician, make sure that you pay your taxes every quarter. You can setup a separate account and set aside some money every month to pay your installments. Be sure to pay the minimum amounts recommended by the CRA so that you don’t incur any underpayment penalties and interest charges.
2. How to Report Income and Expenses
Use the Schedule 2125 Professional Statement of the T1 Individual Income Tax Return to report your income and expenses. Your tax will be calculated on the basis of your net income (after deducting the expenses). Keep in mind that this tax amount won’t change even if you withdraw cash from the business.
However, if you’re running an incorporated practice then you’ll have more flexibility over the timing of income earned.
3. RRSP Contributions
This is great way to save for retirement without having to pay tax on the earnings accumulated. The contributions will be deductible at the time of the payment and you will have to pay tax on anything withdrawn from the RRSP account.
For self-employed physicians, the maximum which you can contribute to an RRSP is 18% of your last year’s earned income and this goes up to a maximum of $26,230.
4. Canada Pension Plan Contributions
This is a mandatory contribution for self-employed physicians. It is automatically calculated on your tax return and in 2018 the maximum contribution is $5,187.60 which is about 9.9% of the income. Remember, half of these contributions will be credited as a tax credit (at a rate of 20.05%) while the other half will be deductible against the income.
Again, incorporated physicians have a benefit here i.e. they have the option of paying out dividends instead of salaries if they don’t want to participate in the pension plan.
Syed A. Raza Professional Corp. provides a plethora of accounting services for doctors and other medical professionals. If you have any queries or would like more information about how we can help you then feel free to get in touch.