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My understanding is that other people are able to sell their small businesses at retirement and receive 700-800k of that money tax free. Physicians cannot take advantage of this. I have questions based on this:

Because doctors usually cannot sell their practices, what do they do with the money stuck inside their corporation? If the corporation continues to exist during retirement so they can pay themselves annually from it, do you still have to pay costs associated with incorporating?

Does the CRA raise eyebrows if your corporation with zero revenue is paying out dividends and salaries?

Thanks. Feel free to correct any flaws in my understand. I was doing some rereading surrounding the changes to the small business tax rules. 

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1 hour ago, Let'sGo1990 said:

My understanding is that other people are able to sell their small businesses at retirement and receive 700-800k of that money tax free. Physicians cannot take advantage of this. I have questions based on this:

Because doctors usually cannot sell their practices, what do they do with the money stuck inside their corporation? If the corporation continues to exist during retirement so they can pay themselves annually from it, do you still have to pay costs associated with incorporating?

Does the CRA raise eyebrows if your corporation with zero revenue is paying out dividends and salaries?

Thanks. Feel free to correct any flaws in my understand. I was doing some rereading surrounding the changes to the small business tax rules. 

I'm a resident, so take what I say with a grain of salt, but I've seen plenty of FPs sell their practice/rosters.

Yes you have to pay incorporation fees to keep it open, and no it's not a problem for it to keep paying you out when it doesn't not have revenue. Using your corporation like this is what was intended for our retirement.

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1 hour ago, PhD2MD said:

I'm a resident, so take what I say with a grain of salt, but I've seen plenty of FPs sell their practice/rosters.

Yes you have to pay incorporation fees to keep it open, and no it's not a problem for it to keep paying you out when it doesn't not have revenue. Using your corporation like this is what was intended for our retirement.

I thought those doctors were selling their family health team spots. Not sure it works the same way for other doctors. Why would someone buy a psychiatry or rheumatology practice, for example?

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10 minutes ago, Let'sGo1990 said:

I thought those doctors were selling their family health team spots. Not sure it works the same way for other doctors. Why would someone buy a psychiatry or rheumatology practice, for example?

full complete roster, all the staff, office equipment, and structures in place(?) Plug and play style 

Versus you starting up gathering all that on your own, and ramping up to speed. For many practises it can take a bit to get to full roaster and thus full billing. 

Now that wouldn't be at a huge amount of money mind you :)

Edited by rmorelan
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3 hours ago, Let'sGo1990 said:

My understanding is that other people are able to sell their small businesses at retirement and receive 700-800k of that money tax free. Physicians cannot take advantage of this. I have questions based on this:

Because doctors usually cannot sell their practices, what do they do with the money stuck inside their corporation? If the corporation continues to exist during retirement so they can pay themselves annually from it, do you still have to pay costs associated with incorporating?

Does the CRA raise eyebrows if your corporation with zero revenue is paying out dividends and salaries?

Thanks. Feel free to correct any flaws in my understand. I was doing some rereading surrounding the changes to the small business tax rules. 

The entire point of the corporation in the end is to be able to pay out without revenue (same for maternal/paternal leave, re-education time, sometimes sick leave etc). It is a function that is built into the model :)

So no the CRA doesn't raise any eyebrows there as I understand it. It is the usual retirement pathway - your corp pays out dividends etc for your entire retirement period. 

You are also probably referring to capital gains above to hit your numbers- the capital gains rate is quite a bit shielded (only 1/2 are taxable, the rest likely will be in a high 50% bracket as the amounts is so large so on a 1 million capital gains profit you would keep about 750K.) The fact that capital gains is preferred tax wise over interest income is the root of a few tax saving strategies - like if you hold bonds try to do it in a registered account like a RRSP or TFSA and put your stocks more in your non-registered accounts etc (with doctor's incorporation we are a bit special but that is still general advice for most canadians). 

 

 

 

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On 2/9/2020 at 5:16 PM, rmorelan said:

full complete roster, all the staff, office equipment, and structures in place(?) Plug and play style 

Versus you starting up gathering all that on your own, and ramping up to speed. For many practises it can take a bit to get to full roaster and thus full billing. 

Now that wouldn't be at a huge amount of money mind you :)

Can a practice be sold without selling the corporation? 

On 2/9/2020 at 5:22 PM, rmorelan said:

The entire point of the corporation in the end is to be able to pay out without revenue (same for maternal/paternal leave, re-education time, sometimes sick leave etc). It is a function that is built into the model :)

So no the CRA doesn't raise any eyebrows there as I understand it. It is the usual retirement pathway - your corp pays out dividends etc for your entire retirement period. 

You are also probably referring to capital gains above to hit your numbers- the capital gains rate is quite a bit shielded (only 1/2 are taxable, the rest likely will be in a high 50% bracket as the amounts is so large so on a 1 million capital gains profit you would keep about 750K.) The fact that capital gains is preferred tax wise over interest income is the root of a few tax saving strategies - like if you hold bonds try to do it in a registered account like a RRSP or TFSA and put your stocks more in your non-registered accounts etc (with doctor's incorporation we are a bit special but that is still general advice for most canadians). 

 

 

 

Silly question - Let's say someone invested 100k in their personal corp in stocks or an all equity ETF such as VEQT, and that grew to 107k the next year. That 7k would count as a capital gain, and only 3500 would be taxed at 50 percent? Versus putting all of that 100k in bonds would result in interest income that would all be taxed at 50 percent?

Thanks!

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13 hours ago, Let'sGo1990 said:

Can a practice be sold without selling the corporation? 

Silly question - Let's say someone invested 100k in their personal corp in stocks or an all equity ETF such as VEQT, and that grew to 107k the next year. That 7k would count as a capital gain, and only 3500 would be taxed at 50 percent? Versus putting all of that 100k in bonds would result in interest income that would all be taxed at 50 percent?

Thanks!

so capital gains don't occur until you sell the asset - so you can hold the stock for decades without paying that tax. Only dividends and interest are paid yearly. This another reason by capital gains is so powerful - money that is removed by taxation isn't around to compound further for you. 

so it is worse than 50% of the interest vs 25% of the capital gains. It is more likely 50% of the interest and then nothing on capital gains until way later. 

So why hold bonds? We the interest is more predictable reducing volatility and bonds actually can also get capital gains if the interest rate falls ha. 

This is stuff is also really important in medical corporations - because interest and dividends is called passive income - and you are only allowed so much passive income before the corporation tax rate jumps up. So people use various strategies to reduces that. One way again is to reduce your holdings of bonds in the corporation. In a perfect world you would somehow get 100% capital gains, no dividends or interest, if that would still give you a great return. There are some investment classes designed to actually convert normal dividends into capital gains for an example. 

That sort of fancy stuff is where you either learn it on your own (doesn't take long) or you get a fee only financial advisor to show you want to do and then do it. Those flat rate financial advisors are the ones you want - NOT the sort of ones that get a percentage of your wealth each year (which is insane but occurs all the bloody time with mutual fund companies including our old friend MD FInanical). 

 

Edited by rmorelan
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6 hours ago, Let'sGo1990 said:

Can a practice be sold without selling the corporation? 

Silly question - Let's say someone invested 100k in their personal corp in stocks or an all equity ETF such as VEQT, and that grew to 107k the next year. That 7k would count as a capital gain, and only 3500 would be taxed at 50 percent? Versus putting all of that 100k in bonds would result in interest income that would all be taxed at 50 percent?

Thanks!

oh and yes the practise can be sold without selling the corporation - in fact you cannot sell the corporation. It can only be held by the original doctor, and it must in fact be called your name etc - it is yours and yours alone

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2 hours ago, skyuppercutt said:

Are there any resources that you would recommend to read/learn about those things?

I'm just a MS2 but I joined the facebook group Physician Financial Independence (Canada) and it's been really informative. Lots of stuff are too high level for it's good for passively absorbing some high level stuff at my stage of training.

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2 hours ago, skyuppercutt said:

Are there any resources that you would recommend to read/learn about those things?

Sure when you become a doctor - graduate med school - they will let you join the financial group of facebook for instance which has a long list of resources, and you can ask whatever questioned you have. We as a field figured out that we have to learn about this stuff because we are being ripped off and that is one of the responses (as in 40% of our retirement money taken away through hidden fees - yeah that's gotta hurt). 

www.looniedoctor.ca is a website that also have a lot of information for doctors. 

Overall I have to say that any modern financial planning book - basic introductory book - will cover almost everything you need except for the corporation aspect. There are lectures a number of us give at med schools as well on this sort of thing as well (which if you have them should be taught not by some industrial person coming in - total conflict of interest there if that happens. Usually it is again our old friends at MD financial ha).

Point ultimately is that this isn't supposed to be a huge focus for people as it just isn't that hard to set up and do. Then we can focus on helping patients and enjoying life knowing we did the basic stuff to ensure the financial side is set. Happier more financially secure doctors ha are better doctors :)

 

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3 minutes ago, Egg_McMuffin said:

I'm just a MS2 but I joined the facebook group Physician Financial Independence (Canada) and it's been really informative. Lots of stuff are too high level for it's good for passively absorbing some high level stuff at my stage of training.

ha yeah that is the one! - the recommended resources are probably the best place to start. 

Also like many things in life getting to 99% is a lot simpler than getting from 99 to 100% (and kind of pointless in a sense). You are always in any financial forum going to the planning geeks that just love to analyze things because that is just who they are and what they do. Definitely not a good return on time there on the face of it but ha some people love optimization problems and go from there :) Focus on the basics and you will be better off then almost anyone else, and remember the fancier it is the more likely it is to be wrong. 

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