Physicians pay and their taxes


Finance Minister Morneau’s recent proposal for tax reform has revealed both bad tax policy and irrational reimbursement mechanisms. Furthermore, the debate has become engulfed in clouds of indignant rhetoric.

First things first: Let’s be honest. While some incorporated physicians do indeed operate small businesses with significant overhead, many, if not most, run more modest operations and many more, especially hospital based physicians, have their work-places and interdisciplinary colleagues provided at no personal cost. So, when Dr. Jones, a hospital- based physician generating the “average” annual billing revenue of $385,000 in her corporation, provides an annual dividend of $35,000 to each of her children who are away at university (and who will pay little or no tax), a reasonable non-incorporated Canadian might consider that legal arrangement unfair.

We also must acknowledge some other truths. Physicians were offered the opportunity to incorporate, reduce their taxes, protect savings for parental leave and retirement and split income with spouses and adult children in lieu of fee increases. In fact, in Ontario, the canny OMA President and the crafty Health Minister found the perfect provincial solution in 2005. Reduced taxes produced increased net income for doctors at the expense of the federal government’s tax revenues. They then promoted it to doctors who adopted it in droves. Ancillary beneficiaries include the lawyers and accountants who assist those corporations and the physician regulatory bodies who charge an annual fee to each corporation in addition to the annual registration fee each practitioner pays.

More honesty: we encourage our young people to aspire to a career in medicine yet require them to expend hundreds of thousands of dollars to achieve that end, many entering independent practice those many years later encumbered by enormous debt (perhaps not so much for those provided dividends by their physician parents). For some, there are then the costs of setting up a practice and for many, especially the majority of new physicians who are women, consideration of how to manage the challenges of parental leave whilst covering the ongoing costs of their practice, their debt and retirement savings.

While we are at it, let’s also consider whether the current fee for service payment mechanism to “independent” physicians is archaic and might not be replaced by a payment mechanism that reflects a more mature approach to restoring to health of those in our population who fall ill or are injured, an approach driven by outcomes and performance goals, aligned with the institutions charged with and accountable for those outcomes. In doing so, let’s begin to address the anomaly that we reimburse some medical specialties on average three times as much as some others – despite similar training periods and complexity of work.

A more enlightened policy framework might consider:

  • Providing each physician with a base compensation including benefits, parental leave and a pension.
  • Reducing the unreasonable, unjustifiable and substantial income differentials that exists between some medical specialties
  • Reducing the costs of medical education, a public good
  • Streaming hospital based physician reimbursement through regional health authorities to hospitals, linked to a cogent physician human resource plan
  • Streaming primary and community based physician reimbursement through regional health authorities to health care teams with accountability agreements for population based service
  • Providing significant additional “at risk” physician performance funding to hospitals and regional health authorities such that a meaningful percentage of total physician income is linked to performance in agreed domains (eg access, on-call, after-hours, discharge planning, advancement of institutional and regional goals, teaching, patient satisfaction, infection rates, etc)
  • Ways to provide practice infrastructure particularly for primary and community care.

There is reason to believe that the vast majority of new, if not established, physicians would line up to be a part of such a system. Mr. Morneau could quite properly legislate a gradual weaning of physicians from their corporations and provinces would see an alignment of physician resources and incentives, health care objectives and fiscal responsibility.


David M C Walker MD; Stauffer-Dunning Chair and Executive Director, Queen’s School of Policy Studies. Professor, Emergency Medicine, and former Dean, Faculty of Health Sciences, Queen’s University

Ruth C Wilson MD, OC, Professor, and former Head, Department of Family Medicine, Queen’s University; President, N. American Region of WONCA

Duncan G Sinclair PhD; former Dean, Faculty of Health Sciences, Queen’s University and former Chair, Ontario’s Health Services Restructuring Commission

* Members of the Queen’s Health Policy Council of the School of Policy Studies

2 thoughts on “Physicians pay and their taxes

  1. Phil Wells, MD, Chair/Chief Department of Medicine University of Ottawa

    Thank you for this thoughtful and truthful posting. I agree with your policy framework, indeed these solutions are obvious to many of us but competing interests will stop many physicians from accepting them. A further issue not addressed is the cost in time to provide quality care has increased due to shrinking hospital budgets which have resulted in fewer allied health providers. The introduction of Competency Based Medical Education will be a further stress, also with increased costs to physicians in time to provide assessment, currently with no plan for remuneration. This needs to be part of the pay, perhaps in the “at risk” teaching deliverables. As an observer of government action one must question whether governments have all the information. Certainly they are not addressing the real issues that you have articulated. Working around the edges is not working.


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