Skip to main content

The Globe and Mail

Tax fight puts crass politics ahead of sound economics

Pity the lowly Canadian doctor, the Rodney Dangerfield of highly-paid professionals.

We used to think lawyers got a bad rap, what with an entire category of jokes devoted to their sleazy excuses for racking up billable hours. They've been replaced by doctors as the wealthy professionals Canadians love to resent. Not only have doctors come under fire for everything from extra billing to patient churning, they're now being accused of tax avoidance.

And not just by any Joe Blow. Federal Finance Minister Bill Morneau's move to close "loopholes" that allow owners of private corporations to reduce their tax burdens has put doctors on a war footing. The minister's proposals don't single out doctors for abusing the tax code, but no class of small-business owners feels as directly disrespected by Ottawa as the medical profession.

Story continues below advertisement

Related: Finance committee chair Wayne Easter denounces his own government's rollout of tax changes

Explainer: What Canada's new tax-planning proposals mean for private businesses

Related: How much will Morneau's proposed tax changes cost small business? We do the math

"When the [tax] rules are used for personal benefit, they are not contributing to growing our economy," Mr. Morneau explains in a cover letter accompanying a document outlining the proposed changes that the Finance Department released in July. "Rather, such practices can undermine confidence in our economy by giving tax advantages to a select few. We don't think that's fair."

Fair? Is it fair that the proposed tax changes "could create an effective tax rate of 73 per cent on the earnings from investments held inside professional corporations," as Ontario Medical Association president Shawn Whatley complains? Well, actually, unlike the two-thirds of Ontario doctors who are incorporated, most Canadians don't have any earnings from investments held in professional corporations. So, yes, it might be fair to crack down on obvious abuses.

But isn't giving doctors special tax advantages a tradeoff for the sacrifices they make to take the Hippocratic Oath? After all, haven't they "already assumed huge debt during our education and training," as the OMA head insists? He adds: "We have no benefits, pension or sick time. If we get injured or lose our job, doctors have no employment insurance."

Well, the alternative is making Canadian doctors salaried employees of the state, like their counterparts in Britain's National Health Service. But that idea horrifies most doctors here because it is clearly to their financial benefit to incorporate as small businesses and continue to rack up billings on a fee-for-service basis, sheltering their income from taxes by parking it in high-yielding passive investments and "sprinkling" some of it among family members in lower tax brackets.

Story continues below advertisement

Besides, earning a medical degree at a Canadian University remains a bargain compared to the $50,000 (U.S.) or more in annual tuition charged by medical schools south of the border. Tuition here ranges from a risible $4,000 (Canadian) or so in Quebec to about $25,000 in Ontario. That has not stopped the doctors' lobby from warning of an exodus to the United States if Ottawa's tax changes go through, however, in essence stiffing the Canadian taxpayers who subsidized doctors' educations.

Still, as hard as it is to sympathize with the doctors, it's even harder to buy Mr. Morneau's fairness spiel. The Liberals promised "evidence-based" policy, yet they have consistently put crass politics ahead of sound economics in claiming to fight for the middle class. The brain behind this strategy is none other than Gerald Butts, principal secretary to Prime Minister Justin Trudeau, who, according to The New Yorker, believes there's "nothing better for a populist than a rich guy raising taxes on rich guys." Whether it's good policy seems beside the point.

One of the Liberals' first acts in government was to roll out a tax increase on the top 1.4 per cent of Canadian income earners. The change, along with a cut in middle-class taxes, was supposed to be revenue neutral. But the Parliamentary Budget Officer subsequently concluded that Ottawa would raise far less than it had projected from increasing taxes on those earning more than $200,000 due to the "behavioural response" of wealthier Canadians.

It all smacks of deep cynicism. This is, after all, the same Mr. Butts who was a top strategist in the Ontario government of former premier Dalton McGuinty that allowed, even encouraged, doctors to incorporate in exchange for accepting lower (albeit still handsome) fee increases in 2006. Those same incorporation privileges are now under attack by the Trudeau government, of which Mr. Butts is widely considered the chief maestro.

How much will this latest "rich guy raising taxes on the rich" move actually bring in for the feds? If Mr. Morneau knows, he's not telling. All Finance has made public is the underwhelming $250-million it expects to raise from reining in income sprinkling, "once fully implemented."

Evidence based, indeed.

Story continues below advertisement

Video: Morneau defends proposed tax changes for small business owners (The Canadian Press)
Report an error Licensing Options
About the Author

Columnist Konrad Yakabuski writes on politics, policy and business for The Globe and Mail’s Comment section and Report on Business. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.