Insights – Taxes for Medical Doctors.
Keeping an eye on Canadian tax and business developments for Medical Doctors.
2024 RRSP contribution deductions and tax deferred income
The Registered Retirement Savings Plan (RRSP) contribution deadline to receive a tax deduction on your 2024 income tax return is March 03, 2025. The RRSP allows individual taxpayers to deduct the amounts contributed. The earnings (interest, dividends, capital gains), accumulate in the plan free of current tax so that they grow more quickly than the taxable earnings of investment made by the taxpayer directly in a taxable account would. Thus there are two benefits to an RRSP: first the current tax savings resulting from the deduction of contributions, and second the accumulation of tax-free earnings on money while in the plan.
You can deduct RRSP contributions based on the sum of your current year contribution limit plus your carryforward contributions. The maximum amount that can be contributed to your 2024 RRSP is the lesser of (1) 18% of your earned income from the previous year (wages/salary and self-employment income) or (2) $31,560 plus your carryforward contributions. You can obtain your 2024 RRSP contribution limit on your 2023 Notice of Assessment or at My CRA. If you exceed the maximum contribution limit, the excess amount will be subject to a 1% per month penalty until you correct the excess contribution by withdrawing the excess amount.
Taxes Payable by Individuals at Various Income Levels — Ontario 2024
If you are a Canadian resident, you are taxed on your worldwide income from your employment, self-employment - professional income, and income or taxable capital gains from any investments or property you may own. You are not taxed on gifts you receive and certain miscellaneous types of income. If your income is sourced in another country, you will normally receive a tax credit in Canada to avoid double taxation.
Not all income is treated equally. For example, only 1/2 of capital gains are included in income. Most Canadian source dividends qualify for the gross-up and dividend tax credit mechanism that reduces the tax payable on the dividends for resident individuals. Certain employment benefits are received free of tax. Employee stock option benefits are currently one-half taxed in most cases.
Timing affects all revenue and expense items, professional income is generally taxable on an accrual basis, employment income when received, and capital gain and losses when realized or sold. The reporting of professional income is often a confusing concept for medical doctors since under the accrual method, you report income you earn during the calendar year, no matter when you receive it.
Personal Income Tax Brackets – Ontario 2024
Canada’s income tax system levies federal and provincial taxes on individuals. Canada uses a progressive (graduated) income tax system where your earnings are taxed at higher rates (tax brackets) as your income increases. Tax brackets determine the rate of tax paid for each additional dollar of income within the defined bracket/threshold. Those with lesser incomes pay a lesser percentage of taxes on the income earned in lower tax brackets, while those earning higher incomes in higher tax brackets have to pay a higher rate of tax.
In addition to federal income tax, provincial taxes are imposed by the province or territory in which you reside or carry on business or professional activities. Therefore, a physician working in multiple provinces or territories will be required to allocate their professional earnings between the various provinces or territories. Provincial tax rates, tax brackets, and credits vary by province and are calculated using the taxable income calculated under federal income tax rules on schedules accompanying the T1 Individual tax return.
Key Considerations Joining HOOP as an Incorporated Physician
As of January 1, 2025, incorporated physicians can join the Healthcare of Ontario Pension Plan (HOOP) Pension Plan. The HOOP Pension plan offers a defined benefit (DB) pension plan. A DB pension plan provides members with a predictable stream of monthly income for the rest of their life when they retire. The HOOP plan also includes additional features, such as inflation protection in retirement, survivor benefits for your loved ones, and disability benefits if you are unable to work.
In a defined benefit pension plan, the employer (MPC) and employee contribute to the HOOP plan in exchange for a promise to pay the employee a regular income after they retire. The contributions are pooled into a fund, and HOOP invests and manages it.
We have put together a comprehensive list of items to consider before you confirm your decision to join the HOOP Plan:
- OHA Membership: To join HOOP your MPC must be a member of the Ontario Hospital Association (OHA). If you are the sole employee at your MPC, the annual dues estimate for 2025 is $1,251. The fees paid will be deductible to your MPC. Based on the 2025 baseline earnings of $100,000-150,000, the estimated after-tax cost of the OHA fees will be approximately 2.0-3.5% per year. This additional cost may discourage participation in the plan since these ongoing fees reduce the overall value of your investments.
- Increase in tax-deferred retirement savings: Contributions to the HOOP pension plan reduce your RRSP contribution room in the following year. This amount is referred to as a Pension Adjustment ("PA”). The Pension Adjustment related to your RRSP contribution will be approximately 50% of the total employer/employee contributions to HOOP. As a result, you will be able to increase your tax-deferred retirement savings.