5 Important Considerations for Medical Professional Corporations
As December 31st approaches, many medical practitioners are preparing for their first year-end amidst the pandemic. We’ve prepared a summary of 5 important items relevant to this industry.
1. Claiming Business Use of Home Expenses
The COVID-19 pandemic has forced many practitioners to reduce in-office patient appointments and the amount of hours they are spending in their office (or hospital). As a result, many physicians are working more from their homes, as telehealth and video appointments have become the new norm. The question that has become increasingly prevalent is “Can I claim home office expenses?”
In our article on Working from Home During COVID-19, we explore the eligibility requirements and what is deductible. However, in our experience, most medical practitioners cannot deduct insurance or property tax as these expenses can only be claimed if commission income is earned. In all cases, mortgage interest and capital cost allowance are not deductible. As an alternative, the shareholder may want to consider charging rent to the professional corporation for use of a small space in the home. The corporation would deduct the rent. The shareholder would include this rental income on their return but would be able to deduct the prorated portion of a wider range of costs against the rental income (mortgage interest, property tax, utilities, insurance). However, one must be careful of the HST and principal residence exemption issues with such a strategy.
If office furniture, computer equipment, and other items need to be purchased for use solely for working within the home, we suggest purchasing these items through your medical professional corporation.
For medical practitioners who have employees (i.e. office staff) who were required to work from home in 2020 due to COVID-19 with modest expenses, they can claim up to $400, based on the amount of time working from home (without the need to track detailed expenses) using the temporary flat method.
2. Canada Emergency Business Account Loan (CEBA)
The Canada Emergency Business Account (CEBA) is an interest-free loan of up to $60,000 provided by the federal government. Medical practitioners can apply for this loan (directly through the bank or credit union) until March 31, 2021. If the loan is repaid by December 31, 2022, $20,000 of the loan will be forgiven. If the loan is not repaid by December 31, 2022, the remaining balance will be converted to a three-year term loan at 5% interest. The forgiven amount will be taxable to your corporation but the after tax benefit to the company will still be approximately $14,700 to $17,500 depending on the tax rates of your medical professional corporation .
We encourage medical practitioners who meet the criteria as detailed by Canada Revenue Agency CRA (see below) to consider applying for this loan.
- The Payroll Stream, applicants with employment income paid in the 2019 calendar year between Cdn.$20,000 and Cdn.$1,500,000; or
- The Non-Deferrable Expense Stream, applicants that have eligible non-deferrable expenses between $40,000 and $1,500,000. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance. Expenses will be subject to verification and audit by the Government of Canada.
3. COVID-19 Advance Payment Program
OHIP provided interest-free advance payments to medical practitioners that will be applied against future OHIP payments to those individual physicians.
These advances are not taxable revenue to physicians and should be tracked separately as a loan to be repaid, not as revenue at the time you receive it. The amount will not be included in your taxable income. These advances can also be excluded for calculating your decrease in revenue for CEWS and CERS programs detailed below as they are simply advances and not for services rendered.
4. Employee Wage Subsidies
Often Medical Professional Corporations will have payroll because they have office staff or other employees working for them (or in some cases the payroll account is set up to remunerate the shareholder through a salary). If this is your situation, there are two wage subsidy programs that we recommend leveraging:
10% Temporary Wage Subsidy (TWS)
There is no revenue decrease required for this subsidy it is available to corporations who were registered for a payroll account prior to March 15, 2020, and who paid eligible remuneration to an eligible employee from March 18 to June 19, 2020, even if that employee is the shareholder. The subsidy is equal to 10% of the remuneration paid from March 18 to June 19, 2020, up to $1,375 for each eligible employee, to a maximum of $25,000 for each eligible employer.
If you are eligible, but you did not reduce your payroll remittances, you can still complete the form PD27 and calculate the TWS on remuneration paid from March 18 to June 19, 2020. The CRA will pay the amount of the subsidy to you or transfer it to your next year’s remittance.
Read more on the TWS.
Canada Wage Emergency Subsidy (CEWS)
In order to receive CEWS for periods 1 through 4 (March 15 to July 4, 2020), employers must have a revenue decrease of at least 15% for the month of March and by 30% for April, May, and June. The decrease is compared to either the same months in 2019 or an average of their revenue in January and February of 2020. You can use either the cash or accrual basis for determining revenue decrease.
For period 5 (July 5, 2020) and onward there is an opportunity to receive the CEWS on any revenue decrease, you do not need to have a 30% decrease in revenue.
The CEWS has been extended until June 2021 and remains at a rate of up to a maximum of 65% of eligible wages until December 19, 2020.
The deadline to apply for CEWS is the later of January 31, 2021, or 180 days after the end of the qualifying period. Therefore, if you have not yet applied for any periods and qualify based on your revenue drop – you have until January 31, 2020, to get caught up on applications dated back to March 2020.
Read more on the CEWS.
5. Rent Subsidy for Office Space
On October 9, 2020, the federal government announced a new rent payment assistance program (replacing the former CECRA) entitled the Canada Emergency Rent Subsidy (CERS). If you are paying to rent on office space and have had any decrease in revenue because of COVID-19, we encourage you to apply for this subsidy.
To be eligible, the corporation must rent a property in Canada that it uses in the course of its ordinary business activities. Expenses include rent or other amounts required to be paid that are within the terms of a lease agreement. A rental or lease agreement must have been in existence prior to October 9, 2020. The maximum claim for CERS is $75,000 in expenses per location per period, to an overall max of $300,000 per entity. Affiliated groups must share the $300,000.
For assistance in any of the above discussed considerations, we recommend you contact one of our experienced Healthcare Industry Professionals.
All information detailed in this article is up-to-date as of December 16, 2020. Further updates are expected to the programs noted, please refer to the CRA website for the most up to date information.