The Canadian Medical Association (CMA) is pleased to participate in the Government of Canada's consultation on ensuring the ongoing strength of Canada's retirement income system. Ensuring sufficient income in retirement is a concern for CMA's more than 72,000 physician members and the patients they serve. With the aging of the Canadian population and the decline in the number of Canadians participating in employer-sponsored pension plans, now is the time to explore strengthening the third pillar of Canada's government-supported retirement income system: tax-assisted savings opportunities. Two areas in need of government attention are tax-assisted savings vehicles for high-earning and self-employed Canadians, and vehicles available to help Canadians save to meet future continuing care needs.
Like the Canadian population at large, physicians represent an aging demographic - 38% of Canada's physicians are 55 or older - for whom retirement planning is an important concern. In addition, the vast majority of CMA members are self-employed physicians and, as such, they are unable to participate in workplace registered pension plans (RPPs). This makes physicians more reliant on Registered Retirement Savings Plans (RRSPs) relative to other retirement savings vehicles. As we saw during the recent economic downturn, the volatility of global financial markets can have an enormous impact on the value of RRSPs over the short- and medium-term. This variability is felt most acutely when RRSPs reach maturity during a time of declining market returns and RRSP holders are forced to 'sell low'.
The possibility that higher-earning Canadians, such as physicians, may not be saving enough for retirement was raised by Jack Mintz, Research Director for the Research Working Group on Retirement Income Adequacy of Federal-Provincial-Territorial Ministers of Finance. In his Summary Report on Retirement Income Adequacy Research, Mr. Mintz reported that income replacement rates in retirement fall below 60% of after-tax income for about 35% of Canadians in the top income quintile. This is due to the effect of the maximum RPP/RRSP dollar limits, which is why the government should consider raising these limits.
The CMA supports exploring ways to expand tax-assisted options available for retirement saving, particularly measures that would allow organizations to sponsor RPPs and Supplementary Employee Retirement Plans (SERPs) on behalf of the self-employed.
Such changes could allow the growing ranks of self-employed Canadians to benefit from the security and peace of mind already available to Canadians with workplace pensions. CMA members favour a voluntary approach, both for employers/plan sponsors in deciding whether to sponsor such plans and for potential plan participants in choosing whether or not to participate.
Just as the government should explore ways to modernize the rules governing registered pension plans to account for today's demographics and employment structures, so too should it explore ways to help Canadians save for their continuing care - including home care and long-term care - needs. When universal, first-dollar coverage of hospital and physician services-commonly known as 'medicare' - was implemented in Canada in the late-1950s and 1960s, health care within an institutional setting was the norm and life expectancy was almost a decade shorter than it is today. With Canadians living longer and continuing care falling outside the boundaries of Canada Health Act first-dollar coverage, there is a growing need to help Canadians save for their home care and long-term care needs.
The attached backgrounder highlights the pressing need for greater support for home and long-term care in Canada, as well as some principles and options for governments to help Canadians pay for these services. It should be noted that the introduction of Tax-free Savings Accounts (TFSAs) in the 2008 federal budget created a new savings vehicle to support Canadians' continuing care needs. The CMA was pleased to see its introduction.
Government action on these two related issues would benefit all Canadians. Expanding retirement-saving options for physicians would provide a strong incentive for physicians to stay in Canada. Similarly, by helping Canadians save for their own continuing care needs, governments could contribute to the health of elderly citizens and ease the demand on unpaid caregivers and government-funded continuing care.
Ensuring that Canadians have the tools at their disposal to save for their continuing care needs and that Canada's physicians have the right tools to save for retirement are important issues for the CMA. Canada's physicians have long been active on these issues and government action on these files would benefit all Canadians. We are pleased to take part in Finance Canada's consultations and would welcome any further opportunities to participate.
Anne Doig, MD, CCFP, FCFP
The Canadian Medical Association (CMA) is pleased to provide the comments below in response to Finance Canada's consultation document Pension Innovation for Canadians: The Target Benefit Plan.
The CMA is the professional voluntary association representing over 80,000 physicians across Canada. Its mission is to serve and unite the physicians of Canada and to be the national advocate, in partnership with the people of Canada, for the highest standards of health and health care.
The CMA has participated in, and made recommendations to, Finance Canada over the course of the government's multi-year consultation process on Canada's pension framework. Indeed, in light of the importance of the pension framework to our membership, the CMA has been an active participant in previous consultations regarding the pension framework. The CMA's participation in the current, multi-year initiative included responding to the 2010 consultative paper Ensuring the Ongoing Strength of Canada's Retirement Income System as well as participating in the legislative and regulatory consultation on the Pooled Registered Pension Plan (PRPP) framework.
While the CMA recognizes that this consultation is focused narrowly on the federally regulated pension plans governed by the Pension Benefits Standards Act 1985, the CMA supports additional consultation on Canada's pension framework. The CMA recommends that Finance Canada expand its consultation to explore options to address weaknesses in Canada's pension framework, including a focus on the third pillar: tax-incentivized savings vehicles.
As part of a consultation on the third pillar, the CMA recommends that Finance Canada explore three issues, as elaborated further below:
* Increasing the combined contribution limit for registered retirement savings plans (RRSPs);
* Enabling well-governed professional organizations that represent a particular membership as pension plan sponsors; and,
* Possible impacts of registered retirement income funds (RRIF) mandatory drawdown rates.
Like the Canadian population at large, physicians represent an aging demographic - 42% of Canada's physicians are 55 or older - for whom retirement planning is an important concern. In addition, the vast majority of CMA members are self-employed physicians and, as such, they are unable to participate in workplace registered pension plans (RPPs). This makes physicians more reliant on Registered Retirement Savings Plans (RRSPs) relative to other retirement savings vehicles.
The Summary Report on Retirement Income Adequacy Research presented to the F/P/T Ministers of Finance in 2009, suggests that higher-earning Canadians may not be saving enough for retirement. This report highlighted that income replacement rates in retirement fall below 60 per cent of after-tax income for about 35 per cent of Canadians in the upper income quintile. This is related to the effect of maximum contribution limits on tax-incentivized retirement savings vehicles.
Tax-incentivized private saving vehicles are a critical element of Canada's pension framework. As highlighted in the 2010 interim report of the Senate Banking Trade and Commerce Canadians Savings for Their Future: A Secure Retirement, the introduction of the RRSP framework in 1957 sought to address a tax inequity due to the ineligibility of private savings for tax-incentive in comparison with registered pension plans. From 1972 to 1991 the RRSP contribution limit was set at 20 percent of earned income and in 1991, the government reduced the contribution limit to 18 percent of earned income; further, over this time period the real value of the absolute dollar limit reduced significantly. Recent increases to the absolute dollar limits have been strongly welcomed.
To ensure that contribution limits do not pose a barrier to saving for future retirement income needs, the CMA recommends that Finance Canada initiate a consultation on future increases to the RRSP contribution limit, both absolute and percent of earned income.
As part of the 2010 Finance Canada consultation and as reiterated during the legislative and regulatory consultation period on the PRPP framework, the CMA highlighted its support for exploring measures to enable organizations to sponsor plans on behalf of the self-employed. During the PRPP consultation, the CMA recommended amending the legislation such that well-governed professional organizations representing a particular membership are able to sponsor and administer PRPPs for their own members, including self-employed members. Once again, the CMA supports an extension of this recommendation to the broader pension framework.
Finally, the CMA has taken note of the concerns regarding the registered retirement income funds (RRIF) mandatory drawdown rates expressed in the C.D. Howe Institute's recent pension policy e-brief Outliving our savings: Registered retirement income funds rules need a big update. The CMA recommends that Finance Canada include RRIF mandatory drawdown rates as part of a consultation.
The CMA appreciates the opportunity to provide comment as part of Finance Canada's consultation on enabling target benefit plans within the federally regulated pension framework. The CMA supports further consultation on Canada's pension plan with an aim to ensure optimization of the third pillar, tax-incentivized savings vehicles, to ensure it enables adequate savings levels by self-employed individuals for their future retirement income needs.
The Canadian Medical Association (CMA) provides this submission in response to Finance Canada’s consultation on Legislative Proposals Relating to Income Tax, Sales Tax and Excise Duties (Draft Tax Legislative Proposals).
The CMA is the national voice of Canadian physicians. On behalf of its more than 83,000 members and the Canadian public, the CMA’s mission is helping physicians care for patients. In fulfillment of this mission, the CMA’s role is focused on national, pan-Canadian health advocacy and policy priorities.
As detailed in this brief, the CMA is gravely concerned that by capturing group medical structures in the application of Clause 13 of the Draft Tax Legislative Proposals, the federal government will inadvertently negatively affect medical research, medical training and education as well as access to care.
To ensure that the unintended consequences of this federal tax policy change do not occur, the CMA is strongly recommending that the federal government exempt group medical and health care delivery from the proposed changes to s.125 of the Income Tax Act regarding multiplication of access to the small business deduction in Clause 13 of the Draft Tax Legislative Proposals.
Relevance of the Canadian Controlled Private Corporation Framework to Medical Practice
Canada’s physicians are highly skilled professionals, providing an important public service and making a significant contribution to our country’s knowledge economy. Due to the design of Canada’s health care system, a large majority of physicians – more than 90% – are self-employed professionals and effectively small business owners.
As self-employed small business owners, physicians typically do not have access to pensions or health benefits, although they are responsible for these benefits for their employees. Access to the Canadian-Controlled Private Corporation (CCPC) framework and the Small Business Deduction (SBD) are integral to managing a medical practice in Canada. It is imperative to recognize that physicians cannot pass on any increased costs, such as changes to CCPC framework and access to the SBD, onto patients, as other businesses would do with clients.
In light of the unique business perspectives of medical practice, the CMA strongly welcomed the federal recognition in the 2016 budget of the value that health care professionals deliver to communities across Canada as small business operators. Contrary to this recognition, the 2016 budget also introduced a proposal to alter eligibility to the small business deduction that will impact physicians incorporated in group medical structures.
What’s at risk: Contribution of group medical structures to health care delivery
The CMA estimates that approximately 10,000 to 15,000 physicians will be affected by this federal taxation proposal. If implemented, this federal taxation measure will negatively affect group medical structures in communities across Canada. By capturing group medical structures, this proposal also introduces an inequity amongst incorporated physicians, and incentivizes solo practice, which counters provincial and territorial health delivery priorities.
Group medical structures are prevalent within academic health science centres and amongst certain specialties, notably oncology, anaesthesiology, radiology, and cardiology. Specialist care has become increasingly sub-specialized. For many specialties, it is now standard practice for this care to be provided by teams composed of numerous specialists, sub-specialists and allied health care providers. Team-based care is essential for educating and training medical students and residents in teaching hospitals, and for conducting medical research.
Put simply, group medical structures have not been formed for taxation or commercial purposes. Rather, group medical structures were formed to deliver provincial and territorial health priorities, primarily in the academic health setting, such as teaching, medical research as well as optimizing the delivery of patient care. Over many years, and even decades, provincial and territorial governments have been supporting and encouraging the delivery of care through team-based models.
To be clear, group medical structures were formed to meet health sector priorities; they were not formed for business purposes. It is equally important to recognize that group medical structures differ in purpose and function from similar corporate or partnership structures seen in other professions. Unlike most other professionals, physicians do not form these structures for the purpose of enhancing their ability to earn profit.
It is critical for Finance Canada to acknowledge that altering eligibility to the small business deduction will have more significant taxation implication than simply the 4.5% difference in the small business versus general rate at the federal level. It would be disingenuous for Finance Canada to attempt to argue that removing full access to the small business deduction for incorporated physicians in group medical structures will be a minor taxation increase. As taxation policy experts, Finance Canada is aware that this change will impact provincial/territorial taxation, as demonstrated below in Table 1.
Table 1: Taxation impacts by province/territory, if the federal taxation proposal is implemented
In Nova Scotia, for example, approximately 60% of specialist physicians practice in group medical structures. If the federal government applies this taxation proposal to group medical structures, these physicians will face an immediate 17.5% increase in taxation. In doing so, the federal government will establish a strong incentive for these physicians to move away from team-based practice to solo practice. If this comes to pass, the federal government may be responsible for triggering a reorganization of medical practice in Nova Scotia.
Excerpts from physician communiques
The CMA has received as well as been copied on a significant volume of correspondence from across our membership conveying deep concern with the federal taxation proposal. To provide an illustration of the risks of this proposal to health care, below are excerpts from some of these communiques:
“Our Partnership was formed in the 1970s…The mission of the Partnership is to achieve excellence in patient care, education and research activities….there would be a serious adverse effect on retention and recruitment if members do not have access to the full small business deduction…The changes will likely result in pressure to dissolve the partnership and revert to the era of departments services by independent contractors with competing individual financial interests.”
Submitted to the CMA April 15, 2016 from a member of the Anesthesia Associates of the Ottawa Hospital General Campus
“The University of Ottawa Heart Institute is an academic health care institution dedicated to patient care, research and medical education…To support what we call our “academic mission,” cardiologists at the institute have formed an academic partnership…If these [taxation] changes go forward they will crippled the ability of groups such as ours to continue to function and will have a dramatic negative impact on medical education, innovative health care research, and the provision of high-quality patient care to our sickest patients.”
Submitted to the CMA April 19, 2016 from a member of the Associates in Cardiology
“We are a general partnership consisting of 93 partners all of whom are academic anesthesiologists with appointments to the Faculty of the University of Toronto and with clinical appointments at the University Health Network, Sinai Health System or Women’s College Hospital…In contrast to traditional business partnerships, we glean no business advantage whatsoever from being in a partnership…the proposed legislation in Budget 2016 seems unfair in that it will add another financial hardship to our partners – in our view, this is a regressive tax on research, teaching and innovation.”
Submitted to the CMA April 14, 2016 from members of the UHN-MSH Anesthesia Associates
The CMA recommends that the federal government exempt group medical and health care delivery from the proposed changes to s.125 of the Income Tax Act regarding multiplication of access to the small business deduction, as proposed in Clause 13 of the Draft Tax Legislative Proposals.
Below is a proposed legislative amendment to ensure group medical structures are exempted from Clause 13 of the Draft Tax Legislative Proposals:
Section 125 of the Act is amended by adding the following after proposed subsection 125(9):
125(10) Interpretation of designated member – [group medical partnership] – For purposes of this section, in determining whether a Canadian-controlled private corporation controlled directly or indirectly in any manner whatever by one or more physicians or a person that does not deal at arm's length with a physician is a designated member of a particular partnership in a taxation year, the term "particular partnership" shall not include any partnership that is a group medical partnership.
125(11) Interpretation of specified corporate income – [group medical corporation] – For purposes of this section, in determining the specified corporate income for a taxation year of a corporation controlled directly or indirectly in any manner whatever by one or more physicians or a person that does not deal at arm's length with a physician, the term "private corporation" shall not include a group medical corporation.
Subsection 125(7) of the Act is amended by adding the following in alphabetical order:
"group medical partnership" means a partnership that:
(a) is controlled, directly or indirectly in any manner whatever, by one or more physicians or a person that does not deal at arm's length with a physician; and
(b) earns all or substantially all of its income for the year from an active business of providing services or property to, or in relation to, a medical practice;
"group medical corporation" means a corporation that:
(a) is controlled, directly or indirectly in any manner whatever, by one or more physicians or a person that does not deal at arm's length with a physician; and
(b) earns all or substantially all of its income for the year from an active business of providing services or property to, or in relation to, a medical practice.
"medical practice" means any practice and authorized acts of a physician as defined in provincial or territorial legislation or regulations and any activities in relation to, or incidental to, such practice and authorized acts;
"physician" means a health care practitioner duly licensed with a provincial or territorial medical regulatory authority and actively engaged in practice;