Incorporated vs. Salaried

I wrote a blog about intimidation versus straight talk today, but I was too intimidated to post it. So, I’ll save it for sometime in the spring.

On a safer topic, finance minister Bill Morneau has sparked outrage in the business community.

He plans to hit small businesses with an over 30% tax hike. Morneau says that incorporated small businesses are no different than a salaried employee.

Tim Paziuk wrote a great list that shows how Morneau is wrong.

Paziuk is an accountant specializing in Canadian professional corporations. His book on corporations was invaluable, when I was setting up my own corp.

The only thing I can add to Tim’s list is that corporations have a greater burden of accessing financing and complying with regulations.

Incorporated vs. Salaried

Morneau starts his dreaded tax proposal by asking us to imagine an incorporated person and her salaried neighbour. Morneau makes a dishonest comparison, and Paziuk shows why below.

The following is taken from one of Tim’s blogs on HuffPost (with 1 or 2 minor edits).

Incorporated

  • Variable income, not guaranteed
  • No job security or workplace accommodation
  • Must personally guarantee company/business debt
  • No Employment Insurance (EI) coverage
  • Canada Pension Plan (CPP) coverage at twice the legislated employee cost
  • Hours extremely variable (can vary from 0 to 90 hours per week). Must be willing to work additional 20 hours or more a week without notice. No overtime pay.
  • No paid holidays
  • No paid parental/maternity leave
  • No paid bereavement leave
  • No extended health, dental or insurance benefits
  • No employer matching retirement program
  • Statutory holidays will not be covered
  • Should you require additional employees for completing your work, you shall be personally liable for:
    • guaranteeing they have a steady and reliable minimum income
    • covering 58 per cent of their EI cost
    • covering 50 per cent of their CPP cost
    • meeting all statutory labour requirements for work hours, overtime hours and pay, holiday leave and pay, statutory holidays and parental/maternity leave.
    • accommodating them for any limitation preventing them from completing the work they are providing you
    • damages should you no longer require their assistance

Salaried

Imagine one of your deputy ministers. A federal deputy minister makes about $220,000 per year. What else would they be entitled to? Correct me if I’m wrong, but I think it looks something like this:

  • Employer’s pension contribution up to $25,000
  • Employee benefits $6,000
  • Employer CPP contributions $2,569
  • Employer EI contributions $1,170
  • Up to eight weeks of vacation (worth) $33,846
  • 10 statutory holidays (worth) $8,461
  • Up to 15 sick days per year (worth) $12,692

All of these entitlements add up to $89,738.

Did I miss anything? I’m not sure if I should add anything for employer paid parties, food and drinks.

Bonus Material on RESPs

Tim also ran some calculations for me to show how much I lose out on RESPs if Morneau gets his way. I have put all the savings for my children’s education into my professional corporation, upon expert advice.

If Morneau stops family shareholders, I can not pay for my kids’ education, AND I have lost years of RESP contributions.

Tim wrote:

Here’s your numbers because you did what you were allowed and saved your children’s education money in your PC instead of buying RESPs

In order for you to be made whole by the federal government they should send you the following cheques

For your 18 year old        $12,060

For your 16 year old        $12,179

For your 14 year old        $  7,809

For your 12 year old        $  5,381

$37,429

What we did was assumed you bought RESPs for your children the year they were born and deposited just enough to max out the grant.

Because your 18 & 16 year old are not eligible for any grant money now they lose out on the entire $7,200

For our calculations we used a 5% average rate of return.

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14 Replies to “Incorporated vs. Salaried”

  1. I won’t argue any of the details here, Shawn, but will point out one important benefit of self-employment/PC that cannot be understated: independence. However much the financial upside to salaries, there is no bigger mistake the profession can make than making doctors subservient to their hiring institutions. Though nothing can force an employee to sing the virtues of where and whom they work for, doctors absolutely must guard the ability to speak truth to power.

    Is there anyone who hasn’t seen an administrator or bureaucrat dig in their heels on a policy that’s out of line (never mind stupid or wasteful)? That won’t allow a decision to be questioned, even when it directly interferes with patient care? If doctors go all-in on the notion that we’re really just public servants and demand to be compensated as such, we abdicate our ownership over our professional opinions.

    It will play out exactly as can be predicted: a doctor will disagree with a policy coming down from admin, and one day refuse to comply because a patient’s health or safety will be jeopardized. When admin continues to stonewall, the doctor will go public as a whistleblower and promptly be sued for breach of contract, with a CPSO complaint thrown in for good measure. The smug, self-righteous “medicine = privilege” crowd will throw that doc under the bus, and all the rest of us can do is wish him or her good luck finding work until the dust clears.

    1. Great comment, Frank!

      In fact, we might add that patient care is so critical that we must always keep an element of physician independence. We already see how docs who work in hospitals cannot speak about patient care issues without threat of retribution. Even with our current ‘independent contractor’ status, many doctors feel muzzled.

      Thanks for taking time to share!

    2. Absolutely true: those of us who lived/practiced under communist/socialist medical system, can clearly recognize the re-emerging trend to turn the doctors into the STATE SLAVES, dependent, voiceless, humiliated.. and eventually despised by both the bureaucrats & the patients..

    3. This is what happened to pathologists. Now look at them.

      Going the salaried employee route fails patients and fails the profession. It should never be considered an option.

  2. Agreed that docs must maintain independence for the sake of patients.
    However, their feelings of ‘moral superiority’ have caused them to give up significant group protesting under BA,signed agreements with hospitals to not criticize them in the media,and continue to give a 5% discount on their fees.
    Morneau’s tax changes,however,will hit the pocketbook bringing us back to the early 90’s which I lived through.Young docs have no idea how bad this will be.
    MOBILIZE …. before it’s too late.

  3. On the positive side, such laws seem to turn the new immigrants (which I am also a part of) into Conservative electorate, so in 2 years all these crazy laws will be dismantled alone with the rest of the Liberal heritage, so let them do it, the worse = the better..

    ..And the Small Business Owners are usually quite influential people in their communities, so our voices matter not just for our immediate family members, so let us be loud about it!

    1. Shooting incorporation in the head….and then trying to revive a corporation after 2019 will not work.

      The Soviets deported/ shot/ starved to death its free farmers , the Kulaks ( those who put food on the plates of the people) , through a process Stalin described as ” dekulakization” ….in theory replacing their crops and foodstuffs with the output from the collective and state farms (the kolkhozes) ….one problem, the boom in agricultural and foodstuff production never transpired and collapsed with a death toll of 6-13 million.

      Even after the collapse of the USSR, Russian agriculture has been struggling to recover to pre 1917 levels…today’s Russian government is attempting to lure exiled Old Believers back to Russia to revive Russian agriculture.

      Once the Federal and Ontario governments kill off the free market Kulak grass roots medical professionals, putting their faith in the collectivized state medical Polyclinic kolkhozes …the health care system in Ontario will collapse…it will not recover any quicker than did the Soviet experiment….they will have to entice back some of the Old Believer medical professionals back from exile to revive health care in Ontario.

      In the meantime the dekulakization of medical profession will continue , the Marxist social justice warriors who have that hands on the reins of power in Ottawa and Queen’s Park demand it.

  4. I can see why you are upset about potentially losing the advantages of incorporation. But maybe now is the time to look at a different approach to how you are paid. There are many young and especially female physicians who would welcome a salary and benefits, including maternity leave. I am sure many Canadians would support taking a serious look this at this. I certainly do. Then you could end up with something better than incorporation.

    1. Physician independence should be held sacred.

      Considering a salary/benefits in lieu of independence just because the government is changing the tax code is an egregious betrayal of the public’s trust over money. Nothing is as greedy as this.

      Physicians are supposed to be the patient’s advocate in a confusing and demoralizing system when the patient is already occupied with their oftentimes serious illness (cancer, heart attack, stroke, HIV). Take that away from physicians, and what you have left are technical specialists. Clock-punchers.

  5. Shawn, although I remain hopeful a “New” OMA is really going to finally stand up to government, I continue to see the usual free pass for the Ontario government on this one. Yes, we all get the tax proposals are bad for us. The media has inundated everyone with a lot of articles on it, some balanced, some not. But in the end, Trudeau is not going to walk this back; he is unbelievably image oriented, and has already lost face on issues he backed off on. It seems like a done deal to me, and even if you don’t believe that, what exactly is the OMA’s contingency plan, given very high odds (at least) we will get burned? Endless twittering about how unfair it is will not get it done. Its become a big yawn to everyone, and all Trudeau has to do is drop one of his usual fact twists/lies, paint us rich, and he wins again.
    It seems to me the media target for the OMA should be the Ontario Liberals, not Trudeau. They absolutely negotiated incorporation in lieu of fee increases; Smitherman himself has gone on record saying so. The silence from Wynne and her cronies has been loud and clear, and is yet another back stab on us they are clearly getting away with, no thanks (frankly, and yet again) to the OMA. The threat of demanding a return of the lost incorporation income via much better fees with the BA needs to hammered on again and again. Wynne must feel the threat of that; and only upstream pressure from her will affect the Trudeau Show, or certainly a lot more than endless tweets in a sea of millions of tweets. Pressuring MPs (if a few letters and meetings could be called that), and small petitions, assumes Justin will allow free parliament voting (another promise he will break, of course)- I don’t like the odds of that having any effect with Bill and Justin and their life of entitlement. It’s time to attack Wynne on the reneg NOW, and pound that into the BA. Only you know if this is being done, but we are getting no strong signals this is the case. And to those of us (which you seemed to be you at one time) who have watched in dismay as the happy couple of the OMA/Ontario government let down and /or cheated its’ members for many decades , it just feels like the same old thing. Please prove me wrong….

  6. Another thought since it’s been re-published at MedPost.

    During the last Ontario elections, the Unions officially advertised, INVESTED & pressured their members to vote against the Conservatives, justifying it by “anti-labor/union” politics of the party.

    Now can we use the same strategy & turn our offices/waiting rooms into the anti-Liberals/pro-opposition agitation for-posts, using the same argument that the current governments, provincial & federal, are anti-medical ones?

    Would be nice to get some lead from OMA to orchestrate the resistance, and the BA-talks should not prevent us from this type of actions – ?

  7. Shawn, although I remain hopeful a “New” OMA is really going to finally stand up to government, I continue to see the usual free pass for the Ontario government on this one. Yes, we all get the tax proposals are bad for us. The media has inundated everyone with a lot of articles on it, some balanced, some not. But in the end, Trudeau is not going to walk this back; he is unbelievably image oriented, and has already lost face on issues he backed off on. It seems like a done deal to me, and even if you don’t believe that, what exactly is the OMA’s contingency plan, given very high odds (at least) we will get burned? Endless twittering about how unfair it is will not get it done. Its become a big yawn to everyone, and all Trudeau has to do is drop one of his usual fact twists/lies, paint us rich, and he wins again.
    It seems to me the media target for the OMA should be the Ontario Liberals, not Trudeau. They absolutely negotiated incorporation in lieu of fee increases; Smitherman himself has gone on record saying so. The silence from Wynne and her cronies has been loud and clear, and is yet another back stab on us they are clearly getting away with, no thanks (frankly, and yet again) to the OMA. The threat of demanding a return of the lost incorporation income via much better fees with the BA needs to hammered on again and again. Wynne must feel the threat of that; and only upstream pressure from her will affect the Trudeau Show, or certainly a lot more than endless tweets in a sea of millions of tweets. Pressuring MPs (if a few letters and meetings could be called that), and small petitions, assumes Justin will allow free parliament voting (another promise he will break, of course)- I don’t like the odds of that having any effect with Bill and Justin and their life of entitlement. It’s time to attack Wynne on the reneg NOW, and pound that into the BA. Only you know if this is being done, but we are getting no strong signals this is the case. And to those of us (which you seemed to be you at one time) who have watched in dismay as the happy couple of the OMA/Ontario government let down and /or cheated its’ members for many decades , it just feels like the same old thing. Please prove me wrong….

    1. You are right….our guns should be focused on Wynne and Queens’s Park….Ottawa is out of range , the minds of its social justice warriors are made up.

      We should put Wynne’s feet to the fire …” What are you going to do about it? How are you going to compensate the profession…the government gave us incorporation in lieu of a fee increase, now the incorporation is being taken away!”

      The OMA has misplayed its cards repeatedly over the last few decades, it is now the time to put up and lead the fight( and mean it) , or pack up its bags and close shop.

      I’m detecting the first sign of panic amongst my younger colleagues ( it has been a long time coming) , the reality of what is about to happen is beginning to sink in.

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