Medical Professionals

With considerable assets accumulating in medical professional corporations, individuals must now contend with the fact that investment earnings in those corporate portfolios attract the highest marginal tax rate. With the latest Ontario budget, this rate is now basically 50% and this can have a significant drag on growth. Working with a professional’s accountant we devise investment strategies that adhere to their unique objectives and risk tolerance, but with a view to maximizing tax efficiency.

Early in the medical professional’s career, when families are being started, there will be a ‘pure’ need for insurance. Providing a continuation of income for loved ones and support for education is paramount. Later in the career, however, after accumulation of significant personal and corporate assets, this pure requirement is diminished and replaced with the need to create tax efficiency and estate protection and transfer. Permanent insurance is one of the best ways to meet these very important needs.

A still more effective strategy for the medical professional is to hold either a whole life or universal life policy inside the corporation. Not only are the investments held within the policy tax sheltered, policy premiums can be made from the corporation’s cash flow, without the need of paying out a salary to the professional to fund an individually-held policy.

At The Pyle Group we ensure that an insurance strategy is only implemented once a comprehensive financial plan has been created and a needs analysis performed, taking into account the medical professional’s unique goals and objectives.

Even though medical professionals have been incorporated for a number of years we find that many still do not know that they can create their own defined benefit pension plans now – something they couldn’t do before. Essentially an Individual Pension Plan (IPP) works like any other defined benefit plan in that the corporation provides the funding necessary to generate a specific income flow at retirement. At The Pyle Group we will generate a concept showing a comparison between continued RRSP funding and an IPP and discuss those results with the medical professional and the accountant to ensure the strategy makes sense. Benefits of an IPP include:

• Depending on the age and salary that a professional draws from the corporation the maximum contribution to the IPP will be well in excess of the RRSP maximum
• If a spouse also draws a salary from the corporation they too can have an IPP created
• The ability to fund based on past service (taking account of salaries drawn from the corporation since inception)
• Making a voluntary contribution by rolling in existing RRSP assets into the IPP
• Since investment management fees are not deductible for RRSPs, but allowed for an IPP, this also improves tax efficiency in fee based accounts for the professional
• Assets in an IPP are also creditor proof, where they are not always in an RRSP

Pension regulations require an IPP to show average annual returns of at least 7.5%. Any shortfall, however, will be made up by additional tax-deductible contributions by the corporation. Since many professionals will typically have conservative investment strategies, this makes it more likely that the corporation will have an increased opportunity to put even more capital into the IPP where it will claim a deduction and not be taxed on income from that capital.