There was much anticipation of this year’s Federal Budget, which was seen as the Liberal Party’s chance to respond to the newly minted President Trump in the United States.
However, despite this anticipation, the 2017 Budget fell fairly flat and was mostly cautious with very few real changes.
Here’s how it affects Pharmacists.
Elimination of Billed-Basis Accounting
Who it affects: Pharmacy Owners
Under the Income Tax Act, Pharmacists can defer tax by electing to exclude revenue for services that are currently in progress (called work in progress/WIP) until the services have been completed. Meanwhile the expenses associated with this revenue can be deducted in the year they are incurred.
The budget has eliminated this election.
How it Affects You:
Pharmacists must now recognize revenue on a work in progress basis. What this means is that even if you haven’t collected the revenue yet, you will still need to declare it as income, and thus pay taxes on it.
Income Splitting Through Corporate Dividends
Who it affects: Pharmacy Owners & Locums who are incorporated
A committee has been established to investigate whether income splitting through corporate dividends will continue to be allowed.
How it Affects You:
See how this increased tax burden could impact you: Pharmacists – Will You Still be able to income split?
New Canada Caregiver Credit
Who it affects: All Pharmacists, including your family and patients
The 2017 Budget eliminated the current Caregiver, Infirm Dependent, and Family Caregiver Tax Credits; instead choosing to propose a single Canada Caregiver Credit.
This new credit provides a 15% non-refundable tax credit for expenses up to $6,883 incurred for the care of dependent relatives (parents, siblings, adult children, others) with infirmities.
For the care of a dependent spouse or minor child with an infirmity, this new credit applies for expenses up to $2,150.
This credit is phased out on a dollar for dollar basis for any income of the dependent exceeding $16,163 beginning in the 2017 taxation year.
How it Affects You:
While this situation may or may not apply to you and your family, Pharmacists can use this information to educate caregivers. Caregivers who pay out-of-pocket for prescriptions not covered under provincial plans should keep their receipts so that these expenses can be claimed at tax time.
The Fight Against Tax Evasion
Who it affects: All Pharmacists, including your family and patients
The Federal Government sees an opportunity to collect further tax revenue by performing more audits. This budget proposes to invest a further half a billion dollars in staffing and infrastructure to Canada Revenue Agency’s tax evasion group.
How it Affects You:
Don’t be surprised if you are randomly selected for an audit.
Conclusion
This budget took a very wait and see approach regarding Canada’s economic outlook, especially in regards to the possibility for substantial changes in US Tax Law.
We anticipate substantial changes in the 2018 Federal Budget, however for the time being we are recommending that pharmacy owners & locums proceed as usual and take advantage of their ability to income split during 2017, as this may change in 2018.
As accountants for Pharmacists, we have our ears firmly to the ground on these issues and keep our clients up-to-date on both current and future accounting & tax planning matters.
Start Paying Less Tax
To learn more about tax planning strategies for Pharmacists, contact us for a free consultation. If you are not ready for a consultation, keep up-to-date with the latest tax planning tips for Pharmacists just like you.
Ryan Bensen
MBA, CPA, CA, CFE, CFF | Accountant
Ryan is an accountant and his goal is to free up as much of your time as possible. Ryan’s handles all accounting related items, including but not limited to: bookkeeping, managing payroll, paying practice bills, and preparing tax returns for you and your family.
- Pharmacists: 4 Ways the 2017 Federal Budget Affects You - April 28, 2017
