Doctors arrive at Kelowna retreat to tell Liberal MPs they won't stand for small business tax changes

Doctors are warning that the Liberal government's proposed changes to the small business tax regime could force female physicians to leave the profession, and some have travelled tothe national Liberal caucus meeting to turn up the heat on skittish MPs.

Dr. Gigi Osler, the newly elected president of the Canadian Medical Association (CMA), hosted a roundtable with doctors in Kelowna, B.C., on Tuesday at the same hotel where the Liberal caucuswill meetthis week, a clear message from doctors who say they won't stand for these changes.

The CMA hopes to corner Liberal MPs on the sidelines of the meeting and ask them to put pressure on Finance Minister Bill Morneau to abandon his proposals.

Two-thirds of family physicians under the age of 35 are women, and they often don't have access to maternity leave programs available tomany wage earners, Osler said. Many doctors rely on so-called "income sprinkling," paying their spouses to stay home and raise children while they work to pay off student debts accumulated from years of schooling.

• Liberal MPs ask Morneau to tweak small-business tax changes
• Liberals propose tax changes to close loopholes for wealthy

Morneauhas proposed measures to curtail income sprinkling, a change that would affect an estimated 50,000 families.

"The stories are heart-wrenching; they're in anguish and some of them really feel like they're being asked to choose between their dream job and being a mother,"Oslersaid of her female colleagues. "The government needs to be aware of the unintended consequences."

The government will extend income sprinkling rules that currently apply to minors colloquially called the "kiddie tax" to some adults. That means dividend income could be taxed at the highest federal tax rate (currently 33 per cent), even if the money is split with a family member who is in a lower tax bracket.

Canadian Nurses Association announced its support for the government's proposed tax changes

7 years ago

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Barb Shellian, president of the CNA, explains why

Morneau also plans to impose a "reasonableness" test so the tax change does not punish legitimate family businesses. The test will determine just how much work a family member actually does at a business, and if they can really lay claim to profits.

'Gender lens' focus

Osler, who spoke to CBC News after her roundtable with female doctors, said "some of the stories were difficult to hear.Some women really think, 'I'm not going to be able to have a family.'"

"We know the government is applying a gender lens to all new legislation, and now we're hearing that the changes will financially disadvantage women. I truly hope the government is listening to the concerns."

Morneau is motivated to act now because the number of Canadian-controlled private corporations has increased some 50 per cent since the early 2000s. The number of professionals who have incorporated themselves to help reduce their tax burdenhas tripled over the same period.

The explosive growth is due in part to changes made by the Ontario government in the midst of bargaining negotiations with the Ontario Medical Association in 2005. In exchange for changes to the fee schedule paid to physicians, the province allowed doctors to incorporate their practices assmall businessesto pay less in taxes. (There is a roughly 37per cent gap between personal and business tax rates.)

"We think that those rules need to be changed," Morneau said Tuesday. "We have a growing number of people that are incorporating and taking some advantages that weren't originally intended to be there for them."

Unfair incentive, minister says

Morneau said income sprinkling allows some married women to have a lower tax burden than their single equivalents. "That doesn't seem to us inherently fair. It creates an incentive we don't think is appropriate," he told reporters. "We're trying to make sure the system will be fair for the long term."

In an op-ed published in the Globe and Mail Tuesday, Morneau singled out high-incomeprofessionals likedoctors, arguing they shouldn't pay lesstaxthan the nurses who work for them.

"An incorporated professional earning $300,000 with a spouse and two adult children can save about $48,000 in taxes by using just one of these loopholes. What that means is an incorporated professional could be taxed at a lower rate than a salaried nurse practitioner or police officer making much less a year," Morneau wrote.

"It is legal, but as a former business owner and high-income earner myself, I do not think it is right," he said.

MPs face backlash

Some Liberal MPs have grown nervousin the face of an organized backlash from the small business community.

"In my opinion, based on a ton of discussion I've had with people in my riding, and other MPs, I think we need a mediated solutionbetween what's being proposed and what can be done," Liberal MP Stephen Fuhr said in an interview with CBC News.

Fuhr, who pried his Kelowna-Lake Country seat away from the Toriesafter some 50 years of Conservative representation, said the opposition isready to pounce on marginal Liberal ridings like his that could be vulnerable in the next election.

Pierre Poilievre, the Conservative finance critic, said Morneau's proposals will make it more difficult for Canadians to find a family doctor, because physicianscould flee to lower tax jurisdictions like the United States.

"Minister Morneau has spent the cupboard bare, and he is now looking to raise taxes on small businesses to pay for it. That's why his ownMPsare turning on him at their party caucus meeting this week."

Liberal MPs will gather this morning for discussions on the tax matter after a speech from Prime Minister Justin Trudeau. MPs are also expected to discuss theinflux of migrants and the looming start date for the Trans Mountain pipeline.