If you’re interested in working as a locum, you’re probably interested in the freedom and flexibility that the job offers. Working as a locum doctor allows you to make your own hours, set limits on your schedule, and take vacation according to your own plans. This comes with lots of benefits, but it also comes with some more responsibilities, like keeping track of all your income from different sources, obtaining a GST number, and reporting it to the relevant government body. Here are some tips for managing your income come tax time:
1. Keep a Tracking Spreadsheet
For a locum doctor, tax season can be hectic – Canadian tax law requires that you declare your worldwide income from all sources, which means you’ll need to obtain your T4A from every place you worked during the year. While salaried physicians will get their records of employment automatically, locum doctors and physicians working under the fee for service model will need to claim all income for their work during the year and add them together to get their total income.
For locum doctors, keeping track of this information is essential – that’s why you’ll need a tool, like Quickbooks or other accounting software, as well as a tracking spreadsheet in Excel or a similar tracking system, to help you to keep a tally of what you bill, any salary you receive, and any income you get from your locum work throughout the year – this could mean overtime pay, bonuses, or any other other salary.
Since you are an independent contractor and not a full time employee, you will receive a T4A instead of a T4. The income you have earned will be reported on Schedule 2125 of your tax return, and the net income after your expenses is what will be taxable to you at the end of the year.
2. Keep Track of Your Expenses
As a temporary doctor, you will be able to claim back many expenses that you incur on the job to either the physician’s office you’re working for or on your taxes. It’s important to keep track of the miles you travelled in your car, the cost of any supplies you have incurred, as well as any other costs, such as your medical malpractice insurance, any portion of the office’s rent that you might pay, or the cost of books, furniture, professional tools or equipment.
When it comes time for taxes, you should have a record of all these expenses prepared for your accountant to go over with you – this, combined with the tracking schedule you prepared for your income, will help your accountant to prepare your financial statements for the year. Accountants for locum doctors will be prepared to ask you questions about your expenses, and will know exactly the information you need to provide to the government. Examples of these benefits for self employed doctors are student tax credits, credits for the portion of your home you use as an office, and credits for the amount of miles you used your personal car for business.
3. Calculate Your RRSP Contribution Room
If you’re a self-employed physician, you are encouraged to set aside some money for your Registered Retirement Savings Plan (RRSP) during the year. RRSP contributions for self employed physicians are capped at 18% of your previous year’s salary up to a yearly maximum, and are tax deductible at the time of contribution. No tax is paid on the accrued interest in the RRSP and you will pay taxes on the money when you take it out. Any amounts that are unused can be carried forward in future years.
Making some of these kinds of contributions is especially important for self employed doctors – employed physicians will often have RRSP matching programs that they can pay into, and some of these programs might be available to locum doctors hired on contract as well. If this is the case, you will have to keep records of all these contributions at the end of the year – accountants for locum doctors will know how to use these amounts to calculate the amount you’re allowed to contribute through the year, as well as keep track of any remaining amounts that can carry over into future years.
There’s other benefits for self employed doctors too – since you will likely be faced with a tax bill at the end of the year, the RRSP contributions that you make will help to offset the amount.
4. Estimate Your Taxes
The other part of being a locum is expecting your tax bill at the end of the year. While you don’t have to get into specifics, calculating your taxes as a blanket percentage out of every paycheque and putting it in a savings account to collect interest will allow you to keep more money in your pocket at tax time – by avoiding any fees for late payment – and will allow you to plan ahead for any taxes and fees you might pay.
You can get an idea of the amount to take as a percentage by using a simple income tax calculator.
5. Set Up an Account with the Government
Depending on what you expect to earn, your locum doctor tax may need to be paid in installments with the CRA. Make sure to set up your CRA account for direct deposit and register online – since you will be having more interaction with your federal and provincial tax bodies as a locum doctor, it’s a good idea to register your information ahead of time. In addition, if you will be providing any services to the clinic or doctor’s office that will require GST/HST, it’s also a good idea to register for a provincial sales tax number in advance.
Depending on how you work as a locum, you can choose to set yourself up as either a sole proprietor or a corporation. Unless you combine your income with others, you will likely be reporting the same amount to the CRA whichever you choose. However, there are pros and cons to both choices – as a sole proprietor, your income will be taxed the same way it would be if you reported it as your employment income for the year. Incorporating is more expensive, but as a corporation you can avoid paying CPP/EI to yourself as well as being able to defer income for an additional time and paying a lower tax rate.
However, incorporating yourself as a locum will only work if you’re truly not an employee of the businesses you are working for. If you get vacation pay, holiday pay, benefits, or are paid from the same salary as other employees, you will need to declare your income as an independent contractor. If you truly aren’t an employee – for example, if your locum work includes short term positions where you invoice the business, keep your own malpractice insurance, and use your own tools on the job – you can go ahead and incorporate. If you’re not sure, it’s a good idea to check with your accountant beforehand. Accountants for locum doctors will help you decide which option is better for you – and keep you on the right side of the CRA!
7. Keep track of taxable benefits
The final thing to think about in your work as a locum is taxable benefits. You’ll need to keep track of any extras you receive from the companies you work for throughout the year in order to declare them as additional income – these include things like meal allowances, any amounts paid for personal travel, boarding, lodging or low-rent housing programs offered to you by the company, in addition to some benefits payments paid to you, any gifts over $500 a year, and any non-work related reimbursements.
Any work ‘perks’ you receive from your locum employer could be considered a taxable benefit, so keep track of what you expect to earn as this will impact the amount you will record on the next year’s income statement. Keeping a folder with the receipts for these items will keep you on track for tax time!
Tax time can be stressful, but with help from your accountant, getting your paperwork together should be a breeze. Don’t let tax time get you down – with a little work and some preparation, you can manage your locum doctor tax plan like a pro.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.