In British Columbia, physicians are entitled to several negotiated benefits that are administered through the Doctors of BC. The five basic benefits include the Canadian Medical Protective Association (CMPA) Rebate, the Continuing Medical Education (CME) benefit, Physicians Disability Insurance (PDI), the Parental Leave Program (PLP), and the Contributory Professional Retirement Savings Plan (CPRSP).
The CPRSP benefit is an RRSP matching program that should be given consideration when doing tax and financial planning for physicians in BC. The program matches physicians’ pension contributions and more. We will explain how this program works.
First, a basic benefit is calculated. This is matched dollar for dollar up to the basic benefit amount. There is also a second “bonus” benefit called the Length of Service (LOS) benefit. Where a physician contributes to receive the basic benefit, they also automatically receive the LOS benefit. This, therefore, brings the CPRSP match to be over 100% (up to 185% in 2015).
These benefits are calculated based on various factors. The primary driver of the basic benefit is gross MSP billings and related overhead factors. Overhead factors range from 14.2% to 85% and depend on the type of billings. In 2015, net billings of $120,000 (ie, after applying the prescribed overhead factor) yielded a maximum basic benefit entitlement of $4,020. The basis benefit was thus 3.35% of net billings up to the maximum.
The LOS is largely based on length of service and it also varies on income and number of months of employment in BC in the year. Where a physician has earned $60,000 in qualifying gross billings in a year and has served in BC for at least 9 months in that year, the physician will essentially earn a percent of the LOS maximum as follows:
- 1-4 years of service = 20%
- 5-9 years of service = 40%
- 10-14 years of service = 60%
- 15-19 years of service = 80%
- 20+ years of service = 100%
In 2015, the maximum LOS benefit was $3,430.
In approximately July, The Doctors of BC run reports on physicians’ income and sends them out for verification. In late October or early November, by the time they have addressed any discrepancies in the July reports and have determined allocations, the Doctors of BC send final reports to physicians that include finalized basic benefit and LOS amounts. On this statement, they also report whether the physician has any unutilized entitlements from prior years.
Entitlement expires at the end of two and a quarter years and so a physician may have up to three years of entitlement listed on their statement. If entitlement expires, it is considered forfeited and it goes back into the fund from which CPRSP arises. For example, on April 1, 2016, entitlement based on 2013 will go away.
The physicians’ advisors will then work with the physicians to plan their contributions and to then apply to the Doctors of BC for matching.
Matching contributions are made quite quickly by the Doctors of BC. For example, if a contribution is made by the end of January, the matching contribution should arrive by the end of that RRSP season.
Where a Medical Corporation has an Individual Pension Plan (IPP) arrangement, there are certain differences that occur. A third party may not contribute to an IPP, only the Medical Corporation itself may do that. Therefore, the practical solution is for the Medical Corporation to fund its IPP and to do so in an amount at least equal to the matching amount, the basic benefit and the LOS. The Doctors of BC will then in turn reimburse the Medical Corporation the basic benefit and LOS amounts.
For tax purposes, the CPRSP contribution made by the Doctors of BC to an individual’s RRSP is a taxable benefit that is included in income. The Doctors of BC will issue a physician a T4A. The financial advisor will issue an RRSP contribution receipt and the two offset so that the net effect of the transaction is without an immediate tax effect.
In an IPP situation, the Medical Corporation will report the funds received from the Doctors of BC as income and will report the contribution to the IPP as a pension expense. Thus, there is no taxable income inside the Medical Corporation as expected. The Doctors of BC do not issue the physician a T4A in this situation.
As physicians do not directly contribute the basic benefit and LOS to their RRSP account, they need to be careful to ensure that they have sufficient contribution room or they may fall into an over contribution situation which becomes punitive. They require sufficient RRSP contribution room to absorb this. For example, where a physician is entitled to the $4,020 basic benefit and the $3,430 LOS benefit, the RRSP contribution room that they need to absorb this is 11,470 (=4,020+4,020+3,450). To create this amount of room, a physician needs wages of $63,833.33 in the prior year, or a carry forward balance. If a physician is playing catch-up and is making contributions eligible for the above matching for three years at once, they would need approximately $34,500 of contribution room.
The CPRSP is a valuable benefit that is forfeited if unused. Planning requires communication between a physician’s tax and financial advisors.