Burnout in medicine is more common than most admit — and for some physicians, taking a sabbatical can be a smart way to regroup. But before you step away from the clinic or hospital, it’s essential to understand how a break can impact your finances, especially when it comes to taxes.
At MedTax, we help doctors make financially sound decisions, even during career pivots like this one. Here’s what you need to know.
- Incorporated? You Have More Flexibility
If you operate through a Medical Professional Corporation (MPC), you can continue paying yourself a salary or dividends during your sabbatical. This setup gives you more control over your income — but also comes with tax considerations:
- Lower income years can be ideal for pulling dividends or salary more tax-efficiently.
- If the corporation earns passive income (e.g. from investments) over $50,000/year, you could face a reduced small business deduction.
- Keeping your corporation active (with minimal admin and professional expenses) can help maintain its tax advantages during your leave.
- Expect Your Cash Flow to Dip — Plan Ahead
Even during a sabbatical, expenses don’t stop: licensing fees, insurance, student loan payments, and possibly clinic overhead will continue.
- Build a 6–12 month buffer in advance.
- Reduce non-essential expenses and adjust your withdrawal strategy.
- If you’re paying yourself from your MPC, coordinate the timing of payments to manage your tax bracket.
- Tax Impacts: Less Income Can Mean More Opportunity
Taking a break doesn’t just reduce your income — it might open up strategic tax moves:
- Lower income = lower tax bracket → ideal time to take dividends or draw from RRSPs with minimal tax impact.
- You may still claim some expenses (like insurance or accounting) if they relate to maintaining your practice.
- Consider using this time to trigger capital gains, contribute to your TFSA, or reorganize your corporate structure.
- Don’t Assume Insurance Covers You While on Leave
One area often misunderstood: disability and overhead insurance may not cover you during a sabbatical. Most policies require you to be actively working. Before you take time off:
- Review your policies carefully
- Notify your insurer (some may pause or adjust premiums)
- Look into temporary or alternative coverage if needed
- Think Beyond the Break: Plan Your Return
Whether you’re stepping away for a few months or a full year, make sure your return is as smooth as your exit. Consider:
- How will you re-establish patient flow?
- Will you need to update your credentials or meet regulatory requirements?
- Will your billing or overhead need to be adjusted post-sabbatical?
Final Word
A sabbatical can be a healthy and productive reset — if planned properly. The key is ensuring your financial and tax strategies align with your time off. At MedTax, we guide doctors through the nuances of MPC management, income planning, and CRA compliance, so you can take time for yourself without sidelining your finances.
Let’s talk before you unplug. Book a free consultation at MedTax.ca
