Residency ends, billings start, and for most of that first year everything feels fine. The money arrives, it is more money than there has ever been, and there is no obvious sign of a problem. The problem arrives the following spring, as one number.
This is the most predictable financial event in a medical career and it still catches almost everybody.
Why it happens
As a resident you were an employee. Tax came off every pay before you saw it. Filing was a formality and often produced a refund.
As a self employed physician billing for your services, nothing is withheld. All of the income arrives gross. The full tax liability sits there quietly until it is calculated, and by then it covers a whole year at rates that climb steeply once your income clears the thresholds. At the top of the scale in most provinces, roughly half of each additional dollar is tax.
Nobody plans to spend their tax money. It happens because the money is in the account and there is nothing labelling it.
The four things to do in year one
1. Separate the tax money on the day it arrives
Open a second account and move a fixed percentage of every payment into it, automatically, the day it lands. Do not calculate it precisely, do not wait to see how the year goes. A high fixed percentage moved on autopilot, adjusted once you have real numbers, prevents the entire problem. Money in a separate account that you never see is money you never spend.
2. Understand instalments before CRA tells you about them
After a year of owing a meaningful amount, CRA will expect quarterly instalments in March, June, September and December. Instalment reminders arrive in the mail and are frequently ignored. Interest on missed instalments is charged at rates that make it a poor form of borrowing.
The upside is that instalments actually solve the psychological problem. Once you are paying quarterly, the annual bill stops being an event.
3. Track expenses from the first day of practice
Self employed physicians can deduct the costs of earning that income: CMPA fees, College and association dues, licensing, CME, practice supplies, the business portion of a vehicle, a home office where the work is genuinely done there. Most new attendings underclaim, not because they are cautious but because nobody was tracking anything for the first eight months and the receipts are gone.
A separate card for practice spending and a receipt app takes ten minutes to set up and is worth real money in April.
4. Do not rush to incorporate
The instinct in the first year of good income is to incorporate immediately. Sometimes that is right. Often it is not, because in the first year or two most new attendings are drawing everything they earn to cover debt, a move, a first home and the deferred costs of a decade of training. If nothing stays in the corporation, the corporation is not doing anything except generating fees.
Give it a year of real numbers, then decide with evidence. Incorporating in your second year costs you very little. Incorporating in your first and unwinding it costs considerably more.
Do not forget the residency years. Moving expenses between training sites, tuition and education carryforwards, exam and licensing fees, and professional dues are all commonly missed on returns filed during training. Prior year returns can generally be adjusted. It is worth having someone look back before those years get too far away.
What the first proper year looks like when it goes well
- A percentage of every payment automatically moved to a tax account
- Practice expenses on their own card, receipts captured as they happen
- Instalments set up before CRA has to ask
- An honest incorporation review at the end of year one, with real figures
- No April surprise, because the money was already sitting there
The Incorporated Physician's First Year Checklist
Written for the incorporation step, but the sections on expenses, banking and deadlines apply from your first year of billing.
If you are in your first or second year of practice and want to know whether you are setting enough aside, that is a short conversation and worth having before the spring rather than after it.