Calculating Your Net Taxable Income as a Midwife (or Sole Proprietor)

As we enter RRSP Season this is a big planning time for midwives. It can allow them to determine how much in tax they will owe and what their marginal tax bracket is to figure out whether additional RRSP contributions make sense.

It's a challenge for midwives to get an accurate assessment of their income for the year given the way billable courses of care work. You might have a couple BCC's that end up crossing into the new year etc. As a result it can be tough to to actually figure out how much money you make until it's all totaled up at the end of the year! (This applies to most self employed individuals - it's difficult to figure out what your income is in many self employed/sole proprietor roles until much closer to the end of the year as it's often lumpy).

Additionally - for some midwives (All midwives in Ontario have this as an example) there is some additional funding you receive indirectly. There is a portion of income that is "income" for you as you know (the infamous "20%") that covers benefits, RRSP contributions etc.

You need to actually account for that as part of your income when it comes to your year end planning as well.

Luckily - in many cases - your practice's bookkeeping process tracks that and accounts for that so all you may need is the spreadsheet of your yearly totals from the practice!

Your gross income is NOT your Taxable Income

Figuring out what your marginal tax bracket requires a couple of other steps because as a self employed individual - you will have lots of different expenses that you can deduct. For midwives many of the common expenses will be:

• Fees to their college as well as provincial group (ex. The Association of Ontario Midwives)
• Travel expenses like needing a car to get everywhere
• Additional training or education/conferences
• Equipment/supplies
• Occasionally meals (again subject to travel, and the hours you had to keep - check with your accountant on this one).

Gross Professional Income - Deductions = Net Professional Income Aka Taxable Income

This part is simple enough - you will take your gross professional income (including the 20% top up) and subtract your direct expenses from this. You may not know "exactly" what that is for the year yet - but midwifery expenses don't vary too year over year much given the requirement to stay close to their patient population and the local hospital. So - what you can do is use your expenses from the prior year as a bit of a proxy for the current year.

Ex. if your expenses last year were 10% of your gross income - you can use that as the starting point for figuring out your Taxable Income.

Let's use an example:

If a midwife in Ontario has BCC's and ancillary income totaling 100K then their gross professional income will be $120K (to account for the 20% top up).

Assuming 10% of expenses - means that there would be about $18K of professional expenses.

Therefore $120,000 - $12,000= $108,000 of Taxable Income.

It doesn't stop there!

RRSP, FHSA, and other Personal Deductions

There are still other deductions that might come into play as well. RRSP contributions count as a deduction against your income as do FHSA contributions. Additionally - if you were the lower income spouse and had children in daycare - daycare expenses are still a deduction as well against your income.

At a bare minimum - we'll use the Group RRSP as an example as that is a major factor for midwives in Ontario. If there was 10K that was contributed to the Group RRSP then the true net income for tax calculation reasons would be:

$108,000 - $10,000 = $98,000 Taxable Income.

There is a lot you can do with this fun bit of information ranging from determining your marginal tax rate, how much in tax you will owe, and determining whether an RRSP contribution makes sense.

I will cover this next week for my #midwifemonday!

In the meantime - Enjoy!