Introduction

Locum physicians — doctors who work on a temporary or substitute basis at clinics, hospitals, or other practices — are one of the more tax-complex groups within the medical profession. Income sources can be varied, the employment vs. self-employment question arises in different forms, and the decision of whether and how to incorporate requires specific analysis.

This article addresses the key CRA considerations for locum physicians.

Employee or Self-Employed: The Critical Question

The first question for a locum physician is how their income is classified — as employment income or self-employment (business) income. The answer affects how the income is reported, whether expenses can be deducted, and whether HST obligations arise.

The CRA applies the standard multi-factor test: does the practice control how and when the physician works, or does the physician operate independently? A locum working fixed hospital shifts under the supervision of a department head, using hospital equipment, with no financial risk, may be considered an employee. A locum providing coverage on their own schedule, travelling between clients, and bearing the costs of their own professional development looks more like a self-employed practitioner.

In many locum arrangements, the physician is engaged as an independent contractor — and is responsible for reporting income as business income (on T2125 if unincorporated, or through their professional corporation if incorporated).

The Professional Corporation Question for Locums

A locum physician who operates through a professional corporation can direct billings to the MPC and retain earnings at the corporate tax rate rather than the personal rate — the same deferral advantage that applies to any incorporated physician.

The key condition is that the income earned must be active business income earned through the genuine carrying on of professional services. For locums whose income is directly tied to the provision of medical services, this is generally straightforward — billing for locum coverage, whether through OHIP or through practice arrangements, is active business income of the MPC.

However, where a locum is in a situation that looks more like employment — fixed hours, fixed location, no independent practice — the personal services business (PSB) rules may be relevant. A corporation that exists primarily to provide the services of an incorporated employee is not eligible for the small business deduction. If a locum physician's corporate situation could be characterised as a PSB, the tax advantage of the corporation is significantly diminished. This analysis is fact-specific and deserves a direct conversation with a CPA.

Travel and Expense Deductions for Locums

Locum physicians who travel between assignments can deduct travel expenses — vehicle costs, accommodation, and meals — that are directly connected to earning professional income. The deductibility depends on the nature of the travel.

Travel from home to a regular work location is not deductible. Travel from one assignment location to another, or travel to a temporary work location (as opposed to a regular one), may be deductible.

Where the physician is incorporated, eligible travel expenses paid through the MPC are deductible as business expenses, provided they are documented and genuinely incurred for business purposes.

HST Obligations for Locum Physicians

If the locum physician is providing services as a self-employed individual or through a corporation, and those services qualify as exempt medical services, no HST applies. The standard exemption for physician services under the Excise Tax Act applies to locum coverage as it does to regular medical services.

If the locum arrangement includes any non-exempt services — administrative fees, management services provided to a clinic — those components may be taxable. Locums providing a mix of clinical and non-clinical services should have their HST exposure reviewed.

Multiple Province Considerations

Locum physicians sometimes work in multiple provinces. Provincial income tax is generally payable to the province where income is earned — which, for a corporation, is determined by the permanent establishment rules and the allocation formulas under provincial tax legislation. For an individual filing a T1, provincial residency on December 31 determines the applicable provincial rates.

Where significant income is earned in a province other than the physician's home province, the allocation of income between provinces should be reviewed to ensure the correct provincial taxes are being paid.

When to Speak With a CPA

Locum physicians with variable income, multiple work locations, and a mix of incorporated and personal earnings have a genuinely complex tax position. Annual planning — not just annual filing — is the right approach.

Rotaru CPA works with physicians across all practice models, including locum practitioners. Book a consultation to discuss your specific tax situation.