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What Dental Professionals Can Expect From Their Trusted Advisors

04/04/2011


Incorporation

We recommend incorporation for many of our dental clients because dental profits earned in a corporation attract a very low tax rate of 15% per annum. The resulting higher after-tax profits can then be saved inside the corporation and invested. When the funds are eventually paid out as dividends, the shareholders will then pay the balance of tax deferred. If the dividends are paid when the shareholder is in a lower marginal rate (e.g. during retirement or maternity leave), you could potentially save a lot of tax by paying dividends. There is also an opportunity to avoid contributing to CPP.

Income splitting

Paying salaries to family members in lower tax brackets is one option to explore which could save taxes, but those relatives must work for your practice, and their salaries must be reasonable. By incorporating, you can have specified family members become shareholders of the practice, allowing you to pay them more using dividends, resulting in significant tax savings.

Wills

We are always amazed by the number of new clients we meet who do not have a will. Many dentists have children, a large mortgage and a growing dental career, but do not have a will, power of attorney or substitute decision maker. Make this a priority and update your will regularly. We recommend that you speak with a lawyer who has expertise in this area.

Insurance

Life, disability, critical illness, and long term care – most dentists have some coverage in these areas. But do you have sufficient coverage and the appropriate insurance for your stage in life? Make sure you have the right insurance agent who can guide you through the various options and products.

Financing

Whether you own a practice or not, you likely have financing needs, including a home mortgage, line of credit, practice loan, and investment debt. Review your requirements regularly and make sure you have the appropriate financing to meet your needs and cash flow requirements. A professional banking specialist will work with you to give you the right price, great service, and maximize tax savings.

Retirement

The question we always get is: “how much should I save for my retirement?”. Good question! It obviously depends on many things including your lifestyle and risk tolerance. In general, you will probably need more than you think, especially in the current economic climate. A financial advisor can work with you to reach your goals.

Human Resources

We live in a very litigious society, and when it comes to employment matters, the courts generally favour the employee. The Provincial Ministries of Labour have very strict rules and regulations that must be adhered to in your practice. There are HR consultants who specialize in this area who can help you minimize your risk.

HST

We believe that HST has always been a high risk area that has often been ignored by dental practices. With an increase from 5% to 13%, commodity tax is now a much more attractive revenue source for the tax authorities, and they may be more aggressive in their pursuit of unpaid taxes. Remember: cosmetic procedures are taxable to your patients. On the other hand, many parts of your practice may provide you with a HST rebate.

Sale of a practice

Under current tax law, you and your family may each be eligible for up to $750,000 of tax-free capital gains on the sale of shares of a dental practice. If you are not incorporated, the practice can be transferred to a corporation immediately before the sale. If you are incorporated, you will need to plan for a sale at least two years before closing to insure you meet all of the requirements.

Purchase of practice

Your financial team can help you review, negotiate, and close the purchase of your practice. This will be a big step towards your career goals and a large expenditure; your advisors can help you to plan and execute it carefully to maximize success and minimize taxes.

Deductible expenses

Your accountant can work with you to ensure you take advantage of all of the expenses that can be deducted for business purposes.

Health spending account

One tax-saving option to consider is converting family health care expenses from a personal tax credit to a full business expense.

Investing

Investments will likely constitute a significant part of your personal financial plan, so it’s a good idea to work with a financial advisor who can steer you towards wise investments and products that meet your risk tolerance.

Practice efficiency

Don’t be afraid to ask for help or advice to make sure you are running the most efficient and profitable practice possible.

In conclusion, develop a team of trusted business advisors early on in your career and meet with them regularly so they can help you meet your personal and financial goals.

Andrea Chan, CA and Gary Marcus, CA, CPA are Partners at Meyers Norris Penny LLP who specialize in providing tax, consulting, accounting and buy/sell advisory solutions to their dental professional clients. You can reach them at 1.877.251.2922

This article was published in the Winter 2011 issue of Profitable Practice magazine.