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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Your accountant can work with you to ensure you take advantage of
all of the expenses that can be deducted for business purposes.
One tax-saving option to consider is converting family health care
expenses from a personal tax credit to a full business expense.
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
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.
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