Updated Dental Student Presentation Inc - G&R Final
1. The Business of Dentistry
A CPA’s Insights
for Dental Students
2. The Business of Dentistry
Who is this guy?
What is he going to talk about?
3. G&R Chartered Professional
Accountants
• Steven R. Gray, CPA, CA graduated Magna Cum
Laude from Robie Street High in 2000
• Formerly Rector Colavecchia Roche - Chartered
Accountancy firm operated in Dartmouth for over
30 years
• Recently re-branded as G&R Chartered
Professional Accountants
• Work with dental clients around the province
within a two hour radius of Halifax
4. Today’s Seminar
• Employment & associate options
• Acquiring & incorporating a dental practice
– Pros
– Cons
– Steps to take
• Tax time reminders
– Upcoming deadlines
5. Employment & Associate Options
• Corporate dentistry is a growing trend
– e.g., Dental Corporation of Canada
• Dentists work as employees and earn a salary
– T4 income is easy-peasy, any accountant will do
– RRSP, TFSA, Life Insurance savings plans available
• Associates work as self-employed contractors
– E.g., 60/40 split between the practice & associate
– T2125 income is trickier
– Tax saving options similar to employees
6. Employment & Associate Options
Pros to the employment option include:
– Focus on patient care, being a dentist!
– Reduced administrative burden
– Potentially less stress as a result
– Work/life balance improvement
Cons to the employment option include:
– Reduced access to tax savings and planning opportunities
– $$$, there’s a reason corporations want to own dental
practices - a 29.1% profit margin for dental businesses with
production over $1,164,000
7. Acquiring a Dental Practice
• Topic for a seminar all on its own!
• Asset purchase – buyer’s preference (generally)
– Tangible assets - equipment, systems, leaseholds, etc.
– Intangible assets - patient list / goodwill / staff
• Share purchase – vendor’s preference (generally)
– Shares of the company that owns these assets
• Asset or share price is a negotiation, not a science
• Financing available – big banks love dentists
• Location & personal fit with you is crucial – associate 1st
8. Incorporating a Dental Practice
If you like it...
... should you put an Inc. on it?
Answer is… it depends
9. Why Incorporate? The Pros
• Legal reasons exist
– Limited liability & creditor protection
– Separate legal entity – succession
– Accountants are not lawyers
– Talk to a qualified lawyer regarding incorporation
as you should for:
• Associate & non-compete agreements
• Wills & estate plans
• Shareholder & share purchase agreements
10. Why Incorporate? The Pros
• Taxes, taxes, taxes
– Potential tax savings may exist with:
• Corporate tax rates
• Income splitting opportunities
– Potential tax deferral may exist
• Funds left in corporations
• Similar to an RRSP
– Canada Pension Plan (“CPP”) ramifications
11. Potential Income Tax Savings
• Active business income in Nova Scotia taxed at
13.5% on the first $350,000 where individuals
pay 54% tax on income over $200,000
• Example:
– An active business earning a profit of $100,000 would owe
$13,500 of corporate income tax, leaving $86,500 in the
corporation
– A dividend of $86,500 would trigger a $16,455 personal tax
bill
– A combined income tax bill of $29,955 or 30%, which
means you keep 70% of what you earn
12. Potential Income Tax Savings
• A self-employed dentist earning a profit of $100,000
would owe $33,326 of personal income tax and CPP
premiums or 33.3% tax rate meaning you keep 66.7%
of what you earn
• Tax and CPP premiums of $33,326 for the
unincorporated dentist > $29,955 of tax for the
professionally incorporated dentist
13. Income Splitting Opportunities
• Control rests with the dentist
– Nova Scotia Dental Act (“NSDA”) 40 (1) allows
dentistry to be performed by a corporation
– NSDA 40 (2) requires the majority of the voting shares
in the corporation to be held by one or more licensed
dentists
• Opportunity for wider share ownership to
provide income splitting
– Consult your accountant & lawyer to determine what
share structure is right for you
14. Potential Tax Deferral
• Funds left in the corporate structure taxed at 13.5% on the
first $350,000
• Savings build up for a retirement fund
– Corporation has $0.86 of after-tax profit to invest as
opposed to as little as $0.46 for an individual
1 2 3 4 5 6 7 8 9 10
15. Tax Planning Opportunities
• Optimal tax savings often come from two key
strategies:
– Income Splitting - “Even-Steven” income between
spouses or common law partners
– Income smoothing - Smooth income over time
• Pay too much tax in peak years
• Don’t pay enough tax in trough years
16. Canada Pension Plan (CPP)
• Incorporating provides the potential to “save”
Canada Pension Plan contributions
– CPP is a forced savings of 9.27% on your first
$54,900 of self-employed income in 2016
– Employee portion is $2,544.30 (4.95%)
– Employer portion is $2,544.30 (4.95%)
– First $3,500 is CPP exempt
– Total forced savings of $5,088.60 whether you like it or not
17. If you can “save” CPP...
... should you?
Answer is… it depends!
18. “Saving” CPP Contributions
• Pros for CPP
– Forced savings work for some personalities
– Professionally managed portfolio
– Secure annuity for as long as you live
– Death, disability, and survivor benefits
19. “Saving” CPP Contributions
• Cons for CPP
– Forced savings don’t work for some personalities
– Non-liquid investments, you can’t access your
principle
– Death – benefits may not outweigh the costs
20. Why Incorporate? The Cons
• The “*” is an accountant’s best friend
• Legal-ese warning along the lines of:
“Please consult with a qualified tax advisor or accountant
to ensure a corporation is right for you”
• CPA’s have the enviable role of playing “Debbie Downer”
when it comes to investment or tax saving schemes
plans.
• We get to break the bad news, the cons
21. Why Incorporate? The Cons
• Do you want to complicate your life?
– Corporations will complicate your life by bringing
another entity into your world
• Legal protection and benefits may be limited
– Bankers will require guarantees
– Reputation in the business community
• There are seven degrees of separation in the world
and maybe two or three in Nova Scotia
– Insurance coverage requirements and costs
are similar – consult a broker
22. Why incorporate? The Cons
• Tax saving benefits may be limited if:
– You require your profit to fund your lifestyle or
personal debts (i.e., no tax deferral)
– You are single (i.e., no income splitting)
– Your children are minors (i.e., also no income
splitting)
– You “save” the CPP, but fail to save for retirement
23. Why Incorporate? The Cons
$100,000 profit example for 2016:
$33,326 for unincorporated dentist
- $29,955 for the incorporated dentist
$3,371 difference
($5,088) represents CPP savings
$1,717 added income tax cost
25. Why Incorporate? The Cons
• Necessary evils often come wearing suits,
shirts, smiles, ties…
– Accountants to file tax returns, T-slips, etc.
– Lawyers to incorporate, reorganize, dissolve, etc.
– Banks to manage accounts and credit cards
– Licensing boards, registry of joint stocks, etc.
• Overall, an increased paper burden whose
costs ($2,500 per year and up) may outweigh
the benefits of incorporating
26. Steps To Take
• Consult a lawyer, an accountant, and colleagues
who have acquired a practice to see if the pros will
outweigh the cons for your situation
• Hire an accountant early to review your personal
tax situation (if you are an associate) or the
acquisition with you
• Hire a lawyer to incorporate your company
properly and register it with the Registry of Joint
Stocks and adhere to the Nova Scotia Dental Act
27. Tax Time Reminders
• Individuals
– RRSP contribution deadline is March 1, 2017
– Income taxes and CPP are due May 1, 2017 at the latest
(assuming installments are up-to-date)
– Tax returns for self-employed individuals (i.e., associates)
are due by June 15, 2017
• Corporations
– Taxes are due within three months of their year-end at the
latest (assuming installments are up-to-date)
– Tax returns for corporations are due within six
months of their year-end
