andrea chan, cpa, ca
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Andrea Chan, CPA, CA. May 10, 2014. Putting You on the Right Track to Success. Tax-Smart Strategies for New Family Dentists & Specialists. Agenda. Learning Objectives: Tax Strategies Practice Purchase Benefits of a Trusted A dvisor. Tax Strategies - Associate. - PowerPoint PPT PresentationTRANSCRIPT
Presented by:
Date:
Andrea Chan, CPA, CA
May 10, 2014
Putting You on the Right Track to Success
Tax-Smart Strategies for
New Family Dentists & Specialists
Page 2
Agenda
Learning Objectives:
1. Tax Strategies
2. Practice Purchase
3. Benefits of a
Trusted Advisor
Page 3
Tax Strategies - Associate
Typical Expenses Typical Start Up Costs
Business portion of car expenses Professional library
Meals and entertainment (50%) Personal equipment, hand tools, etc
Home office – administration Personal computer/laptop
Membership and dues Home office furniture
Professional fees
Conventions (2/year)
Courses
Health insurance
Telecommunication
Page 4
Tax Strategies – Practice Owner
Typical Expenses Typical Start Up Costs
Salaries Dental equipment
Associate fees Leasehold improvements
Lab fees Office computers
Dental supplies Software
Rent Furniture and fixtures
Interest
Office and general
Promotion
Repairs and maintenance
Insurance
Bad debts
Page 5
Tax Strategies – Income Splitting
• Pay spouse or adult child an appropriate salary
• Higher-taxed spouse pays all bills
• Lower-taxed spouse invests savings
• Valid loan of funds
Page 6
Tax Strategies - Incorporation
• Trigger: Bank debtBuying / starting a new practice
• Trigger: Non-registered savings (outside of RRSP’s)Savings
• Trigger: Family members with low income
Income splitting
Page 7
Tax Strategies - Incorporation
Disadvantages Advantages
Planning flexibility
Easier to budget
Low tax rate of 15% (on first $500,000)
Tax deferral/savings
Increased paperwork
Increased legal and accounting fees
Page 8
Tax Strategies - Incorporation
Scenario 1: no income splitting, salary only
Incorporated Unincorporated
Income $200,000 $200,000 $200,000
Salary $120,000 $ -----
CPP $5,000 $5,000
Corp Taxable Income $ 77,500 $ -----
Total Taxable Income $195,000 $195,000
Tax on Corp income $12,000 $ -----
Personal Tax $36,000 $73,000
Total Taxes Payable (plus CPP) $53,000 $78,000
Tax Deferral $25,000 (31%)
Page 9
Tax Strategies - Incorporation
Scenario 2: no income splitting, dividends ONLY
Income Taxes
Taxable Income $200,000
Corporate Taxes $31,000
Available to Distribute
$169,000
Dividends (Dentist) $169,000 $35,000
Total Taxes $66,000
Page 10
Tax Strategies - Incorporation
Scenario 3: Spouse + Child > 18 (in university),
both without income
Corporation Taxes
Taxable Income $200,000
Corporate Tax $31,000
Dividends – Spouse $40,000 $1,000
Dividends – Child $50,000 $1,000
Dividends – Dentist $80,000 $ 8,000
Total Taxes $41,000
Tax Savings $25,000
Page 11
Practice Purchase - Steps
1. Choose your advisory team- Accountant- Lawyer- Financial planner- Banker
2. Get on broker lists and visit practices
3. Review valuation with an accountant
4. LOI / Purchase & Sale Agreement
Page 12
Practice Purchase - Agreement
• Accounting items in purchase/sale agreement
• Deposit• Closing date• Due diligence• Allocation of selling price• Associate agreement• HST and PST on sale• Debt retirement• Share vs. assets
Page 13
Practice Purchase – Structure
• Share sale
vs• Asset sale
Page 14
Practice Purchase – Share Sale
• Seller normally wants to sell shares:– Tax on gain @ 23.2% (consider AMT)– Potential elimination of tax through
Capital Gains Exemption
($800,000 per shareholder) [Value of $186,000]
– Selling shares is simple [for seller]
• Buyer will need to incorporate and continue to use a Professional Corporation
Page 15
Practice Purchase – Asset Sale
Generally, purchasers will want to buy assets• No hidden liabilities• Increase cost of assets for tax write offs
Bad for seller because:• Cannot take advantage of CGE• More time consuming and complicated
Page 16
Benefits of a Trusted Advisor
Student
Associate
Start-upGrowth
Retirement
Page 17
Benefits of a Trusted Advisor
• Your accountant can help you:– Save taxes– Buy the right practice– Optimize performance– Support business growth– Meet bank/CRA filings– Plan for retirement– Protect/build personal assets
Page 18
Summary
1. PC is an easy way to save taxes.
2. Build the right team to help you buy your practice.
3. Find the right accountant (trusted advisor).
Page 19
Comments
Andrea Chan, CPA, CA
Partner – Ontario Leader416.515.3831
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