updated dental student presentation inc - g&r final
TRANSCRIPT
The Business of Dentistry
A CPA’s Insights for Dental Students
The Business of Dentistry
Who is this guy?What is he going to talk about?
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
Today’s Seminar• Employment & associate options
• Acquiring & incorporating a dental practice– Pros– Cons– Steps to take
• Tax time reminders– Upcoming deadlines
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
Employment & Associate OptionsPros 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
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
Incorporating a Dental Practice
If you like it...... should you put an Inc. on it?
Answer is… it depends
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
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
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
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
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
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
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
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
If you can “save” CPP...
... should you?
Answer is… it depends!
“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
“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
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
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
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
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
Why Incorporate? The Cons
Corporations come with costs for “necessary evils”
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
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
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
