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
- 24. Why Incorporate? The Cons Corporations come with costs for “necessary evils”
- 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
- 28. Questions? 230-3 Spectacle Lake Drive Dartmouth, NS B3B 1W8 Telephone: (902) 463-9571 [email protected]