Dental Practice Taxes Canada

Allan Madan, CA
 Jan 26, 2011
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If you are a dentist and are concerned about structuring your tax affairs properly, then you must read this article.

In this article, I discuss the tax implications of the three different types of tax structures for dental practices.

Locum and Principal – Dental Practice Taxes Canada

The first type of tax structure for a dental practice is known as a Locum and Principal Arrangement. This is a short-term arrangement, where you cover for the principal dentist’s absences. The principal dentist may be absent because of illness, vacation or other reasons and will need you to look after his patients while he is away.

Typically, the office of the principal dentist invoices patients for services you have rendered. You receive a percentage of the billings to compensate you for your professional services.

It’s fair that you pay for some of the common expenses of the principal dentist’s office, because you are working from his office. However, make sure that the common expenses are not directly deducted from your pay, because HST will be charged.

To avoid HST, you should reduce the percentage of the billings that you receive in order to compensate the principal dentist for the common expenses. Common expenses include rent, utilities, administration, payroll and other common costs.

Association – Dental Practice Taxes Canada

The second type of tax structure for dental practices in Canada is known as an Association. This is very similar to the Locum and Principal arrangement, but it is for a much longer period of time.

In this tax structure, you become an associate of the principal dentist. The principal dentist invoices patients for your services and you receive a percentage of the billings. Make sure the common expenses are not directly deducted from your pay, because that will trigger HST on the common expenses.

Cost Sharing Agreement – Dental Practice Taxes Canada

This third type of tax structure for dental practices in Canada is known as a Cost Sharing Arrangement. This is a very common tax structure for dental practices in Canada.

In this structure, two or more dentists operate their own independent practices from a common facility. Each dentist that is part of the cost sharing agreement must pay for their proportionate share of the common expenses.

There are three main characteristics of a cost sharing agreement:

  1. The principal dentist pays for all the common expenses of the dental practice, such as utilities, rent, administration, payroll, equipment leases, and furniture and equipment. The principal dentist is reimbursed by the other dentists for their proportionate share of the common costs
  2. A common bank account is maintained to cover for all of the common expenses. Each dentist, including the principal, should periodically deposit a pre-determined amount of money into the common bank account to make sure sufficient cash is available to pay for expenses.
  3. Each dentist is responsible for specific shared expenses, which are typically outlined in the cost sharing agreement.

The advantage of a cost sharing structure is that each dentist has the opportunity to independently operate his own dental practice and at the same time reduce overhead costs.

The payments between dentists in a cost sharing arrangement will not be subject to HST if the agreement is structured properly.





About the Author – Allan Madan

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation . Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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Comments 2

  1. Hi….I have a situation and wanted to get your advice. two years back I started working as an associate and signed the contract with principal in my personal name ( in Ontario). Money/cheques comes in my name in my personal checking account. Last year I got myself (dental professional) incorporated (mid-year) but terms of my agreement did not change and money kept coming in my name in my personal account. Can I assume the income I collected personally…… as corporation’s income and file corporate tax return? or I cannot leverage corporate entity? rather have to file taxes as self employed?

    1. Hi Pasha,

      If they payment is to your personal name, you will have to report it on your personal tax return and you will not be able to leverage your corporation.

      Best Regards,

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