Business Affairs - Dentists

Dentists - FAQ's, Links and Newsletters

FAQ's (Frequently Asked Questions)

1) How are my taxes calculated?

If your main source of income is derived from your self-employed business, then your main tax calculation will come from your business's net income.

2) Should I incorporate?

First, you must determine whether you are eligible for incorporation. As of 2002 dentists and veterinarians are eligible to incorporate their practices with certain restrictions.

Generally, the answer is yes. There are many benefits to incorporating including, but not limited to, increased business after tax cash flow and a capital gains exemption on the sale of your small business corporation shares.

However, a more detailed analysis must take place analysing your personal objectives before determining whether incorporation is right for you.

3) Should I lease or should I buy/finance?

The answer is it depends. Once again one's particular situation and preferences will determine what the right strategy is.

Generally speaking, buying is the least expensive option because there are no interest charges. Financing (loans) are the second least expensive options because generally, loans have lower interest rates than leases. Whether one buys or borrows the asset can be written off through depreciation and interest charges.

A lease enables one to write off the lease payment. The lease payment is derived through determining the anticipated use of the asset over the life of the lease. However, depending on the type of lease, the benefits differ. For instance there is a significant difference between a car lease and a commercial lease for equipment.

A car lease has residual or "buy back" percentages of 45 to 55% on a three to four year lease. Specifically, what that means is if the car has a sticker price of $20,000 today, then four years from now it will be worth $9,000. Therefore, your 48 monthly lease payments are calculated using the difference between the price of the car today and the residual value ($11,000). That's why, generally, monthly lease payments on cars are less than loan payments (because if the same car was financed over the same 48 month term the loan payment is calculated on the price of the car, $20,000). Therefore, the major benefit to leasing a car is a low monthly payment, but unless you are a health care professional providing mobile services, you will be able to write off very little on your leased vehicle. Also, at the end of the lease you will have an option to buy the vehicle for the residual value or hand it back to the dealership.

In the event you are considering a commercial lease for equipment, the major benefit is that you will be able to write-off the equipment faster than depreciating it as long as the lease has a significant residual value (10% or more). The only draw back to a commercial lease is they are shorter in term than loans (usually three, four or five years) and the residual values are in the neighbourhood of 10 to 20%. Therefore, you are writing off 80 to 90% of the asset in three to five years. This results in a higher monthly payment than a commercial loan, which can be stretched out over seven years.

As you can see, whether or not a lease is right for you is completely dependent upon your personal preference and cash flow strength. Please contact us (reachus@businessaffairs.ca) for a detailed analysis of your particular situation.

4) What's my practice worth?

Though there are a few different valuation methods, in the end your practice is worth what someone is willing to pay for it. The valuation or appraisal is simply a guideline or benchmark used as a starting point.

Further, when talking of practice or business appraisals, the topic of goodwill is often discussed. Regardless of what you hear in the market place there is only one calculation for goodwill and that is the difference between what your practice sells for and the value of its net hard assets.

Please contact us (reachus@businessaffairs.ca) for more information on valuing your practice/business.

5) Where can I learn more about labour issues (Stat Holiday Pay, Termination, Maternity/Parental Leave, etc.)?

Please visit the following link for the Ontario Ministry of Labour (Ministry of Labour).

Important Links

Transitions Consulting Group

Ontario Dental Association

Royal College of Dental Surgeons of Ontario

Canadian Dental Association

Newsletters

Spring 2002 (Microsoft Word) (PDF)
Summer 2002 (Microsoft Word) (PDF)

Fall 2002 (Microsoft Word) (PDF)

Winter 2002 (Microsoft Word) (PDF)

Spring 2003 (Microsoft Word) (PDF)

Summer 2003 (Microsoft Word) (PDF)

Fall 2003 (Microsoft Word) (PDF)