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Business/tax/self-employment queries: ask me anything


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hey hansol, sorry for so many questions but one more here:

1.what is your view on personal income being taken out as salary vs dividends? is there a benefit to using one vs the other or using a combined approach?

2.for income splitting, what is the view on issuing of shares vs trusts? is one approach preferred over the other?

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There's two angles to look at this:

 

Firstly, from a purely monetary standpoint, it's better to have two separate corporations in terms of having the ability to take advantage of two separate $500,000 small business limits, instead of splitting the one limit 50/50 between the two practitioners. (Probably best to PM me on this one.)

 

Secondly, often professional colleges have restrictions on who can hold shares in a professional practice. For instance, it's possible that two dentists can hold shares in one dental corporation; however, the dental college may also restrict the holding of dental practice shares to dentists only. In that instance, a medical doctor may not be allowed to be a shareholder in the dental corp. So it definitely helps to read up on what your professional body allows/doesn't allow.

 

thanks for the detailed replies,Hansol..very helpful!

another quick question..is it possible and would it make sense to incorporate under one corporation if say you have a dentist and a doctor in a family? if these 2 ppl had joint investments/savings e.t.c would it make sense to have 2 separate corporations or 1? not even sure if 1 corporation is possible but just figured i should ask.

thanks!

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You're in a pretty complex situation, so I don't know how helpful my advice will be, but I can certainly give it a shot.

 

The deciding factor for whether or not you're taxed in both Australia comes down to the concept of "Primary" and "Secondary" ties. The Coles Notes version is that if CRA decides you have enough "ties" to Canada, they will deem you a Canadian Resident for tax purposes, in which case you'll likely be taxed in both locals. That being said, if Canada has a tax treaty in place with Australia (and I believe they do) you will receive credit for the taxes paid in Australia. That's not to say it's a good deal, as you may wind up, for example, paying more tax in Australia than you would have in Canada, or other such scenarios. Best thing is to actually sit down with your accountant and run the numbers and go from there.

 

I suggest incorporation straight out of graduation, and going from there, assuming you'll be making high-rate income and that sort of thing.

 

The student loan debt is tricky, because as I stated above, I tend to think that paying it off sooner rather than later is a better idea, all things being equal.

 

 

 

 

Alright, so I'm in sort of a unique situation. I'm currently in dental school in Australia and will be graduating with a debt of about $220k. I will also have a SIGNIFICANTamount of tax credits available to me. I was wondering what would be the smartest thing to do financially, in order to pay off the debt as quickly as possible.

 

I will have the option to work in Australia and Canada. If I decide to work in Australia, will I have to pay taxes in both countries? And what happens to my tax credits if I work in Australia? Would Canada be the better option financially?

 

Secondly, should I incorporate straight out of graduation or should I wait until the debt is paid off?

 

Sorry for the many questions but I really appreciate the advice! :)

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Regarding dividends vs salary: This is something that will be specific to your situation. Ideally you want a combination of the two in order to take advantage of the various personal tax credits available against emplyments (t4) income, but also want to take advantage of the low(er) taxation of dividends as well. This "blend" will always be unique to your circumstances of the year, so that's where sitting down with your accountant comes in to play, and you two can hash out the best way to take advantage of your current situation, as well as plan for the future.

 

Corp vs. trust regarding income splitting is a pretty "heavy" topic, which again, I could write pages about. Feel free to PM me, or give me a bit of time and I'll do a "trust vs corp" breakdown for the readers here. Dentists are in a unique spot as you guys tend to earn enough income to warrant these various tax planning and estate planning methods, so I think it's worthwhile that a person has a basic understanding of these concepts so that the "financial wolves" out there don't take advantage of one's not knowing.

 

hey hansol, sorry for so many questions but one more here:

1.what is your view on personal income being taken out as salary vs dividends? is there a benefit to using one vs the other or using a combined approach?

2.for income splitting, what is the view on issuing of shares vs trusts? is one approach preferred over the other?

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  • 3 weeks later...

It's my understanding that in Ontario holding companies cannot own stock in incorporated practices as dictated by the RCDSO and CPSO. I'm wondering if the same is true of most other provinces? I believe this is also the case in Alberta. I ask because a direct family member of mine operates a holding company. What's the best way for me to take advantage of that?

 

[Edit] Also, not sure if it's entirely relevant but apparently I am the director of the holding company. Or on the board of directors. Or something. It's complex and I have very little understanding of finance. >.>

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The short answer is that it depends on residency status. If you're a Canadian resident, you're essentially taxed at Canadian rates, and the Canadian tax paid counts as a "credit" towards any US tax you might owe. There's a bit more complexity to it than that, but that's the basics.

 

If someone who is Canadian but practices in the States how does taxation work?
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Generally I would suggest getting your employment first, figuring out what kind of income you'd be generating, and then incorporating after a few months. That way you can focus more on the practice-side of things before getting swamped in start-up paperwork. With that being said, it won't hurt anything incorporating a prof corp right off the bat either, so it's basically whatever you feel comfortable with.

 

Disadvantages are namely cost and admin purposes. By incorporating you're typically going to incur more expenses (accounting fees, legal fees, corporate registration costs etc), as well as the admin/paperwork side of things. I will say however that one "perk" of being involved in the medical/dental fields is that the tax benefits/savings of incorporation and running your own prof corp greatly outweigh those general admin costs.

 

Sorry, another question. I will thankfully graduate with little to no debt. Should I be incorporating immediately, before I even find my first associateship (should that be what I decide to do)? Are there any disadvantages to associating as a corporation?
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How exactly do you go about doing the cheaper "do it yourself" incorporation that you refer to above?

 

 

Just playing Devil's Advocate here, but would you ask your accountant or lawyer to fill a cavity? In the grand scheme of things, given the value of your time now and in the future, it might not be a bad idea to pay to have that done.

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Dannny, as koft said above I can't really answer that for you. Any "opinion" I could offer is no better than speculation, and I have no qualms about saying that. In fact, most everything you hear about the markets is just one person's opinion on that specific day at that specific hour.

 

One of the best "bits" of investment advice I've ever been given was basically "if the investment is at the retail level, you're already behind." Basically what it means is that to get anywhere with investing, you need to find an angle that the general public doesn't have access to. A real-world example was actually a dental client of mine who was contacted directly by a fairly affluent hotel chain to put up a 30% investment in a new hotel being built in an upscale part of town. A friend of a friend knew the dentist, knew he was good with money, and put him in touch with the hotel. So you'll find that as you're in business longer, it's opportunities like these that offer the "best" return on your money as opposed to buying mutual funds or the like.

 

If you've got money to invest, what do you think would be best to invest it in right now for a high return rate and high fluidity?
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Dannny, as koft said above I can't really answer that for you. Any "opinion" I could offer is no better than speculation, and I have no qualms about saying that. In fact, most everything you hear about the markets is just one person's opinion on that specific day at that specific hour.

 

One of the best "bits" of investment advice I've ever been given was basically "if the investment is at the retail level, you're already behind." Basically what it means is that to get anywhere with investing, you need to find an angle that the general public doesn't have access to. A real-world example was actually a dental client of mine who was contacted directly by a fairly affluent hotel chain to put up a 30% investment in a new hotel being built in an upscale part of town. A friend of a friend knew the dentist, knew he was good with money, and put him in touch with the hotel. So you'll find that as you're in business longer, it's opportunities like these that offer the "best" return on your money as opposed to buying mutual funds or the like.

That makes sense.

Thanks!

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When purchasing a practice what are your thoughts on:

 

Share sale versus asset sale?

 

are you looking for clients in alberta, if so PM me......because i'm looking for an accountant/financial advisor

 

 

Thank you,

 

Ryan

 

Purchase asset, you will have tax advantage for claiming depreciation of the asset in the practice, yet, most of the price of the practice is good will. However, most if not all practice for sale are share acquisition. I am sure Hansol will have a more detail answer. Good Luck

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Asset sale vs share sale is generally dependant on whether you're on the buy-side or the sell-side:

 

If you're buying, asset sale is generally the "best", as it allows you to only purchase the assets you need for the business, and avoids aquiring redundant or unneccessary items. Additionally, it avoids you being on the hook for any unlisted liabilities of the business that the seller "forgot" to mention. Lastly, it gives you a fresh CCA base for the assets, so you receive a tax-savings benefit from that as well.

 

If your'e selling, typically a share sale will look more attractive, mainly for the ability to take advantage of the newly-increased $800,000 lifetime capital gains exemption, which has the effect of hugely reducing your tax balance payable on the sale of the corp. Additionally, it is a heck of a lot simpler, and therefore cheaper in terms of accounting fees/legal fees, to sell the shares.

 

So that's basically it, but as always there are exceptions to the rule. Often you can structure an asset sale/share sale to be just as attractive as the other, so don't necesarily just walk away from an offer if it's not in your "preferred" form.

 

When purchasing a practice what are your thoughts on:

 

Share sale versus asset sale?

 

are you looking for clients in alberta, if so PM me......because i'm looking for an accountant/financial advisor

 

 

Thank you,

 

Ryan

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  • 2 weeks later...

hey hansol,

 

thanks for your help and time on this forum! I have another question:

in light of the recent changes to tax rules such that tax savings on dividends (over salary) are no longer going to be seen, would this in any way impact the structuring of how money should to be taken out of the corporation for someone who needs to take out most/all of the earnings for paying off on a loan for a practice (say around $800-900K) and house? im guessing that it will no longer matter for the purposes of paying towards a loan if one is paying themselves as a salary or dividend..correct? or are there other benefits of a dividend( like no need to contribute towards CPP) that'd still be of benefit, when taking out a dividend to pay off practice+house loans.

 

thanks!

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