Different Business Structures
As an unincorporated individual, you can structure your practice either as a sole proprietor (owning your practice assets directly) or as an individual partner with a participating interest in a partnership. Alternatively, you can form a corporation and operate your practice through the corporation.
Group Practices – Newer Structures
Over the past decade, every province has enacted legislation that allows health-care professionals to practice through a corporation. In the past, where professionals preferred to work together in a group practice instead of working alone, the partnership structure was the only option. However, new structures have evolved to allow the use of PCs in group practices and, where possible, the structure is set up so that each PC in the group practice can have access to its own small business deduction.
- Allowing the practice to better attract and retain qualified professionals;
- Eliminating the joint and several liability that is inherent in providing professional services through a partnership;
- Providing a vehicle through which a professional may, if he or she so wishes, provide professional services external to the group practice;
- Increasing business efficiency for each professional by allowing individual management of his or her personal practice;
The following are two common examples of these structures:
Whether you start your own practice, buy into a partnership or buy out an existing owner, you may need help with financing the start-up costs or purchase price of your practice. For the most part, the health-care industry is considered a lower risk industry for many banks. As a result, banks have generally offered very good terms and pricing on financing based upon the assessment of the business plan and an evaluation of the transaction you are contemplating. Speak with us for more information about financing options for practice acquisition and advice on practice financial management.
Peak Earning Years
In your peak earning years, your priorities will most likely include minimizing taxes, mitigating risks and accumulating wealth.
Introducing Family Members to the Corporation as Shareholders
Depending on the corporate structure permitted in your jurisdiction by the appropriate regulatory body, family members may be able to become direct shareholders or indirect shareholders of a PC though the use of a holding corporation or a trust. Shares of the PC must be acquired at their fair market value, otherwise various provisions of the Act may apply resulting in undesired tax consequences.
Existing Professional Corporation
If the fair market value of the shares of the PC is not a nominal amount, family members who wish to become shareholders of the PC may not have sufficient capital available to acquire an interest in the corporation. It is common to implement an estate freeze to overcome this issue. An estate freeze can be implemented in various ways.
Implementing an Individual Pension Plan (IPP)
An IPP is a defined benefit pension plan that a PC can set up for a professional. It is usually set up for a one individual member but the benefits can be extended to your spouse, if he or she is employed by the PC. In certain situations, an IPP can provide greater annual contribution limits than an RRSP.
Corporate Owned Life Insurance
If you need life insurance, for example to provide income protection for survivors, fund buy-sell agreement or pay capital gains tax on death a corporate-owned tax exempt insurance policy may be the solution. Life insurance premiums are generally not tax-deductible. However it is usually less expensive to fund the policy using after-tax corporate dollars as opposed to after - tax personal dollars.
You have spent considerable time building up your practice and have developed a loyal and profitable patient base. As you approach your retirement years, have you decided what to do with your existing practice?
Selling the Practice
Asset Sale vs. Share Sale
Whether the sale of the practice is structured as an asset sale or share sale will depend on the negotiations between the parties and terms of the contract. For the vendor, the asset sale versus share sae decision will depend on a number of factor including the ultimate after-tax cash amount to be received personally. On a share sale, the after-tax cash to the vendor is equivalent to the net cash retained personally by the vendor, after he or she has paid tax on any capital gains. The vendor's decision will also depend on whether he or she is able to claim the lifetime capital gains exemption (LCGE) to offset all or a portion of the gain on the sale of his or her shares.
For more information on the LCGE and criteria to qualify for the exemption, please speak with us for the Article entitled" Capital Gains Exemption on Private Shares".
Preparing a retirement projection or comprehensive financial plan
The million-dollar question that everyone asks is, "Will I have enough income and saving when I retire so I can live comfortably?" As life expectancies get longer, maintaining a comfortable standard of living throughout your retirement may become more challenging. Give yourself peace of mind and speak to your RBC advisor about preparing a retirement projection for you so you can gain a clearer picture of where you stand today and what changes, if any need to be made in order to reach your retirement goal.