If you are a practicing dentist in Canada, it is important to know the different types of taxes in the country related to dental services. If you are unsure about how to structure your tax payments, it is better to use to services of a Dental Accountant. By structuring the tax payments, you can be stress-free and continue to be part of the frontline workers fighting the pandemic. Read more here about how dental students plan to be part of the pandemic vaccination drive.
Different Types Of Tax
Here are the different types of tax levied for dental practices in Canada
Locum And Principal
This type of tax can be termed a short-term arrangement that you can cover for the absence of the principal dentist. The reason for the absence of the principal dentist could be a vacation, illness, or any other, and it requires you to step in and treat his patients in his absence. Normally, the principal dentist’s office invoices the patients for the service provided by you. You will get a certain percentage of the invoice bill as compensation for your services.
It is completely fair for you to pay for some common expenses as you work from the principal dentist’s office. However, ensure that the expenses are not deducted directly from your pay as if it is, then HST will be applied.
This tax structure is somewhat similar to the first tax type- Locum and principal agreement. However, this tax type is for a longer period. You will be the principal dentist’s associate in this tax structure. In this, the principal dentist’s issue invoices for your services and ensure that you get a percentage of those bills. If you do not want to trigger HST, ensure that the common expenses are not deducted directly from your salary.
The last tax type for dental practices is called a Cost-sharing agreement/arrangement. In Canada, this is the tax structure commonly used for dental practices.
In a cost-sharing arrangement, one or more dentists will practice independently from a shared office. Everyone who is part of this agreement should share the common expenses.
Features Of Cost-Sharing Agreement
The main features of a cost-sharing agreement are-
- The principal dentist will pay common expenses such as rent, payroll, administration, utilities, equipment lease, furniture, and fixtures. The other dentists will reimburse their share of the common expenses.
- For maintaining common expenses, a common bank account will be maintained where each dentist should deposit a fixed amount periodically to ensure that enough money is available to pay expenses.
- In the cost-sharing agreement, it will be mentioned that each dentist will be responsible for certain shared expenses.
The main advantage of this tax type is that each dentist can do their dental practice independently and reduce overhead costs.
If the cost-sharing agreement is structured correctly, then HST will not be applied in the payments between the dentists.
Knowing these taxes can help you structure your dental practice and, at the same time, makes you stress-free.