Introduction
An associate dentist working in a practice — whether as an employee or a self-employed contractor — has a relatively simple tax situation: income arrives through a T4 or T4A, professional expenses are deductible, and incorporation may or may not be relevant depending on income level.
The moment that same dentist acquires a practice — becoming an owner-operator — the tax situation changes in almost every dimension simultaneously.
The Associate Dentist's Tax Position
An associate dentist earning $200,000 through a clinical employment arrangement receives a T4. Personal tax at Ontario marginal rates on $200,000 is approximately $68,000. CPP is shared with the employer. The associate can deduct professional dues, licence fees, and some continuing education.
An associate working on a contract (self-employed, 1099/T4A equivalent) earning $200,000 pays self-employment CPP (both portions, approximately $7,735) and reports net income on T2125. The range of deductible business expenses is wider — home office, vehicle, professional development — and incorporation becomes relevant above $150,000 of net income.
The Practice Owner's Tax Position
The day the associate becomes the practice owner through acquisition, the tax situation includes:
A corporation: The practice is almost always acquired and operated through a dental professional corporation. The DPC pays corporate tax at the small business rate on net income.
Staff payroll: The owner is now the employer — source deductions for all staff must be remitted bi-weekly or monthly. The employer's share of CPP and EI is a corporate obligation.
HST: The practice generates both exempt supplies (clinical services) and taxable supplies (non-insured services) requiring HST registration and accurate segregation.
Overhead management: Lab fees, dental supplies, lease costs, equipment — all now flow through the corporate P&L. The owner's personal income is drawn as salary and/or dividends from the corporation.
CCA on acquired assets: Equipment and goodwill acquired in the purchase generate CCA deductions over future years (or immediate expensing in the year of acquisition).
The acquisition debt: Financing the practice purchase creates interest expense — deductible to the corporation as the interest is on a business loan.
What Gets Better
The most significant improvement at ownership: the tax deferral on retained earnings. An associate paying 43%+ personal tax on every dollar over $100,000 immediately faces a different calculation as an owner — corporate income at 12.2%, with personal tax deferred on what stays in the corporation.
At $300,000 of net practice income, the owner who draws $130,000 in salary and retains $170,000 corporately pays approximately $39,000 less in combined tax than the associate who received the same $300,000 as personal income.
What Gets More Complex
The number of compliance obligations multiplies. The associate filed a T4 and maybe a T2125. The owner files a T2, manages payroll remittances, files quarterly HST returns, maintains a minute book, tracks the shareholder loan account, manages the CCA schedule, and makes annual compensation decisions.
The complexity is manageable — but it requires the right CPA and bookkeeper in place before the first day of ownership.
When to Speak With a CPA
Before the acquisition closes. The CPA should be involved in the purchase price allocation (affecting future CCA deductions), the initial compensation structure decision, the HST registration, and the payroll setup. Getting these right from day one is far more efficient than correcting them in year two.