Introduction
Most dental practices employ dental hygienists as core clinical staff. For a dental professional corporation in Ontario, employing hygienists creates a set of payroll, HST, and compliance obligations that are specific to the employer-employee relationship and the HST-exempt nature of most dental services.
This article is for incorporated dentists who employ — or are considering employing — hygienists, and want to understand the tax mechanics correctly.
Employment vs. Independent Contractor: The Hygienist Classification
The first question for any dental practice engaging a hygienist is classification: is the hygienist an employee or an independent contractor?
The CRA applies its standard multi-factor test. A hygienist who works set hours at the practice, uses the practice's equipment and supplies, follows the practice's protocols, and has no independent client base is almost certainly an employee. Most hygienists in traditional dental practice settings are employees.
A hygienist who works at multiple practices, provides their own instruments, sets their own schedule, and invoices each practice for services rendered may be an independent contractor. This arrangement is less common but not unusual in certain markets.
Misclassifying an employee as an independent contractor creates retroactive payroll liability — the dental corporation becomes responsible for unremitted source deductions plus interest and penalties. The classification should reflect the actual nature of the relationship.
Payroll Obligations for Employed Hygienists
When a dental corporation employs a hygienist, it must:
Open a payroll account with the CRA (123456789 RP 0001) before the first pay run.
Withhold and remit income tax, Canada Pension Plan (CPP) contributions (employee and employer portions), and Employment Insurance (EI) premiums (employee and employer portions) from each pay cycle, on the schedule appropriate to the practice's remittance frequency.
Issue T4 slips by the last day of February of the following year, reflecting total employment income, income tax withheld, CPP, and EI for the year.
Source deductions that are late attract significant penalties — from 3% for one to three days late up to 10% for more than seven days late. Directors of the corporation can be personally liable for unremitted amounts.
HST and the Hygienist Salary
The salary paid to an employed hygienist is a deductible payroll expense of the dental corporation — reducing net corporate income and therefore corporate tax.
Importantly, the salary itself is not subject to HST. Employment income is outside the HST system. This is a simple point but worth confirming for practices where the relationship between clinical services and HST has created some conceptual confusion.
For the dental corporation's overall HST position, hygienist salaries are an expense that does not generate an input tax credit (since they are not an HST-bearing cost — no HST is charged on wages). The ITC position of the practice is governed by its taxable vs. exempt supply mix, as discussed in Rotaru CPA's dental HST article.
The Hygienist's Own Tax Position
A hygienist who is an employee of the dental corporation receives a T4, deducts only the limited range of employment expenses permitted under section 8 of the Income Tax Act, and files a T1 personal return. They cannot deduct home office expenses unless the employer requires home-based work and provides a T2200.
A hygienist who is a genuine independent contractor — or who operates through their own corporation — has a different tax position. Self-employed income is reported on T2125, and a broader range of business expenses is deductible. If the hygienist's annual taxable supplies exceed $30,000, they must register for HST and charge HST on services to the dental corporation. The corporation would then receive an invoice with HST, potentially eligible for an ITC to the extent the services relate to taxable activities of the practice.
What Changes at $30,000 in Contractor Payments
Where a dental corporation pays an independent hygienist (or any service provider) more than $500 in a calendar year, it must issue a T4A. This is the reporting obligation for contractor payments, separate from payroll. The CRA uses T4A information to cross-reference contractor income reporting.
When to Speak With a CPA
Dental practices that are growing their clinical team — adding hygienists, associates, or administrative staff — benefit from confirming the classification and payroll setup with a CPA before the first payroll runs. Retroactive payroll corrections are possible but more costly than getting the setup right initially.