Navigating the Canadian tax landscape can be complex for dental professionals. This comprehensive guide aims to elucidate the tax obligations, deductions, and strategic considerations pertinent to dentists in Canada.
Income Tax Obligations
One of the most fundamental aspects of financial literacy for Canadian dentists is understanding how income tax obligations work—especially since your tax liability can vary significantly depending on how your dental career is structured. Whether you are an employee, an associate working as an independent contractor, or the owner of a professional corporation, your income will be taxed differently. Misunderstanding these rules can lead to missed tax-saving opportunities or worse—penalties from the Canada Revenue Agency (CRA).
Federal and Provincial Tax Systems
Canada’s tax system is progressive and two tiered, meaning that individuals pay income tax to both the federal government and the province or territory in which they reside. Each level of government has its own tax brackets and rates, and as income rises, so does the rate at which it is taxed.
For example, as of the 2024 tax year, federal tax rates are as follows:
15% on the first $53,359 of taxable income
20.5% on the next $53,359 (from $53,359 to $106,717)
26% on the next $58,725 (from $106,717 to $165,442)
29% on the next $64,482 (from $165,442 to $229,925)
33% on income over $229,925
In addition to these federal rates, provincial taxes apply based on your province of residence. For example, Ontario dentists face different marginal tax rates compared to those practicing in British Columbia or Alberta. Understanding both federal and provincial brackets is essential for accurate tax planning and forecasting.
Income Types for Dentists
Dentists in Canada typically earn income through one of the following avenues:
Salary (as an employee): If you are employed by a dental clinic or institution, your taxes are usually deducted at source (i.e., before you receive your paycheque). You will receive a T4 slip at year-end, which outlines your income and taxes paid.
Self-Employment Income (as an associate): Many associates are considered independent contractors and must track their own income and expenses. Instead of receiving a T4, they file using a T2125 (Statement of Business or Professional Activities) as part of their personal tax return.
Corporate Income (if incorporated): If your practice is incorporated, the corporation earns the income, and you as a dentist may receive compensation through a salary, dividends, or both. This opens the door for more complex (but potentially more tax-efficient) planning strategies, including income splitting, deferral, and leveraging small business deductions.
Tax Filing Deadlines and Installments
The tax filing deadlines vary depending on your employment type:
Employees: The personal tax deadline is April 30 of the following year. If taxes are owing, they must be paid by this date.
Self-Employed Individuals: If you’re self-employed, your filing deadline is June 15, but any taxes owed are still due by April 30.
Corporations: Corporate returns (T2) are due six months after the fiscal year-end, but any corporate taxes owing must be paid within two or three months, depending on your corporation’s classification.
In addition, self-employed dentists and corporations may be required to pay quarterly tax installments if taxes owing exceed $3,000 in the current year or any of the two previous years. Failing to make these installments can result in interest and penalties.
Marginal vs. Effective Tax Rates
Understanding the difference between marginal and effective tax rates is crucial:
Marginal Tax Rate: The rate you pay on the next dollar of income earned. As a dentist earning a six-figure income, your marginal rate could be 45% or higher depending on your province.
Effective Tax Rate: The average rate you actually pay on your total income. For example, if you earn $200,000 but only pay $60,000 in taxes, your effective tax rate is 30%.
Tax planning strategies aim to reduce your effective tax rate through deductions, deferrals, and structuring.
Common Income Sources Dentists Should Track
While the majority of a dentist’s income may come from their clinical services, there are often additional sources that must be reported, including:
Rental income (e.g., if you own part of the clinic property)
Investment income (interest, dividends, capital gains)
Sale of practice assets (subject to capital gains rules)
Dividends from a professional corporation
Government grants or subsidies (such as CEWS during COVID-19)
Each income type is taxed differently and may come with specific reporting requirements, so it’s critical to maintain thorough records and consult a tax professional when needed.
The Importance of Tax Planning
Being proactive about tax planning throughout the year—not just at tax time—can help minimize your liabilities and improve your long-term financial health. Strategies might include:
Contributing to an RRSP to defer taxes
Paying reasonable salaries to family members who work in your practice
Timing large equipment purchases for maximum deductions
Choosing a fiscal year-end for your corporation that spreads income evenly
These actions, when coordinated with professional advice, can dramatically improve your financial outcomes.
Deductible Business Expenses
One of the most effective ways for dentists to reduce taxable income is by properly identifying and claiming legitimate business expenses. The Canada Revenue Agency (CRA) allows business owners, including self-employed dentists and those operating through professional corporations, to deduct reasonable expenses incurred to earn business income. These deductions lower your net income, which in turn reduces your tax liability.
However, it’s important to distinguish between personal and business expenses, as the CRA requires that deductions be both reasonable and necessary for the operation of the business. In the dental industry, there are a variety of common expenses that meet these criteria. Let’s take a closer look at them.
Staff Salaries and Benefits
Wages and salaries paid to your employees are among the most significant expenses for most dental practices. This includes:
Receptionists
Dental hygienists
Dental assistants
Office managers
Administrative support
In addition to base salaries, you can deduct:
Bonuses
Vacation pay
Statutory holiday pay
Employer-paid contributions to the Canada Pension Plan (CPP), Employment Insurance (EI), and workers’ compensation
Group health benefits and insurance premiums for staff
Tip: Be sure to maintain detailed payroll records and issue accurate T4 slips to employees at year-end.
Office Rent and Facility Expenses
If you rent space for your dental practice, the rent is fully deductible. Other facility-related costs include:
Property taxes (if you own the building)
Utilities (electricity, water, gas)
Cleaning and janitorial services
Security systems
Building maintenance and minor repairs
If you operate from a home-based office (for part-time or administrative tasks), a portion of your home expenses may be deductible, based on square footage used exclusively for the practice.
Dental Supplies and Equipment
This category includes:
Dental tools and instruments (e.g., scalers, drills)
Consumable supplies (e.g., gloves, masks, gauze, filling materials)
Sterilization products
Intraoral cameras and other diagnostic tools
While supplies are generally expensed in the year they are purchased, capital assets such as chairs, x-ray machines, and computer systems must be capitalized and claimed through Capital Cost Allowance (CCA) over time. CCA is Canada’s version of depreciation.
Tip: Different assets have different CCA classes and rates, so proper classification is crucial to maximize deductions.
Professional Development and Continuing Education
Dentistry is a rapidly evolving field that requires ongoing education. You can deduct:
Course fees and registration for seminars
Travel costs associated with attending dental conferences
Professional journals and subscriptions
Online training programs
Certification renewals or advanced credential programs
These expenses are considered essential for maintaining professional standards and competency.
Professional Fees and Licenses
This category includes:
Membership dues to provincial dental associations (e.g., RCDSO, CDHO)
Fees for continuing education required by licensing bodies
Costs to maintain licenses and certifications
Subscriptions to dental organizations or academies
Note: Dues for professional associations that are directly related to earning income are deductible, but social or recreational memberships (like golf clubs) typically are not.
Insurance Premiums
Several types of insurance are deductible if they relate to the business or practice operations:
Malpractice/professional liability insurance
Commercial general liability insurance
Property insurance for equipment and office contents
Business interruption insurance
Cybersecurity insurance
Personal life or disability insurance is generally not deductible unless part of an employee benefit program.
Marketing and Advertising
Running a successful practice often involves promoting your services. Deductible marketing expenses include:
Website development and maintenance
Online advertising (Google Ads, Facebook ads)
Printed materials (brochures, flyers, signage)
Local newspaper or magazine ads
Community sponsorships or local events
Keep copies of all promotional materials and receipts as documentation.
Vehicle and Travel Expenses
If you use a personal vehicle for business purposes—such as driving between multiple practice locations or attending conferences—you may claim:
Fuel
Maintenance and repairs
Lease payments or depreciation
Insurance
Parking
Tolls
To claim these expenses, you must maintain a vehicle logbook that tracks the number of kilometers driven for business versus personal use. Only the business portion is deductible.
Travel Expenses: When travel is required for professional development or meetings with suppliers, these may be deductible too, including:
Airfare or train tickets
Hotel accommodations
Meals (50% limitation applies)
Taxi or car rentals
Technology and Software
Dental practices rely heavily on technology to operate efficiently. Deductible expenses include:
Scheduling tools
Cloud storage subscriptions
Accounting software (e.g., QuickBooks, Wave)
Antivirus and cybersecurity software
IT support services
Capital expenses (e.g., purchasing computers or servers) may be eligible for accelerated write-offs under Canada’s Enhanced CCA rules.
Office and Administrative Expenses
Everyday office expenses are often overlooked but can add up over time. These include:
Stationery and paper supplies
Printing and photocopying
Bank service fees
Postage and courier services
Office furniture (some items may be capital assets)
Bad Debts
If you’ve invoiced patients and made reasonable efforts to collect payment but were unsuccessful, these unpaid receivables may be written off as bad debts. This applies only if the income was previously reported.
Keep all related documentation (collection efforts, patient communication, etc.) in case of CRA review.
Miscellaneous Allowable Expenses
Other legitimate business expenses may include:
Legal and accounting fees
Business consulting services
Bank loan interest (on business loans only)
Meals and entertainment (if directly related to earning income)
Cell phone or landline costs (business portion)
What’s NOT Deductible
To avoid issues with the CRA, it’s essential to not claim the following as business expenses unless specifically allowed:
Personal clothing (even if worn at the clinic)
Personal grooming (e.g., haircuts, cosmetics)
Life insurance premiums (unless part of a group plan)
Club dues or social memberships
Personal travel or vacations
Misclassifying personal expenses as business costs can lead to audits, penalties, and interest.
Recordkeeping Tips
To support your business deductions:
Keep detailed and organized records of all expenses (paper or digital).
Use separate business and personal accounts to simplify bookkeeping.
Store all receipts, invoices, contracts, and bank statements for at least six years, as required by the CRA.
Consider using bookkeeping software or hiring a bookkeeper for efficiency and accuracy.
Medical Expense Tax Credit (METC)
The Medical Expense Tax Credit (METC) is a non-refundable tax credit provided by the Canada Revenue Agency (CRA) to help Canadians offset the high costs of eligible medical expenses. While it’s not exclusive to dentists, understanding the METC is important for dental professionals both in their capacity as taxpayers and as service providers whose treatments may qualify.
As a dentist, this credit can be claimed for your own and your family’s eligible medical expenses, including dental care. In addition, it’s important to know how your services impact your patients’ ability to claim this credit, which may influence how you provide receipts, explain treatment plans, or communicate costs.
What Is the METC?
The METC allows individuals to claim a portion of out-of-pocket medical expenses not covered by insurance. It’s designed to reduce the tax burden for those who incur substantial medical costs relative to their income.
It is a non-refundable credit, meaning it reduces the amount of tax owed but will not generate a refund if no taxes are owed.
You can claim the total eligible medical expenses that exceed the lesser of:
3% of your net income, or
A fixed amount set annually by CRA (e.g., $2,635 for 2023; indexed annually).
Example:
If your net income is $100,000, you can claim medical expenses that exceed $3,000 (3%). So, if you had $7,000 in eligible expenses, you could claim $4,000 as part of the METC.
Eligible Dental Expenses for the METC
Many dental treatments qualify for the METC, especially those that are considered medically necessary. Eligible expenses typically include:
Routine dental examinations
Teeth cleaning
Fillings and extractions
Crowns and bridges
Dentures (complete and partial)
Dental surgery
Root canals
Orthodontic work (e.g., braces and retainers)
Periodontal treatments
These services must be performed by a licensed dentist or dental hygienist. You can also include associated costs such as:
Laboratory fees (e.g., for creating crowns or dentures)
X-rays taken as part of treatment
Anesthesiologist fees, if applicable
Travel expenses (under specific conditions—see below)
Important Note: Cosmetic procedures do not qualify unless they are medically necessary. For example, teeth whitening, purely aesthetic veneers, or elective cosmetic dentistry is not eligible.
Ineligible Dental Expenses
To help patients (and yourself) avoid issues with CRA audits or disallowed claims, here’s what does not qualify for the METC:
Cosmetic dentistry not medically necessary
Over-the-counter dental products (e.g., toothbrushes, toothpaste, floss)
Teeth whitening services
Missed appointment fees or administrative charges
Interest or finance charges on dental bills
Services not performed by a licensed practitioner
If a dentist offers bundled services that include both eligible and ineligible treatments (e.g., braces with cosmetic extras), it’s helpful to itemize the invoice so patients can claim only what qualifies.
Who Can You Claim Expenses For?
As a taxpayer, you can claim the METC for yourself and your eligible dependents, including:
Your spouse or common-law partner
Children under 18 years of age
Other dependents (such as elderly parents) if they are financially dependent on you
If both spouses have significant expenses, it’s usually most beneficial for the lower-income spouse to claim the METC, since the 3% net income threshold will be lower, resulting in a higher claim.
Combining Family Expenses
CRA allows you to combine eligible medical expenses for all family members in a 12-month period ending in the tax year for which you’re filing. This allows for strategic timing of large expenses like braces, implants, or surgeries.
Example:
If your child gets braces in January and your spouse undergoes dental surgery in December, you can pool both expenses under one claim, provided they fall within a 12-month period ending in the relevant tax year.
You don’t have to use the calendar year—this allows you to maximize your claim by timing treatments effectively.
Supporting Documentation
To claim the METC, keep and provide the following:
Detailed invoices or receipts with breakdowns of services
Names and license numbers of the dental professionals involved
Proof of payment (cancelled cheques, credit card receipts)
Insurance statements, showing how much was covered or reimbursed
CRA may request copies of receipts or explanations if they audit your return, so having organized documentation is essential.
Travel and Accommodation
If you had to travel more than 40 kilometers (one way) to obtain necessary dental care (e.g., from a rural area to a city), you may be able to claim:
Transportation costs (vehicle mileage, parking, bus/train fare)
Meals and accommodations (if you travel more than 80 kilometers and need to stay overnight)
These claims require documentation and clear justification, including:
A written statement from your dentist indicating that the services weren’t available locally
Detailed travel records (dates, purpose, location)
Receipts for meals and lodging
Coordination With Health & Dental Insurance
If part of your expenses were reimbursed by a private health or dental insurance plan, you can only claim the unreimbursed portion.
For example:
Total dental expense: $3,000
Insurance reimbursement: $2,000
Eligible for METC: $1,000 only
Additionally, any premiums paid for health and dental insurance plans (if not paid by an employer) are themselves considered an eligible expense under METC.
How This Affects Your Patients
As a dentist, you’re not only a potential claimant but also a key figure in enabling patients to claim this credit. Here’s how you can help:
Provide clear, itemized invoices that separate eligible and ineligible services.
Include practitioner license numbers on invoices or official receipts.
Educate your administrative staff on the basics of METC so they can answer questions.
Offer patients end-of-year summaries or reports upon request.
This level of support improves patient trust and satisfaction—and can subtly reinforce the value of your services.
METC vs. Refundable Medical Expense Supplement
For lower-income dental associates or employees, the Refundable Medical Expense Supplement may apply. It’s a refundable credit for individuals with low earnings and high medical expenses, worth up to a few hundred dollars. While not common among practicing dentists, it may apply to dependents or part-time staff.
Goods and Services Tax/Harmonized Sales Tax (GST/HST)
One of the more nuanced aspects of taxation for dentists in Canada involves the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST). Many dental services are exempt from GST/HST, but there are important exceptions—and failing to understand when to charge, collect, and remit these taxes can result in lost revenue, penalties, or costly compliance errors.
This section outlines when dentists are exempt, when GST/HST applies, how registration works, and how dentists can potentially recover tax paid on business inputs.
What is GST/HST?
GST (Goods and Services Tax) is a federal value-added tax of 5% applied to most goods and services in Canada.
HST (Harmonized Sales Tax) combines the 5% GST with the provincial sales tax (PST) in certain provinces (e.g., Ontario, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island). Rates vary by province but can be as high as 15%.
Note: The rest of the provinces use GST + PST (e.g., British Columbia, Saskatchewan, Manitoba), and Alberta only charges GST.
GST/HST and Dental Services: The Exemption Rule
Most dental services provided by licensed dentists are considered exempt supplies under the Excise Tax Act. This means:
You do not charge GST/HST on the service
You do not collect GST/HST from your patients
You cannot claim Input Tax Credits (ITCs) for GST/HST paid on expenses related to exempt services
This exemption applies when the dental services are:
Provided for medical or reconstructive purposes
Intended to maintain or restore health
Prescribed by a health care professional as necessary
Examples of Exempt Dental Services:
Routine cleanings and checkups
Fillings, extractions, and root canals
Crowns and bridges
Dentures and implants (if medically necessary)
Periodontal treatment
Orthodontics, if medically required
In essence: If the service is performed to diagnose, treat, or prevent a disease or disorder of the mouth, it is generally exempt from GST/HST.
When GST/HST Applies to Dental Services
Not all dental services are exempt. If the service is cosmetic in nature and not medically necessary, it is considered a taxable supply, and GST or HST must be charged.
Examples of Taxable Dental Services:
Teeth whitening
Cosmetic veneers or bonding purely for appearance
Smile makeovers that are elective
Mouthguards for non-medical sports use (in some cases)
Products sold over the counter (e.g., whitening kits, electric toothbrushes)
Key Criteria:
The CRA uses a “primary purpose” test: if the main goal of the service is cosmetic or aesthetic enhancement, it becomes a taxable supply.
This means:
You must register for GST/HST if your total taxable revenues (including cosmetic services and other taxable supplies) exceed $30,000 in four consecutive calendar quarters.
You must charge, collect, and remit GST/HST on those taxable services.
You can then claim Input Tax Credits (ITCs) for the GST/HST paid on inputs related to taxable services only (see below).
GST/HST Registration
If your dental practice only provides exempt services, you are not required to register for a GST/HST number.
However, if you:
Earn $30,000 or more annually from taxable supplies (e.g., cosmetic procedures, product sales),
Or plan to expand into these areas, then you must register and comply with all filing and remittance obligations.
You may also choose to register voluntarily, even if below the threshold, to gain access to Input Tax Credits on taxable inputs.
Input Tax Credits (ITCs)
If you’re registered for GST/HST, you can claim Input Tax Credits (ITCs) to recover the GST/HST paid on purchases and expenses that relate directly to your taxable services.
This includes:
Supplies and materials used in taxable services
Advertising and marketing related to cosmetic procedures
Equipment used exclusively for taxable services
Software or services connected to taxable products
However, you cannot claim ITCs on expenses related solely to exempt services, such as general cleanings or fillings.
If your practice offers both exempt and taxable services, you may need to prorate the ITCs based on the percentage of your business devoted to taxable versus exempt services.
Sales of Goods in the Dental Office
GST/HST applies to most products sold in your practice, such as:
Toothbrushes and floss
Whitening kits
Water flossers
Retainer cleaners
Sports mouthguards (non-medical)
These are considered taxable goods, and dentists must charge, collect, and remit GST/HST if they exceed the $30,000 revenue threshold for taxable sales.
Cosmetic Dentistry and CRA Scrutiny
Due to the subjective nature of what constitutes “medically necessary” versus “cosmetic,” the CRA has audited dental practices that provide cosmetic services. To stay compliant:
Keep clear records and documentation for all procedures.
Ensure treatment plans and invoices differentiate between medical and cosmetic services.
Clearly itemize charges on patient invoices to reflect taxable vs. exempt services.
If a service is medically necessary but has cosmetic benefits (e.g., orthodontics to correct jaw alignment), document this with notes from the patient file.
Filing and Remittance Responsibilities
If you’re registered for GST/HST, you’ll need to:
File returns (monthly, quarterly, or annually depending on your total revenues)
Collect and remit the appropriate tax
Maintain detailed records of both your taxable and exempt supplies
Late filings or incorrect remittances can result in interest and penalties.
Should You Voluntarily Register?
Some dentists choose to register voluntarily for GST/HST even if they don’t meet the $30,000 threshold. This may be beneficial if:
You are investing heavily in marketing or products that include taxable expenses
You plan to expand into cosmetic dentistry
You want to recover GST/HST on business expenses for taxable goods or services
However, voluntary registration comes with administrative burdens, so consult a tax advisor first.
Practical Steps for Dentists
To manage GST/HST efficiently:
Evaluate all services offered and determine which are exempt vs. taxable
Keep separate records for income from taxable and exempt sources
Ensure invoices clearly state whether GST/HST was applied
Use accounting software that tracks ITCs and GST/HST liabilities
File returns on time to avoid interest and penalties
Incorporation: Pros and Cons
One of the most important tax and financial planning decisions a dentist in Canada can make is whether to incorporate their practice. While incorporation offers potential tax advantages and legal protections, it also comes with administrative burdens and costs. Understanding the true pros and cons—and how they apply specifically to dental professionals—is essential to making an informed decision.
What Does It Mean to Incorporate?
Incorporation involves creating a separate legal entity, typically a professional corporation (PC), that carries on the business of dentistry. Unlike a sole proprietorship or partnership, a corporation exists independently of its owner(s) and has its own rights, responsibilities, and tax obligations.
In Canada, dental professionals must incorporate under the rules set out by their provincial dental regulatory body, which means you can only incorporate if:
You hold a valid dental license in your province
You are authorized by your provincial college (e.g., RCDSO in Ontario) to practice through a corporation
The corporation is structured to comply with professional corporation legislation (e.g., directors must be licensed dentists)
Once incorporated, your practice’s income is earned by the corporation, not you personally.
The Advantages of Incorporating a Dental Practice
1. Lower Corporate Tax Rates
Incorporated dentists can benefit from significantly lower tax rates on income retained within the corporation.
The small business deduction (SBD) allows the first $500,000 of active business income to be taxed at a reduced rate (e.g., around 12%–13% depending on the province).
In contrast, personal income over $200,000 can be taxed at rates exceeding 50%.
Example:
If your practice earns $300,000 and you only need $100,000 for personal use, you can leave the remaining $200,000 in the corporation and defer paying high personal taxes on it.
2. Income Splitting (With Limitations)
While income splitting has been curtailed due to the Tax on Split Income (TOSI) rules, it’s still possible in certain circumstances.
Dividends may be paid to adult family members who work in the business on a regular, consistent, and meaningful basis.
If your spouse or children are shareholders and contribute to the business, this may provide some tax relief by distributing income to family members in lower tax brackets.
Note: A tax advisor should carefully evaluate eligibility under the TOSI rules.
3. Tax Deferral and Wealth Accumulation
By retaining earnings in the corporation at lower tax rates, dentists can accumulate wealth within the corporation and reinvest it.
This creates a tax deferral, allowing money to grow faster due to lower immediate tax rates.
The retained earnings can later be used for expansion, investments, retirement, or other strategic purposes.
4. Lifetime Capital Gains Exemption (LCGE)
If you eventually sell your dental practice, incorporation may allow you to claim the Lifetime Capital Gains Exemption, which in 2024 is $1,016,836 (indexed annually).
This exemption applies to the sale of qualifying shares in a Canadian-Controlled Private Corporation (CCPC), such as a dental professional corporation.
To qualify, the corporation must meet certain active business asset tests at the time of sale and for the 24 months prior.
Proper planning is needed to ensure eligibility, including cleaning out passive assets like excessive investments or cash.
5. Limited Liability Protection
Incorporation may offer limited liability protection for non-clinical liabilities, such as:
Lease agreements
Employment contracts
Trade debt
However, professional liability is not protected by incorporation. Dentists must still carry malpractice insurance.
6. Retirement Planning Options
Dentists with a corporation can establish an Individual Pension Plan (IPP) or use a Retirement Compensation Arrangement (RCA) for enhanced retirement savings beyond RRSP limits. These structures can offer:
Higher contribution limits for older dentists
Additional creditor protection
Corporate deductions
The Disadvantages and Considerations of Incorporation
1. Increased Administrative Burden
Running a corporation means more paperwork and regulatory compliance, including:
Annual corporate tax filings (T2 returns)
Monthly or quarterly payroll remittances
Annual minutes and resolutions
Corporate record-keeping and maintenance
Potential provincial filings and licensing renewals
This often necessitates hiring an accountant and/or lawyer, which increases your annual costs.
2. Incorporation and Legal Costs
Setting up a dental professional corporation requires:
Articles of incorporation
CRA business number and GST/HST registration (if applicable)
Shareholder agreements
Professional licensing approval
Legal review
Initial incorporation can cost $2,000 to $5,000 or more, depending on complexity, plus ongoing legal and accounting fees.
3. Complexity in Accessing Funds
Money earned by the corporation belongs to the corporation, not to you personally. To access it, you must:
Pay yourself a salary (which creates payroll and CPP obligations), or
Pay yourself dividends (which can affect RRSP contribution room and mortgage qualification)
Improper withdrawals may be taxed as shareholder benefits, which can result in penalties.
4. TOSI Rules Limit Income Splitting
Income splitting with family members was previously a major advantage of incorporation. However, the Tax on Split Income (TOSI) rules, introduced in 2018, now severely restrict this unless:
The family member is actively involved in the business
The individual is over age 24 and owns at least 10% of the votes and value of the corporation in a service-based business not considered “specified” (most dental practices are “specified businesses”)
TOSI can result in income being taxed at the highest marginal rate, eliminating tax savings.
5. Winding Up the Corporation
If you retire, sell your practice, or move out of Canada, closing or restructuring your corporation can be complex and potentially costly. Planning ahead is crucial to minimize tax consequences.
Who Should Incorporate?
Incorporation makes the most sense for dentists who:
Earn more than they spend personally (and can leave money in the corporation)
Plan to retain earnings for growth, investment, or retirement
Intend to sell their practice in the future and want to use the LCGE
Employ family members in meaningful roles in the business
Want to build retirement wealth using corporate pension tools (IPP or RCA)
Have significant business or investment income that can benefit from tax deferral
It may not be worthwhile for dentists who:
Are new graduates with high debt and low earnings
Need all of their income for personal expenses
Work solely as employees or on contract without business income
Have little interest in administrative complexity
5.5 Steps to Incorporate as a Dentist
- Confirm eligibility with your provincial dental regulatory authority.
- Hire a lawyer to draft the incorporation documents, professional share structure, and initial resolutions.
- Register with CRA for a business number, corporate income tax, GST/HST (if applicable), and payroll.
- Open a business bank account and ensure all practice income and expenses flow through the corporation.
- Work with an accountant familiar with dental corporations to manage ongoing tax filings and optimize your compensation structure.
Retirement Planning and Savings
While dentistry can be a rewarding and lucrative profession, it also comes with unique retirement planning challenges. Unlike salaried employees who may have employer-sponsored pensions, self-employed dentists and dental practice owners must take full responsibility for funding their own retirement. With no guaranteed pension, it’s essential to proactively plan, save, and invest to maintain your lifestyle in retirement.
This section explores the retirement savings vehicles available to Canadian dentists—whether you’re operating as a sole proprietor, associate, or through a professional corporation. We’ll also look at how retirement planning ties into tax planning, succession, and wealth preservation.
Why Retirement Planning is Critical for Dentists
Dentists typically earn above-average incomes, but they also face:
High educational debt at the start of their careers
High personal and professional expenses (equipment, staff, taxes)
A lack of government pension beyond CPP and OAS
The need to fund their own retirement from private savings
Without a structured retirement plan, dentists risk outliving their savings or having to sell their practice under unfavorable conditions. A well-designed plan considers savings, investment strategies, risk tolerance, incorporation, and eventual practice succession or sale.
Registered Retirement Savings Plan (RRSP)
The RRSP is one of the most popular retirement savings vehicles for Canadian professionals, including dentists.
Key Benefits:
Tax-deductible contributions reduce your taxable income.
Investment growth is tax-deferred until withdrawal.
Ideal for high-income years when contributions can significantly lower your tax bill.
2024 RRSP Contribution Limits:
The annual limit is 18% of your earned income, up to a maximum of $31,560 (indexed annually).
Contribution room carries forward indefinitely, so unused room from early in your career can be used later.
Example:
If your net income is $150,000, you can contribute up to $27,000 into your RRSP for the year, reducing your taxable income and deferring taxes on investment gains.
RRSP Tips for Dentists:
Use RRSPs to smooth out taxable income over a lifetime.
Consider a spousal RRSP for income splitting in retirement.
Don’t over-contribute—excess contributions over $2,000 are penalized.
Tax-Free Savings Account (TFSA)
The TFSA complements the RRSP and is ideal for tax-free growth and flexible access.
Key Features:
Contributions are not tax-deductible, but investment income and withdrawals are tax-free.
You can hold a wide range of investments: stocks, bonds, ETFs, GICs, etc.
Contribution room carries forward if unused.
2024 TFSA Contribution Limit:
Annual limit: $7,000
Cumulative limit (since inception in 2009): $95,000 (for those eligible since 2009)
Advantages for Dentists:
Use TFSAs for shorter-term goals or emergency savings.
Withdrawals don’t affect government benefits.
Ideal for saving outside of a corporation.
Individual Pension Plan (IPP)
An IPP is a powerful retirement savings tool for incorporated dentists, particularly those over 40 earning $150,000+ annually.
What is an IPP?
An IPP is a defined benefit pension plan set up by your corporation for you as the employee. It offers:
Higher contribution limits than RRSPs (especially as you age)
Guaranteed retirement income based on salary and years of service
Corporate deductions for contributions
Protection from creditors
Ideal For:
Dentists with stable income
Those seeking predictable retirement income
Older dentists who want to maximize retirement savings quickly
Note: IPPs have administrative costs and actuarial requirements, so consult a specialist pension advisor before proceeding.
Retirement Compensation Arrangement (RCA)
An RCA is another retirement planning tool used primarily by high-earning dentists or practice owners.
Benefits:
Allows for larger contributions than an RRSP or IPP
Not subject to RRSP limits
Contributions are deductible to the corporation
Offers flexible retirement planning and estate options
However, 50% of contributions go into a Refundable Tax Account with CRA, making the structure complex. RCAs are suitable for very high-income dentists looking for tax deferral beyond IPP and RRSP limits.
Corporate Retirement Strategy
For dentists who are incorporated, retirement planning often includes retaining earnings in the corporation and investing them in a corporate investment portfolio.
Pros:
Tax-deferral on retained corporate income (12–15% vs. 50%+ personally)
Use of corporate class mutual funds or investment holding companies
Flexibility to fund retirement from dividends or capital distributions
Opportunity to smooth income over years to minimize taxes
Considerations:
Passive investment income over $50,000/year may reduce the small business deduction.
Consider the “grind” of the Small Business Deduction (SBD) on active income.
Seek advice to manage investment income efficiently in the corporate structure.
Sale of the Dental Practice as a Retirement Asset
For many dentists, the practice itself is a significant retirement asset. A well-run clinic with strong cash flow and loyal patients can be sold for 1–2x gross revenue, depending on location, overhead, and goodwill.
Retirement Sale Planning Tips:
Begin preparing 3–5 years in advance.
Maintain organized financial records and clean balance sheets.
Reduce reliance on the owner (i.e., transferable goodwill).
Consider succession planning with associates.
Use the Lifetime Capital Gains Exemption (LCGE) to shelter up to $1,016,836 in capital gains on the sale of shares in your corporation.
Important: The practice must qualify as a Qualified Small Business Corporation (QSBC) to claim the LCGE, which requires advance planning to “purify” the business (i.e., removing excess passive assets).
Government Pensions: CPP and OAS
As a self-employed dentist, you’re responsible for contributing to the Canada Pension Plan (CPP)—both the employer and employee portions.
In 2024, maximum CPP contributions are about $7,500/year.
At retirement, maximum monthly CPP payments are about $1,306 (as of 2024) if you contributed at the max level for 40 years.
You may also qualify for Old Age Security (OAS) starting at age 65, but OAS is clawbacked for high-income retirees.
For high-income dentists, these government pensions represent only a small portion of retirement income and shouldn’t be relied upon as a primary source
Retirement Planning Timeline for Dentists
| Age | Key Focus Areas |
|---|---|
| 25–35 | Pay off student debt, start RRSP/TFSA, build emergency fund |
| 35–45 | Maximize RRSPs, start corporate investing, consider incorporation |
| 45–55 | Explore IPPs, increase corporate retained earnings, succession planning |
| 55–65 | Finalize exit strategy, sell or transition practice, structure retirement income |
| 65+ | Optimize withdrawals, minimize tax, consider estate planning |
Common Retirement Planning Mistakes to Avoid
Neglecting to save early due to business reinvestment or lifestyle creep
Failing to diversify retirement vehicles (RRSP, TFSA, corporate savings)
Overestimating sale value of the practice without proper preparation
Ignoring tax efficiency of withdrawals in retirement
Not involving professionals (accountants, financial planners, lawyers)
Record-Keeping and Compliance
Effective record-keeping and tax compliance are the cornerstones of any successful dental practice’s financial management. While dentists may be more focused on clinical work and patient care, the importance of maintaining well-organized, accurate records cannot be overstated—especially when it comes to managing taxes, responding to audits, and sustaining long-term financial health.
The Canada Revenue Agency (CRA) requires that all self-employed individuals and corporations keep detailed records that clearly support the income and deductions reported on their tax returns. Poor record-keeping not only increases the risk of errors and penalties, but it can also lead to lost deductions, missed credits, and audit flags.
This section covers what records dentists need to keep, how long to keep them, best practices for compliance, and tips for staying organized year-round.
Why Record-Keeping Matters for Dentists
Dentists often deal with a high volume of transactions—from patient payments, insurance reimbursements, supplier invoices, and payroll to equipment purchases and professional fees. Without a system in place, it becomes difficult to:
Accurately track income and expenses
File tax returns on time and with confidence
Substantiate claims if the CRA audits or reviews your return
Assess the profitability and health of your practice
Make sound business decisions backed by real data
Furthermore, record-keeping is a legal obligation under the Income Tax Act and Excise Tax Act.
Types of Records You Must Keep
The CRA expects businesses, including dental practices, to keep complete and organized documentation that supports all income and expense claims. This includes:
A. Income Records
Daily appointment schedules and billing records
Receipts and invoices for patient services (manual and digital)
Insurance claim payments and Explanation of Benefits (EOBs)
Bank statements and deposit slips
Merchant service records (credit/debit card transactions)
T4 or T4A slips (if you receive employment or contract income)
B. Expense Records
Receipts for all dental supplies, lab fees, and equipment
Bills for utilities, rent, phone/internet, and office supplies
Invoices from consultants, contractors, or professional services
Meal and travel receipts for business-related expenses
Receipts for marketing and advertising services
Documentation of employee payroll and benefits
C. Payroll and Employee Records
Employee names, addresses, SINs, job titles, and compensation agreements
Time sheets or hours worked
Records of salaries, wages, vacation pay, bonuses
CRA payroll remittance receipts
T4 and T4 Summary slips for employees
Records of CPP, EI, and tax withholdings
D. GST/HST Records (if registered)
GST/HST collected on taxable services or product sales
Input Tax Credits (ITCs) claimed
GST/HST returns and filing confirmations
Sales invoices clearly indicating taxable vs. exempt services
E. Capital Asset Records
Receipts for large purchases like dental chairs, x-ray machines, computers
Depreciation schedules (Capital Cost Allowance)
Purchase and sale documents for vehicles or major renovations
F. Corporate and Legal Records (if incorporated)
Articles of Incorporation
Annual shareholder and director resolutions
Corporate minute books
Shareholder registers
CRA filings (T2 returns, GST/HST, payroll)
Lawyer-prepared agreements (e.g., buy/sell, partnership)
Retention Periods: How Long Must You Keep Records?
The CRA requires most business records to be kept for a minimum of six years from the end of the last tax year to which they relate. In some cases, longer retention may be required:
If you file late, count six years from the actual filing date.
If you’re involved in a tax dispute or appeal, keep relevant records until the matter is fully resolved—even if that exceeds six years.
Corporate records, like shareholder agreements and incorporation documents, should be retained indefinitely.
If you want to destroy older records, the CRA recommends submitting a request via Form T137: Request for Destruction of Books and Records.
Digital vs. Paper Records
CRA accepts both paper and electronic records, as long as they are:
Readable and easily accessible
Secure and backed up
Complete and unaltered (original versions, not summaries)
Digitizing paper documents offers several advantages:
Faster searches and retrieval
Space-saving
Easier backups and security
Better integration with accounting software
However, if you go digital, be sure to:
Use a reliable system that timestamps and stores documents safely
Back up your data regularly (cloud or external drive)
Have a plan for recovering files in the event of a system failure or cyberattack
Popular tools used by dentists include:
QuickBooks Online
Xero
Wave
Dext (formerly Receipt Bank)
Dropbox or Google Drive (for cloud storage)
Tips for Staying Organized Year-Round
Separate Personal and Business Finances
One of the most common (and costly) mistakes is mixing personal and business expenses. Open a dedicated business bank account and credit card. This makes it easier to track and defend deductions.
Use Accounting Software
Don’t wait until tax season to organize your receipts. Use software that allows:
Real-time tracking of income and expenses
Integration with your practice management system
Auto-categorization of expenses
GST/HST tracking
Maintain a Vehicle Logbook (if claiming vehicle expenses)
If you’re claiming car-related expenses for travel between locations or for CPD, you must keep a logbook noting:
Date and purpose of trip
Starting point and destination
Kilometers driven
CRA may deny claims without this documentation.
Record All Cash and Cheque Payments
Failing to report cash income is illegal and a major red flag for audits. Document and deposit all payments, even if received in cash.
Schedule Quarterly Reviews
Set aside time every quarter to:
Reconcile your books
Check on tax installment payments
Review GST/HST and payroll obligations
Plan ahead for purchases or capital investments
Working with a bookkeeper or accountant regularly helps you stay ahead.
Penalties for Non-Compliance
Failure to keep proper records can result in:
Denial of deductions or credits
Interest and penalties on unpaid taxes
Audits and prolonged CRA reviews
Loss of small business deduction or GST/HST claims
Legal repercussions for negligence or fraud
Example: If you claim $50,000 in deductions but cannot produce supporting documents, CRA may deny the entire claim and impose penalties.
Working With a Professional
A dental-specific accountant or bookkeeper can help by:
Setting up a proper chart of accounts
Ensuring GST/HST is correctly handled
Organizing records for year-end tax prep
Helping with payroll compliance
Flagging potential issues before CRA does
Even if you use software like QuickBooks, having a professional oversee your financials can help ensure audit readiness and accuracy.
Engaging Professional Advisors
Running a dental practice is not just about clinical excellence—it’s also about managing a complex small business that involves accounting, tax compliance, legal obligations, staff management, investment planning, and long-term wealth preservation. While many dentists are highly skilled in their field, navigating these financial and regulatory waters without professional help can be risky, inefficient, and even costly.
Engaging a team of professional advisors—including accountants, tax experts, lawyers, financial planners, and insurance specialists—can provide you with the strategic guidance and protection needed to grow your practice, reduce taxes, and safeguard your personal and professional assets.
This section will explore why dentists should seek specialized advisors, what types of professionals to consider, how to choose the right ones, and how to build an integrated advisory team tailored to your needs.
Why Dentists Need Professional Advisors
Dentists face unique challenges and opportunities that require customized advice. These include:
High-income potential and tax exposure
Opportunities for incorporation and tax deferral
Business ownership responsibilities (staff, leases, equipment, regulations)
Retirement and succession planning
Practice purchase or sale scenarios
CRA audits and regulatory compliance risks
Professional advisors help mitigate these challenges by providing expert, up-to-date, and proactive support.
Key Benefits:
Save time and reduce stress
Maximize allowable deductions and credits
Stay compliant with CRA and professional college regulations
Plan proactively for future transitions
Avoid common and costly financial mistakes
Essential Advisors for Dentists
A. Accountant (CPA) – Your Financial Strategist
An accountant should be one of your first advisors. A dentist-friendly CPA can help you:
Prepare and file personal and corporate tax returns
Ensure GST/HST, payroll, and tax installment compliance
Maximize deductions and minimize tax liability
Advise on tax-efficient compensation (salary vs. dividends)
Assist with incorporation, bookkeeping systems, and financial statements
Guide you on structuring the sale or purchase of a practice
Tip: Choose a CPA who has experience with dental clients—dental practices have unique financial structures and regulatory requirements.
B. Tax Lawyer – For Advanced Tax Planning or Disputes
While most dentists work with accountants, a tax lawyer becomes essential when:
Facing a CRA audit or appeal
Structuring complex corporate reorganizations
Setting up advanced tax planning (trusts, holding companies, estate freezes)
Selling your practice and protecting the capital gains exemption
Tax lawyers provide legal protection under solicitor-client privilege—something accountants cannot offer.
C. Corporate Lawyer – Legal Advisor and Protector
A lawyer experienced in professional corporations and small business law can:
Set up your professional corporation (PC) properly
Draft or review shareholder agreements, leases, and contracts
Assist in buying or selling a dental practice
Help navigate employment law and HR policies
Protect intellectual property, trademarks, or branding
Tip: Work with a lawyer familiar with your provincial regulatory body’s requirements (e.g., RCDSO in Ontario, CDSBC in BC).
D. Financial Planner – Long-Term Wealth Architect
A certified financial planner (CFP or RFP) works with you to:
Develop a comprehensive financial plan (goals, budgets, retirement)
Optimize RRSP, TFSA, IPP, and corporate investment strategies
Analyze cash flow and insurance needs
Plan for children’s education, real estate, and legacy wealth
Coordinate investment strategy with tax planning
Choose a fee-based or fiduciary planner to ensure unbiased advice, especially if they’re not also selling investment products.
E. Investment Advisor or Portfolio Manager
While some financial planners manage investments, others may refer you to a dedicated advisor or firm to help:
Build a personalized investment portfolio (inside and outside your corporation)
Manage corporate retained earnings tax-efficiently
Monitor and rebalance your investments
Provide market and risk education
Tip: Ensure they understand corporate investing rules, passive income limits, and small business deduction implications.
F. Insurance Specialist
An insurance advisor helps protect you and your practice with appropriate coverage:
Professional liability (malpractice)
Office contents and commercial property
Disability, critical illness, and life insurance
Overhead expense insurance
Buy/sell agreement insurance (if you have partners)
Health and dental plans for you and your team
Be cautious of over-insurance or commission-driven sales—ask for comparative quotes and align policies with real risk.
Building an Integrated Advisory Team
Dentists often get the best results when their advisors collaborate. An integrated advisory team can:
Develop cohesive tax and investment strategies
Ensure legal, financial, and operational plans align
Reduce duplication of work and avoid conflicting advice
Strategically plan major events (incorporation, real estate, retirement)
How to Foster Team Integration:
Introduce your advisors to each other
Use cloud-based systems where shared access is appropriate
Schedule joint strategy meetings (e.g., tax and investment planning)
Keep your advisors updated on practice changes (income, location, partnerships)
Tip: You remain the decision-maker—but having experts who understand your full picture results in smarter decisions.
Choosing the Right Advisors
Ask the Right Questions:
Do you have experience with dental professionals?
How do you stay current with tax/legal changes that affect dentists?
How do you charge—flat fee, hourly, commission, or percentage?
Can you provide references or testimonials?
Will you coordinate with my other advisors?
Red Flags to Watch For:
Lack of familiarity with provincial regulatory rules
One-size-fits-all planning strategies
Aggressive tax schemes (often red flags for CRA audits)
High commission structures not aligned with your goals
Always prioritize transparency, specialization, and rapport.
When to Engage Advisors
You should consider engaging professional advisors at key milestones in your career:
| Milestone | Advisors to Engage |
|---|---|
| Starting a practice | Accountant, lawyer, insurance advisor |
| Incorporating | Accountant, corporate lawyer, financial planner |
| Expanding or hiring staff | HR consultant, lawyer, insurance advisor |
| Buying or selling a practice | Accountant, lawyer, financial planner |
| Retirement planning | Accountant, financial planner, investment advisor |
| CRA audit or dispute | Tax lawyer, accountant |