Investing in development, technology, automation, and outsourcing can improve employee productivity and profitability in business services.
In this article, written by RSM Canada, they explore the different ways businesses can increase their profit margins, as well as boost employee productivity.
Ignoring the growth in Artificial intelligence (AI) is not sustainable. AI is changing how companies in all industries conduct business, creating efficiencies and in some cases, lowering costs.
With 35% of companies in all industries using AI to date and another 42% implementing a formalized strategy within their business, it appears that AI is here to stay.
So how can professional services firms embrace AI and leverage it for more successful outcomes? In this article written by RSM Canada, they highlight the key areas that professional services firms need to consider before jumping right in.
Things like, what processes can be replaced by AI, how it may change the billable hours model, potential privacy issues, and the importance of continuing to have human oversight throughout the process.
Organizations can fulfill their needs and position themselves for success while keeping operating expenses low by outsourcing non-core functions such as information technology, human resources, and financial accounting.
In this article from RSM Canada, they explore some of the ways that companies can reduce operating expenses while still capturing market growth.
With an hourly-based billing model, there are only two ways to generate more revenue: 1) increase the bill rate per hour or 2) increase the number of hours worked. Most professional firms use this billing model.
Modern technologies and AI are now putting hour-based billing into serious question and pressuring professional services firms to consider alternative billing models. In this article, written by RSM Canada, they will explore value-based billing and how the adoption of these models can help protect and grow future revenue.
Professional services firms face a number of similar challenges that include improving project profitability and margins, adapting to shifting customer expectations and reducing administrative tasks.
In this article from RSM Canada, they delve into the transformative potential of automation in the realm of professional services across all of the major business functions, such as accounting, time/expense tracking, project management, data analytics, sales and marketing, and human resources. Organizations willing to face these challenges head-on and holistically are in the optimum position for long-term success.
Generally, healthcare professionals are not registered for GST/HST due to the fact that the majority, if not all, of their services supplied to their patients are exempt from GST/HST. Changes made back in 2013 caused medical practitioners to have some taxable services, and therefore, there was a need to register for GST/HST. From speaking with practitioners, there still seems to be some misunderstanding of these changes.
Under the provisions in the Excise Tax Act (ETA), services that are provided solely for non-healthcare purposes, even if supplied by healthcare professionals, are not considered to be basic healthcare and are not intended to be eligible for the exemption. For instance, the GST/HST legislation specifies that all supplies for purely cosmetic procedures are a taxable supply, and thus subject to the GST/HST. Given a number of past court cases, the scope of the GST/HST exemption was expanded beyond the original legislative policy intent to limit the GST/HST exemption to basic health care services.
The 2013 Federal Budget provided some clarity in the fact that GST/HST will apply to reports, examinations, and other services that are not performed for the purpose of the protection, maintenance, or restoration of the health of a person or for palliative care. For example, taxable supplies for GST/HST purposes include reports, examinations, and other services performed solely for the purpose of determining liability in a court proceeding or under an insurance policy. They may also include the preparation of back-to-work notes and the completion of disability tax credit forms. Supplies of property and services in respect of a taxable report, examination, or other service would also be taxable.
A report, examination, or other service will continue to be exempt if it is performed for use in the protection, maintenance, or restoration of the health of a person or use in palliative care. As well, reports, examinations, or other services paid for by a provincial or territorial health insurance plan will continue to be exempt.
Overall, what this means is that it is no longer safe to assume that just because a service is provided by a healthcare professional that it will not be subject to GST/HST. If you are a medical practitioner and are providing services that are not direct to your patients, you should discuss all of your revenue streams with your local CPA to ensure you do not have a GST/HST liability. If you need assistance, please don’t hesitate to call a DJB Professional.
Generally speaking, under Section 5 of Part II of Schedule V of the Excise Tax Act (ETA) services provided by a medical practitioner, as defined, in a health care facility, a private clinic, or a doctor’s private office are exempt from HST. “Medical practitioner” is defined as a person who is entitled under the laws of a province to practice the profession of medicine or dentistry. In addition, the majority of dental appliances are considered to be zero-rated under the ETA. That being said, there are various situations when services or goods provided by a dentist may be taxable for GST/HST.
One example where a dentist may be supplying a taxable service as it relates to GST/HST is cosmetic procedures. The CRA states in GST Memorandum 300-4-2 that surgical and dental procedures that alter or enhance a patient’s appearance but that otherwise has no medical or reconstructive purposes are considered to be cosmetic surgery. The criteria for cosmetic surgery to be medically necessary, and thus not applicable to GST/HST is also listed in the same GST memorandum and includes:
Examples of GST/HST taxable services and products provided by a dentist, assuming they are not a small supplier, may include the following if done for cosmetic or other purposes:
Artificial teeth and orthodontic appliances are zero-rated for GST/HST purposes. That being said, an implant, crown, cap or onlay that is fabricated to replace 50% or more of a natural tooth will qualify for zero-rating as an artificial tooth. As a general rule, if it does not replace more than 50% of the existing tooth, it would be taxable for GST/HST purposes.
As a result of the above, dentists may have a mix of exempt and taxable revenue streams, which would result in some portion of the GST/HST paid being claimable as an Input Tax Credit (ITC), and some not. Generally when there are mixed revenue streams, the taxpayer must allocate the ITC’s on a fair and reasonable basis amongst the taxable and exempt revenue streams. The allocation of these expenses as it relates to an ITC claim can be complex and heavily scrutinized by the CRA. The CRA has published GST/HST Memorandum 8.3 as a guideline to what the CRA considers to be ‘fair and reasonable’ allocation methods. It is important that when determining your fair and reasonable allocation method, that it be documented to defend its reasonableness should it be challenged by the CRA.
Please note that the definitions and rules are more complex than outlined above. Before you make any changes to your GST/HST, please consult your GST/HST advisor for clarification and what your next course of action should be.
The professional services industry is beginning to feel the impact of the uncertain economy, with clients becoming increasingly cautious of large capital expenditures.
Until there is a bit more certainty in the economy, law firms specifically may need to explore growth opportunities through mergers and acquisitions.
This article, authored by RSM Canada, provides an economic overview of the professional services industry and insights for the immediate future, exploring whether the emergence of artificial intelligence (AI) will help or hinder the industry.
There was a time when selling a family medicine practice in Ontario was very rare as the demand for family doctors exceeded the supply so the patient lists weren’t overly valuable on an open market. If a practice was sold, it was likely for the “book value” of its assets (such as medical equipment and furniture and fixtures) with no premium for its patient lists and goodwill. However, with new restricted funding models put in place in Ontario for family medicine practitioners, certain practices now have increased value for new or incoming family doctors.
The difficult part is putting a value on your practice. Essentially, the value is whatever someone is willing to pay for your practice. While incoming doctors are often hesitant to pay a substantial amount for an established patient list (due to already existing debt and thoughts that family doctors are still in high demand), structures such as Family Health Organizations (FHO) present an opportunity for a “better” funding model that may create value for incoming doctors to invest in.
In previous years, the Province of Ontario created a focus on team-based family medicine funding models such as FHO’s. These allowed specific funding models for the team-based approach as a way to encourage doctors to practice family medicine and create a service model that benefited the patients. With recent government restructuring of its funding models, it is now limiting the ability to setup new team based models such as FHO’s to primarily remote areas. Original FHO agreements are being grandfathered so this creates opportunities to join existing models that have already been setup.
While it can be difficult to estimate the value of your practice, if you are part of an FHO in an area that is restricted for new team based models, a good start is to determine the annual premium being paid on your funding model versus a non-FHO funding model. A valuation multiple could then be applied to the annual premium to determine the value of the funding model to a third party.
The valuation will depend on a number of factors such as the city/town where your practice operates, the type of building in which you operate and the condition of the building and equipment. You would also need to factor in whether or not you own the practice building or if you are locked into a lease agreement for a number of years.
The tax implications on the sale of your practice would be determined by the allocation of the proceeds between the physical assets versus the intangible assets such as the patient list.
The physical assets would have a recapture tax at regular business tax rates for any capital cost allowance (CCA) deductions taken in the past if the proceeds attributed to the asset were equal to or more than its original cost. Any proceeds greater than the original cost would be treated as a capital gain with half of the amount being taxable at the investment income tax rates.
The sale of the patient list or practice roster would be treated as a sale of eligible capital. There are new rules that have been proposed for the sale of eligible capital for sale transactions that close after 2016. These new rules treat eligible capital the same as physical assets whereby any previous CCA will be treated as regular business income and any amount greater than the original cost will have half taxed at the investment income tax rate.
The valuation of family physician practices is constantly changing but the current models create an opportunity to sell your practice for a premium if you are in a populated area and are operating in one of the desired family health models. It is important to talk to your professional advisors in advance to ensure you are planning properly for a potential sale and are aware of the implications of such a sale (such as taxes). If you have any specific questions or require more information, please contact DJB.
For professionals, the use of a Professional Corporation (PC) can provide key benefits in terms of income splitting and income tax deferral. However, professionals often ask: “What happens to my PC when I retire?”
In some situations, the shares of the PC will be sold to another professional. In other situations, the answer typically depends on the number of assets remaining in the professional corporation upon retirement. If there are minimal assets (cash, investments, equipment, etc.), it is likely the PC can simply be dissolved by preparing Articles of Dissolution after obtaining consent from the relevant taxation authority.
Typically, however, the PC will have built up an investment portfolio to assist the professional in retirement. In this case, there is likely a benefit of retaining the corporation so that the shareholders can draw out only the money they require each year, thus minimizing their annual tax burden by utilizing their marginal tax rates (as opposed to withdrawing everything from the corporation in a lump sum upon retirement and paying tax at higher rates). For example, withdrawing $250,000 from a professional corporation as a lump sum non-eligible dividend would result in a tax burden of approximately $81,000. Alternatively, withdrawing the funds in five annual non-eligible dividends of $50,000 would reduce the overall income tax burden to approximately $17,000 (both cases assume no other income or deductions and are based on 2022 income tax rates).
If the PC is to be retained, the first step is to re-characterize the corporation from a PC to a regular corporation. This often involves deregistering from the appropriate governing body and then filing an Articles of Amendment form to remove reference to the professional corporation in the name of the PC and possibly any restrictions that were in the Articles of Incorporation. Most PC’s choose to continue operating as a simple numbered company.
The income that the corporation will earn at this point will likely be passive investment income (such as return on investments). Passive income, unlike business income, is taxed at a high corporate income tax rate (currently 50.17%). A portion of this income tax is recoverable upon drawing money from the corporation as a dividend, resulting in a net corporate tax rate of 19.5% on passive income in Ontario.
The PC may be able to introduce other shareholders once the current value is “frozen” into the current shareholders’ hands. While this scenario has to be carefully reviewed to avoid any attribution rules, this allows the potential for the investment earnings to be allocated to certain families members, thus utilizing their marginal income tax rates as well. This strategy could involve using a family trust so that the professional can still have control over who receives both the income and capital that accumulates on the investments. As each case is different, it is important that a strategy to include other shareholders, including a family trust, is looked at closely as attribution rules could cause negative tax consequences if not considered in advance.
A PC may, in certain circumstances, pay a $10,000 death benefit to the deceased professional’s estate. The death benefit would not be taxable to the estate.
The transition from a PC to a regular corporation is a relatively simple process, but planning in advance will help layout the direction of the PC so that it can provide benefits, both now, and in the future. We can help guide you in the right direction, contact one of our experienced Healthcare Industry Professionals.
