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Articles

The Professional Advisory

  1. Is it Time to Move?
  2. Staging A Dental Practice
  3. The High Cost of Dying
  4. Deal-Busters
  5. Patients - Attract and Retain
  6. Should I Stay or Should I Go?
  7. Is There a Buyer for Every Practice?
  8. Good, Better, Best - The Market has Spoken
  9. Smooth-Sale-ing
  10. Buying Time
  11. Patients, Patience, Patients
  12. A Real Patient
  13. Why Do a Practice Valuation? I'm not Selling
  14. Irrational Exuberance or The New Normal?
  15. Do dental equipment and dental technology affect a practice value?
  16. Finding and Being a Mentor
  17. Bigger is Better
  18. Daves Top Ten List for Buyers (Vendors should read this too!)
  19. How Well Do You Know Your Practice?
  20. Dave
  21. What will happen to dental practice Values in the next 10 years?
  22. Your Premises Lease is an Important Asset
  23. What are Associates Thinking?
  24. There is Life Outside the GTA
  25. When Is the Right Time to Sell My Dental Practice?
  26. Mergers are a Viable Option
  27. Is Your Associate an Asset or a Liability?
  28. Has your Practice Facility Kept Up With Your Billings?
  29. The 100 per cent of Gross Myth
  30. The Past, The Present and The Future
  31. Caveat Emptor
  32. Overpaid Long Term Staff
  33. Selling your Practice in Stages
  34. A Potential Pitfall of Selling Shares
  35. Value in Your Practice Through Balance
  36. Only Trusted Staff Can Defraud You
  37. To Own or Not to Own Practice Real Estate? That is the Question.
  38. Coping With A Large Patient Base
  39. Successful Dental Practice Transitions
  40. Taking Care of Business
  41. The Investing Dentist Phenomenon
  42. Two areas to focus upon that could negatively impact the value of your practice
  43. Organize your Debt in Order to Sell your Practice
  44. Having a Better Team
  45. How Do I Prepare My Practice For Sale
  46. How Do I Prepare My Practice For Sale? Part 3
  47. How Do I Prepare My Practice For Sale? Part 2
  48. How Do I Prepare My Practice For Sale? Part 1
  49. Advice to My Son or Daughter Graduating from Dental School
  50. Transition - What to Expect
  51. Discussion on Digital X-Rays
  52. Partnerships and Shotguns
  53. Strategic Planning - How to Get Started
  54. Calling All Vendors - Practices have Gone Up in Value
  55. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
  56. Matrimonial Practice Valuations
  57. Purchaser's Guide to Affording a Practice
  58. Location Improvements Throughout Your Career
  59. Small Practice Valuations
  60. Partnerships – The Best and The Worst
  61. Changing Location When the Opportunity Comes Along
  62. Visual Presentation of Your Practice
  63. Presentation of Charts
  64. Your Premises Lease Can Be Your Worst Enemy
  65. How to Select an Appraiser for Your Practice
  66. How Are Your Billing Ratios?
  67. It Pays to Invest in Your Tangible Assets
  68. The Importance of Separate Financial Statements
  69. Five Time Frame Levels to Sell a Practice
  70. 12 Suggestions to Safeguard Computer Data
  71. How to Buy a Visible Practice
  72. Why is there a shortage of good practices today?
  73. The Importance of Equipment in the Purchase of a Practice
  74. The Balanced Practice
  75. Will My Practice Be Saleable in The Future?
  76. Buyer Be Aware
  77. Excess Profit - The Second Key
  78. Patients and Profits are the Keys
  79. Plan Ahead

Volume 46:
A Potential Pitfall of Selling Shares

 

We are often approached by dentists who have decided to sell their practice – now. They figure their affairs are in order as they incorporated a number of years ago and they wish to sell shares to keep their taxes to a minimum from the sale. 

 
Let us say that their practice is worth $750,000. I look at their balance sheet and notice that they have investments located in their practice valued at $1,000,000. This is a problem!
 
There is a tax provision for professional corporations that limits non-practice assets to less than 50 per cent of the value of the practice including the investments. The example above would be in contravention of that tax provision and the dentist would not be permitted to participate in the $750,000 no tax situation with the sale of shares. This is called the 50 per cent rule. The dentist would have to clear out the investments from the practice two years prior to the sale of the shares of the practice.
 
It is a nice plan to leave profit from the practice, in the practice, with only a 16.5 per cent tax rate of the professional corporation. But keep your accountant informed as to when you intend to sell your practice so that the accountant can have you come on side regarding the 50 per cent rule. Also, there is a 90 per cent rule whereby non-practice assets must be under 10 per cent of the sale on the date of sale.
 
We are currently working with three dentists who are in contravention of the 50 per cent rule. They have all decided to not sell shares and pay the taxes from an asset sale of their practice but will draw out the investment money in the future when their tax rate is lower.
 
In summary, keep your accountant informed about your sale intentions so that he or she can work with you to avoid paying more taxed than would otherwise be necessary.
 
 
 
Graham Tuck, H.B.A., C.A. is the broker of record for Professional Practice Sales Ltd., which specializes in the valuation and sales of dental practices. He can be reached at   (905) 472-6000-or 1-888-777-8825 or email at:grtuck@ppsales.com
 
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