The Professional Advisory
- Is it Time to Move?
- Staging A Dental Practice
- The High Cost of Dying
- Patients - Attract and Retain
- Should I Stay or Should I Go?
- Is There a Buyer for Every Practice?
- Good, Better, Best - The Market has Spoken
- Buying Time
- Patients, Patience, Patients
- A Real Patient
- Why Do a Practice Valuation? I'm not Selling
- Irrational Exuberance or The New Normal?
- Do dental equipment and dental technology affect a practice value?
- Finding and Being a Mentor
- Bigger is Better
- Dave's Top Ten List for Buyers (Vendors should read this too!)
- How Well Do You Know Your Practice?
- Dave's Top Ten List for Vendors
- What will happen to dental practice Values in the next 10 years?
- Your Premises Lease is an Important Asset
- What are Associates Thinking?
- There is Life Outside the GTA
- When Is the Right Time to Sell My Dental Practice?
- Mergers are a Viable Option
- Is Your Associate an Asset or a Liability?
- Has your Practice Facility Kept Up With Your Billings?
- The 100 per cent of Gross Myth
- The Past, The Present and The Future
- Caveat Emptor
- Overpaid Long Term Staff
- Selling your Practice in Stages
- A Potential Pitfall of Selling Shares
- Value in Your Practice Through Balance
- Only Trusted Staff Can Defraud You
- To Own or Not to Own Practice Real Estate? That is the Question.
- Coping With A Large Patient Base
- Successful Dental Practice Transitions
- Taking Care of Business
- The Investing Dentist Phenomenon
- Two areas to focus upon that could negatively impact the value of your practice
- Organize your Debt in Order to Sell your Practice
- Having a Better Team
- How Do I Prepare My Practice For Sale
- How Do I Prepare My Practice For Sale? Part 3
- How Do I Prepare My Practice For Sale? Part 2
- How Do I Prepare My Practice For Sale? Part 1
- Advice to My Son or Daughter Graduating from Dental School
- Transition - What to Expect
- Discussion on Digital X-Rays
- Partnerships and Shotguns
- Strategic Planning - How to Get Started
- Calling All Vendors - Practices have Gone Up in Value
- Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
- Matrimonial Practice Valuations
- Purchaser's Guide to Affording a Practice
- Location Improvements Throughout Your Career
- Small Practice Valuations
- Partnerships – The Best and The Worst
- Changing Location When the Opportunity Comes Along
- Visual Presentation of Your Practice
- Presentation of Charts
- Your Premises Lease Can Be Your Worst Enemy
- How to Select an Appraiser for Your Practice
- How Are Your Billing Ratios?
- It Pays to Invest in Your Tangible Assets
- The Importance of Separate Financial Statements
- Five Time Frame Levels to Sell a Practice
- 12 Suggestions to Safeguard Computer Data
- How to Buy a Visible Practice
- Why is there a shortage of good practices today?
- The Importance of Equipment in the Purchase of a Practice
- The Balanced Practice
- Will My Practice Be Saleable in The Future?
- Buyer Be Aware
- Excess Profit - The Second Key
- Patients and Profits are the Keys
- Plan Ahead
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:email@example.com