Practicing the Long Game: Preparing for Practicing the Long Game: Preparing for Practicing the Long Game: Preparing for Practicing the Long Game: Preparing for Practice Sales & RetirementPractice Sales & RetirementPractice Sales & RetirementPractice Sales & Retirement

Any Any Any Any tax advice herein is based on the facts provided to us and on current tax law including tax advice herein is based on the facts provided to us and on current tax law including tax advice herein is based on the facts provided to us and on current tax law including tax advice herein is based on the facts provided to us and on current tax law including judicial judicial judicial judicial and administrative and administrative and administrative and administrative interpretationinterpretationinterpretationinterpretation. . . . Tax Tax Tax Tax law is subject to continual change, at times on a retroactive basis and law is subject to continual change, at times on a retroactive basis and law is subject to continual change, at times on a retroactive basis and law is subject to continual change, at times on a retroactive basis and may may may may result in incremental taxes, interest result in incremental taxes, interest result in incremental taxes, interest result in incremental taxes, interest or or or or penalties. Should the penalties. Should the penalties. Should the penalties. Should the facts facts facts facts provided to us be incorrect or incomplete or should the law or its provided to us be incorrect or incomplete or should the law or its provided to us be incorrect or incomplete or should the law or its provided to us be incorrect or incomplete or should the law or its interpretation change, our advice may be inappropriate. We are not responsible interpretation change, our advice may be inappropriate. We are not responsible interpretation change, our advice may be inappropriate. We are not responsible interpretation change, our advice may be inappropriate. We are not responsible for for for for updating our advice for changes in law or interpretation updating our advice for changes in law or interpretation updating our advice for changes in law or interpretation updating our advice for changes in law or interpretation after the date hereof. The advice or other information provided herein is confidential and may be privileged and is for the safter the date hereof. The advice or other information provided herein is confidential and may be privileged and is for the safter the date hereof. The advice or other information provided herein is confidential and may be privileged and is for the safter the date hereof. The advice or other information provided herein is confidential and may be privileged and is for the soleoleoleole use of SRJCAS use of SRJCAS use of SRJCAS use of SRJCAS Professional Corporation’s ("SRJ") client. The advice is based on the specific facts and circumstances and the scope of SRJ’sProfessional Corporation’s ("SRJ") client. The advice is based on the specific facts and circumstances and the scope of SRJ’sProfessional Corporation’s ("SRJ") client. The advice is based on the specific facts and circumstances and the scope of SRJ’sProfessional Corporation’s ("SRJ") client. The advice is based on the specific facts and circumstances and the scope of SRJ’s enenenengagement and gagement and gagement and gagement and associated terms of engagement as the case may be and is not intended to be relied upon by any other person.associated terms of engagement as the case may be and is not intended to be relied upon by any other person.associated terms of engagement as the case may be and is not intended to be relied upon by any other person.associated terms of engagement as the case may be and is not intended to be relied upon by any other person. SRJ disclaims any SRJ disclaims any SRJ disclaims any SRJ disclaims any responsibility or liability for any reliance that any person other than the client may place on this advice. If you are not tresponsibility or liability for any reliance that any person other than the client may place on this advice. If you are not tresponsibility or liability for any reliance that any person other than the client may place on this advice. If you are not tresponsibility or liability for any reliance that any person other than the client may place on this advice. If you are not the he he he intended recipient, intended recipient, intended recipient, intended recipient, any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be unlunlunlunlawfulawfulawfulawful....

Presented by: Patrick McCabe, CBV &Rishabh Khamesra, CPA, CA

� Tax Implications of Sale

� Corporate Structure

� Sole- Proprietor Structure

� Retirement Income- tax implications?

� What are buyers looking for

� How to plan for a sale

� Financial documents

� Modernizing your practice

� Referrals

� Questions

Each individual in Canada is entitled to a Lifetime Capital Gains Exemption in the amount of $850,000 on the sale of Qualified Small Business Corporation (“QSBC”) Shares.

To qualify as QSBC shares, the shares must meet the following conditions:

• The corporation must be a Canadian Controlled Private Corporation;

• At least 90% of the assets of the business must be used to earn active business income;

• The shares must be held for a period of at least 2 years by the individual or a family member (see next slide). During this 2 year period, at least 50% of the assets must have been used to earn active business income over the previous 2 years.

As the CCO requires all chiropractors to be incorporated under a Professional Corporation, all share purchases must all share purchases must all share purchases must all share purchases must be made to other members of the profession only be made to other members of the profession only be made to other members of the profession only be made to other members of the profession only (i.e(i.e(i.e(i.e. . . . other chiropractors)other chiropractors)other chiropractors)other chiropractors) who are allowed to operate under a professional corporation status.

That is, a share purchase is only allowed between chiropractors, NOT between chiropractors and any other professionals or individual.

This requirement still enables the use of the LCGE, but less common in the industry.

� Incorporated but no LTCGE available� Asset Approach

I. Calculate the Net Asset of the business

II. Negotiate a Final Purchase Price

III. Difference between assets and final purchase price is the amount of capital gain, goodwill for purchaser

IV. Report this amount on your tax return and pay taxes based on your marginal rates

V. NOTE CAPITAL GAINS ARE TAXED AT 50%

� Incorporated but no LTCGE available� Share Approach-

I. Calculate the cost basis of the shares

II. Negotiate a Final Purchase Price

III. Difference between share price and final purchase price is the amount of capital gain

IV. Report this amount on your tax return and pay taxes based on your marginal rates

V. NOTE CAPITAL GAINS ARE TAXED AT 50%

� Let’s look at this by way of an example

�Similar to the Net Asset Approach discussed prior

I. Calculate the Net Asset of the business

II. Negotiate a Final Purchase Price

III. Difference between assets and final purchase price is the amount of capital gain

IV. Report this amount on your tax return and pay taxes based on your marginal rates

V. NOTE CAPITAL GAINS ARE TAXED AT 50%

� Let’s look at this by way of an example

� Canada Pension Plan (CPP)- Full CPP benefits start at 65; as early as 60 with a reduction or 70 with an increase

� Tax Implication: Taxed at marginal rates; with limited income tax deducted at the source; thus most individuals usually owe tax when filing their return

� Old Age Security- Available to most individuals after 65; Canadian Legal and Residence Status

� Tax Implication: Taxed at Marginal Rates

� RRSP Income- Usually withdrawn upon retirement; at 71 amounts turn into a RRIF and mandatory withdrawals need to be made

� Tax Implications: Amounts taken out of RRSP are taxed at varying rates; depending on withdrawal amounts; final amount is taxed on marginal rates

Diverse Practice• Multiple types of treatment offered

• Diverse revenue streams

• Advantage: accessing a broader client base

• Convenience for patients

Strong Digital Presence• Young chiropractors expect practices to have a strong digital

presence

• At minimum a modern designed website

• Customers/clients expect to find website when considering a practitioner

• Refer to CCO’s Standards of Practice guidelines for best practice

Lease• Are the rates favourable to market rates?

• How many years left on lease?

• Is there a designated amount for leasehold improvements?

• Some buyers are only interested in property and practice

Modern Equipment• Equipment technology is always changing

• Young buyers expect a practice to have the latest equipment

• Weigh costs/benefits of buying new equipment

• The cost to buy may result in higher selling value of practice

Financial Documents• Tax assessment/property appraisal if own the property• Copy of lease agreement• Five years financial statements (income statement and balance

sheets) or statements of business activities• Patient profile list

Modernizing Practice• Consider updating equipment• Modernize interior design of office. Old design can look stale.• These improvements will result in higher resale value and

differentiate from competition• Consider retaining social media/SEO experts to build digital

presence

Social Media/Web• Many low cost service providers in Toronto to build a website,

provide a social media presence• Some specialize in chiropractic practices and other professional

medical practices• Client base will grow through SEO

Lease• Consult with landlord in advance of a sale if lease is expiring soon• Option to renew

On behalf of our Partners at SRJ Chartered Accountants, we are proud to be working alongside the Ontario Chiropractic Association and all of its members. As per our arrangement with the OCA, we are offering preferred rates to its members for the following services:

� Incorporations and business registration;� Personal income tax returns;� Corporate income tax returns; and� Bookkeeping services;� Valuation Services

Should you have any questions on these matters, please do not hesitate to contact us for some further guidance.

Thank you.

SRJ Chartered Accountants

Contact Info:

Address 1: 330 Bay Street, Suite 820

(Downtown Toronto) Toronto, Ontario, M5H 4A6

Address 2: 2601 Matheson Blvd. E., Unit 28

(GTA West) Mississauga, Ontario, L4W 5A8

Telephone: (647) 725-2537

E-mail: info@srjca.com

Web: www.srjca.com