The rule underneath all of this is short: an expense is deductible if it was incurred to earn income from the practice, and if it is reasonable in the circumstances. Everything else is detail about how to prove those two things.
Physicians tend to sit at one of two extremes. Either everything gets pushed through the corporation on the theory that it will probably be fine, or almost nothing does because it feels safer. Both cost money. Here is the middle.
Straightforward, provided they relate to the practice
- CMPA fees and professional liability coverage
- College fees and professional association dues
- Licensing and certification costs
- Medical supplies, instruments and consumables
- Clinic rent, overhead payments and shared facility fees
- Staff wages, including reception and clinical assistants
- Practice software, billing systems and electronic medical records
- Accounting, bookkeeping and legal fees for the practice
- Practice insurance and business banking charges
- Journals, subscriptions and reference materials
None of these are controversial. Keep the documentation, keep them off the personal card, and there is nothing to discuss.
Deductible, with conditions attached
Continuing medical education
Course fees, registration and the travel required to attend are deductible where the education maintains or improves skills used in your practice. The scrutiny falls on the trip around the course. A three day conference attached to a ten day family holiday will not survive as a full deduction. Split it honestly: the conference portion is deductible, the holiday portion is not.
Home office
If you do genuine practice work from home, charting, dictation, administration, on call work, a proportionate share of home costs can be claimed. The proportion is based on the space used and should be defensible. Claiming a quarter of a family home because the laptop sits on the kitchen table is not defensible. Claiming a dedicated room, measured, is.
Vehicle costs
Only the business portion, and the business portion means travel between practice locations, to hospitals, to clinics. Commuting from home to your primary place of work is personal, which surprises people every single year. If you want to claim a vehicle, keep a mileage log. Without one you are relying on an estimate that nobody has to accept.
Meals and entertainment
Deductible at fifty percent where there is a genuine business purpose, and you should be able to say who you met and why. Meals eaten alone between clinics are personal.
Phone and internet
The business proportion. If the line is genuinely used for on call and practice communication, claim the practice share rather than the whole bill.
The documentation rule. A bank statement line is not a receipt. A receipt shows what was bought and from whom. For anything that could be questioned, keep the receipt and write one line explaining the business purpose while you still remember it. Doing that at the time takes seconds. Reconstructing it two years later takes hours and often fails.
Family on the payroll
A spouse or an adult child can be paid by the corporation for work they actually do, and this is legitimate and common. Two conditions carry the whole arrangement. The work has to be real, and the pay has to be reasonable for that work. If your spouse handles scheduling, billing follow up and the practice administration, a salary reflecting that is defensible. A salary with no corresponding duties is not, and it is one of the more reliably challenged arrangements.
Run it through payroll properly, with source deductions and a T4. Paying a family member from the business account with no payroll behind it creates a mess that shows up as a shareholder loan problem at year end.
Dividends to family members are a separate question again, governed by the tax on split income rules rather than by reasonableness. Do not assume the two work the same way.
Things that are not deductible, however common
- Personal clothing, including anything worn under scrubs
- Commuting between home and your main practice location
- Gym memberships and general wellness spending
- Most personal grooming and dry cleaning
- Family holidays with a professional event bolted on
- Life insurance premiums in most ordinary situations
- Political contributions and most donations, which have their own treatment
The one that catches people
Paying personal expenses directly from the corporate account. It happens constantly, usually out of convenience. Every one of those transactions is either a taxable benefit to you or an amount owing back to the corporation through your shareholder loan account. If the shareholder loan sits in the wrong position at year end, it can create a personal income inclusion you were not expecting.
The fix is boring and effective. One card for the practice, one card for you, and a monthly reconciliation that catches the crossovers while they are still easy to sort out.
The Incorporated Physician's First Year Checklist
Includes the expense categories to set up from day one, and what to document as you go.
If you are not sure whether something belongs in the corporation, ask before the year closes. It is a two minute question in October and a much larger problem in April.