How Medical Professionals Can Avoid CRA Audit Triggers: Advice from an Ex-CRA Auditor
Introduction
As a medical professional, your focus is on patient care, not navigating the complexities of tax compliance. However, the nature of your work often makes you a prime target for CRA audits. At Dexado Accounting & Tax, we understand this all too well. Led by an ex-CRA auditor and CPA, our team knows exactly what triggers audits and how to proactively protect your practice. This blog outlines key audit risks for medical professionals and how proactive tax planning, and advisory can help you avoid unnecessary scrutiny.
1. Revenue Reporting: Make Sure It Matches Your Bank
One of the most common CRA audit triggers is inconsistent revenue reporting. CRA compares your reported income to your bank deposits, and any discrepancy can raise a red flag.
- Always use a dedicated business bank account. Mixing personal and professional funds invites unnecessary complications.
- Ensure all income is deposited. If you receive payments in cash or from various sources, be diligent in recording and depositing them.
- Reconcile monthly. Your reported income should match your deposits. Use accounting software or a spreadsheet to track this.
CRA assumes any unidentified deposit is income unless you prove otherwise. Be ready.
2. Expense Deductions: Know What You Can (and Can’t) Deduct
Travel Expenses
Travel expenses are commonly reviewed during audits. Only travel that is 100% business-related is deductible. Conferences, training, and client meetings count. Family vacations or personal trips disguised as business. Those are red flags.
Vehicle Expenses
Many professionals misuse vehicle expense deductions. Here’s what to remember:
- Travel between home and work is not deductible, unless your home is your principal place of business.
- Keep a mileage log. Date, purpose, and distance of each business trip. CRA often denies vehicle expenses if there’s no log.
We recommend using an app or digital log updated weekly.
Management Fees and Family Members
Paying family members is allowed but only if:
- The payment is reasonable for the work done.
- It is documented and supported with T4s or T5s.
- The family member actually performed the work.
Example: Paying your spouse $40,000 to manage admin tasks without timesheets or evidence of work is a recipe for CRA reassessment.
We can review your setup and help you document everything correctly.
Home Office Expenses
If you work regularly from a dedicated space in your home, you may qualify to deduct home office expenses. To be eligible:
- The space must be used exclusively and regularly for your practice.
- It must be your principal place of business or used to meet clients regularly.
Eligible expenses include:
- A percentage of utilities, rent, property taxes, home insurance, and maintenance
- Internet and office supplies
The percentage is based on square footage used for business relative to your home. CRA often denies claims if the workspace is shared (e.g., kitchen or bedroom). Keep records and take photos of your dedicated workspace if needed.
We help calculate the eligible portion and ensure your claim aligns with CRA guidelines.
3. Personal Services Business (PSB) Risk for Incorporated Professionals
If you operate your practice through a corporation but essentially function like an employee (e.g., you work for only one hospital, follow their schedule, and receive employment-like benefits), CRA may classify your corporation as a Personal Services Business (PSB).
This classification removes most deductions and applies a high tax rate.
CRA looks at factors like:
- Do you work for more than one client?
- Do you control your hours and tools?
- Are you economically dependent on one payer?
- Do you receive vacation pay or employee-type benefits?
How Dexado helps:
- Review your contracts and invoicing practices.
- Provide recommendations to reduce the PSB risk.
- Help you build a stronger independent contractor profile.
4. Incorporating Your Practice: Avoid Goodwill Tax Traps
Incorporating is often a smart move for growing medical practices. But done wrong, it can trigger significant tax.
The risk? CRA may treat the transfer of your sole proprietorship to your corporation as a sale at fair market value including goodwill resulting in capital gains tax on income you didn’t actually receive.
The solution: A Section 85 rollover, which allows you to transfer your assets into your new corporation tax deferred.
We assist with:
- Valuation of goodwill (when necessary)
- Preparing and filing the rollover election
- Structuring the incorporation properly
Don’t go it alone-this is one of the most common audit areas for professionals.
5. GST/HST Risks: Exempt, Zero-Rated, or Taxable?
Most medical services are GST/HST exempt, but not all. Some services or products you provide may be zero-rated or even taxable.
Examples:
- Exempt: Standard physician or therapy services
- Zero-rated: Some medical devices, exports
- Taxable: Reports, cosmetic procedures, or sale of health-related products
The problem? CRA’s rules are hard to understand, and their website isn’t user-friendly.
The risk? You could be charging tax when you shouldn’t or worse, not charging when required, leading to back taxes and penalties.
How Dexado helps:
- We analyze your business model and list of services/products.
- Classify each as exempt, zero-rated, or taxable.
- Advise you on registration, ITCs, and how to charge correctly.
This is especially important if you have a mix of services and product sales.
6. Why Medical Professionals Get Audited More Often
CRA focuses on your industry because:
- You have higher-than-average income
- Your expenses may include personal elements.
- You may involve family members in your business.
- There are multiple revenue streams (e.g., OHIP, private pay, products)
- There are often incorporation transitions without proper planning.
With proper planning and documentation, all of these risks can be managed.
7. Our CRA Audit Protection Services
At Dexado, our CRA Audit Protection & Tax Planning for medical professionals includes:
- Risk review of your returns and financial setup.
- Advisory on vehicle, travel, and family member deductions
- Review of contracts to avoid PSB classification
- Structuring incorporation and filing elections
- GST/HST sales classification and advisory
- Ongoing documentation best practices
We don’t just file your taxes-we protect your practice.
Conclusion: Be Proactive, Not Reactive
CRA audits can disrupt your practice, your peace of mind, and your finances. But with proactive planning and the right team by your side, you can operate with confidence and minimize audit risks.
As an ex-CRA auditor, we’ve seen what goes wrong and more importantly, we know how to do it right.
Book your consultation today and let’s protect your practice from day one.
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📧 info@dexado.ca
