Medical Professionals: Correcting Past Tax Issues Before CRA Finds You
Medical professionals in Canada face unique tax challenges that can quietly snowball: mixed exempt and taxable services for GST/HST, busy clinics with weak bookkeeping, personal-corporate “blur” (shareholder benefits and loans), and foreign asset reporting (T1135). The longer issues sit, the higher the stakes: penalties, compounding interest, reputational risk, and even regulatory attention.
There is a proven off-ramp: the CRA’s Voluntary Disclosures Program (VDP). When used correctly and before CRA contacts you the VDP can eliminate most penalties, reduce interest, and remove the risk of prosecution. At Dexado, we combine proactive planning with an Ex-CRA perspective to position your disclosure properly and keep you protected going forward.
Why healthcare is on CRA’s radar
High incomes, complex payor mixes (provincial plans, private pay, insurers), and frequent incorporation make medical practices audit-prone. Add in staff reimbursements, vehicles, mixed-use expenses, or a clinic’s sale/transition and mistakes become more likely. Our approach starts with audit-proofing your filings and systems so that fixes are complete, consistent, and defensible.
What the Voluntary Disclosure Program (VDP) can do for you
When accepted under the General Program, the VDP typically provides:
- Full penalty relief (late-filing, failure-to-report, some gross-negligence penalties).
- Partial interest relief (often a 50% reduction for older years).
- No prosecution for disclosed issues.
- Objection/appeal rights preserved (unlike the Limited Program for intentional non-compliance).
Timing is everything: once CRA contacts you about a specific issue or year, the “voluntary” door closes.
Do you qualify? The five VDP conditions (plain-language)
- Voluntary: CRA hasn’t contacted you about the issue.
- Complete: you disclose all years/issues in the scope (income tax, GST/HST, payroll, information returns like T1135).
- Penalties at stake: the issue must be one that could trigger penalties.
- At least one year past due (for income tax information).
- Payment: pay the estimated balance or make acceptable arrangements.
Four common VDP situations for medical professionals (with real-world fixes)
1) GST/HST errors: taxable sales reported as zero-rated or exempt
Many clinics classify everything as exempt. But reports, medico-legal letters, some products/devices, or certain cosmetic services are taxable. Correcting past returns will create interest on under-collected net tax, but VDP can remove penalties and reduce part of the interest. The operational fix is a service-by-service tax map, updated procedures, and invoices that show tax status clearly—so the problem doesn’t recur.
2) Unreported income due to weak bookkeeping
Busy practices often rely on bank deposits to “drive” revenue, leading to missed private-pay receipts or e-transfers. VDP lets you come clean on the missing income while avoiding the heaviest penalties. We rebuild the revenue trail (EMR reports, insurer remittances, POS, and bank), implement monthly reconciliations, and set rules that keep deposits ≈ revenue going forward.
3) T1135: unreported foreign specified property
Foreign investments over $100,000 CAD (cost) require T1135 reporting—even if no foreign income. Missed T1135s can trigger pricey per-year penalties. VDP streamlines catch-up filings and trims the pain. We inventory your foreign assets, align brokerage summaries, and calendar-lock the T1135 so it’s never missed again.
4) Shareholder benefits & shareholder loans not repaid
Personal expenses through the company, or loans to a shareholder not repaid within the prescribed period, can be taxed as income and assessed with penalties. VDP disclosure (plus corrective entries, proper reimbursements, or loan repayment/forgiveness planning) can reset the slate. We also put in place expense policies, card controls, and a clean due-to/due-from log so the issue doesn’t come back.
What relief looks like in dollars
- Penalties waived: late-filing and repeated-failure penalties add up quickly across multiple years and returns (T2, GST/HST, T1, T1135). VDP removes them under the General stream.
- Interest reduced: not eliminated, but often cut by ~50% for older periods meaningful on multi-year GST/HST corrections or unreported income.
- No prosecution: essential for high-profile professionals and licensed practitioners.
The step-by-step path (and how we keep it low-friction)
- Risk & readiness review (confidential): We identify all years/issues (income tax, GST/HST, payroll, T1135) and estimate exposure.
- Records rebuild: Bank/credit card pulls, EMR/billing ledgers, insurer remittances, sales/POS exports, loan and expense support.
- Calculations & strategy: Determine balances by year, choose General vs Limited stream positioning, and craft the narrative (what happened, what’s changed).
- Protective VDP submission: File a complete application with calculations (RC199 package or detailed letter), pay/arrange balances.
- CRA dialogue: We handle follow-ups, provide additional schedules, and secure acceptance.
- Future-proofing: Update bookkeeping systems, GST/HST coding, shareholder/expense policies, T1135 calendaring, and month-end controls so you stay compliant.
Why act now (not after a CRA letter)
CRA’s analytics, third-party data (insurers, payment processors), and industry initiatives increase the odds of detection each year. Once contacted, VDP is off the table. Early action preserves eligibility, reduces financial cost, and protects your reputation and license.
Myth vs Reality (quick check)
- Myth: “VDP erases all interest.”
Reality: It reduces interest (often 50% for older periods) but does not eliminate it. - Myth: “VDP is only for individuals.”
Reality: Corporations (your MPC), GST/HST registrants, and T1135 filers can all use it. - Myth: “If it’s exempt health care, GST/HST never applies.”
Reality: Certain services/products are taxable—classification must be done line-by-line.
Dexado’s Ex-CRA Advantage: fix it once, fix it right
VDP success hinges on completeness, positioning, and future-proofing. Led by an ex-CRA auditor, Dexado prepares audit-proofed returns, reconstructs records that withstand review, and sets durable controls for your clinic. If CRA reviews a return we prepared, we stand with you throughout. Our healthcare focus means we know the realities of EMR workflows, insurer remittances, clinic reimbursements, and professional-corporation rules.
Practical example: turning a messy year into a clean slate
A specialist clinic mixed exempt treatments with taxable medico-legal reports and sold devices at the front desk. Nothing was mapped; GST/HST was treated as all exempt. We:
- Mapped every SKU/service (exempt, zero-rated, taxable) and corrected two years of GST/HST via VDP (penalties removed; interest reduced).
- Rebuilt revenue using EMR daily lists + deposits; disclosed under-reported income.
- Cleaned up shareholder credit-card charges, reclassifying personal items and documenting reimbursements; eliminated shareholder-benefit exposure.
- Implemented monthly reconciliations, a tax matrix embedded in POS/EMR, and a shareholder-expense policy.
Result: accepted VDP, lower total cost than a reassessment, and controls that keep the clinic compliant.
Your next steps (checklist)
- Identify issues: GST/HST mapping, revenue gaps, T1135, shareholder loans/benefits.
- Pull records: Bank/credit cards, EMR/insurer/billing reports, sales/POS exports, investment and foreign asset statements.
- Get numbers: Estimate balances by year to frame payment plans.
- Move first: File VDP before CRA contacts you.
- Build guardrails: Update coding, policies, and monthly close so problems don’t return.
Conclusion: close the past, protect the future
If you’re worrying about past slips GST/HST classification, missed income, unfiled T1135s, or shareholder-related adjustments the best time to fix them is before CRA knocks. The VDP is designed for exactly this moment. With Dexado’s medical-sector expertise and Ex-CRA insight, you can resolve the past, reduce the cost, and install systems that keep your practice audit-ready.
Book a confidential consultation with Dexado today. Let’s resolve yesterday and make sure it doesn’t repeat tomorrow.
References
- CRA Voluntary Disclosures Program (IC00-1R6) and Form RC199 (VDP Application).
- CRA: Foreign Income Verification Statement (T1135) – guidance and filing requirements.
- CRA: GST/HST – General Information for Registrants (RC4022) and sector-specific guidance for health services.
- CRA: Shareholder benefits and shareholder loans – Income Tax Act s.15(1), s.15(2); CRA interpretive guidance (current folios/IT bulletins).
- CRA: Audit selection and risk-based approaches (general program descriptions).
(Per Dexado content standards, references are listed here for credibility; no links are placed in the body.)
Disclaimer
This blog is for educational purposes only and does not constitute tax, legal, or accounting advice. Tax rules change and individual circumstances vary. You should obtain personalized advice from a qualified professional before acting on the information in this article.
Prepared to Dexado standards (≈1,600 words; narrative flow with subheadings; examples included; Ex-CRA advantage highlighted; internal link recommendations; references and disclaimer added). Title preserved exactly as provided.
