Introduction

For physicians and healthcare providers, patient care always takes priority. Still, that doesn’t excuse overlooking tax compliance. Because of the unique nature of their work, medical professionals often attract the attention of the Canada Revenue Agency (CRA).

At Dexado Accounting & Tax, led by a CPA and ex-CRA auditor, we know the common red flags and how to reduce exposure. This article explains typical CRA audit triggers for medical professionals and how careful planning can protect your practice.

1. Revenue Reporting: Keep It Aligned with Bank Records

A frequent cause of CRA audits is when income reported on tax returns doesn’t match bank deposits. CRA usually assumes unexplained deposits are taxable unless evidence proves otherwise.

Best practices include:

1. Always use a dedicated business bank account and avoid mixing personal funds.

2. Deposit every payment—even cash—into your business account.

3. Reconcile deposits against reported revenue each month with software or spreadsheets.

Even small mismatches can invite scrutiny, so precision is essential.

2. Expense Deductions: Follow the CRA Rules

Travel Costs

Business trips for training, conferences, or patient-related work are deductible. However, disguising personal vacations as business expenses is a guaranteed trigger.

Vehicle Claims

Vehicle expenses are another area CRA reviews closely:

1. Daily commutes between home and clinic usually aren’t deductible unless your home is your primary workplace.

2. CRA requires a mileage log showing the date, purpose, and distance of each trip.

3. Digital logs or mileage apps make compliance easier.

Hiring Family Members

Paying relatives is allowed if the compensation reflects actual work done. Payroll records, T4/T5 slips, and timesheets should back up these payments.

Home Office Expenses

If you run your practice from home, you may deduct a portion of utilities, rent, property taxes, and supplies.

1. The space must be used regularly and exclusively for business.

2. Claims should be based on square footage.

3. Keep supporting documents like bills, receipts, and photos.

At Dexado, we guide medical professionals on which deductions are valid and how to claim them correctly.

3. Personal Services Business (PSB) Concerns

If your professional corporation operates too much like an employer-employee setup—such as working only for one hospital, following their schedule, and receiving similar benefits—the CRA may reclassify your corporation as a Personal Services Business (PSB).

This limits allowable deductions and subjects income to higher tax rates. CRA considers:

1. Do you serve multiple payers?

2. Do you control your schedule and tools?

3. Are you financially dependent on one source?

4. Do you receive employee-style perks?

Dexado helps review contracts and invoicing practices to reduce PSB risk and maintain independent contractor status.

4. Incorporation Risks: Handling Goodwill Properly

While incorporating is usually beneficial, mistakes can be costly. CRA may view the transfer of a sole proprietorship into a corporation as a sale at fair market value—including goodwill—which can create capital gains tax unexpectedly.

The solution is a Section 85 rollover, which allows assets to be transferred into the corporation without immediate tax consequences. Dexado supports clients with valuations, elections, and structuring to prevent unnecessary tax liabilities.

5. GST/HST Compliance: Exempt or Taxable?

Most healthcare services are GST/HST exempt, but not all. Misclassification is a common mistake.

Examples include:

1. Exempt: Physician visits, therapy sessions

2. Zero-rated: Certain medical devices or exports

3. Taxable: Cosmetic treatments, medical reports, or product sales

Incorrectly applying or omitting GST/HST can result in penalties and backdated taxes. Dexado ensures your services and products are classified correctly.

6. Why CRA Scrutinizes Medical Professionals More Closely

CRA pays closer attention to medical professionals because:

1. Their income levels are typically high.

2. Expenses may blur the line between personal and professional.

3. Family members are often on payroll.

4. Practices may have multiple income streams (insurance, private, product sales).

5. Many incorporations are done without adequate tax planning.

These factors don’t guarantee an audit but increase the odds—making accurate recordkeeping and forward planning essential.

7. How Dexado Safeguards Medical Professionals from CRA Audits

Our CRA Audit Protection & Tax Planning Services include:

1. Full risk assessments of tax filings and corporate setup

2. Advice on deductions for vehicles, travel, and family wages

3. Review of contracts to avoid PSB reclassification

4. Proper structuring for new incorporations

5. Correct GST/HST categorization for services and sales

6. Ongoing support for best-practice documentation

We go beyond filing returns—we help prevent audits before they happen.

Conclusion: Stay Ahead of CRA

A CRA audit can disrupt your medical practice, finances, and peace of mind. The best defense is careful planning, strong documentation, and expert tax guidance.

At Dexado, our team brings the perspective of a former CRA auditor, giving us insider knowledge of what the CRA looks for—and how to keep your practice safe.