Guideline for Setting up a Practice - 2019
This resource is a compilation of information on starting a new practice. The contents of this document are for your consideration but are not to be considered as legal advice. The resources listed are not exhaustive but will start you in the right direction once you have a business plan and are ready to start.
BUSINESS OWNERSHIP STRUCTURES
If you are starting a business in NS Access Nova Scotia is a good place to start. Whether you need to register your business, obtain licenses and permits or start paying taxes they can help to get your business up and running smoothly. If you are registering a Partnership or Sole Proprietorship you can use the online service for business. In Nova Scotia, you have three choices when it comes to your business structure: 1) Sole Proprietor, 2) Partnership or 3) Incorporation. For many new businesses, the best initial ownership structure is either a sole proprietorship or – if more than one owner is involved -- a partnership.
With this type of business organization, you are the sole owner, and fully responsible for all debts and obligations related to your business. All profits are yours to keep. Because you are personally liable, a creditor can make a claim against your personal assets as well as your business assets to satisfy any debts. Advantages:
- Easy and inexpensive to register
- Regulatory burden is generally light
- You have direct control of decision making
- Minimal working capital required for start-up
- Some tax advantages if your business is not doing well (for example, deducting your losses from your personal income, and a lower tax bracket when profits are low)
- All profits go to you directly
- Unlimited liability (if you have business debts, claims can be made against your personal assets to pay them off)
- Income is taxable at your personal rate and, if your business is profitable, this could put you in a higher tax bracket
- Lack of continuity for your business if you are unavailable
- Can be difficult to raise capital on your own
A partnership is a non-incorporated business that is created between two or more people. In a partnership, your financial resources are combined with those of your business partner(s) and put into the business. You and your partner(s) would then share in the profits of the business according to any legal agreement you have drawn up. In a general partnership, each partner is jointly liable for the debts of the partnership. In a limited partnership, a person can contribute to the business without being involved in its operations. A limited liability partnership is usually only available to a group of professionals. (Such as lawyers, accountants physiotherapists, doctors etc.) When establishing a partnership, you should have a partnership agreement in place. This is important because it establishes the terms of the partnership and can help you avoid disputes later on. Hiring a lawyer or other legal professional to help you draw up a partnership agreement will save you time and protect your interests. Advantages:
- Fairly easy and inexpensive to form a partnership
- Start-up costs are shared equally with you and your partner(s)
- Equal share in the management, profits and assets
- Tax advantage — if income from the partnership is low or loses money (you and your partner(s) include your shares of the partnership in your individual tax returns)
- There is no legal difference between you and your business
- Unlimited liability (if you have business debts, personal assets can be used to pay off the debt)
- Can be difficult to find a suitable partner
- Possible development of conflict between you and your partner(s)
- You are held financially responsible for business decisions made by your partner(s); for example, contracts that are broken
- Legal issues for small business (Federal Government site)
Another type of business structure is a corporation. Incorporation can be done at the federal or provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that is separate from its shareholders. As a shareholder of a corporation, you will not be personally liable for the debts, obligations or acts of the corporation. It is always wise to seek legal advice before incorporating. Corporations that practice physiotherapy in Nova Scotia are governed by the Physiotherapy Act and Nova Scotia College of Physiotherapists Professional Corporations Regulations. The act and regulations require the majority of the issued shares and the voting shares be owned, legally and beneficially, by one or more registered physiotherapists. Also, a majority of the directors and the President of the corporation must be physiotherapists. Refer to the Act and regulations for further details and required forms. Advantages:
- Limited liability
- Ownership is transferable
- Continuous existence
- Separate legal entity
- Easier to raise capital than it might be with other business structures
- Possible tax advantage as taxes may be lower for an incorporated business
- A corporation is closely regulated
- More expensive to set up a corporation than other business forms
- Extensive corporate records required, including documentation filed annually with the government
- Possible conflict between shareholders and directors
- You may be required to prove residency or citizenship of directors
OTHER THINGS YOU SHOULD KNOW
Other important information to be aware of includes:
- Government Regulations
- Labour Standards
- Safety Regulations
- Payroll deductions, Remittances, Fines and Penalties, T4s and T4 Summaries
- Setting your Client Treatment Rates and Insurer Agreements
There are many laws and regulations which you must follow. They are either municipal, provincial or federal, and not knowing the law is no excuse for not following it. The onus is on you to learn what you have to know to be in business. References:
Every province has rules regarding the minimum hourly wages to be paid, overtime and paid holidays. These rules protect employees from unethical employers but as an employer you can inadvertently make mistakes on pay that put you in jeopardy of violating the law. You should familiarize yourself with the employment rules in your province. References:
In Nova Scotia, the Occupational Health and Safety department is responsible for workplace safety, in conjunction with the workers compensation board. It is your responsibility to know the workplace safety rules for business. References:
Payroll deductions, Remittances, Fines and Penalties, T4s and T4 Summaries:
The CRA website provides information on how much income tax you need to deduct from employees payroll cheques. You also have to deduct Canada Pension Plan (CPP) and Employment Insurance (EI) premiums. These need to be remitted to the government monthly along with your employer’s share of CPP and EI. You also need to issue annual T4s for each year’s earnings before February 28th of the next year. You also must submit to the federal government copies of all T4s and a T4 Summary document. See the CRA website for details and forms.
Setting your Client Treatment Rates and Insurer Agreements:
When setting treatment rates, you will want to cover your costs and consider what your competitors are charging. You must also consider what Blue Cross, WCB and other third-party payers will pay and decide whether you can afford to, or afford not to, take these clients. You may want to accept only payments from clients themselves and then let the clients bill their own insurers. Read all Agreements carefully
- To be sure that you can meet the requirements without compromising the Professional Standards of Practice and Code of Ethics.
- To be sure there are no requirements that are different than typical practice.
Hiring a Contractor
- Contractors don’t get benefits packages or pensions from the employer. They must pay someone to cover their vacations if they want to maintain clients. You have no say in who the contractor hires to help them or cover for them.
- They pay their own Canada Pension Plan CPP/QPP contributions and they make their own taxes and EI payments. They are responsible for their own health and benefit planning
- When you hire a contractor, it is assumed that they are proficient at the required task and therefore do not require paid training.
- You should have a detailed Contract of Service with specifics of the job, responsibilities of each party to the Contract, non-exclusive clause, vacation time/ coverage, equipment usage, advertising of services, and right of termination. (Could be an Appendix to the Contract)
- Hiring contractors allows flexibility in the contract to match your business activities, but diminishes control of the practice.
Hiring an Employee
- As an employer, you have to do payroll, which involves withholding income tax, pay the employer's share of CPP/QPP, Employment Insurance (EI), vacations etc.
- You may provide pensions, health and life insurance, and other common employee benefits, all of which increase your costs, but appeal to employees.
- When you hire an employee, it is assumed that they are proficient at what they do but you may offer professional development opportunities.
- You should have a detailed job offer that includes job description, salary and benefits, vacation time, and reference to any orientation, exclusivity, performance policies etc.
- Employing staff gives you full control over who is working for you and their work hours.
- The employer will have to remit unpaid taxes and may be subject to penalties and/or interest.
- CPP and EI premiums will all have to be paid.
- Business expense deductions claimed by the "contractor" will have to be repaid (this can have catastrophic financial repercussions in cases where a "contractor" has several prior years of deductions disallowed by the CRA).
If you, or your business, contract out your services
You need to be aware that the employee relationship and the business relationship are gray areas that are constantly in flux, so it’s important to do what you can to protect your ‘independent contractor in Canada’ status. In particular, you want to be sure work as a contractor remains "independent" of the employer by making sure it passes the Four Point Test. (See also the NSCP Employment Guideline) The Four Point Test is the standard that the CRA uses to determine which type of relationship exists. Their document Employee or Self-Employed? (RC4110) “sets out a method that should, in most cases, allow payers and workers to determine the nature of their relationship.” The method is based on four key points; control, ownership of tools, the chance of profit/risk of loss, and integration. The contractor who only has one client (business relationship) makes it too easy for others to perceive the relationship with that client as an employer- employee one. (*Having a single client puts your small business in danger of being declared a personal services corporation by the CRA.) If you are incorporated but working exclusively for a single employer and performing activities that an employee would normally perform you risk being considered a Personal Service Corporation and losing the ability to claim the Small Business Deduction and other decuctions.
Approved November 2019