The VetCPA / OVMA Chart of Accounts

We’ve been working closely iwth the OVMA over the last few years to tailor a chart of accounts for an owner-managed veterinary clinic in Canada. A lot of the other standard options are overly granular in a way that is impractical to implement for an owner-managed practice. We’ve aimed to keep this as lean as possible. If you have any comments, please email Greg at greg@vetcpa.ca.

Our Chart of Accounts is available here.

Secure your practice’s future with an Employee Ownership Trust

Originally published in OVMA Focus Magazine September/October 2024

BY WILLIAM HILLOCK

Thinking back, university seemed like an endless parade of group work. Some group projects were more enjoyable than others, specifically the ones where students could choose their own group. Having the right people involved and knowing what each of us brought to the table made the project more enjoyable and often resulted in better grades.

Employee Ownership Trusts (EOT) could be thought of as a modern-day group project. An EOT is a specialized form of employee ownership, where a trust holds the shares of a company on behalf of its employees, ensuring they collectively benefit from the business’ success. An EOT provides veterinarians with a strategic option for succession planning that fosters a unified approach to practice ownership. In 2023, the federal government introduced new EOT rules, and, be aware, there are a few additional considerations for veterinarians to satisfy the regulations set out by the College of Veterinarians of Ontario.

For veterinarians contemplating retirement or transitioning ownership, an EOT offers a structured mechanism that differs from a traditional sale to an external buyer. Instead of selling to outsiders, practice owners can sell their shares to the trust, which is then held collectively for the benefit of all employees to share in the profits of the practice. This model not only facilitates a tax-efficient sale and smooth transition of ownership to the right people, but it also preserves the practice’s culture, values and commitment to high-quality pet care.

At a high level, implementing an EOT involves establishing a trust to acquire the shares of the qualifying business. A trust isn’t a legal entity, although it’s treated as such for Canadian tax purposes. A “trust” is simply the word used to describe the relationship created when property is transferred by one person (the “settlor”) to another (the “trustee”) to hold for the benefit of specified persons or a class of persons (the “beneficiaries”). The share purchase can be funded through a combination of internal financing mechanisms, bank loans or future profits.

As the trust acquires ownership, each team member becomes a beneficiary of that trust, aligning everyone’s interests toward the long-term success of the practice. This inclusive ownership structure not only empowers employees, but it also strengthens their dedication and engagement, fostering a culture of shared responsibility and pride in the practice’s achievements.

From a financial standpoint, an EOT can offer significant benefits to both the practice and its employees. The structure can provide tax advantages such as:

• The first $10 million in capital gains realized by the vendor would be tax-exempt for the 2024 to 2026 tax years.

• Ten years (instead of five) to claim the capital gains reserve and defer the tax resulting from a qualifying sale.

• Qualifying business can lend funds to an EOT to purchase shares with a repayment period of up to 15 years (instead of one year).

• Exemptions from the deemed interest on shareholder loans and 21-year deemed trust disposition rules.

An EOT also helps to ensure stability and continuity in operations. This financial security enables practices to reinvest in facilities, equipment and professional development, ultimately enhancing service delivery and client satisfaction.

Employee Ownership Trusts represent a forward-thinking approach to practice management and succession planning for veterinarians. An EOT not only secures the future of the practice, but it also promotes a collaborative work environment where every team member contributes to the practice’s growth and prosperity. By sharing ownership, veterinarians, technicians and support staff are incentivized to work together toward common goals, such as improving pet outcomes and expanding community outreach.

This model upholds a practice’s core values and standards of care, and it ensures that veterinary professionals can continue to serve their communities with dedication and passion, embodying the ethos of “we’re all in this together” in every aspect of practice ownership and management.

William Hillock, MAcc, CPA, CA, is director of tax compliance at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org

Can you predict the future?

Originally published in OVMA Focus Magazine July/August 2024

BY GREG TONER

As a kid, I loved the movie Back to the Future and its sequels. It has good humour and a great soundtrack, and there was something about the concept of knowing what’s going to happen in the future that stuck with me.

Early in my career, one of my mentors talked to his clients about “seeing what’s coming around the corner,” and that expression has resonated in many of my own discussions with clients.

How do we know what’s coming around the corner? Well, we don’t. But, if we spend some time thinking about what we want to be around that corner, we can then think about what will enable it to happen and what might prevent it from happening.

So, what do you want to be around the corner? More time with family? More money? A smoothly running practice with the capacity to handle surprises? Spend time thinking about this, as a poorly defined goal will give you results that you don’t want. Once you have an idea of what you want, think about:

• What are the things that are getting in your way?

• What are the things that you need to do more of?

• What are the things that you need to say no to?

Many practice owners I work with have a degree of chaos in their lives. They’re entrepreneurs, and every day brings new challenges. It can be the most rewarding and draining part of running a practice. This chaos can have an impact on them, their teams and their families. The most chaotic practices see high staff turnover, which adds to the chaos.

What if we could take away the most draining parts? For example, the feeling that everyone needs your time and that only you can solve issues that come up, or the anxiety during the slow days and the stress of busy days when you don’t have enough time to eat.

Getting control of the factors that add chaos to your day will help you predict how your days, weeks and months will unfold. You’ll be able to “see” into the future. These changes take time to make an impact. The top three changes that I’ve seen help practices are:

1 Tracking and reviewing key practice data.

There are a few key pieces of data from prior years that can help you predict what the next month or year will look like. Track things like the number of invoices, number of surgical cases, number of dental cases, revenues by service type, number of appointments and number of staff hours by role. It’s also important to know your clients and your client retention. Measure the number of active clients, new clients and pet ages. Monitor your practice’s performance relative to last year’s figures. Are you on track? What do you need to change? What levers do you need to pull to make those changes? It’s easy to watch revenues, but they don’t tell the whole story. By tracking these other data points, you’ll dig below the surface and get an idea of the health of your practice.

2 Developing and sharing clear processes for clinic operations.

Have processes in place for critical functions of your practice. For example, the beginning and end of day, new client visits, existing client visits and maintenance. If you do something more than once, you should have a documented process for that activity. This will ensure consistent results, and it will allow you to delegate more effectively. Make sure these processes are easily accessible and followed.

3 Hiring and promoting based on clear job descriptions and having a training plan.

Does your staff know the difference between an average and an amazing employee? Do they understand how to advance in your practice? What can they do to develop professionally? Having clear job descriptions and a progression of levels for the same role will allow you to identify who your star players are and reward them. It will also help your whole team progress, regardless of how skilled they are when they join your organization, since they have a path to follow. Develop training protocols for new hires, assign a mentor/trainer and have regular staff check-ins for your whole team.

If you have data (and more than just a revenue number), you can relax when it makes sense. You’ll know what’s normal and when it’s time to energize your staff and push harder. If you know what you want and don’t want to happen, and you document those processes and make sure they’re followed by your staff, you won’t have to worry about as many surprises. And if you hire and promote based on clear job descriptions and have a training plan to support those roles, you’ll be able to quickly identify who’s a good fit for your team and who isn’t. You may not be able to predict the future, but if you can reduce the number of surprises and move with more confidence through each day, isn’t it kind of the same thing?

Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org

Employment insurance for the self-employed

Originally published in OVMA Focus Magazine May/June 2024

BY GREG TONER

Melissa has been one of my clients since shortly after she graduated. She started working as an associate, and after about three years, she started working as a locum at a local emergency clinic. About six months ago, she and her husband, Tony, who is also a veterinarian and owns half of the practice that his father started 25 years ago, let me know that Melissa was pregnant.

In both of their cases, they aren’t covered by employment insurance (EI) for maternity and parental benefits. Melissa because she’s self-employed, and Tony because he owns more than 40 per cent of the voting shares of the corporation that operates the practice he works in.

Melissa and Tony are in their mid-thirties, and they’re planning on having three children. They both love practising veterinary medicine and plan on having long careers. Melissa loves the control that she has over her schedule as a locum, and Tony plans on purchasing the rest of his father’s practice in the coming years.

We recently discussed whether they were eligible for EI benefits, and how they would fund the time that they both plan to take off with their child.

There’s an option for self-employed individuals to register for EI benefits, however, there are two main issues for people in Melissa and Tony’s situation:

1. You need to register for the self-employed program 12 months before you make a claim.

2. Once you register, you’re bound to make premium payments to EI for employment (or self-employment) income for the rest of your life.

Timing

For the first issue, with the average gestation period for a baby being about 40 weeks, Melissa and Tony would have had to apply for the program about four months before they started trying to conceive their baby.

Economics

The second issue is more of an economics question. If you’re planning on having three children spaced two years apart, and inflation (which determines the annual increases in EI benefits) is about five per cent, you’ll receive about $105,000 in EI benefits over all three maternity leaves.

If you miss applying for the EI for self-employed program for your first child, or you only plan on having two children, you’ll only receive about $68,000 in benefits.

EI contributions for 2024 are $1,049.12. In Melissa’s case, she has another 30 years to practice, so using the same assumption of five per cent for inflation, she’ll contribute about $69,000 to the EI system.

It’s about break-even in her case. She gets about $68,000 in benefits when she needs them and pays roughly the same amount back into the system over the rest of her career. On top of that, she’s also eligible for these additional benefits under the EI system:

1. Sickness benefits (15 weeks).

2. Compassionate care benefits (26 weeks).

3. Family caregiver benefits—children (35 weeks).

4. Family caregiver benefits— adults (15 weeks).

For more information about these special benefits visit www. canada.ca/en/services/benefits/ei/ ei-self-employed-workers.html.

Spouses

What about Tony? He wants to take time off as well. In his situation, he would need to register for the same self-employed program and make the same commitment to contributing to EI for the rest of his working life. So, another roughly $69,000.

On top of that, he would need to contribute the employer’s portion of EI through his company, which would be roughly $97,000, since employers pay 1.4 times as much as employees to the EI system.

The total contribution is over $235,000 to receive about $68,000 in EI benefits, since Melissa and Tony need to share the benefits. In Tony’s case, it’s not worth registering for EI. He’ll have to fund his parental leaves from corporate savings.

What should you do?

It depends on your situation. Generally, it only makes sense to consider applying four months before conception.

When the birthing mother owns more than 40 per cent of the corporation they practice in, it likely doesn’t make sense to register for EI self-employment benefits— you’ll need to fund any leave from corporate or personal savings.

With both parents being self-employed, consider having only one parent register for the EI self-employed program. Since the birthing mother is eligible for 15 weeks more of benefits than the other parent, it likely makes sense for that parent to register with EI as a self-employed individual. It doesn’t make sense for both parents to register.

Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org