Doctor's Tax Insights - Deductible vs Non-Deductible Expenses

Doctor's Tax Insights is a bi-weekly newsletter with the goal of sharing practical tax and financial planning insights tailored specifically for physicians - from the benefits of incorporation, to retirement planning, and more advanced strategies.

One of the most common questions physicians ask is:

“Can I deduct this expense?”

With CRA audits increasingly targeted at professionals, it’s important to clearly understand what’s deductible, what’s not, and what requires careful structuring. Although this newsletter is mainly addressed to physicians with their own medical professional corporations, most of the expenses discussed here equally apply to self-employed physicians.

✅ Generally Deductible Expenses (When Reasonable & Documented)

Practice & Office Costs

• Clinic rent and shared facility fees

• Medical and clinical supplies

• EMR, billing, scheduling, and telemedicine platforms

• Accounting, legal, and bookkeeping fees

Professional Costs

• College and licensing fees

• Membership dues

• Professional development costs

• Medical journals and subscriptions

Technology & Equipment (typically through tax depreciation)

• Computers, tablets, phones used for practice

• Medical equipment

• Internet and phone (business-use portion)

Staff & Compensation

• Administrative staff and contractors

• Payroll and employer-paid benefits

Retirement & Benefits

• Health Spending Account (HSA) if it is reasonable relative to employees’ salaries.

• HOOPP employer contributions

• Individual Pension Plan (IPP) employer contributions

These are legitimate planning tools for incorporated physicians and are commonly used in practice. We will discuss these plans in more detail in later newsletters.

🚫 Non-Deductible (Commonly Misunderstood) Expenses

Golf & Club Dues

• Golf club memberships, green fees, and social club dues are specifically denied under the Canadian tax rules, even if networking occurs.

Personal & Family Expenses

• Groceries, personal clothing, children’s activities, and other personal living expenses cannot be claimed as an expense by your medical corporation. If these amounts are paid by your medical corporation, this may be treated as a loan that the corporation has made to the individual and/or a taxable benefit to the individual.

• Travel expenses without a valid business purpose also cannot be claimed as a business expense.

Life Insurance

• Generally, life insurance premiums cannot be claimed as a business expense unless the policy is used as collateral for a loan related to your business.

⚠️ Special Considerations

The following expenses are commonly scrutinized by the CRA and therefore, should be carefully considered before claiming them as deductions.

Home Office Expenses

• Home office expenses may be deducted if the home office is:

• Your principal place of business, or

• Used exclusively for business and for regularly meeting patients.

• If a physician performs a significant amount of their work at home (e.g., scheduling, billing, documentation, virtual meetings, etc.) and cannot perform these activities on site, there may be a strong argument that the home office is their principal place of business.

  
  

• Another consideration is the significance of the deduction. For example, assuming that a physician uses 15% of their home with an annual home cost of $40,000 for the year, the eligible home office expense would be $6,000. On a corporate tax rate of 12%, the tax savings would be $720. Whether the savings justify the work involved in claiming the home office expense is something that should be considered.

Automobile Expenses

• The tax implications differ based on whether the vehicle is maintained under the company’s name or under a personal name. Furthermore, the implications also differ based on whether the vehicle is leased or purchased.

  
  

• Although detailed analysis of each of these scenarios will be covered in a later newsletter, the following are relevant points:

• To the extent that the vehicle is held under the company’s name, taxable benefits would arise to the individual owner if the vehicle is used for personal purposes.

  
  

• There is a limit to the amount of deduction that the company may claim. Generally, if the car is purchased for a price exceeding $38,000 (higher threshold for electric vehicles) or lease payment is more than $1,100 per month, the company will not be able to claim the full deductions.

  
  

• If the vehicle is held under an individual’s name, the company may provide a tax-free car allowance to the individual (if they are an employee) or reimburse the individual for the business portion of car expenses incurred by the individual.

• The CRA considers commuting from home to a work location (or vice versa) to be personal use. If possible, it is recommended to add a business stop during the commute (e.g., visiting a patient/client, meeting your accountant, etc.) which would make the trip a business trip.

  
  

• As the CRA closely reviews vehicle expenses, maintaining an up-to-date mileage log is a must.

Meals & Entertainment

• Generally 50% deductible if the meals and entertainment had a clear business purpose. However, the CRA allows 100% deduction for up to six social events in a year if all of the employees are invited.

  
  

• Gifts of food, wine, and entertainment are generally subject to the 50% limitation rule even if they are only enjoyed by the recipients.

Final Thought

Deductions are powerful—but over-claiming or misclassification often creates more risk than benefit.

A proactive expense review typically:

• Improves after-tax cash flow

• Reduces audit exposure

• Identifies planning opportunities most physicians miss

If you’d like a corporate expense or benefits review, feel free to reach out.

Warm regards, 

Francis Do, CPA, CA

Have any questions? Please contact Francis Do at Francis@francisdo.com or 416-572-9633.