CRA Audit Risks for Medical Professionals: Insights from a Former CRA Auditor

Introduction

For doctors and healthcare providers, patient care always comes first. But overlooking tax responsibilities can lead to unnecessary attention from the Canada Revenue Agency (CRA). Because of the way medical practices operate, they are often subject to higher scrutiny. At Dexado Accounting & Tax, led by a CPA and ex-CRA auditor, we understand which practices raise red flags and how you can stay compliant. This article outlines the most common CRA audit triggers for medical professionals and steps to minimize those risks.

1. Income Reporting: Keep It Consistent with Bank Deposits

One of the biggest mistakes professionals make is reporting income that doesn’t match their bank records. CRA generally assumes any unexplained deposit is taxable unless you have proof otherwise.

How to stay safe:

• Use a business-only bank account and avoid mixing personal and professional transactions.
• Deposit all payments, including cash.
• Reconcile monthly using software or spreadsheets to ensure deposits match reported revenue.

Even small discrepancies can invite CRA questions, so consistency is critical.

2. Expense Deductions: Follow CRA Rules Closely

Travel Costs

Expenses tied directly to business—such as medical conferences, seminars, or patient-related travel—are deductible. Trying to write off family vacations as business expenses is a common trigger.

Vehicle Expenses

Vehicle use is another area where mistakes are frequent:

• Travel between home and clinic is usually not deductible unless your home is your primary workplace.
• CRA requires a mileage log with dates, distance, and purpose.
• Mileage tracking apps can simplify this process.

Employing Family Members

You can legally pay family members if the wages reflect the work performed. Maintain detailed records, issue proper tax slips, and keep timesheets to prove the legitimacy of the payments.

Home Office Claims

If you work from home, a portion of your household expenses may be deductible.

• The space must be used regularly and exclusively for work.
• Deductions should be based on square footage.
• Keep bills, receipts, and photos for proof.

At Dexado, we ensure deductions are calculated properly and fully supported.

3. Personal Services Business (PSB) Reclassification

If your incorporated practice resembles an employee arrangement—for example, working only for one hospital, following their schedule, and receiving benefits—the CRA may reclassify your corporation as a Personal Services Business (PSB).

This results in higher tax rates and limited deductions. CRA looks at factors such as:

• Do you work with more than one client?
• Do you set your own hours and use your own tools?
• Do you depend on one payer?
• Do you receive employee-like benefits?

Dexado reviews contracts and billing practices to reduce the risk of PSB classification.

4. Incorporation Issues: Goodwill Complications

Incorporating your practice is often tax-efficient, but if done incorrectly, CRA may view the transfer of your sole proprietorship as a sale—including goodwill. That can trigger unexpected capital gains tax.

A Section 85 rollover can prevent this by allowing you to transfer assets into your corporation without immediate tax. Dexado helps with valuations, structuring, and elections to avoid costly mistakes.

5. GST/HST Compliance: Get It Right

Most medical services are GST/HST exempt, but not all. Misclassifying them is a frequent error.

Examples:

• Exempt: Physician visits, therapy services
• Zero-rated: Certain medical devices and exports
• Taxable: Cosmetic procedures, health product sales, medical reports

Incorrectly applying or missing GST/HST charges can lead to back taxes and penalties. We review your billing to ensure services and products are properly classified.

6. Why CRA Audits Target Medical Professionals More Often

CRA tends to review medical professionals closely because:

• They generally earn higher incomes.
• Expense claims sometimes mix personal and professional use.
• Family members are often on payroll.
• Revenue streams include insurance, private pay, and product sales.
• Many incorporations are set up without proper tax planning.

These factors don’t guarantee an audit but do increase the chances—making careful planning and documentation essential.

7. How Dexado Supports Medical Professionals

Our CRA Audit Protection & Tax Planning Services cover:

• Risk reviews of tax returns and business structures
• Guidance on family, travel, and vehicle deductions
• Contract reviews to avoid PSB issues
• Proper structuring for incorporations
• Correct GST/HST application
• Ongoing recordkeeping and compliance support

At Dexado, we don’t just file taxes—we help medical professionals shield their practices from unnecessary CRA scrutiny.

Conclusion

A CRA audit can cause major stress and financial disruption for medical professionals. The best defense is proactive planning, accurate recordkeeping, and expert guidance.

With insights from a former CRA auditor, Dexado Accounting & Tax understands what the CRA looks for and how to keep your practice audit-ready.