A Cost Sharing Agreement Might Be Good For Your Medical Practice — Or Not!

Author:Mr Alan Wainer CA, CPA (Illinois) and Silvia Jacinto, BComm, MTax
Profession:Crowe Soberman LLP

We recently met with one of our clients, a general practitioner, who was in the process of taking on an associate. His past experience with governance matters, especially around the fair and equitable splitting of costs, led him to us. He knew that before going forward he had to formalize the business relationship through a written agreement.

There are many business structures available for medical professionals, including unincorporated, incorporated and partnership structures. We determined that the best fit for our client's particular circumstances was an unincorporated one known as a Cost Sharing Agreement (CSA).

A typical CSA can be quite complex but will have four major components, covering: the governance of the arrangement, the business relationship of the parties, the allocation of practice costs to each practitioner or their medical professional corporation as the case may be, and the withdrawal, retirement or death of a practitioner.

To help you determine the best structural fit for your situation, here are some of the advantages and disadvantages of a CSA.


Each participant in the CSA may have his or her own incorporated practice. As long as the CSA is not construed to be a partnership, this should entitle them to the small business deduction (SBD), which results in a tax rate in Ontario of just 15.5% on the first $500,000 of taxable income. In a partnership structure, on the other hand, the $500,000 SBD must be shared amongst the partners. Each practitioner can maintain control of his or her own medical practice and, at the same time, benefit from the sharing of common expenses with the other practitioner. Each practitioner owns his or her own medical equipment and therefore can maintain separate tax accounts for it, as well as make discretionary deductions, such as tax depreciation. Given the agency relationship between the practitioners under a CSA, the sharing of expenses is not considered to be a reimbursement of expenses by one party to another. This means those expenses are not subject to HST, as they might be under a structure where reimbursement could be considered a re-supply of the goods or services. Disadvantages

Each party to the CSA is considered a "de facto" employer in respect of shared employees, and all risks associated with the shared employees are borne by both parties. Shared employees will be employed by both practitioners under the CSA. This means both the employees and the practitioners...

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