Incorporating changes how you earn, save and protect your income, within limits set by Ontario law and your College. Here's what those rules allow, and the planning questions that tend to follow.
Ontario physicians and dentists can practise through a corporation that holds a certificate of authorization from their College. It's limited to the profession and related or ancillary activities, which the Business Corporations Act says include investing surplus funds earned by the corporation.
| Rule | For physicians and dentists |
|---|---|
| Certificate of authorization | Issued by the CPSO or the RCDSO and renewed each year |
| Voting shares | Owned by a member of the College |
| Non-voting shares | A College member, a spouse, child or parent of a voting shareholder, or trustees for a voting shareholder's minor children |
| Directors and officers | Must be shareholders who are College members |
| Holding companies | The CPSO and the RCDSO both say a holding company may not own shares |
| Permitted business | The practice of the profession and related or ancillary activities, including investing surplus funds |
| Professional liability | Not reduced by incorporating |
Your lawyer handles the incorporation and the College application, and should confirm the current requirements. The rest of this page covers the planning that follows.
If you don't need all your income to live on, leaving some in the corporation can defer personal tax. It's a deferral, not a permanent saving: tax applies when the money comes out.
Active business income is generally taxed at the lower small business rate on the first $500,000 a year, shared among associated corporations. Surplus can then be invested inside the corporation. Our guide to using retained earnings compares the main choices.
How you pay yourself matters too. Salary creates pension and RRSP room, and dividends don't.
Family members can own non-voting shares, but that doesn't make income splitting simple. Professional corporation shares can't be excluded shares under the tax on split income rules, so dividends to family are generally taxed at the top rate unless another exclusion applies, such as active work in the practice or a reasonable return.
Federally, once a corporation and its associated corporations earn more than $50,000 of passive investment income in a year, the small business limit starts to shrink the next year, and it's gone at $150,000. Ontario doesn't follow this reduction.
A portfolio built up inside the corporation can reach that level over time. Options to discuss with your accountant include a growth-oriented investment mix, an IPP and corporate-owned life insurance. Each has trade-offs, and our article on the $50,000 passive income rule has more detail.
It can be, if you pay yourself a steady T4 salary from the corporation, usually from about age 40 on. Pension room comes from salary, so a dividend-only pay mix doesn't create it.
An Individual Pension Plan is funded by the corporation, with contributions generally deductible, and it moves money out of the corporation's investments into a pension. The trade-offs are real: funding obligations, actuarial and administration costs, and locked-in money. Family members generally need to work in the practice and earn a T4 salary to join.
Insurance tends to do one of three jobs: protect your income, cover debts and tax at death, or shelter long-term surplus. Who owns and pays for each policy affects the tax result.
Your income depends on your ability to practise. If you pay the whole disability premium yourself, benefits are generally tax-free. If an employer pays any part, and your corporation can be your employer, they're generally taxable. Critical illness coverage pays a lump sum on diagnosis.
Growth inside an exempt corporate-owned policy is generally not taxed each year and doesn't count as passive income, and a death benefit creates a CDA credit. The rules refer to investing surplus funds without listing investments, so ask your lawyer to confirm a policy suits the corporation's articles.
Group practices may need a funded buy-sell agreement that respects who may hold shares. A practice that leans on one person may look at key person insurance.
If you expect to sell shares, corporate investments can affect whether they qualify for the lifetime capital gains exemption. For those tests, a policy is generally valued at its cash surrender value before death. Check with your accountant well before a sale.
If you need everything personally, there's little to defer, and the corporation adds cost.
The tax on split income rules limit this, so don't count on it.
Incorporating doesn't limit your professional liability.
Annual certificate renewal, corporate filings and accounting add cost and effort.
Your lawyer leads the corporate side.
Your surplus, passive income, coverage and how you pay yourself.
They confirm the tax treatment and that any plan fits your College's rules.
We handle the insurance and pension paperwork.
A spouse, child or parent of a voting shareholder can own non-voting shares, and trustees can hold them for minor children. Voting shares must be owned by a College member. Dividends to family may be caught by the tax on split income rules.
The CPSO and the RCDSO both say holding companies may not own shares in medicine or dentistry professional corporations. Confirm the current position with your lawyer before any reorganization.
Yes. The Business Corporations Act treats investing surplus funds earned by the corporation as an activity related or ancillary to the practice. Investment income is then taxed in the corporation and counts toward the passive income test.
No. Ontario law says your liability for a professional liability claim is not affected by practising through a professional corporation, and your professional, fiduciary and ethical obligations to patients are not diminished.
Under current rules, growth inside an exempt policy generally does not. Amounts included in the corporation's income, such as a gain on surrender, can count.
The family share rules described here are specific to physicians and dentists. Other regulated professions have their own rules, so check with your regulator.
A corporate-funded pension that can allow larger contributions than an RRSP for owners on salary.
Read the guidePermanent coverage owned by the corporation, with tax-sheltered growth and CDA planning.
Read the guideFunding a shareholder agreement with life insurance, and the structures to compare.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Values above the policy guarantees, including dividends, are not guaranteed.
A short call will show which of these questions matter most for your practice, and we work alongside your accountant.
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