If you are a physician, dentist, optometrist, chiropractor, physiotherapist, or other regulated healthcare professional in Ontario earning over $200,000 in net professional income, incorporation is worth a serious look.

Here is what you need to know.

The tax advantage

The main benefit of incorporating is the small business tax rate. In Ontario, the combined federal-provincial corporate tax rate on the first $500,000 of active business income is approximately 12.2%. Compare that to the top personal marginal rate in Ontario, which is over 53% on income above approximately $235,000.

By incorporating, you can leave money inside the corporation (after paying yourself a reasonable salary) and pay only 12.2% on the retained amount. You pay the remaining tax only when you take the money out as dividends. This creates a tax deferral, not a permanent savings, but the deferral lets you invest more money for a longer period.

Who can incorporate in Ontario

Ontario allows many regulated health professionals to incorporate as Professional Corporations (PCs). The rules vary by profession:

  • Physicians: can incorporate under the Ontario Business Corporations Act with approval from the College of Physicians and Surgeons of Ontario (CPSO).
  • Dentists: can incorporate with approval from the Royal College of Dental Surgeons of Ontario.
  • Other regulated professionals (optometrists, chiropractors, pharmacists, physiotherapists, etc.): each has its own regulatory body with specific rules for professional corporations.

What incorporation costs

Expect these costs:

  • Legal fees for incorporation: $1,500 to $3,000
  • Annual corporate tax return preparation: $2,000 to $5,000
  • Annual regulatory fees (College approval/renewal): varies by profession
  • Bookkeeping for the corporation: $200 to $500/month depending on complexity

If your net professional income is under $150,000, the tax savings from incorporation may not justify the additional compliance costs. The break-even point depends on your personal spending needs and how much you can leave in the corporation.

Salary vs dividends

Once incorporated, you choose how to pay yourself:

  • Salary: deductible to the corporation, creates RRSP room, allows CPP contributions, and is straightforward. Requires payroll registration and T4 filing.
  • Dividends: not deductible to the corporation, no RRSP room, no CPP. Taxed at a lower personal rate through the dividend tax credit.
  • Most professionals use a mix of both: enough salary to maximize RRSP room and CPP, with dividends for the rest.

What incorporation does NOT do

  • It does not protect you from professional liability. You are still personally liable for malpractice.
  • It does not eliminate taxes. You defer them. The money is eventually taxed when taken out.
  • It does not make sense for everyone. If you spend everything you earn, there is nothing to defer.

Next steps

Before incorporating, run the numbers with a CPA. You need a projection of income, personal spending, RRSP capacity, and a comparison of the tax cost with and without a corporation. Then work with a lawyer who specializes in professional corporations to set up the entity and get regulatory approval.

L&R Accounting works with healthcare professionals across Ontario on incorporation planning, corporate tax returns, and salary-dividend optimization. If you are earning enough that incorporation might make sense, we can run the analysis.

Geetha Srinivasan, CPA (Ontario), CPA (US)
L&R Accounting Services Ltd.