The primary advantage to incorporation is the ability to defer taxes and accumulate capital. Medical Professional Corporations in Ontario can issue non-voting shares to family members and therefore doctors can income split with non-medical professionals as shareholders of the medical professional corporation. The primary advantage to incorporation is the ability to defer taxes and accumulate capital.
The Business Corporations Act (Ontario) was amended in 2006 to allow Medical Professional Corporations in Ontario to issue non-voting shares to “family members.” In other words, doctors can income split with non-medical professionals as shareholders of the medical professional corporation.
Incorporation of your professional services allows you to reduce your overall tax bill. Your corporation is taxed at 15.0% on the first $500,000 of active business income versus your current marginal tax rate of 53% (the highest Ontario marginal tax rate for personal income as of 2016). This is especially advantageous if you do not require every dollar of your income to maintain your lifestyle. In addition to a lower tax rate, incorporation allows you to utilize the lifetime capital gains exemption on the sale of the shares of your professional corporation (this may apply to some physicians) as well as increase income-splitting opportunities with your spouse and adult children.
Consider the following….
- Dividend tax planning with family members (spouse, children over 18)
- Expenses paid by the corporation such as corporate owned life insurance (non deductible expense) or club memberships
- Investment income taxed at corporate level instead of the personal level.
- Greater investment pool when funds are retained in the corporation.
The above is an overview of incorporation and is not to be relied upon for definitive legal, tax or financial planning advice. Professionals interested in exploring the opportunities of incorporation in their practice should consult with experienced corporate law, tax and financial planning advisors to discuss their specific needs and circumstances. E&OE.