Planning For You


Your articles of incorporation establish the existence of the corporation, the shareholders’ class of shares (for example A, B, C), voting rights, share value and the different rights of each shareholder. Your will determines who gets the shares of your corporation on your death. It may be prudent to review your articles of incorporation and your corporate will with your legal council to make sure these are consistent with your wishes.

Why incorporate?
The primary advantage to incorporation is the ability to defer taxes and accumulate capital.

Lower taxes
Incorporation of your professional services allows you to reduce your overall tax bill. Your corporation is taxed at 12.2% (2024) 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 2024). Incorporation is advantageous if you do not require every dollar of your income to maintain your lifestyle.

On July 18, 2017, the Department of Finance (Finance) released a consultation paper entitled “Tax Planning Using Private Corporations” (TOSI). This follows up on concerns expressed by Finance in Budget 2017 that high income Canadians were using private corporations to obtain tax advantages that are not available to other Canadians. These rules passed in June 2018.

In general most physicians income split with their spouse, their adult children and want to understand how the new rules generally apply. When we are talking income under the TOSI rules, we are talking about the dividends you may pay these individuals.

Salary is different then the TOSI rules and is covered by the income tax act which essentially states that salary must be reasonable for the work completed.

Adult income splitting
If you are incorporated and income split (i.e dividend income) with your spouse for example, your spouse must work 20 hours or more per week during the last tax year or any prior five years in order for that split income (dividends) to be excluded for the TOSI rules.

IF your spouse works less then 20 hours a week, then income paid to that spouse must be reasonable for the work the spouse has done. Any amount over and above a reasonable amount paid will be taxed at the highest marginal tax rate.

What does reasonable mean?
A payment will be considered a Reasonable Return based on the following criteria:

  • the work performed in support of the Related Business;
  • the property contributed directly or indirectly in support of the Related Business;
  • the risks assumed in respect of the Related Business;
  • the total amounts paid or payable by any person or partnership to or for the benefit of the individual in respect of the Related Business; and
  • such other factors that may be relevant.

Adult children age 18-24:
Generally speaking, the split income in excess of a reasonable return based on the contributions of these adult children will be subject to the TOSI rules. Essentially this means you can no longer reasonably pay dividends to adult children ages 18-24.

For individuals age 65 or over
Amounts received by the individual’s spouse will not be subject to TOSI if the amount would have been an Excluded Amount if included in the individual’s income.

The revised system is still very complex and the CRA will have discretion in the application of the reasonableness criteria, including 5 determining whether there is sufficient evidence to substantiate the number of hours worked in the business.

TOSI rules chart
Click chart to see a simplified layout on the TOSI rules from the tax law firm Moodys Gartner.

For complete details from the CRA on the TOSI rules click CRA TOSI RULES

As a small business, your corporation is entitled to the small business tax rate on the first $500,000 of active business income. The small business tax rate in Ontario is 13.5% (2018) and 12.5 (2019) on the first $500,000. Income over $500,000 is taxed at 26.5%. Under the proposed 2018 budget, the small business income limits will be reduced where passive investment income is greater then $50,000. If your passive investment income exceeds $150,000 per year, your corporation will be taxed at the regular tax rate of 26.5%.
Active business income qualifying for the small business tax rate under new business limits.
Passive Investment income Business Limit Reduction
$  50,000 $ 500,000 $ 0
$  75,000 $ 375,000 $ 125,000
$ 100,000 $ 250,000 $ 250,000
$ 125,000 $ 125,000 $ 375,000
$ 150,000 $ 0 $ 500,000
For example, if your corporation earns $100,000 in passive investment income, your corporation will get the small business deduction limit only on the first $250,000 of income. The remaining income will be taxed at the general tax rate of 26.5% in Ontario.
These new rules will be applicable for tax years that begin after 2018.

There is one thing for certain, money inside a whole life policy grows tax free and is not affected by these tax changes. There are five reasons to use whole life as an asset class.

  • Tax free growth. Similar to an RSP, money inside a whole life policy is deemed by Revenue Canada to be tax-exempt and therefore grows tax free.
  • Performance. Dividends are guaranteed to be paid and the increased annual cash values and death benefits are guaranteed. The current dividend interest rate is 6.25%.
  • Asset allocation. Sun life is the third largest debt provider in North American investing in Hospitals, Bridges and Roads making its asset allocation conservative with a history of strong performance in a participating insurance policy which means by law, the insurer must return 97.5% of the profit of the insurance portfolio to its policy holders (you).
  • Diversification. Perhaps most important is the fact that the traditional investment portfolio of stocks and bonds is no longer working.
  • Guaranteed growth. Each and every year as you get a policy statement these values are guaranteed. This means at the current dividend rate, unlike regular investments that fluctuate year by year, every year as your dividends are paid in, values are vested and guaranteed never to go down.

If you want to add whole life as an asset class, please call us at 416-222-1311 or email

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.