As Physicians start to plan for retirement many ask what happens to their corporation and the assets they have accumulated inside the corporation when they retire. Below is an overview on some ideas for consideration.
A corporation is a separate legal entity from you the physician and is owned by the shareholders. The corporations’ articles of incorporation established 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.
When you retire, there are two things that should be considered.
- A Medicine Professional Corporation (MPC) can only practice medicine when one voting shareholder is a member of the College and holds a valid certificate of registration. Once you retire, this no longer exists.
- The Ontario Business Corporations Act requires you to remove the word professional from the corporation as your corporation is no longer a professional corporation.
Once you retire, you can dissolve the corporation or move it to a regular corporation which is a holding company for the assets you have accumulated. You will need to amend your articles of incorporation. Maintaining the corporation during retirement may provide additional tax planning opportunities for you and your spouse to take advantage of such as income splitting and lower tax rates.
Estate issues for consideration…
Generally, when the owner of the corporation dies (you) and is survived by their spouse, the shares can be transferred to a spouse or spousal trust tax-free. When you and your spouse both pass away, the next step is to distribute the assets out of the corporation to the children and there are up to three levels of tax that may occur.
It is important to look at the tax and insurance planning options within the corporation and start to consider what happens to the assets in the corporation once you pass away. Without advanced planning, your corporation may lose up to 71% of its assets when you and your spouse pass away.
Elliott Levine, MBA, CFP is the President of Levine Financial Group in Toronto
416-222-1311 I firstname.lastname@example.org
The above article is intended as conceptual planning for you to consider with your tax accountant and lawyer and not intended as tax or legal advice.