Medical Practitioners

The Regulated Health Professions Act allows medical professionals as Physicians, Surgeons, Specialists, Dentists, Psychologists, Chiropractors, Physiotherapists, Optometrists, Pharmacists, Massage therapists, Opticians, Veterinarians and others to operate under a professional corporation for the purpose of practicing medicine. Most governing bodies do not allow anyone other than members of the institute or college to hold shares of the professional corporation. However under certain circumstances, you it might be possible to have family members owing non-voting shares in a professional corporation. Medical Practitioners can operate as a sole proprietor or under a professional corporation. Both options have advantages and disadvantages.

Sole proprietorship advantages:
Tax credits-If you operate as a sole proprietor, then you will have the opportunity of claiming many personal tax credits, among them claiming tuition fees. This can be beneficial for new graduates, who often have large educational credits that can be utilized. Other possible credits that can reduce tax payable include personal tax amount, purchasing RRSPs, medical expenses, charitable donations and many others. Another advantage is the lower setup, compilation and cost tax preparing cost.

Sole proprietorship disadvantages:
Unlimited liability-Businesses that operate as sole proprietor, you are personally liable for business actions and debts. Sole proprietorship is not considered separate legal entities, and thus, all personal property or wealth is linked to the business. Business owners are also responsible to pay debts.

Taxes-For high income taxpayers, sole proprietors often pay higher taxes owing because income is considered to be self-employed income.

Financing- Raising funds can be difficult since they cannot issue stocks or other investment income.

Medical Professional Corporations advantages:
Tax Deferral-Medical professional corporation are taxed at around 15% in the province of Ontario if you earn less than $500,000 in net income (total income less eligible expenses). If we compare this with being unincorporated, your net income can be taxed at your marginal personal tax rate, which is around 50%. This is a huge difference in taxes. The most advantageous tax position comes from withdrawing from your professional corporation, only the amount you need to cover your personal expenses, while leaving the rest of the funds in the corporation. This results in a large tax deferral savings. The larger the income you keep in your corporate bank account, the faster you can accumulate and grow your wealth.

Our firm will be glad to figure out the optimal level of income for you with the minimum amount of tax payable.

Income splitting- Under certain circumstances, you might be able to pay family members a salary or dividends. This can be highly beneficial for family members who have little or no income. If the family member works 20 hours a week for the health professional corporation, then they are entitled to dividends or once the professional reaches the age of 65, they are able to distribute dividends to their spouse without further restrictions.

Under certain conditions, it might be possible to create management corporations, which can charge administrative and other fees to the medical professional corporation for managing non-medical activities. This management corporation would not be restricted compared to the medical professional corporation.

Holding corporations should also be considered where the medical professional corporation can make related company loans to the holding company, thus allowing the holding company to make investments that the health professional corporation are not be allowed to do.

Shares of a medical professional corporation can qualify for the lifetime capital gains exemption, which is $ 892,218 for 2021. This means if the medical practitioner sells the shares of their health professional corporation, the first $892,218 of the sale price will be tax free. There are few rules that must be met in order to qualify.

Limited liability-Medical professional corporation’s shareholders have the added benefit of protection against personal civil liability, but not for professional negligence.

Medical Professional Corporations disadvantages:
Cost- Incorporating a medical professional corporation will have set-up fees, along with ongoing accounting, administration and compliance costs. It’s important to make sure that the benefits of incorporating outweigh the costs.