To Incorporate or Not Incorporate a Medical/Dental Practice

Medical and dental practitioners may provide their services through a corporation registered and licensed in the province they provide these services.

Portrait of a BusinesswomanDr. Casey is a Urologist practicing in a smaller community in southern Ontario. She is 55, married and has two children attending university. Her annual income is approximately $400,000 after her medical practice expenses. Dr. Casey plans to retire in 10-15 years. She currently has $250,000 in RRSPs and $60,000 in non-registered funds. Her $1.0 million dollar home has a mortgage of $525,000.

Dr. Casey employs her husband as an administrative assistant and he earns $36,000. She contributes $22,000 annually to her RRSP and $7,200 to her husband’s RRSP. She has a combined tax payable of $140,900 and combined CPP payable of $7,800.

After taxes, CPP and RRSP contributions her remaining disposable income is $222,000 (and $29,000 in RRSP savings). Dr. Casey feels she will need approximately 70% of her current disposable income in retirement.

Claudio’s Recommendation:

Dr. Casey should incorporate her practice making her spouse and two adult children shareholders. Dr. Casey would own 100% of the voting shares, her spouse and two children would be issued a separate class of non-voting shares.

Dr. Casey will not pay salaries to anyone in the professional corporation (avoids paying $7,200 in CPP).

On $400,000 of income the corporation will pay approximately $66,000 in corporate taxes (current small business tax on first $500,000 of active business income). She will pay $38,000 in dividends to each child attracting only $450 for Ontario Health premiums and no income taxes. She will pay $82,000 in dividends to her husband and herself which will attract $18,000 of personal income taxes. These dividends after taxes will generate $222,000 equal to her current after tax disposable income.

After corporate taxes and dividends, the corporation will have $93,000 of retained earnings each year to fund her retirement plan as opposed to $29,000 in a RRSP (combined). Future withdrawals from these retained earnings in the corporation can receive preferential tax treatment, whereas withdrawals from the RRSP are 100% taxable as regular income.

Once the children complete collage and are earning their own income, Dr. Casey will have to pay more corporate taxes but will still save $62,000 annually in comparison to $29,000 in RRSPs, a $33,000 annual pure tax savings. Dr. Casey has enhanced her retirement assets by approximately $622,000 in principal alone.

Dr. Casey has effectively doubled her annual retirement savings just by implementing a more effective tax strategy allowing her to achieve her retirement goal.

Contact Claudio

Claudio Piron CPA, CA, CFP®, CSWP, TEP
Senior Investment funds Advisor
Insurance Advisor

HollisWealth Insurance Agency Ltd.
4 Director Court, Suite 110
Vaughn, Ontario, L4l 3Z5
Phone: 905 712 9302
Fax: 905 712 9330

Mutual Fund Dealers Association of Canada