Physician Corporation

An Overview of Medical Professional Corporations Tax Benefits & Functionality

1. Historically, professionals like accountants, lawyers, and realtors have incorporated their businesses to reap tax and non-tax advantages. Similarly, doctors can also consider incorporating their practices for the same reasons. Here are the primary benefits of business incorporation: 
   • Reduced Tax Rate: If the corporation is recognized as a Canadian Controlled Private Corporation (CCPC), it can enjoy a lower tax rate of 12.2% (in Ontario) for business income up to $500,000. In contrast, operating as a sole proprietor could subject you to taxes as high as 53.3% (Ontario’s highest marginal tax rate). 

    

   • Income Splitting: By involving family members like your spouse or children, you can distribute dividends or salaries to them, effectively reducing your collective family tax liability. 

    

   • Payment Flexibility: Shareholders in an incorporated entity have various payment options, including salaries, dividends, or a combination of both. 

    

   • Lifetime Capital Gains Exemption: On selling your corporation, any capital gain can be exempted up to a limit, which was $913,630 for 2021 (adjusted for inflation). This is exclusive to shareholders of qualified Small Business Corporations (SBC). 

    

   • Estate Freeze: This allows for a tax-efficient transfer of your estate to the next generation. 
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   Incorporating a Medical/Physician Professional Corporation: Requirements 

   For physicians affiliated with the College of Physicians and Surgeons, Ontario (CPSO), the corporation must be a “professional corporation” and adhere to the stipulations of The Business Corporation Act, Ontario, and the Regulated Health Professions Act (RHPA). The specific conditions include: 

   • Establishing an Ontario Corporation: Apart from the standard incorporation process, the physician corporation must fulfill certain conditions, such as all shares being owned by members of the same profession. 

    

   • Incorporation Article Clauses: The articles of incorporation should specify that the corporation can only practice the profession and related activities. Any agreement that gives voting rights to non-members of the College of Physicians and Surgeons of Ontario is null and void. 

    

   • Name Compliance: The corporation’s name must adhere to specific regulations, including the inclusion of “Professional Corporation” or its French equivalent and indicating the health profession practiced. 

    

   • Directors and Officers: They must be shareholders and members of the college governing the profession. 

    

   • Certificate of Authorization: Before practicing, a Certificate of Authorization from the CPSO is required. The application involves several steps, including submitting a completed form, articles of incorporation, and a Corporation Profile Report. 

    

   Liability Aspects 

   While a professional corporation shields you from certain liabilities, it doesn’t offer protection against professional liabilities. However, it does provide protection against creditors for borrowed funds. Directors, even passive ones, may be subject to specific liabilities, making it essential to have directors’ liability insurance.