Who Can Incorporate by Province
| Province | Doctors | Dentists | Lawyers | Accountants | Engineers | Other Health |
|---|---|---|---|---|---|---|
| Ontario | Yes | Yes | Yes | Yes | Yes | Most regulated |
| BC | Yes | Yes | Yes | Yes | Yes | Most regulated |
| Alberta | Yes | Yes | Yes | Yes | Yes | Most regulated |
| Quebec | No* | No* | No* | No* | No* | No* |
| Manitoba | Yes | Yes | Yes | Yes | Yes | Most regulated |
| Saskatchewan | Yes | Yes | Yes | Yes | Yes | Most regulated |
| Nova Scotia | Yes | Yes | Yes | Yes | Yes | Most regulated |
| New Brunswick | Yes | Yes | Yes | Yes | Yes | Most regulated |
Quebec allows “expense-sharing companies” but not true professional corporations with the same tax advantages.
Tax Comparison: Incorporated vs Unincorporated (Ontario, $300K Income)
| Item | Unincorporated | Incorporated (Salary + Retain) |
|---|---|---|
| Practice income | $300,000 | $300,000 |
| Salary paid | N/A | $100,000 |
| Corporate income | N/A | $200,000 |
| Personal tax (on full/salary) | ~$110,000 | ~$32,500 |
| Corporate tax (12.2% SBD) | N/A | ~$24,400 |
| Total tax paid now | $110,000 | $56,900 |
| Tax deferred | $0 | ~$53,000 |
| After-tax cash (personal) | $190,000 | $67,500 (personal) + $175,600 (corporate) |
Optimal Salary/Dividend Mix for Professionals
| Practice Income | Salary | Dividend | Retain in Corp | Why |
|---|---|---|---|---|
| $150,000 | $100,000 | $0 | $50,000 | RRSP room, CPP, modest retention |
| $200,000 | $100,000 | $0 | $100,000 | Strong RRSP room, grow corporate investments |
| $300,000 | $100,000 | $30,000 | $170,000 | Max RRSP room, dividend for spending, large retention |
| $500,000 | $120,000 | $50,000 | $330,000 | Above RRSP max, moderate lifestyle, aggressive saving |
| $750,000+ | $120,000 | $80,000 | $550,000+ | Max tax deferral, holdco essential |
Common Professional Corporation Structure
| Entity | Purpose | Tax Treatment |
|---|---|---|
| Professional corporation (PC) | Operates the practice | 12.2% on first $500K (SBD) |
| Holding company (holdco) | Receives dividends, holds investments | Tax-free inter-corporate dividends |
| Individual professional | Owns holdco, receives salary from PC | Personal income tax on salary/dividends |
| Family trust (optional) | Can hold holdco shares for income splitting | TOSI rules limit benefits |
| Spouse/adult children as shareholders | Receive dividends (if TOSI allows) | Must be 25+ and actively involved for lower rates |
Tax Planning Strategies for Professionals
| Strategy | How It Works | Annual Benefit |
|---|---|---|
| Pay salary for RRSP room | $100K salary → $18,000 RRSP room | $5,000–$9,000 tax savings |
| Retain earnings in corporation | Defer tax on corporate income | $30,000–$100,000+ per year deferred |
| Pay dividends to holdco | Tax-free inter-corporate dividends | $0 tax on transfer |
| Individual Pension Plan (IPP) | Defined benefit pension funded by corporation | $30,000–$50,000/yr contribution (age-dependent) |
| Health Spending Account (HSA) | Corporation funds health expenses tax-free | $2,000–$10,000/yr |
| Lifetime Capital Gains Exemption (LCGE) | Purify PC shares for $1,016,836 exemption on sale | $100,000–$200,000+ on sale |
| Estate freeze | Freeze PC/holdco value, growth to children | Multi-generational planning |
| Corporate class life insurance | Cash value grows tax-sheltered | Bypass passive income rules |
Individual Pension Plan (IPP) vs RRSP
| Feature | RRSP | IPP |
|---|---|---|
| Max contribution (age 50) | ~$32,490 (2026 limit) | ~$40,000+ |
| Max contribution (age 60) | ~$32,490 | ~$55,000+ |
| Funded by | Personal or corp salary | Corporation (deductible) |
| Investment control | Full flexibility | Must meet actuarial targets |
| Creditor protection | Yes (except recent contributions) | Yes (pension legislation) |
| Terminal funding on wind-up | No | Additional tax-deductible contribution |
| Setup cost | $0 | $3,000–$5,000 |
| Annual cost | $0 | $1,500–$3,000 (actuarial) |
| Best for | Under age 40 | Age 45+ with high T4 income |
Health Spending Account (HSA)
| Feature | Details |
|---|---|
| How it works | Corporation funds HSA; employee claims eligible medical expenses |
| Tax to corporation | Deductible business expense |
| Tax to professional | Tax-free benefit (if sole employee or <2 employees) |
| Eligible expenses | Dental, vision, prescriptions, paramedical, travel medical |
| Annual limit | No legislated cap; $5,000–$15,000 typical |
| Family coverage | Can cover spouse and dependents |
| Requirement | Must be an employee of the PC (salary) |
Passive Income: Impact on Professional Corporations
| Passive Investment Income | SBD Available | Strategy |
|---|---|---|
| Under $50,000 | Full $500,000 | No concern |
| $50,001–$100,000 | $250,000–$500,000 | Monitor; consider holdco with life insurance |
| $100,001–$150,000 | $0–$250,000 | Shift to personal TFSA/RRSP, or holdco with insurance |
| Over $150,000 | $0 | Significant planning needed; use IPP, insurance, personal accounts |