Professional Corporation in Canada: Who Can Incorporate, Rules and Tax Benefits

A professional corporation (PC) is a corporation that provincial law lets a licensed professional (a physician, dentist, lawyer, accountant, engineer and others) use to carry on their practice. This page covers who can incorporate, how a PC’s shares and activities are restricted, the tax deferral that makes it worthwhile, the personal services business trap and the running costs. It is part of the corporate, trust and estate tax guides.

What Is a Professional Corporation?

Unlike a standard corporation, a professional corporation comes with restrictions on who can own shares, what the corporation can do and what it can be called, but it still offers the same basic tax planning tools as any other CCPC.

The core benefit: instead of earning $400,000 as personal income and paying up to 53.5% tax on the top portion, a professional earns that income through their corporation and pays only ~11.2% at the corporate level (Ontario small business rate, effective July 1, 2026). How that rate works, and the federal and provincial rates behind it, is covered in the CCPC tax planning guide’s small business deduction section. The remainder stays invested in the corporation for retirement, education or other purposes, which is where passive income inside a corporation starts to matter.

Whether incorporating is worth it at all, compared with practising as a sole proprietor, is weighed on the self-employed vs incorporated page.

Which Professions Can Incorporate By Province

Doctors, dentists, lawyers, accountants and engineers can also incorporate in Manitoba, Saskatchewan, Nova Scotia and New Brunswick, along with most other regulated health professions. Rules change and exceptions exist, so each provincial regulator’s current rules are the final word; some provinces allow more professions than others.

Share Structure Restrictions

This is where professional corporations differ most from standard corporations:

Because voting shares must be held by the professional, income splitting via multiple voting shareholders is not available. However, some provinces allow non-voting shares to be held by:

• Spouse or common-law partner
• Children (adults only, in some provinces)
• Family trust (in some cases)

This creates partial income splitting opportunities: a lower-income spouse receiving dividends from non-voting shares can shift income to a lower bracket.

Dividends to family members are limited by the tax on split income: Since 2018, the tax on split income (TOSI) also applies to adults: dividends or interest (not salary) and certain capital gains that a family member gets from a private corporation's related business are taxed at the top marginal rate unless an exclusion applies. The main exclusions: the person is actively engaged in the business (on average at least 20 hours a week in the year or any five earlier years); at 25 or older, they own excluded shares or get a reasonable return for their work, property and risk; from 18 to 24, the amount is a safe harbour capital return or a reasonable return on arm's-length capital they contributed; or the amount would be excluded for their spouse or common-law partner aged 65 or older. The family trust guide’s TOSI section covers the exclusions in full.

Tax Deferral: The Core Benefit

The concept: the corporation earns professional income and pays low corporate tax (the small business rate). The professional takes out what they need to live on; the rest stays in the corporation, and personal tax on it is deferred until it is paid out, often in retirement when the professional’s tax bracket is lower.

Ontario Doctor Example: $500,000 Net Billings

Ontario Example: $300,000 Practice Income

Over 20 years, a deferral of this size compounding inside a corporation is substantial, even after the eventual tax on extraction. The deferral only exists for income left in the corporation: money paid out as salary or dividends is taxed personally in the year it comes out. How much to pay as salary and how much as dividends, and the trade-offs between them, is the subject of the salary vs dividend comparison.

How Professionals Usually Structure It

Many incorporated professionals add a holding company above the PC: the PC pays inter-corporate dividends to the holdco (Part IV tax can apply if the PC gets a dividend refund as a result), which holds the investments, and the same page covers using it for an estate freeze. Retained earnings that are invested eventually earn passive income, and more than $50,000 a year of it starts to shrink the PC’s small business deduction (the passive income grind).

Two other tools come up often for professionals with a salary from their PC:

• Individual pension plan. A defined benefit pension the corporation funds for the professional, with contribution limits that can exceed the RRSP limit for older owner-managers. Limits, costs and the effect on RRSP room are covered in the individual pension plan guide.
• Health spending account. The corporation funds eligible medical and dental expenses as a deductible business expense, and the benefit is generally tax-free to the professional. It requires the professional to be an employee of the PC (on salary), and it can cover a spouse and dependants.

A professional who later sells a practice through a share sale (the trade-offs against an asset sale are in selling your business) may be able to use the lifetime capital gains exemption, which has its own share tests.

What the Corporation Can and Cannot Do

Can Do

• Bill for professional services rendered by the professional
• Employ staff, lease office space, purchase equipment
• Retain after-tax profits and invest them
• Pay salary, bonuses and dividends to eligible shareholders
• Claim all normal business expenses

Cannot Do

• Carry on a different business (in most provinces, the PC must practise only the regulated profession)
• Engage in activities unrelated to the profession without risk of losing PC status
• Use a name that breaks the regulator’s rules; many provinces require the form “[Name] [Profession] Professional Corporation”

The Personal Services Business Trap

A personal services business (PSB) arises when the relationship between the professional and the entity paying them would be employment if the corporation didn’t exist. Key indicators:

PSB consequences:

• SBD is denied (corporate tax at 26.5% instead of 11.2% in Ontario)
• Most business expense deductions disallowed (only salary, EI, CPP and benefits to the incorporated employee)
• Potential reassessment of prior years

Most physicians billing through the provincial health plan are not PSBs because they bill the health plan, not a single employer, and control their practice. Professionals working as contractors through a staffing agency or exclusively for a single private employer face higher risk.

Compliance Costs

A professional corporation requires ongoing maintenance:

At net professional income of $150,000+, the tax deferral is usually much larger than these costs. Below $100,000, the costs can outweigh the benefit.

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