What Is a Professional Corporation?
A professional corporation (PC) is a specific type of corporation permitted under provincial legislation for licensed professionals. 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 fundamental 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 ~12% at the corporate level. The remainder stays invested in the corporation for use in retirement, education, or other purposes.
Which Professions Can Incorporate By Province
| Profession | Ontario | BC | Alberta | Quebec |
|---|---|---|---|---|
| Medical Doctor | Yes (CPSO) | Yes | Yes | Yes |
| Dentist | Yes | Yes | Yes | Yes |
| Lawyer / Notary | Yes (LSO) | Yes (LSBC) | Yes | Yes (notary) |
| Chartered Professional Accountant | Yes (CPA ON) | Yes | Yes | Yes |
| Architect | Yes | Yes | Yes | Yes |
| Engineer | Yes | Yes | Yes | Yes |
| Pharmacist | Yes | Yes | Yes | Yes |
| Physiotherapist | Yes | Yes | Limited | Limited |
| Chiropractor | Yes | Yes | Yes | Yes |
| Optometrist | Yes | Yes | Yes | Yes |
Always verify with your provincial regulator — rules change and exceptions exist. Some provinces allow expansion of eligible professions; others are more restrictive.
Share Structure Restrictions
This is where professional corporations differ significantly from standard corporations:
| Province | Voting Shares | Non-Voting / Economic Shares |
|---|---|---|
| Ontario (doctors, dentists, lawyers) | Must be held by licensed professional only | May be held by spouse/family in some professions |
| BC (lawyers) | Only licensed lawyers can be directors and shareholders | Stricter than most provinces |
| Alberta (doctors) | Professional must hold voting shares | Spouse/adult children may hold non-voting in some structures |
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.
Warning: TOSI (Tax on Split Income) rules apply. Only family members who are actively involved in the business or meet other exemptions are immune from TOSI on corporate dividends.
Tax Deferral: The Core Benefit
The concept: The corporation earns professional income. It pays low corporate tax (SBD rate). You extract income as needed. The remainder defers taxation until you are in a lower tax bracket (retirement).
Ontario Doctor Example: $500,000 Net Billings
| Scenario | Annual Tax to CRA | After-Tax Cash Available |
|---|---|---|
| Sole proprietor (personal) | ~$245,000 | ~$255,000 |
| Professional corporation (extract $150,000 salary) | Corp: ~$43,000; Personal: ~$41,000 = ~$84,000 | ~$416,000 (retained in corp) |
| Annual tax difference | ~$161,000 deferred | Retained inside corp for investment |
Over 20 years, that $161,000 annual deferral compounding inside a corporation is substantial — even after considering the eventual tax on extraction.
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 practice only the regulated profession)
- Engage in activities unrelated to the profession without risk of losing PC status
- Name the corporation deceptively — must include “[Name] [Profession] Professional Corporation” in many provinces
The Personal Service Business Trap
A personal service 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 Risk Factor | Description |
|---|---|
| Single payor | If 90%+ of billings come from one hospital, clinic, or institution |
| No independent client base | The professional has no separate practice |
| Client controls how/when work is done | Points toward employment, not independent business |
| No risk of profit/loss | Employer-like arrangement |
PSB consequences:
- SBD is denied (corporate tax at 26.5% instead of 12.2% 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:
| Cost Item | Typical Annual Amount |
|---|---|
| Corporate tax return (T2) | $1,500–$3,500 |
| Bookkeeping | $2,000–$5,000/year |
| Payroll administration | $500–$1,500 |
| Provincial annual filing | $100–$300 |
| Registration with professional regulator | $200–$500 |
| Total | ~$4,500–$10,000/year |
At net professional income of $150,000+, the tax savings far exceed these costs. Below $100,000, incorporation may not be worthwhile.