Incorporation
Why doctors, dentists, and business owners incorporate in Canada
In Canada, many medical and dental professionals choose to incorporate their practices, and business owners their businesses.
In Canada, many medical and dental professionals choose to incorporate their practices, and business owners their businesses. While incorporation isn’t right for everyone, it offers a range of financial, tax, and legal benefits that make it a popular choice for physicians and dentists, especially those with higher earnings or established practices.
Here’s a breakdown of why incorporation is often advantageous for health professionals in Canada.
1. Tax Deferral Opportunities
One of the primary reasons to incorporate is income tax deferral. When you earn income through a corporation, you pay the small business corporate tax rate, which is significantly lower than the top personal tax rate.
For example:
%
Small business tax rate
Around 12% to 15% (varies by province)
%
Top personal tax rate
Can exceed 50%
By leaving income in the corporation instead of withdrawing it all as salary or dividends, professionals can defer personal taxes and reinvest retained earnings into the business or other investments.
2. Income
Splitting
(Where Permitted)
Although the federal government tightened rules on income splitting through Tax on Split Income (TOSI) in 2018, there are still limited opportunities to split income in specific circumstances:
Spouse or adult child
Split income with a spouse or adult child who works meaningfully in the practice
Non-Voting Shares
In provinces that allow non-voting shares for family members (rules vary)
Estate Planning
Through retirement and estate planning with careful structuring
Income splitting can reduce a family’s overall tax burden if structured properly and within legal limits.
3. Lifetime Capital Gains Exemption
(LCGE)
In certain cases, selling the shares of a professional corporation may allow access to the Lifetime Capital Gains Exemption, which is over $1 million in 2025.
While it’s more complex for professional corporations (which typically cannot sell goodwill), tax professionals can sometimes structure the business to take advantage of this exemption.
4. Limited Liability Protection
Incorporation offers some protection from liability—though not for professional negligence, which is still your personal responsibility. However, a corporation can protect you from certain contractual or business liabilities, such as debts or lease obligations.
5. Better Retirement Planning
A corporation can be used to build retirement savings in a more tax-efficient way:
- Retain earnings inside the corporation for investment
- Establish an Individual Pension Plan (IPP) or Retirement Compensation Arrangement (RCA)
- Use corporate-owned life insurance as a planning tool
These strategies can complement your RRSP and TFSA to build long-term wealth.
6. Business Credibility and Continuity
Having a professional corporation can:
Improve credibility with banks, suppliers, and patients
Make it easier to bring on partners or associates
Provide continuity of the business if the owner passes away or retires
7. Customization and Flexibility
A professional corporation allows doctors and dentists to structure compensation flexibly, including:
Salary
Dividends
Bonuses
Loans from the corporation (within legal limits)
This can help with personal and family tax planning, investment strategies, and debt management.
In Summary
Incorporation isn’t just a legal structure—it’s a powerful financial tool. For Canadian doctors and dentists with stable practices, business owners with stable businesses, and higher incomes, it can unlock major advantages in tax planning, retirement savings, and asset protection.
Final Considerations
Strategies for Uncertain Times
Before incorporating, it’s essential to consult with a tax advisor and legal professional. Not all health professionals benefit from incorporation—especially those with lower earnings, high personal spending needs, or those close to retirement.
Each province also has its own rules governing professional corporations, including naming conventions and ownership restrictions. Licensing bodies like the College of Physicians and Surgeons or Royal College of Dental Surgeons must approve your corporation.
This content is intended for general informational purposes only and does not constitute financial, legal or tax advice. Incorporation involves complex legal and financial considerations that may vary depending on individual circumstances and provincial regulations in Canada.
We are not tax advisors, and we recommend readers to consult with a qualified tax professional before making any decisions relating to incorporation.