When to Incorporate Your Medical Practice
Regulated medical professionals in Ontario have had the option to incorporate their practices since 2001. This option can provide significant tax savings advantages to medical professionals, if their practice is generating revenue beyond what they require for day to day living expenses. In converse, if the revenue is only sufficient to cover the salary requirements and business expenses of the professional then the advantages of incorporating are minimized.
The types of medical professionals eligible to incorporate is broad and includes doctors, dentists, social workers, physiotherapists, massage therapists, veterinarians, psychologists, opticians, nurses, mid-wives and many more. Click here to see a complete list of eligible professions.
Incorporating a medical practice provides many tax advantages. These include being able to use income splitting with family members who are in a lower tax bracket. Tax on excess revenue can also be deferred by retaining the proceeds within the corporation. The excess assets can in turn be invested by the company. However, there are limitations on where and how these funds can be invested - click here for a more detailed analysis of investment restriction. Finally, an incorporated medical practice has the added benefit of shielding the professional from civil liability, but not professional negligence.
As the assets of the corporation grow other opportunities for savings on tax also increase. An incorporated practice will also be beneficial to professionals looking to sell their business in the future. Instead of selling the assets of a practice, the seller may be able to transfer shares of the business to a new owner. This will provide for the orderly succession of a business and access capital gains exemptions for the seller.
Of course there are some downsides. For starters, the accounting and tax filing requirements of an incorporated business are greater for an incorporated business than for a sole proprietorship or partnership as there will be an extra set of filings.
The College or governing body for each of these regulated disciplines will also have its own distinct rules and requirements affecting the initial incorporation and on-going authorization to practice by way of corporation. These rules will cover issues such as naming requirements for the corporation, eligible shareholders, registration requirements and the types of activities the company is allowed to engage in.
If you would like to discuss the potential benefits of incorporating your medical practice, please contact me at any time.