See what incorporating can do for you
With the right advice from MD, incorporating your medical practice can strengthen it and enhance your personal finances.
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Is incorporating your medical practice right for you?
As a physician, you have complex financial needs. On top of a demanding career, you may have many financial obligations like paying down debt, managing billings and expenses, and the burden of heavy personal income taxes.
Creating a medical professional corporation and using it to enhance your personal finances might be the logical next step for you. It’s an important decision, and you’ll need to consider your situation, what’s best for your career, and how incorporation could affect all aspects of your financial plan.
The benefits of incorporating
Incorporating can have many advantages and offers a lifetime of financial flexibility.
Keep more of what you earn and build wealth faster
Where your income is taxed at the small-business rate (approximately 12%), your corporation retains more of what it earns.
Additional financing options
Operate your practice with greater access to cash flow and financing options that may only be available to corporations.
Defer taxes
Tax-deferred growth in your corporation can often be turned into permanent tax savings through strategies like retirement income sprinkling.
Access to more future benefits
Achieve your financial goals more efficiently, including additional enhancements to your investment, retirement and legacy plans.
Medicus Pension PlanTM
Incorporation enables you to join the plan and build secure lifetime retirement income – including spousal benefits.
Get startedWhat is a medical professional corporation?
When you incorporate, you create a new legal entity (the corporation) that becomes the owner of your medical practice. You own shares of the corporation and are paid a salary, bonuses and/or dividends for your work.
Once you incorporate, your practice will have its own revenue, expenses, assets and debts, separate from your personal income and property.
3 ways of doing business as a Canadian physician
Medical professional corporation
✓ Most common choice
Your corporation becomes a separate legal entity and is owned by shareholders (you decide who your shareholders are).
Tax implications
The corporation files its own tax return and pays the corporate tax rate.
Corporation is taxed at 12%1
Partnership with other physicians
You create a partnership agreement with your partners detailing how you will share expenses, revenue and responsibilities.
Tax implications
Each partner in the agreement is responsible for their own personal income tax return.
You may be taxed at 50%2 on your share
Sole proprietor
The income you receive is treated as regular employment income, as though you were a full-time employee at a company.
Tax implications
You file your own tax return and are assessed based on your personal tax bracket.
You may be taxed at 50%2
Accelerate your financial plan
A medical professional corporation can take your finances to the next level.
Accelerate your savings by deferring taxes. You can turn them into permanent savings by withdrawing the money when your income is lower — like when you take a sabbatical, go on parental leave or retire.
Owning a medical professional corporation provides you with better and more flexible ways to manage business debt. You also may be able to reduce your cost of borrowing by qualifying for preferred interest rates.
As the owner of a medical professional corporation, you can increase your level of personal and professional protection in several ways. Your corporation can provide insurance protection for key people in the corporation as well as those affected by partnership agreements. For example, your medical professional corporation can own and pay for life insurance policies and may, depending on your compensation strategy, be able to contribute to pension plans.
Professionals should seek advice on the best combination of insurance coverage for their needs. Coverage that physicians should consider includes:
- term or permanent life
- critical illness
- disability
- professional liability
- office expense
- business interruption
Tailoring your investment strategy to the management of your medical professional corporation can enhance your retirement outcome.
Corporate investment income does not benefit from tax deferral but can benefit from refundable tax and different types of preferential dividend income. The best outcome often results from coordinating your corporation investment approach with other retirement savings and income strategies.
A typical retirement plan focuses on creating the most tax-effective way to draw income when you’re retired from various sources, including:
- RRSPs
- tax-free savings accounts
- Canada Pension Plan
- Old Age Security
- company pension plans
- Medicus Pension PlanTM – Designed specifically for Canada’s incorporated physicians
An up-to-date will and powers of attorney (a mandate in Quebec) are must-haves in every professional’s plan. In addition, consideration must be given to tax-effective transfer of wealth and the reduction of estate taxes.
Owning a medical professional corporation typically results in a more detailed approach to money management and legacy planning.
Our team of experts can work with you and your tax advisors to help your family enjoy a smooth transition of wealth.