In British Columbia, the Health Professions Act permits individuals who are doctors, dentists, and other professions designated as a ‘health profession’ to incorporate their professional practice and take advantage of the lower tax rates and more comprehensive tax planning methods available to corporations. Other professions designated as ‘health professions’ include optometry, podiatry, chiropractic medicine, naturopathic medicine, and registered massage. This article applies to most health professionals, not only doctors and dentists.
Each profession’s governing college has certain requirements, in addition to those in the Health Professions Act, which have to be met for a health profession corporation to be approved. But before getting to that stage and with the help of your accountant, you’ll need to decide whether incorporating your practice is the right step for you.
Why incorporate your medical or dental practice?
Corporation will pay less tax than you do
Corporations that are considered “Canadian-Controlled Private Corporations”, such as most personal medical and dental corporations, are taxed at a preferred rate of 13.5% on the first $500,000 of income. If you’re earning more income than you need to live in a year, you can save a lot of money by keeping the excess in the corporation rather than withdrawing it personally. Most sole practitioners are taxed at the highest tax rates in BC: 43%, or 47% if you’re making $200,000 or more. By leaving money in the corporation, you can defer payment of taxes on those funds until you need to use them personally, or you can spend those lower-taxed funds in your practice by buying equipment, paying expenses, or repaying loans.
Pay your spouse and save on tax
If you have a spouse who owns shares in your dental or medical practice, and who sits in a lower tax bracket than you do, you can pay that person a salary or dividends that would be taxed lower than if that money were paid to you. Ultimately, the amount you pay your spouse will have to be reasonable in relation to the work they do in the corporation, but generally our understanding is that approximately $30,000 can be paid to a spouse who has minimal responsibility in the corporation.
Better deductions and cheaper expenses
As a sole practitioner, the Canada Revenue Agency permits you to deduct from your income the cost of attending two continuing education conferences per year. However, as a corporation you aren’t limited to only two conferences per year. When it comes to expenses, a sole practitioner would have to earn almost twice the amount of any given expense in her practice in order to have enough money to pay that expense. The reason for that is because the money earned for that expense is first taxed at one of the highest tax rates before the balance is available to pay the expense. However, as an incorporated practitioner her expenses are effectively cheaper because less pre-tax money needs to be earned to pay the same expense. Examples of practice-related expenses include lease payments, loan repayments, life insurance, and business insurance.
Minimize tax on sale of your practice
If you sell your professional practice and you’re able to achieve that by a sale of shares in your corporation, you might be able to use your capital gains tax exemption. Essentially, over the course of your life you are exempt from paying the capital gains taxes normally payable on up to $800,000 (plus an amount adjusted for inflation from 2015, onwards) of your profit from selling a capital property. The shares of your health profession corporation can qualify for that exemption if the circumstances are right.
Partial limited liability
While most corporations limit the liability of its shareholders, health profession corporations cannot protect you from a malpractice lawsuit. However, to the extent your health profession corporation takes on other liability not personally-guaranteed by you—which could involve loans, leases, or even lawsuits for slip-and-fall injuries on your premises—the shareholders are protected from liability to those creditors, landlords, and claimants.
Why wouldn’t you incorporate your practice?
Generally speaking, if you’re spending all of the money you’re earning because you need it to cover your living expenses, then it’s not going to be worth the additional annual cost of maintaining a corporation. That annual upkeep includes preparing and submitting tax returns for the corporation, and maintaining the corporation’s registration with the college and the BC corporate registry. Your accountant will help you decide if incorporation is the right step for you, whether you’re just getting started or you’ve been working for a number of years.
How long does it take to incorporate my medical or dental practice?
The entire process will vary depending on whether you’re a doctor, dentist, or other health professional. The step that usually involves the longest waiting period is obtaining approval of the corporation from your professional college. Each college has different requirements and their staff members reviewing your application have varying levels of demands on their time, depending on how many other applications are in queue. We find that approval usually ranges from 1 to 5 weeks, and our work is usually complete within a few days of receiving that approval.
How we can help
At Bell Alliance, we understand that health professionals have high demands on their time so we gather information from you efficiently, and we streamline the process for signing legal documents. For signing many of the documents, you will be able to use our secure, online electronic signature application which you can access from any computer and even on your smart phone. Our lawyers are readily accessible by email and phone to explain the process to you in whatever level of detail you desire.
For professionals who bill through BC’s Member Services Plan, we facilitate the process of obtaining a new MSP number for your corporation, and for doctors we inform the Canadian Medical Protective Association that you’re now practicing through a medical corporation and request that they extend your benefits to that corporation.