# Tax Planning for Professional Corporations in Ontario: Medical, Dental, Legal

Professional corporations (PCs) offer unique tax advantages for physicians, dentists, lawyers, and other regulated professionals in Ontario. However, maximizing these benefits requires strategic planning that goes far beyond simple incorporation.

By Bader A. Chowdry, CPA, CA, LPA | Insight Accounting CPA

At Insight Accounting CPA in Mississauga, we specialize in professional corporation tax planning for medical, dental, and legal practitioners across the GTA. Our patent-pending AI governance framework ensures compliance while optimizing every available tax benefit.

What is a Professional Corporation?

A professional corporation is a unique entity structure available to regulated professionals in Ontario, including:

Medical professionals: Physicians, surgeons, specialists

Dental professionals: Dentists, orthodontists, oral surgeons

Legal professionals: Lawyers and paralegals

Other regulated professions: Accountants, engineers, architects

Unlike standard corporations, PCs must comply with profession-specific regulatory requirements while gaining access to corporate tax advantages.

Core Tax Benefits of Professional Corporations

1. Lower Initial Tax Rate on Retained Earnings

Professional corporations benefit from the small business deduction (SBD):

Federal small business rate: 9% on first $500,000 of active business income

Ontario small business rate: 3.2% on first $500,000

Combined rate: 12.2% vs 53.53% personal top marginal rate

Tax deferral advantage: $206,650 on $500,000 of retained corporate income

2. Income Splitting Opportunities

Professional corporations can pay reasonable compensation to family members for legitimate services:

Spouse as corporate administrator: Salary/dividends for administrative work

Adult children in the practice: Compensation for receptionist, IT, marketing roles

Dividend distribution: Subject to TOSI (Tax on Split Income) rules

Important: CRA scrutinizes PC income splitting closely. Compensation must be reasonable for services rendered.

3. Lifetime Capital Gains Exemption (LCGE)

Qualifying professional corporation shares may be eligible for the LCGE:

2026 exemption limit: $1,016,836 per individual

Requirements: Shares must be Qualified Small Business Corporation (QSBC) shares

Planning horizon: 24-month holding period required

Strategy: Structure ownership to multiply exemptions across family members.

4. Estate Planning and Asset Protection

Professional corporations provide:

Estate freeze capabilities: Lock in current value, transfer growth to next generation

Creditor protection: Limited liability for corporate assets (within professional liability limits)

Succession flexibility: Easier transfer to associate or family member

Medical Professional Corporation Tax Strategies

Passive Investment Income Management

Medical PCs often accumulate significant retained earnings. Key considerations:

Passive income threshold: $50,000+ reduces small business deduction

Refundable tax system: 30.67% on investment income, partially refundable on dividend payment

Planning strategy: Consider individual investment accounts for spouse vs corporate investments

Medical Equipment and Vehicle Deductions

Maximize capital cost allowance (CCA) on:

Medical equipment: Diagnostic tools, computers, office furniture (Class 8: 20%)

Vehicles: If used for business purposes (Class 10.1 for passenger vehicles)

Immediate expensing: Up to $1.5 million for eligible depreciable property (2026)

Conference and CME Expense Planning

Continuing Medical Education (CME) expenses are fully deductible when incurred through the PC:

Conference registration: Fully deductible

Travel and accommodation: Deductible when conference-related

Meals and entertainment: 50% deductible

Documentation required: Maintain detailed expense logs

Mississauga Medical Practice Example

Dr. Chen’s situation:

Gross billings: $750,000

Practice expenses: $150,000

Personal living needs: $200,000

Traditional tax (no PC): $321,180 tax on $600,000 net income

With PC structure:

Salary to Dr. Chen: $200,000 (tax: $67,340)

Corporate retained earnings: $400,000 (tax: $48,800)

Total tax: $116,140

Annual savings: $205,040

Plus: $351,200 available for investment inside corporation vs $278,820 personally

Dental Professional Corporation Tax Strategies

Associate Compensation Structures

Dental PCs often employ associate dentists. Optimal structures include:

Salary vs independent contractor: Tax implications differ significantly

Percentage of production: Common but creates payroll compliance requirements

Daily rate structures: Simpler administration, clear expense allocation

Dental Equipment Investment

Dental equipment represents significant capital investment:

Chair and operatory setup: $50,000-$150,000 per operatory

Digital imaging systems: $25,000-$100,000

Sterilization equipment: $15,000-$50,000

Tax planning strategy:

Immediate expensing for eligible equipment (2026 rules)

CCA deductions on other equipment (Class 8: 20%)

Section 179-like provisions for accelerated deductions

Laboratory and Supply Management

Dental labs and supplies represent major ongoing expenses:

Lab fees: Typically 15-25% of crown/bridge revenue

Supply inventory: Monthly ordering patterns

GST/HST considerations: Labs may be zero-rated suppliers

Mississauga dental practice optimization:

Track lab costs by procedure type

Negotiate volume discounts through PC purchasing

Consider in-house lab capabilities for high-volume practices

GTA Dental Group Example

Dr. Patel’s multi-location practice:

Two locations: Mississauga and Toronto

Three associate dentists

Annual revenue: $2.5M

Net income after all expenses: $900,000

Tax structure:

Dr. Patel salary: $250,000

Spouse (office manager) salary: $80,000

Retained in corporation: $570,000

Tax optimization:

Corporate tax: $69,540 (12.2% on first $570,000)

Personal tax on salaries: $122,410

Total tax: $191,950 vs $481,770 personally

Savings: $289,820 annually

Legal Professional Corporation Tax Strategies

Billable Hour Revenue Recognition

Law firms have unique revenue recognition considerations:

Work-in-progress (WIP): Billable hours not yet invoiced

Retainer treatment: Advance payments held in trust

Contingency fees: Revenue recognition timing

Tax planning opportunity: Manage WIP to defer income to following tax year when appropriate.

Trust Account Compliance

Legal professional corporations must maintain strict trust account segregation:

Separate bank account: Client funds held in trust

Interest attribution: Typically to Law Foundation or client

No tax consequences: Trust funds not included in PC income until earned

Partnership to PC Conversion

Many law firms convert from partnership to multi-shareholder PC:

Tax considerations:

Rollover provisions: Section 85 rollover to defer capital gains

Partnership interest valuation: FMV at conversion date

Goodwill allocation: Personal vs corporate goodwill

Ontario legal PC example:

Partnership with 5 partners converts to PC

Total partnership value: $3M

Individual rollovers preserve tax-deferred status

Ongoing corporate structure allows income splitting and estate planning

Articling Student and Associate Compensation

Legal PCs employ students and junior associates:

Articling students: Salary typically $50,000-$65,000 in GTA

Junior associates: $80,000-$120,000

Senior associates: $150,000-$250,000

Tax planning: Structure compensation mix (salary + bonus + profit-sharing) to optimize corporate and personal tax.

Cross-Professional PC Tax Strategies

Optimal Compensation Mix: Salary vs Dividends

Every professional must balance:

Salary advantages:

Creates RRSP contribution room

CPP contributions (up to maximum)

Deductible to corporation

Dividend advantages:

Lower overall tax rate (integration theory)

No CPP contributions (pro/con depending on coverage needs)

Preserves small business deduction

2026 optimal strategy for Ontario:

Salary up to top of federal bracket ($246,752)

Dividends for remaining income distribution

Adjust annually based on personal situation

Corporate Investment Planning

Professional corporations often accumulate surplus cash:

Investment options:

Life insurance: Tax-sheltered growth, estate planning benefits

Corporate class mutual funds: Deferred capital gains

Dividend-paying Canadian stocks: Eligible dividend tax credit

Real estate: Consider holding company structure

Passive income warning: Passive investment income over $50,000 reduces small business deduction dollar-for-dollar after $50,000.

Example calculation:

Passive income: $80,000

SBD reduction: $30,000 (($80,000 – $50,000) 5)

Lost tax benefit: $3,900 (13% rate difference on $30,000)

Individual Pension Plans (IPPs) for Senior Professionals

Professionals over 40 with consistent high income benefit from IPPs:

IPP advantages:

Higher contribution limits than RRSP (especially over age 50)

Past service contributions for pre-IPP years

Corporate tax deduction for contributions

Creditor protection

2026 IPP contribution example (age 55, $200,000 salary):

RRSP contribution room: $31,560

IPP contribution room: ~$47,000

Additional tax deduction: $15,440 26.5% (corporate rate) = $4,092 annual savings

Estate Freeze Strategies

Professional corporations are excellent vehicles for estate freezes:

Basic freeze structure:
1. Professional exchanges common shares for fixed-value preferred shares
2. Family trust subscribes for new common shares (nominal value)
3. Future growth accrues to trust (and beneficiaries)
4. Professional maintains control through preferred share voting rights

Tax benefits:

Locks in current LCGE utilization

Shifts growth to lower-tax family members

Facilitates gradual succession

Minimizes probate fees on death

Mississauga professional example:

55-year-old dentist with $2M corporation value

Estate freeze implemented

Growth over next 15 years: $3M

Tax savings: $800,000+ vs direct ownership

Compliance Requirements for Ontario Professional Corporations

Regulatory College Requirements

Each profession has specific PC regulations:

College of Physicians and Surgeons of Ontario (CPSO):

Certificate of Authorization required

Annual renewal

Ownership restrictions (only physicians can own shares)

Professional liability insurance maintained

Royal College of Dental Surgeons of Ontario (RCDSO):

Practice permit required for the PC

Ownership limited to licensed dentists

Name restrictions (“Dentistry Professional Corporation”)

Law Society of Ontario (LSO):

Professional corporation license required

Ownership limited to lawyers/paralegals

Name must include “Professional Corporation” or “P.C.”

Corporate Minute Book Maintenance

Professional corporations must maintain:

Annual resolutions: Compensation decisions, dividend declarations

Share register: Current ownership records

Director/officer records: Current slate and any changes

Financial statements: Annual corporate tax filings

Best practice: Annual corporate minute book review with your CPA to ensure compliance.

Tax Filing Requirements

Professional corporations file:

T2 Corporate Income Tax Return: Due 6 months after year-end

T4 slips: For all employees (including shareholder-employees)

T5 slips: For dividend payments

GST/HST returns: Quarterly or annual, depending on revenue

Provincial payroll remittances: Employer Health Tax (EHT) if payroll > $1M

Critical deadline: Corporate tax payment due 2-3 months after year-end (even though return due in 6 months).

Common Professional Corporation Tax Mistakes

1. Inadequate Shareholder Salary

Mistake: Taking only dividends with no salary.

Consequence: No RRSP contribution room, no CPP credits, potential OAS clawback issues.

Solution: Take salary to create RRSP room and CPP credits, dividends for remaining income.

2. Poor Passive Investment Management

Mistake: Accumulating passive investment income over $50,000 in the PC.

Consequence: Dollar-for-dollar reduction in small business deduction.

Solution: Consider dividend payments to shareholders for personal investment, life insurance investment, or holding company structure.

3. Unreasonable Family Member Compensation

Mistake: Paying spouse or children dividends without legitimate business role.

Consequence: TOSI (Tax on Split Income) penalties, CRA reassessment.

Solution: Document all family member contributions, pay reasonable compensation for actual work performed.

4. Mixing Personal and Corporate Expenses

Mistake: Using corporate account for personal expenses or vice versa.

Consequence: Shareholder benefit inclusion, denied deductions, potential gross negligence penalties.

Solution: Maintain strict separation, document all transactions, use corporate credit card only for business.

5. Inadequate Documentation

Mistake: Failing to maintain proper corporate records and expense documentation.

Consequence: Denied deductions, deemed benefits, penalties on reassessment.

Solution: Maintain detailed expense logs, keep all receipts, annual minute book updates.

How Insight Accounting CPA Helps GTA Professional Corporations

At Insight Accounting CPA in Mississauga, we provide comprehensive professional corporation tax planning services:

PC Incorporation and Setup

Regulatory college compliance

Optimal share structure

Minute book preparation

Tax election filings

Ongoing Tax Planning and Compliance

Optimal salary/dividend mix calculations

Quarterly tax installment planning

Year-end tax planning meetings

Corporate tax return preparation

Advanced Strategies

Estate freeze implementation

Individual pension plan setup

Income splitting strategies

Succession planning

Industry-Specific Expertise

Medical practices: Billings optimization, CME expense planning, equipment acquisition

Dental practices: Associate structures, multi-location planning, equipment leasing

Legal practices: WIP management, partnership conversions, billable hour optimization

Patent-Pending AI Governance for Professional Corporations

Insight Accounting CPA’s patent-pending AI governance framework brings next-generation capabilities to professional corporation tax planning:

Real-time tax optimization: Continuous monitoring of salary/dividend mix

Automated compliance tracking: Regulatory deadline management

Predictive tax modeling: Scenario analysis for major decisions

Audit-ready documentation: Automated expense categorization and documentation

Frequently Asked Questions

Q: Should I incorporate my professional practice in Ontario?

A: Most professionals benefit from incorporation once net income consistently exceeds $150,000-$200,000 annually. The tax deferral advantage and planning flexibility typically outweigh the additional compliance costs at this income level.

Q: Can I incorporate if I’m an employee of a hospital or clinic?

A: Yes, many professionals incorporate even when working as employees. The employer pays the professional corporation, which then pays you. Confirm with your employer that they’ll contract with your PC.

Q: How much does professional corporation tax planning cost in Mississauga?

A: Initial incorporation and setup typically ranges $2,500-$5,000. Ongoing tax planning, bookkeeping, and corporate tax filing typically costs $5,000-$15,000 annually depending on complexity. The tax savings typically far exceed these costs.

Q: What’s the difference between a professional corporation and a regular corporation?

A: Professional corporations are subject to regulatory college oversight, have ownership restrictions (only licensed professionals can own shares), and must maintain professional liability insurance. However, they receive the same tax benefits as regular corporations.

Q: Can I have multiple professional corporations?

A: Yes, you can operate multiple PCs if you have multiple professional licenses or want to segregate different practice areas. However, the $500,000 small business deduction is shared across associated corporations.

Q: How does passive investment income affect my professional corporation?

A: Investment income over $50,000 annually reduces your small business deduction dollar-for-dollar (after the $50,000 threshold). This can increase taxes on active business income. Strategic planning required to minimize impact.

Q: Should my spouse own shares in my professional corporation?

A: Generally noownership must be limited to licensed professionals in your field. However, your spouse can receive salary for legitimate work performed and may receive dividends if holding non-voting shares (subject to reasonableness test and TOSI rules).

Q: What happens to my professional corporation when I retire?

A: You have several options: (1) Sell shares to an associate or successor (LCGE may apply), (2) Wind up the corporation and distribute assets, (3) Maintain the corporation for investment purposes. Each option has distinct tax implications requiring advance planning.

Take the Next Step

Professional corporation tax planning requires specialized expertise in both tax strategy and regulatory compliance. At Insight Accounting CPA in Mississauga, we’ve helped hundreds of medical, dental, and legal professionals across the GTA optimize their tax structures and maximize wealth accumulation.

Contact Insight Accounting CPA today:

(905) 270-1873

Serving Mississauga, Toronto, and the Greater Toronto Area

www.insightscpa.ca

Schedule your professional corporation tax planning consultation and discover how much you could be saving with proper structure and strategic planning.

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*Insight Accounting CPA Professional Corporation provides professional corporation tax planning, incorporation services, and ongoing tax compliance for medical, dental, and legal professionals across Ontario. Our Mississauga-based team combines deep tax expertise with our patent-pending AI governance framework to deliver exceptional results for professional practices throughout the GTA.*