Incorporation for Physicians

In recent years, doctors in Ontario have been given the ability to practice medicine through a corporation. This gives doctors an alternative to operating as a sole practitioner or as a partner.

There are advantages and disadvantages to practicing medicine through a professional corporation. Some of the advantages are:

• The corporation would pay tax at 16.5% on the first $500,000 of income (based on a 2009 calendar year). Additional personal taxes will have to be paid when the cash is removed from the corporation for personal use. Therefore, there is a benefit to incorporating if you do not require the cash immediately.
• When you wish to sell your practice you will have the option of selling the shares instead of the assets. The shares may qualify as qualified small business corporation shares which allows you to receive up to a life time maximum of $750,000 on this type of capital gains tax free.
• Some income splitting may be available with your spouse and children. Your spouse and children are allowed to hold non-voting shares allowing dividends to be paid to them. It may offer commercial liability protection if there is no personal guarantee of the asset.
• If you are operating as a sole practitioner then you are allowed a year-end other then December 31st. This may allow a tax deferral.

There are also some disadvantages that should be considered. These disadvantages are:

• A professional corporation does not provide a doctor with immunity from professional negligence. There is no limited liability for a doctor regardless of the form of the practice.
• There are additional fees associated with having a professional corporation. These include of the initial start up costs for incorporating, annual tax return filings, and additional provincial medical college fees.
• There are a number of restrictions placed on the corporation. The corporation may only practice medicine and ancillary functions, it must receive a certificate of authorization from the College of Physicians and Surgeons, and the name of the corporation has to include the wording “professional corporation”.
• The corporation must pay employer health tax on payroll over $400,000, including salaries to doctors. The employer health tax rate is 1.95%.

If you are seriously considering starting a professional corporation, it is important to talk to your accountant or lawyer. The structure should be one that will benefit you given your particular situation. Some of the steps to setting up a professional corporation includes:

• Incorporate the professional corporation. The articles of incorporation must be correctly worded.
• Apply for a Certificate of Authorization from the College of Physicians and Surgeons of Ontario.
• If you have an existing practice, this practice will need to be transferred to the professional corporation. You may be able to do this on a tax deferred basis.
• A number of administrative steps must be followed. The professional corporation will need to set up a bank account, get letterhead and business cards with the professional corporation name, and have bills addressed to the corporation.

The Ontario Medical Association provides resources and information to members considering incorporation (www.oma.org).

This document is written to provide general information on professional corporations. If you are interested in incorporating a professional corporation, it is important to seek professional advice.