ONTARIO DENTISTRY PROFESSIONAL CORPORATIONS
Contact our law firm for your incorporation legal work at 905-616-8864 or Chris@NeufeldLegal.com
Dentists who are members of the Royal College of Dental Surgeons of Ontario (RCDSO) may seek to optimize their business operations through corporate structuring and the potential tax advantages available through a Dentistry Professional Corporation. An Ontario dentistry professional corporation is a legal construct, much in the way of other commercial companies, though having specific restrictions and obligations as a result of being regulated by the RCDSO, and in turn the Business Corporations Act (Ontario), the Regulated Health Professions Act, 1991, and the Dentistry Act, 1991, that has been enacted to permit dentists to structure their business operations into a dentistry professional corporation (remaining personally liable for claims arising from their own professional negligence or malpractice).
A dentistry professional corporation offers significant tax advantages for high-earning dentists, primarily through tax deferral. By incorporating, dentists can shift their active business income from the high personal marginal tax rates to the lower corporate tax rates, especially the preferential Small Business Deduction (SBD) rate on the first $500,000 of active business income. This creates a substantial tax gap between what would be paid personally and what is paid corporately on retained earnings. The dentistry professional corporation's income is taxed at two levels, once at the corporate level and then again when funds are withdrawn by the shareholder, but this low initial tax rate allows a dentist to retain and invest a larger pool of after-tax capital inside the corporation. This deferral is maintained until the dentist chooses to withdraw the funds as a salary or dividend in a future year, often in a lower personal income bracket, such as during retirement.
Beyond the core benefit of tax deferral, dentistry professional corporations facilitate several other tax planning opportunities. Income splitting is a key strategy, allowing a dentistry professional corporation to pay reasonable salaries to family members for services they provide to the business, utilizing their lower marginal tax rates (although subject to specific limitations). Furthermore, the dentistry professional corporation structure can also be a vital tool for long-term wealth building and estate planning. Specifically, the shares of a dentistry professional corporation may be eligible for the Lifetime Capital Gains Exemption (LCGE) upon their sale or deemed disposition, allowing a dentist to shelter a significant portion of the capital gain from taxation. This combination of initial tax deferral, income distribution flexibility, and terminal capital gains relief makes the dentistry professional corporation a foundational element of tax and financial strategy for dentists.
Dentistry professional corporations also enable dentists to access significant retirement and compensation planning arrangements that are not available to non-incorporated entities. A dentistry professional corporation is permitted to establish sophisticated, tax-advantaged retirement plans, such as defined benefit pension plans or profit-sharing plans, allowing dentists to contribute substantially more to their retirement savings on a pre-tax basis than is possible through simpler personal contribution vehicles. Combined with the ability to offer generous, tax-deductible fringe benefits and structured employee compensation packages, the dentistry professional corporation serves as a comprehensive financial and operational platform. As such, a dentistry professional corporation provides a blend of liability mitigation, tax optimization, financial planning tools, and structural credibility that is essential for a high-earning, long-term professional dental practice. [Why Incorporate Early-on a Dentistry PC]
At Neufeld Legal, we have the experience and insight to assist you in structuring your professional dental practice as a Dentistry Professional Corporation in Ontario. Contact our law firm when looking to incorporate a dentistry professional corporation in Ontario at 905-616-8864 or via email at Chris@NeufeldLegal.com.
Incorporating your Dental Practice
Topics of Interest for Professionals: New Dentist | Mid-Career | End of Career | Top Ontario Tax Strategies | Professional Corp | Individual Pension Plan | Salary vs Dividend | Passive Income | Lifetime Capital Gains Exemption
| Strategy & Mechanism | Ontario Legal & RCDSO Regulatory Framework | Tax & Wealth Optimization Impact |
|---|---|---|
| Small Business Tax Deferral | Incorporating under the Business Corporations Act (Ontario) and securing a Royal College of Dental Surgeons of Ontario (RCDSO) Certificate of Authorization allows all patient billings and practice revenues to be earned directly by the DPC. | Active dental practice income retained inside the DPC is taxed at Ontario's preferential combined small business rate of 12.2% (on the first $500,000) instead of top personal marginal rates (~53.53%). The ~41% tax difference remains in the corporation to reinvest in equipment or passive growth. |
| Salary vs. Dividend Remuneration Mix | The dentist, acting as the sole voting shareholder, officer, and director, sets annual corporate resolutions to issue owner compensation via salary (T4) or non-eligible corporate dividends (T5). |
Salary: Deductible expense for the DPC that generates personal RRSP contribution room, fulfills mandatory CPP obligations, and establishes earnings history. Dividends: Eliminates employer/employee CPP drag and payroll tax overhead, offering a flexible way to extract exact personal lifestyle cash flow needs. |
| Specialized Non-Voting Family Share Classes | Under Ontario's Regulated Health Professions Act (RHPA) and RCDSO regulations, DPCs may issue non-voting shares directly to immediate family members (spouse, children, or parents). Voting shares, directorships, and officer roles must remain 100% held by RCDSO-licensed dentists. | Establishes the structural architecture for family wealth planning and potential future share sales. Enables tax-efficient dividend distributions to family members where exceptions to federal Tax on Split Income (TOSI) apply (e.g., spousal dividends post-age 65 or genuine administrative payroll). |
| Individual Pension Plans (IPPs) | A CRA-registered, employer-sponsored defined benefit pension plan established by the DPC specifically for the incorporated Ontario dentist. | Replaces or supplements standard RRSPs for mid-to-late career dentists. IPP contributions are 100% tax-deductible expenses for the DPC, provide higher contribution limits than RRSPs past age 40, and insulate pension assets from corporate practice risks. |
| Corporate Life Insurance & CDA Account | The DPC purchases tax-exempt permanent life insurance policies on the dentist, acting as both policy owner and designated beneficiary. | Premiums are funded using low-taxed corporate dollars (12.2%). At death, insurance proceeds pass into the DPC tax-free, creating a tax-free credit in the Capital Dividend Account (CDA) that can be distributed completely tax-free to surviving estate heirs. |
| Passive Income & Threshold Management | RCDSO regulations restrict holding companies from owning shares in an Ontario DPC. Accumulated practice wealth must be managed directly within the DPC or through permitted corporate investment vehicles. | Carefully monitors corporate passive investment returns to keep annual yields under the federal $50,000 threshold. Prevents passive earnings from eroding access to Ontario's 12.2% small business tax rate on active dental billings. |
