ONTARIO PROFESSIONAL CORPORATIONS
Contact our law firm for your incorporation legal work at 905-616-8864 or Chris@NeufeldLegal.com
In addition to doctors and dentists, other regulated professionals in Ontario may seek to optimize their business operations through corporate structuring and the potential tax advantages available through a Professional Corporation, including other health professionals, accountants, engineers, architects, lawyers, paralegals and social workers. A 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 applicable professional regulatory body (1A), and in turn the Business Corporations Act (Ontario) and the profession's applicable professional governance legislation, that has been enacted to permit regulated professionals to structure their business operations into a professional corporation (remaining personally liable for claims arising from their own professional negligence or malpractice).
A professional corporation offers significant tax advantages for high-earning regulated professionals, primarily through tax deferral. By incorporating, professionals 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The professional corporation's income is taxed at two levels, once at the corporate level and then again when funds are withdrawn by the shareholder, but this low initial tax rate allows a professional to retain and invest a larger pool of after-tax capital inside the corporation. This deferral is maintained until the professional 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, professional corporations facilitate several other tax planning opportunities. Income splitting is a key strategy, allowing a 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 professional corporation structure can also be a vital tool for long-term wealth building and estate planning. Specifically, the shares of a professional corporation may be eligible for the Lifetime Capital Gains Exemption (LCGE) upon their sale or deemed disposition, allowing a professional 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 professional corporation a foundational element of tax and financial strategy for regulated professionals.
Professional corporations also enable regulated professionals to access significant retirement and compensation planning arrangements that are not available to non-incorporated entities. A professional corporation is permitted to establish sophisticated, tax-advantaged retirement plans, such as defined benefit pension plans or profit-sharing plans, allowing professionals 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 professional corporation serves as a comprehensive financial and operational platform. As such, a 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 practice.
At Neufeld Legal, we have the experience and insight to assist you in structuring your professional practice as a Professional Corporation in Ontario. Contact our law firm when looking to incorporate a professional corporation at 905-616-8864 or via email at Chris@NeufeldLegal.com.
(1A) - Legal Professions: Lawyers and Paralegals - Governed by the Law Society of Ontario; Accounting Professions: Chartered Professional Accountants (CPAs), which includes: Chartered Accountants (CAs), Certified General Accountants (CGAs) and Certified Management Accountants (CMAs) - Governed by the Chartered Professional Accountants of Ontario (CPA Ontario); Engineers - Governed by Professional Engineers Ontario (PEO); Architects - Governed by the Ontario Association of Architects (OAA); Health Professions: Regulated under the Regulated Health Professions Act, 1991, including Physicians and Surgeons (Doctors), Dentists (Dental Surgeons), Chiropractors, Nurses, Pharmacists, Optometrists, Psychologists, Physiotherapists, Massage Therapists, Dental Hygienists, Dietitians, Midwives, Veterinarians, Audiologists and Speech-Language Pathologists, Chiropodists (Podiatrists), Denturists, Occupational Therapists, Medical Laboratory Technologists, Medical Radiation Technologists, Respiratory Therapists; Social Workers and Social Service Workers - Governed by the Ontario College of Social Workers and Social Service Workers.
