PROFESSIONAL CORPORATIONS

Ontario Medicine PC  -  Ontario Dentistry PC  -  Other Ontario PCs  -  Alberta Medical PC  -  Alberta Dental PC  -  Other Alberta PCs

Contact Neufeld Legal PC for your incorporation legal work at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Professionals seeking to optimize their business operations through corporate structuring and the potential tax advantages that it can provide, need to look at the advantages available through the incorporation of one's professional practice as a Professional Corporation. 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 governing professional body, and in turn the provincial statute that has been enacted to permit the profession to structure its business operations into a professional corporation.

A professional corporation offers significant tax advantages for high-earning regulated professionals, such as doctors, lawyers, and accountants, 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The professional corporation's income is taxed at two levels, once at the corporate level and then again when funds are withdrawn by the shareholder, but this low initial tax rate allows a professional to retain and invest a larger pool of after-tax capital inside the corporation.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 [more on tax deferral via professional corporations].

Beyond the core benefit of tax deferral, professional corporations facilitate several other tax planning opportunities. Income splitting is a key strategy, allowing a PC 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) [more on income splitting via professional corporations]. Furthermore, the professional corporation structure can also be a vital tool for long-term wealth building and estate planning [more on estate planning]. Specifically, the shares of a qualified professional corporation may be eligible for the Lifetime Capital Gains Exemption (LCGE) upon their sale or deemed disposition, allowing an individual to shelter a significant portion of the capital gain from taxation [more on accessing LCGE]. 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 eligible professionals.

Professional corporations also enable 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 [more on retirement planning]. 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 P.C., we have the experience and insight to assist you in structuring your professional practice as a Professional Corporation, whether you are a physician, dentist, veterinarian, accountant, engineer, architect, lawyer or other professional (provided it is permissible pursuant to provincial law). Contact us at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or via email at Chris@NeufeldLegal.com.