Canada: Incorporating Your Medical Practice In Ontario

Are you thinking of incorporating your medical practice? As with any opportunity, there are risks and rewards to consider. Before making this decision, there are legal and tax implications you should be aware of. We summarize these implications here and provide you with some recommendations.

Incorporation

Incorporating your medical practice can be complex. It is advisable to have a team of professionals to support you throughout the process. This would include seeking experienced legal, accounting and financial advisors.

Once incorporated, you are required to obtain a certificate of authorization from the College of Physicians and Surgeons of Ontario (CPSO). Without this certificate, your corporation is not permitted to practice.

Issuing shares is a necessary step in incorporating your medical professional corporation (MPC). You may choose to issue common stock or preference shares to members of the CPSO.

However, only non-voting shares may be issued to family members. Family members being a spouse, child, parent or a trust held for a minor. The use of trusts are permissible only to hold shares for children who are minors. However, holding companies cannot own shares in a MPC.

Legal implications

A corporation is a separate legal entity from its shareholders. Although shareholders' liabilities are normally limited to their investment in the corporation, they may still be liable for issues arising from malpractice and negligence in a MPC.

Tax implications

Potential tax savings are one of the biggest advantages to incorporating your medical practice. Consider carefully the several tax planning opportunities that exist. These include:

Transfer of practice

After the MPC is incorporated, you will need to transfer your existing practice to the new entity. To avoid tax repercussions, the Income Tax Act states that the assets and liabilities must be transferred to the MPC at fair market value (FMV). Following the Act's provisions will allow for a tax-free transfer. As part of the transfer, you could choose to trigger a capital gain to utilize capital loss carry forwards. You must receive compensation equal to the FMV in the form of shares and non-share consideration, such as cash and/or promissory notes.

Retained earnings and tax deferral

For individuals in Ontario, personal income is subject to marginal tax rates, the highest being 47.97% in 2012 increasing to 49.53% in 2013. However, income eligible for the small business deduction (SBD), which is earned in the corporation, would be taxed at 15.5% on the first $500,000. Consequently, the corporation may pay you salary or dividends in order to keep you in a lower personal tax bracket with the excess taxed in the company. The additional personal tax on earnings retained in the company are deferred until you decide to pay out income in the future.

Salary considerations

As a practitioner, you make Canadian Pension Plan (CPP) contributions and are exempt from employment insurance (EI) contributions. With the corporation, if you choose to pay salaries, this will not change. In addition, total salaries in excess of $400,000 paid by the corporation are subject to Employer Health Tax, which is currently 1.95%. You can avoid making CPP contributions and save the Employer Health Tax by choosing to pay dividends instead.

Income splitting

As mentioned, common shares can only be issued to the medical practitioner.It is important to note that when incorporating the practice, preference shares issued to your spouse and children should be a different class from those that you receive. This allows the MPC to pay dividends to these other shareholders, which would be taxed at their marginal tax rates.

Multiple practitioners

Where a MPC is in partnership with other MPCs or practitioners, it is important to note that you must share the SBD with your partners. If deciding to enter into a partnership, consider this tax consequence.

Additional costs

Corporations must issue financial statements. They are also responsible for filing corporate income tax returns and preparing payroll reporting forms. These requirements result in additional annual costs.

Sale of corporation

Selling your unincorporated practice may result in substantial capital gains. However, should your MPC qualify, under the small business capital gains exemption rules, the capital gain on disposition would be exempt, up to the first $750,000. The Federal Budget 2013 proposes to increase the exemption to $800,000 effective in 2014. This lifetime capital gains exemption could be multiplied based on the number of family members who own shares.

Although incorporating your medical practice comes with significant benefits, you should be prudent in following guidelines set out by your governing body, and strongly consider all options with regards to tax planning strategies. Discussion with the professional advisors at Crowe Soberman LLP throughout the process is recommended.

Important dates to Remember

April 30, 2013

  • Deadline for filing 2012 individual income tax returns if you or your spouse do not have self-employment income.
  • Deadline for paying any income tax balance owing for 2012.

June 15, 2013

  • Second personal income tax instalment for 2013 is due.
  • Deadline for filing 2012 individual income tax return if you or your spouse has self-employment income. However, any tax balance owing must be paid by April 30, 2013.
  • Deadline for taxpayers in the construction business reporting on a calendar year basis to file information return T5018 to report all payments greater than $500 paid or credited to contractors for construction


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Ragu Rajaratnam, CA
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions