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How does medical practice incorporation work?

You should read this guide if you’re a physician in Canada who is:

  • transitioning to practice in the near future;
  • new in practice and wants to find out more about incorporating your medical practice; or
  • practising, paying down debt and thinking about building wealth.

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Why physicians incorporate their medical practice

How to decide whether incorporation is right for you

Understanding medical professional corporations

How incorporation works

Why a physician would want to incorporate

Case study: The tax-deferral advantages of incorporating

Other strategies that can boost the value of your corporation

The costs and extra administration of incorporating

Avoid surprises: Be aware of these potential snags 

Where should you go from here?

Why physicians incorporate their medical practice 

Many businesses incorporate to take advantage of certain benefits, but there’s more to think about when incorporating a medical practice.

As a physician, you’ll typically have a heavy tax burden that could make it more difficult to reach your long-term financial goals. 

Incorporating your medical practice can help you defer some of your immediate tax burden and thus speed up your retirement savings.

How to decide whether incorporation is right for you

Answer these five questions to decide whether you should incorporate your medical practice. See how many you answer with “yes”:

  1. Are you self-employed?
  2. Are you easily covering your living expenses, with savings to spare?
  3. Do you want to save a lot more than what you can in your RRSP and tax-free savings account? 
  4. Do you have large debt related to your practice?
  5. Do you think your income might vary from year to year?

Understanding medical professional corporations

When you incorporate, you create a legal corporation that owns your medical practice. It means that you become a shareholder and a director or employee of the corporation.

The corporation is a separate entity. You, the physician, control it, but the corporation independently earns income and pays tax on it. There are two main points to be aware of regarding this separation between physician and corporation:

  1. The corporation is a separate taxpayer under the Income Tax Act (Canada), and certain types of income earned by a corporation may be taxed at a lower rate than if earned by a physician personally. 
  2. A corporation is owned by its shareholders. While all voting shares are typically physician-owned, a spouse and children (and potentially others, depending on your province or territory) can become shareholders and own non-voting shares.

How incorporation works

You, the physician

  • You create the corporation.
  • You (and other shareholders) own the corporation.
  • You make the decisions.
  • You may be a director, company officer or employee of the corporation.
  • You are personally responsible for your services.

Your medical professional corporation

  • Your corporation is a legal entity in the eyes of the law.
  • It is separate from you, the physician.
  • The corporation owns your medical practice. 
  • It can owe and pay taxes; it files its own tax return.
  • It can own property and insurance policies.

Why a physician would want to incorporate

To get significant tax advantages. Medical professional corporations benefit from the small business tax rate, which is about 12%, depending on your province or territory. You pay this lower rate now on your practice income (up to $500,000, but this varies by province). The money you save on tax can be invested through your corporation, where it will grow. You will pay more tax later when you withdraw money from your corporation, but you will already have enjoyed the tax-deferral benefit.

To build retirement savings faster. Incorporating your medical practice can help you keep more of your earnings and grow wealth more effectively. While registered plans like RRSPs and TFSAs are a tax-efficient way to save for the future, you might want to save more than these plans allow. 

To accelerate business payments. Let’s say you have some large business expenses, like buying into a medical building, acquiring costly medical equipment or offering substantial  employee benefits. While there is no getting around these expenses, you may be able to pay for them — or the financing used to acquire them — more efficiently from inside the corporate structure, using the corporation’s funds.

Case study: the tax-deferral advantages of incorporating

Maria,* age 35, is a general practitioner with annual earnings of $300,000 (after overhead expenses but before taxes).

Maria estimates her annual living expenses to be around $114,500.

She would like to contribute $27,230 to her RRSP this year and $6,000 to her tax-free savings account. And in order to build savings to fund her retirement, she hopes to have cash left after tax to invest a good deal more.

* The hypothetical case study is for illustrative purposes only and does not represent actual clients. Any resemblance to actual people or situations is purely coincidental.

Tax impact if Maria’s practice is unincorporated

If Maria earns her professional income of $300,000 personally (that is, in an unincorporated medical practice), she pays an estimated $108,000 in tax. 

After accounting for her living expenses, RRSP contribution and TFSA contribution, this leaves her with an extra $44,270 that can be invested.

The following illustration shows the math:

[Show me the text version: A] 

In summary, if Maria is unincorporated, she can invest a total of $77,500:

[Show me the text version: B]

Tax impact if Maria’s practice is incorporated

If Maria incorporates, the medical professional corporation earns $300,000 and pays $4,000 in additional administrative costs each year.

Maria pays herself a salary of $213,000, which allows her to cover her living expenses and contribute to her RRSP and TFSA.

Maria leaves $83,000 of the medical professional corporation income in the corporation, which is taxed at the small business tax rate. That rate is considerably less than her personal tax rate. 

In this scenario, the total after-tax cash available for investment inside the corporation is  $73,040. This exceeds the amount of cash available for investment if Maria remains unincorporated by $28,770. This is known as the tax-deferral advantage.

The illustration shows the math:

[Show me the text version: C] 

Now let’s see what happens in her personal accounts: her RRSP and TFSA.

[Show me the text version: D] 

Adding together corporate and personal accounts, if Maria is incorporated, she can invest a total of $106,270:

[Show me the text version: E]

** This is an estimated amount of tax payable. The actual amount will vary depending on the individual’s province/territory and personal tax situation.

*** This is an average tax rate and assumes the small business tax rate applies to all active business income (no reduction due to passive income rules).

Maria’s cash available for investment





Personal non-registered investment account


Corporate investment account







$ 6,000


$ 6,000





To summarize, when Maria is unincorporated, she has $77,500 to invest. When Maria is incorporated, she has $106,270 to invest. (Both figures include her RRSP and TFSA   contributions.) Maria has $28,770 more cash available for investment if she incorporates: 

[Show me the text version: F]

Other strategies that can boost the value of your corporation

We’ve established that the main advantage of incorporating is having lower tax rates to speed up saving for retirement or help pay for business costs. But there are some things you can do to make incorporating even more worthwhile:

Banking**: Your corporation will need a bank account and may need credit and other banking services. Your MD Advisor* can refer you to a banker familiar with medical professional corporation needs, which may bring advantages.

Asset location: RRSPs, tax-free savings accounts, non-registered accounts — where should your corporation’s assets be held? Different types of accounts have different tax consequences, and your MD Advisor can show you the most efficient way to invest.

Spousal RRSPs: These can be a way to help grow your retirement savings. A spousal RRSP is a way of splitting income with a lower-income spouse and thus reducing taxes. Those savings can be invested through your corporation.

Income sprinkling: A physician who has turned 65 and is still incorporated can pay dividends to a lower-income spouse, thus reducing taxes. In some situations, the spouse and/or children may qualify for income sprinkling even before the physician is 65.

Insurance: A life insurance policy (term or permanent) bought with corporate funds can have several benefits. The lower tax rate applied to those funds makes this a more efficient way to pay for the insurance. And if you name the corporation as beneficiary, the death benefit is tax-free and could be used to pay your final tax bill, donate to charities, etc. 

Research tax incentives: If research is part of your work, being incorporated gives you access to better federal R&D tax incentives.

The costs and extra administration of incorporating

When you set up a corporation, you’ll incur some start-up costs as well as ongoing ones. There are also extra administrative tasks, mostly associated with the corporation’s record-keeping and bookkeeping. Your team of MD Financial Management professionals and specialist partners (e.g., accountant, lawyer, tax specialist) have a wealth of experience with incorporation and can tell you more about the following:

Initial fees

  • legal and accounting fees
  • other disbursements (fee to the professional licensing body, cost of corporate minutes book, corporate registration)

Annual fees

  • legal services
  • accounting services

Ongoing administration

  • corporation shareholder agreement

Separate tax filing

  • filing annual tax return for the corporation
  • preparing T4 and T5 income tax slips
  • paying tax instalments 
  • remitting monthly source deductions on salaries paid to you (the physician) and other employees

Avoid surprises: Be aware of these potential snags

Passive income: The tax-deferral benefits that apply to your practice income generally don’t apply to passive income earned by the corporation. As a result, corporate investment income is taxed at rates similar to the top personal tax rate.

Malpractice and liability: Generally speaking, a corporation is liable in the case of a lawsuit, not its shareholders. But this is not true for physicians, as they remain personally liable for malpractice.

U.S. persons: If you’re a U.S. person practising in Canada, you may not benefit from incorporation to the degree a Canadian person will, because of certain reporting requirements. Your MD Advisor can tell you more about this.

Partnerships and group practices: If you enter into a partnership or group practice, you may not be eligible for the small-business tax rate. These group arrangements are more complex, so it is important to find out before incorporating how they are treated for tax purposes.

Structure of your corporation: Other shareholders can create issues related to corporate attribution and documentation. To ensure your interests are protected, get professional tax and legal advice before structuring your corporation. Your MD Advisor and incorporation team can help direct you to the specialist professionals you’ll need. 

Lifetime capital gains exemption: It is rare that a medical professional corporation will qualify for this.

Where should you go from here?

If you’re considering incorporation, your MD Advisor can help you understand whether it makes sense for your situation — before you start paying accountant fees. If you’ve already decided it makes sense for you, we’re here to help you with the next steps.

As your MD Advisor begins to work with you, they develop a clear understanding of your current situation and future objectives, and then collaborate with a team of specialists to engineer your customized wealth management strategy — including incorporation, if it’s right for you.

As your financial situation evolves and becomes more complex, your MD Advisor can serve as the point person to monitor and update your comprehensive financial plan as required. And, when the time comes, we can help you transition to retirement or manage estate issues.

NEXT STEP: If this seems like the right route for you, get the conversation started by contacting your MD Advisor*.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

** Banking and credit products and services are offered by The Bank of Nova Scotia “Scotiabank”. Credit and lending products are subject to credit approval by Scotiabank.

All insurance products are sold through Scotia Wealth Insurance Services Inc., an insurance agency and subsidiary of Scotia Capital Inc., a member of the Scotiabank group of companies. When discussing life insurance products, advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. 

Estate and trust services are offered through MD Private Trust Company.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.


A. Maria’s cash available for investment

Net practice income (after overhead) $300,000
RRSP contribution ($27,230)
Personal taxes payable** ($108,000)
After-tax personal cash $164,770
Living expenses  ($114,500)
TFSA contribution  ($6,000)
After-tax personal cash available for investment $44,270

[Back to Illustration: A]

B. Unincorporated: How much Maria can invest in total

RRSP $27,230
TFSA  ($114,500)
Personal non-registered investment account ($6,000)
Total for investing $44,270

[Back to Illustration: B]

C. Tax impact if Maria is incorporated

Net practice income (after overhead) $300,000
Annual administrative costs ($4,000)
Physician salary ($213,000)
Practice taxable income $83,000
Corporate tax rate***  12%
Corporate taxes payable ($9,960)
After-tax corporate cash available for investment $73,040

[Back to Illustration: C]

D. Maria's personal account

Physician salary $213,000
RRSP contribution ($27,230)
Personal taxes payable** ($65,270)
After-tax personal cash  $120,500
Living expenses ($114,500)
TFSA contribution $6,000

[Back to Illustration: D]

E. Incorporated: How much Maria can invest in total

Corporate cash available for investment $73,040
RRSP  $27,230
TFSA $6,000
Total available for investing $106,270

[Back to Illustration: E]

F. Tax deferral advantage 

Unincorporated $77,500
Incorporated $106,270
Tax-deferral advantage: $28,770

[Back to Illustration: F]