Calgary Medical Professional Corporation

CALGARY MEDICAL PROFESSIONAL CORPORATION

Doctors and physicians, as with other professionals, are constantly seeking to maximize their business earnings while increasing their medical practice and complying with the rules and regulations of their governing medical association and governmental authorities. Part of achieving such business advancement comes from hard work, but it also comes from implementing new strategies, not the least of which is implementing those strategies that other successful doctors and physicians have implemented, with one of the primary strategies being the incorporation of a medical professional corporation. For advancing your medical practice to undertake established commercial efficiencies, you have the potential to get that much more from the hard work that you perform as a doctor or physician, with incorporating your business operations as a medical professional corporation being a first step.

What are the potential advantages associated with incorporating as a medical professional corporation. A medical professional corporation gains most of its potential tax advantages as a direct and proximate result of its treatment as a small business corporation. The income that is earned through the medical professional corporation is initially taxed at the corporate level and thereafter taxed at the personal level through the company's distribution of after-tax income to its shareholders by way of dividends and/or salary.

I. Tax Deferral

One of the more significant aspects of incorporation and utilizing a medical professional corporation is the significance of deferring tax liability on retained earnings. Due to the time value of money, the earned income is taxed initially at the lower corporate tax rate, and preferably being eligible for the small business deduction, such that a greater proportion remains available for business reinvestment or other corporate application, if it is not immediately distributed to the shareholder(s).

II. Small Business Deduction

Given that most medical professional corporations are Canadian control private corporations, those medical professional corporations gain the benefits accruing from the small business deduction. For as a Canadian controlled private corporation, the medical professional corporation is entitled to a reduced tax rate on its annual income from active business that is below the income threshold set by the federal government ($500,000.00 as of 2015).

III. Capital Gains Exemption

Professional corporations are typically qualified small business corporations that are permitted to have the first $824,176.00 for the 2016 tax year of capital gains deemed exempt from tax (the exemption amount is indexed for each taxation year, i.e. 2016 and onwards). This capital gains exemption can be utilized by the medical professional corporation to reduce its capital gains tax liability upon the sale of shares or upon the death of a shareholder.

IV. Fiscal Year End

A medical professional corporation may utilize a fiscal tax year that is different from the calendar year. By utilizing an alternate fiscal tax year, the shareholder(s) can defer bonus payments into a subsequent calendar year such that the tax payable on such bonus is payable on that following calendar year. The medical professional corporation can also defer certain taxes in its first year, as installment payments do not have to be paid in the first year, with installment arrangements only having to commence at the end of the first year.

V. Flexible Remuneration

By utilizing a medical professional corporation, the doctor or physician has the option of receiving their pay by way of salary or dividends, or some combination of the two. Drawing a salary, in whole or in part, allows the doctor or physician to maximize their contribution to register retirement savings plans and the Canada Pension Plan. Alternatively, dividends provide their own tax benefits that may be preferable to the doctor or physician.

VI. Income Splitting

Although the significance of income splitting has been significantly reduced by Income Tax Act (Canada), due to the application of the attribution rules and the kiddie tax, the allocation of shares to family members can provide for overall family tax savings. Income splitting is also possible through the employment of family members in the medical practice in non-professional capacities.

VII. Insurance Planning

A medical professional corporation that purchases its insurance with corporate after-tax dollars is more effectively utilizing its money as opposed to purchasing the insurance at the personal or partnership level. Such insurance planning however should be undertaken in conjunction with knowledgeable insurance agents and tax accountants.

VIII. Retirement Planning

Medical professional corporations provide the doctors and physicians with the capacity to undertake additional retirement planning strategies, including utilizing exempt life insurance policies and split-dollar arrangements and retirement compensation arrangements. Such retirement planning however should be undertaken in conjunction with knowledgeable retirement planning practitioners and tax accountants.

At Neufeld Legal P.C., we have the experience and insight to assist you in structuring your medical practice as a Medical Professional Corporation, in addition to those of other professionals including doctors / physicians, dentists, optometrists, veterinarians, chiropractors, physical therapists, architects, engineers, accountants and lawyers. For information as to our standard rates for incorporating a medical professional corporation (including a break-down of applicable charges) or questions related to the incorporation process, contact the law firm of Neufeld Legal P.C. by telephone at 403-400-4092 or via email at Chris@NeufeldLegal.coma>.