Physician Corporation – Medical Professional Corporation

Tax Advantages & How it works

Traditionally, professionals such as accountants, lawyers, and realtors achieve the tax and non-tax benefits by incorporating their business. If you are a doctor, you have the same tax and non-tax reasons for considering incorporating your practice.

Let’s see what are the key advantages of incorporating a business:

• Lower Tax Rate: assuming the corporation is a Canadian Controlled Private Corporation(CCPC), it would qualify for a reduced tax rate, currently 12.2% (in Ontario) on a business income up to $500,000. Otherwise, by running a business in your name (a sole proprietorship), you might end up paying taxes as high as 53.3% (the highest marginal tax rate in Ontario).

• Income Splitting Opportunities: by engaging your family members such as spouse and children, you can pass on the reasonable dividend or salary to them and lower your overall family tax bill. 

• Incorporating gives the shareholder flexibility of different payment options including salary, dividend, a mix of a salary and dividend, etc. We have discussed these options in detail in our other article “Withdrawing money from Canadian corporation: What you need to know!”
•  Lifetime Capital Gains Exemption Limit means when you sell your corporation, and you have a capital gain, you can claim this limit. The lifetime capital gain limit for 2021 is $913,630 (indexed to inflation). So basically, that means that you don’t have to pay any capital gains tax up to this amount when you sell your corporation. This benefit is only available to shareholders of “qualified” Small Business Corporation (SBC).

• Estate Freeze options allow tax-efficient ways of passing your estate to the next generation. 

We have discussed these and other incorporation benefits in detail in another article “Advantages Of Incorporation! You Can Cut Tax Rate To 12.2% From 53.53% By Incorporating!“

Now that you have decided to incorporate your practice, let’s discuss conditions and requirements specific to the medical/ physician professional corporation.

Requirement of Physician Professional Corporation

As a physician and a member of the College of Physicians and Surgeons, Ontario (CPSO), you provide professional services regulated by a professional governing body i.e., CPSO. This means that your corporation must be a “professional corporation” and comply with the conditions set out in The Business Corporation Act, Ontario, and the Regulated Health Professions Act (RHPA). 

Condition # 1: Establish an Ontario Corporation 

Other than the traditional procedure of filing an article of incorporation and getting a NUANS name search, the physician corporation needs to meet the following conditions: –

1. The corporation is incorporated or continued under the Ontario Business Corporations Act.
2. All of the issued and outstanding shares of the corporation shall be legally and beneficially owned, directly or indirectly, by one or more members of the same profession.
3. Each non-voting share of the corporation is legally and beneficially owned, directly or indirectly, by the member of the CPSO or a family member of the voting shareholder (spouse, child, or parents)

Condition # 2: Special Clauses In The Article of Incorporation 

1. The articles of incorporation of a professional physician corporation shall provide that the corporation may not carry on a business other than the practice of the profession but this paragraph shall not be construed to prevent the corporation from carrying on activities related to or ancillary to the practice of the profession, including the investment of surplus funds earned by the corporation.
2. An agreement or proxy that vests the right to vote the rights attached to a voting share of a physician corporation in a person other than a shareholder of the corporation who is a member of the College of Physicians and Surgeons of Ontario is void.

Condition # 3: Professional Corporation Name Compliance:

The name of the corporation must meet the requirements in section 3.2 of the Business Corporations Act of Ontario, and must not violate the provisions of any other Act. O. Reg. 39/02, s. 1 (2). These mainly include the following:

1. The corporation shall not have a number name.
2. The name of the corporation shall include the words “Professional Corporation” or “Société Professionnelle” and shall comply with the rules respecting the names of professional corporations set out in the regulations and with the rules respecting names set out in the regulations or by-laws made under the Act governing the profession. 
3. The name of the corporation must include the surname of one or more shareholders of the corporation who are members of the College, as the surname is set out in the College register, and may also include the shareholder’s given name, one or more of the shareholder’s initials or a combination of his or her given name and initials.
4. The name of the corporation must indicate the health profession to be practiced by members of the College through the corporation.
5. The name of the corporation must not include any information other than the information permitted or required.

Condition # 4: Directors And Officers

The Business Corporation Act, Ontario imposes specific requirements on the professional corporation, including restrictions with respect to persons permitted to act as the directors and officers of the professional corporation. The directors and officers must be shareholders of the physician corporation who are members of the college governing the profession practiced through the professional corporation.

Condition # 5: Certificate Of Authorization

Now that you have complied with the above, your corporation has been set up, you need to get a Certificate of Authorization from the College of Physicians and Surgeons, Ontario before you can practice through your professional physician corporation. 

The application must be submitted through the website of CPSO and include the following:-

1. Paying the fee of the college
2. Completed application form
3. A copy of the articles of incorporation 
4. A copy of the Corporation Profile Report.
5. A statutory declaration of a director of the corporation certifying the following:

• That the corporation complies with Section 3.2 of the Business Corporations Act, including the regulations made under that section, as of the date the statutory declaration is executed,
• That the corporation does not carry on, and does not plan to carry on, any business that is not the practice of the profession governed by the Royal College of Dental Surgeons of Ontario or activities related to or ancillary to the practice of that profession,
• That there has been no change in the status of the corporation since the date of the Certificate of Status, and
• That the information contained in the application is complete and accurate as of the day the statutory declaration is executed.

Misconception About The Professional Liability 

Once you have the Certificate of Authorization, you can practice through a professional corporation. However, the important thing is that a professional corporation does not protect the shareholder from professional liabilities. The actions of the professional corporation are deemed to be the actions of the shareholders. The physician who chooses to practice through a professional corporation remains liable for any professional liability claims made against the corporation.

But a professional corporation does protect you from creditors if you borrow money. For example, you borrowed money for office premises. A professional corporation will save you from personal liability if you are unable to repay those loans.

Director’s Liability

Though shareholders have limited liability, directors of a corporation are subject to various liabilities. These include liabilities for unremitted source deductions, unremitted P.S.T and G.S.T/H.S.T., and certain environmental liabilities.

Additionally, passive directors (not involved in running the business) may still be subject to certain of these liabilities. Passive directors should be aware of what the corporation is doing and must ensure that the directors’ liability insurance is in place to protect them.

Conclusion

Yes, there are too many things to comply with and understand! That is why it is important to avoid waste of time, money and seek the professional advice of a Chartered Professional Accountant (CPA) or a lawyer. Please feel free to reach out to Source Accounting Professional Corporation for advice and direction regarding the incorporation of a professional corporation.

If you have any questions or any other tax and accounting issues, please feel free to reach out to Source Accounting Professional Corporation (CPA). Source Accounting is a full-service accounting firm in Mississauga, dedicated to individuals, small and medium-sized businesses, providing tax preparation, corporate tax filing, accounting, bookkeeping services, payroll solutions, etc. We serve clients from Mississauga, Toronto, Brampton, Milton, Hamilton, Oakville, and across GTA. And if you find this post helpful, please let us know in your comments.

Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.