Dentistry Professional Incorporation

We usually talk to clients about the following tax advantages:

• The small business deduction/tax savings– this effectively lowers your corporate tax rate to about 12.5% on the first $500,000 that your company makes each year. It’s available on your active business income only (not income from passive investments) and is available to Canadian Controlled Private Companies (referred to as CCPC’s). Keep in mind that this is a deferral only meaning that once you pull money out of your company it becomes your personal income and is taxed at the marginal tax rates on your T1 return. To the extent that you can leave the earnings in the company, the deferral “lives” and you can use the additional money to grow and invest in your business. By forming a Dentistry Professional Corporation, you will also have the ability to leave behind a portion of their business income in the Dentistry Professional Corporation and ultimately defer the payment of personal taxes on this income until you decide to pay yourself.
• The lifetime capital gains exemption– if you sell your shares down the road, you may be able to take approx. $800,000 + off the table tax free. The exemption is available for qualifying small business corporation shares and there are a few criteria you’ll need to meet.
• Income Splitting. Because the regulations allow family members to own non-voting shares of a Dentistry Professional Corporation, you may be able to benefit from certain income splitting arrangements. By issuing family members non-voting shares of the Dentistry Professional Corporation, dividends can be paid to those shareholders in amounts and at times you determine. Those family members will then have to declare the dividend income on their personal tax returns. Prior to issuing shares to family members or declaring dividends, you should speak to your accountant. Tax rules relating to income splitting are important to understand because the ability to income split with family members is subject to certain restrictions.

Please consult with an accountant or tax advisor for more information.

Generally speaking when you transfer assets from a sole proprietorship to a corporation you will trigger a tax event for the sole proprietor who would be deemed to have disposed of the assets of the sole proprietorship at its fair market value. The Section 85 rollover allows the transfer of the assets from a sole proprietorship to a corporation on a tax deferred basis. Accountants will often recommend that dentists complete the transfer and file the joint election form in connection with their goodwill and other assets. Whether or not you require a rollover is a question for your accountant, but we can assist you with preparing the paperwork to effect the rollover transaction in accordance with your accountant’s instructions.  Not all dentists require this additional step. This work is not included in our standard pricing above.

Please consult with an accountant or tax advisor for more information.

A major difference between professional and non-professional corporations is liability protection.

Generally speaking, at law, a corporation is considered a separate legal person and can enter into contracts, borrow money and own property. As the theory goes, if your corporation is a party to a contract, the corporation alone should be liable for a breach of that contract. So, the concept of limited liability means that you personally are separate from your company and are not generally responsible for its debts, obligations or liabilities.

Limited liability is a general rule and there are definitely exceptions in the real world generally and for dentists.

If your company borrows money from a bank, the financial institution usually requires that you personally guarantee repayment of the loan. Directors of a company will also have personal responsibility for certain debts and liabilities of the company. Specifically, if your company owes money for taxes or employee deductions to the government, you as a director can be held personally liable for these amounts.

For dentists, however, you will not be able to limit or shield their personal liability with respect to professional obligations owed to your patients even if you operate through a Dentistry Professional Corporation. If there is a claim against the dentist for professional misconduct, for example, the dentist and the Dentistry Professional Corporation would be jointly and severally liable to satisfy all professional liability claims and would rely on their professional liability insurance to satisfy such claims.

Shareholders own the company (receive dividends or build equity if things go well), the shareholders elect the directors to manage the business and affairs of the company (the people who sit around the board room table discussing the bigger picture), and the directors in turn appoint officers to run the day to day business (the people on the street carrying out the marching orders). In smaller privately held companies (the one that you’ll first incorporate), the same person can wear all 3 hats.  With Dentistry Professional Corporations, the dentist must be the sole director, officer and voting shareholder.

A Dentistry Professional Corporation is subject to strict naming conventions. The name of the corporation:

1. may include the dentists given names or initials;
2. must include the professional’s surname as it appears on file with RCDSO; and
3. must include the ending “Dentistry Professional Corporation”

Dentists wishing to advertise to the public under a different practice/clinic name, will have to file a separate business name registration (ie. obtain a Master Business License) and disclose this practice name to RCDSO.

The entire process can be completed within 1-2 business days. Once incorporated, you will then be required to apply for your Certificate of Authorization with RCDSO.