I find that quite a number of regulated professionals are running their business or practice as a sole proprietorship and are missing the benefits of incorporating. Here are a few of the major benefits:

1. Tax deferral – In Ontario, the first $500,000 of income after expenses is taxed at a rate of roughly 16%. If you earned this same income personally, you would pay tax at roughly 46%.  This difference translates into big tax savings that stay in your pocket as opposed to going to the government. In order to benefit from this deferral however, I recommend the majority of the funds remain inside the corporation as opposed to being all paid out right away as a dividend or salary. This takes discipline and planning, but is manageable.
2. Dividends as a form of remuneration – Dividends are taxed preferentially in Canada and if planned correctly the taxes on the personal side may be minimal. In addition, by paying dividends you avoid paying into CPP, which may save an estimated 10% of taxes on a maximum pensionable salary. Consideration must be taken here on whether you will rely on the Canada Pension Plan to fund your future retirement.
3. Income splitting – Certain professionals are allowed to have their family members as non-voting shareholders, who can benefit from receiving dividends and paying lower rates of tax.
4. Capital gains exemption – the future sale of the shares of the corporation may qualify for this exemption – meaning that capital gains up to $750,000 will be exempt from tax. Caution must be taken to ensure the corporation qualifies as a Qualifying Small Business Corporation (QSBC) and note that Alternative Minimum Tax (AMT) may apply on the sale.
5. Non-taxable benefits – For example, corporations can set up Private Health Services Plans (PSHP), Health and Welfare Trusts (HAWT) or cost-plus plans to cover medical expenses for employees. These payments are a tax deduction for the company and not income or a taxable benefit to the employee. Care must be taken with these plans, as RST and Ontario premium tax are still applicable on these types of plans, even with HST in place.  This is one among many other non-taxable benefits.
6. Year-end – You can choose a year-end other than December 31. Choose a year-end when your business is in a down cycle and you have time to sit with your accountant to discuss and analyze your numbers. There is a tax deferral opportunity by declaring year-end bonuses. You may be able to pay the bonus income into the next “personal” tax year (possibly saving taxes) which defers when you pay the payroll remittances owing on the bonus by approximately 180 days after year-end.

This list covers the major benefits of incorporating a professional or healthcare business or practice. There are disadvantages with setting up a corporation as well – the biggest being whether it is worthwhile in your situation to set one up. Contact Ark Chartered Accountant for a free, no obligation consultation to discuss your personal situation and needs.

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