Professional corporations, and the rules written specifically to catch them.

Start with whether you should incorporate at all

Incorporation gets recommended to professionals early and often, sometimes by people who benefit from you doing it. It is a genuinely good decision for many practices and a waste of money for others, and the difference is not subtle.

The core benefit is deferral. Income left inside the corporation is taxed at the small business rate rather than your personal rate, and the gap between the two is money that stays invested until you take it out. Ontario reduced its small business rate with effect from 1 July 2026, so the combined rate on the first $500,000 of active business income is lower than it was.

That benefit is real only if you are leaving money in. If your practice earns $180,000 and you spend $180,000, incorporating gives you filing fees, a corporate return, minute book maintenance and no deferral at all, because everything comes straight back out to you.

Which makes the honest question not "should I incorporate" but "how much am I able to leave behind each year, and for how long". If the answer is not much, wait. It will still be there when the numbers change.

The regulated part

If you belong to a regulated profession, your corporation is not an ordinary one. It generally needs a certificate of authorization from your regulator, the name has to follow their rules, and there are restrictions on who may hold shares.

Broadly, shareholders must be members of the same profession. Physicians and dentists have an exception allowing certain family members to hold non-voting shares, which historically made income splitting straightforward. That exception still exists in corporate law. What changed is what it achieves for tax, which is the next section.

Your regulator's rules and the tax rules are separate systems that do not always point the same way. Something can be perfectly permissible under the College's rules and produce a poor tax outcome, or the reverse.

Paying yourself

Salary is deductible to the corporation, creates RRSP contribution room, requires source deductions and builds CPP. Dividends do none of those things, avoid CPP contributions, and come out of after tax corporate income.

Neither is right in general. The mix depends on how much you need personally, whether you want the RRSP room, your view on CPP, and what you are leaving in the corporation. It is worth revisiting rather than being set at incorporation and left. Because I prepare both the corporate and personal returns, that decision gets made looking at both at once.

Income splitting is not what it was

The tax on split income rules changed the landscape for professionals in particular. Dividends paid to a spouse or adult child are taxed at the top marginal rate unless an exception applies, and the exceptions are narrower than people expect.

The main routes out are being 25 or over and meaningfully engaged in the business on a regular basis, or holding what the rules call excluded shares. The excluded shares route is not available to a professional practice, because it excludes businesses whose income comes principally from services. That exclusion was written with professionals in view.

So a spouse who genuinely works in the practice may be payable. A spouse who holds shares and does not work in it generally is not, whatever the College permits on the corporate side. This is one of the more common places where an older structure is still in place and no longer doing what it was set up to do.

Investing inside the corporation

Once a practice is retaining income, that money gets invested, and the investment income has consequences of its own.

At the federal level, passive investment income above $50,000 in a year reduces the small business deduction, by $5 of business limit for every $1 of passive income over the threshold, so the deduction is gone entirely by $150,000 of passive income.

Ontario does not mirror that. The provincial small business limit is not reduced by passive income in the same way, so a corporation that has lost some or all of its federal small business deduction can still be within the provincial one. That is worth knowing before anyone panics about the grind, and worth modelling properly rather than assuming the federal position applies to the whole bill.

The wider question, whether to save inside the corporation at all, versus RRSPs, TFSAs or an individual pension plan, depends on your horizon and what you intend for the practice. There is no default answer and anyone offering one has not asked enough questions.

HST, and why health practices are different

For lawyers, engineers, consultants and most other professionals, services are taxable, you register, you charge, you claim input tax credits on what you buy. Straightforward.

Health care is not. Most services provided by physicians, dentists and many other regulated practitioners are exempt rather than zero rated, and the distinction matters enormously: exempt means no HST charged, and no input tax credits recoverable on your costs. The HST on your rent, equipment and supplies is a real cost rather than something you get back.

Then there are the edges, which is where practices get caught. Cosmetic procedures, certain reports and assessments prepared for third parties, some administrative fees, and services outside the scope of the exemption can be taxable. A practice with a mix may need to register, charge on part of its work, and apportion input tax credits. Practices frequently discover this several years in.

Consultants and incorporated contractors

If you incorporated to contract your own services, the rule to understand before anything else is the personal services business rule.

Where your corporation is essentially providing your services to what would otherwise be your employer, it loses the small business deduction, pays additional tax on top, and loses the ordinary business deductions almost entirely. What survives is little more than your own salary. The rest, the home office, the equipment, the vehicle, the professional development, generally does not.

The factors are the familiar employee versus contractor ones: control over how and when you work, who supplies the tools, whether you can subcontract or refuse work, and whether you carry genuine risk of loss. Working substantially for a single client is not the test on its own, but it is what draws attention.

The CRA has been active on this. In one pilot project close to a third of the corporations reviewed were found to be personal services businesses. If you are an IT contractor, engineer or consultant working long term through one client, this is worth a conversation before it becomes a reassessment. The same rule is currently being applied hard in trucking, and the pattern there is instructive: see trucking and owner-operators.

Practice specifics

• Associates and locums. Whether they are employees or contractors, and what the agreement says versus what happens in practice. The same classification question, with the same consequences
• Cost sharing arrangements. Common between practitioners sharing space and staff, and frequently documented loosely. Whether it is a cost share or a partnership changes the reporting
• Buying or selling a practice. Shares or assets, how goodwill is treated, and what the tax outcome looks like on each side. The buyer and the seller usually want different structures, and the difference is negotiable
• Equipment and leaseholds. Fit out, chairs, imaging, and the capital cost allowance classes they fall into
• The ordinary deductions. Professional dues, College fees, continuing education, malpractice insurance, and the home office question for practitioners who do genuine work from home

Questions