Incorporation for New Dentists
Understanding when and how to incorporate your practice
When Should You Incorporate?
General rule: Incorporate when earning $150,000+ annually and retaining $30,000+ after personal expenses. Below this threshold, incorporation costs often exceed tax savings.
Most dentists incorporate 2-4 years post-graduation once income stabilizes and debt decreases.
Key consideration: Can you live on less than total income through disciplined budgeting? Corporation allows tax deferral on retained earnings, but you must leave money in the corporation to benefit.
If withdrawing all income personally, incorporation provides minimal advantage. Consider practice ownership strategies when planning your corporate structure.
Tax Benefits of Incorporation
Small Business Deduction Rate
First $500,000 of active business income taxed at 11-12.5% (federal + provincial) according to CRA small business rates vs. 43-53% personal rate. Leaves 87-89% in corporation for investment vs. 47-57% after personal tax.
Income Splitting Opportunities
Pay reasonable salary to spouse for legitimate work (admin, bookkeeping). Saves $10,000-$25,000 annually by utilizing spouse's lower tax bracket. Must pass CRA's "reasonableness" test with documented duties.
Lifetime Capital Gains Exemption
When selling qualified small business corporation shares, first $1,250,000 (2026) of capital gains tax-free. Can save $300,000+ in taxes on eventual practice sale if structured correctly from incorporation.
Investment Income Tax Deferral
Passive investments in corporation taxed at 50-52% initially but refundable dividend tax credit recovers portion when paid out. Allows tax-deferred compound growth vs. personal investing at top marginal rates.
Corporate-Owned Life Insurance Planning
When incorporating, consider corporate-owned life insurance (COLI) as a future tax optimization strategy. Early implementation maximizes cash value accumulation through tax-deferred growth within your corporation. Once corporate retained earnings exceed $300K+, permanent insurance significantly reduces passive investment taxation (50%+ corporate rate vs tax-free growth in insurance), and the death benefit ultimately distributes to shareholders tax-free through the Capital Dividend Account.
Costs of Incorporation
Initial Setup
Legal fees, articles, minute book
Annual Accounting
Corporate tax return, T4/T5 preparation
Annual Maintenance
Corporate filings, minute book updates
Additional Complexity
Payroll remittances, HST filings, bookkeeping
Total annual cost: $4,000-$8,000. Tax savings must exceed this to justify incorporation.
Incorporation Checklist
1. Name Search & Registration
NUANS name search to ensure availability. Register with provincial corporate registry. Consider numbered company to avoid name restrictions.
2. Articles of Incorporation
File with province. Specify share structure (common vs. preferred), director details, registered office address. Lawyer recommended for optimal tax planning structure.
3. Business Numbers & Registrations
CRA business number, payroll account, HST registration (if applicable), WSIB registration, provincial licensing body notification.
4. Banking & Insurance
Corporate bank account, credit card, professional liability insurance in corporate name, practice overhead insurance if applicable.
5. Shareholder Agreements
If multiple shareholders, unanimous shareholder agreement defines rights, responsibilities, buy-sell provisions, and dispute resolution mechanisms.
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Determine If Incorporation is Right for You
Incorporation decisions require analyzing your specific income, expenses, and long-term goals. We'll create a detailed cost-benefit analysis showing exact tax savings.
Let's review your situation and determine the optimal timing and structure for incorporation.