Advanced Tax Planning for Dentists

Go beyond compliance. Build a lasting legacy.

Strategic Tax Planning for Incorporated Dentists

As an incorporated dentist in Canada, you operate in a unique tax environment. Your high income and corporate structure present both significant challenges and powerful opportunities. Proactive, strategic tax planning is the key to ensuring you keep more of what you earn, allowing you to accelerate your journey towards financial independence.

Simply filing your corporate and personal tax returns is not enough. A comprehensive tax strategy involves a year-round process of structuring your affairs to legally minimize your tax burden and align with your long-term financial goals.

Core Tax Planning Strategies

Salary vs. Dividend Compensation

We analyze your personal and corporate financial situation annually to determine the optimal mix of salary and dividends to pay yourself. This decision impacts your RRSP contribution room, CPP contributions, and overall tax bill. The goal is to find the most tax-efficient blend for your specific circumstances.

Investing Corporate Surplus

Instead of withdrawing all profits, leaving surplus funds within your corporation allows them to be invested in a tax-deferred environment. This retained capital is taxed at the low corporate rate, leaving a much larger principal to invest and compound over time compared to investing personally after paying high marginal tax rates.

Income Splitting with Family

While rules have tightened, opportunities still exist for legitimate income splitting with family members. This can include paying reasonable salaries to family members for services rendered to the practice or, for dentists over a certain age, splitting investment income and dividends from the corporation with a spouse.

Capital Dividend Account (CDA)

The CDA is a notional account that tracks the tax-free portion of capital gains and life insurance proceeds received by your corporation. We help you manage this account to allow for the tax-free distribution of funds from your corporation to you and your family, which is a cornerstone of effective wealth transfer.

Estate Freezes

An estate freeze is a powerful strategy to cap the value of your practice for tax purposes, deferring and minimizing the capital gains tax liability on your death. Future growth accrues to your children or a family trust, allowing for a seamless and tax-efficient intergenerational transfer of wealth.

Navigating the Lifetime Capital Gains Exemption (LCGE)

The LCGE is one of the most significant tax benefits available to Canadian business owners. When you sell the shares of your qualified small business corporation, a large portion of the capital gain can be realized completely tax-free. However, qualifying for the LCGE requires careful planning.

The corporation must meet specific criteria, including an asset test that requires substantially all of its assets to be used in an active business. We proactively manage your corporate structure to ensure you can take full advantage of this invaluable exemption when you decide to sell.

Tax-Efficient Retirement and Exit Planning

Your tax strategy must extend to your retirement and the eventual sale of your practice. An Individual Pension Plan (IPP) can be a superior retirement savings vehicle to an RRSP for many incorporated dentists, offering higher contribution limits and the potential for a larger, more secure retirement income.

We design a plan to draw income in retirement from various sources in the most tax-efficient order, minimizing clawbacks on government benefits. Tax planning is one of the most impactful components of a complete financial planning strategy for Canadian dentists. We integrate your tax strategy with your investments, insurance, and estate plan to ensure a cohesive approach.

For surplus that exceeds personal income needs, a corporate-owned life insurance policy compounds investment growth inside a tax-sheltered structure and ultimately distributes the death benefit tax-free to your estate through the Capital Dividend Account. For incorporated dentists with surplus beyond RRSP, TFSA, and IPP capacity, COLI rounds out the corporate extraction toolkit alongside salary, dividends, and the LCGE.