Should a Dentist Incorporate? Dental Professional Corporations in Ontario
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A Tax Deferral, Not a Tax Cut
Almost every dentist is told at some point that they should incorporate. Sometimes that is good advice and sometimes it just adds a second set of filings. A dental professional corporation lets you earn practice income inside a company taxed at a low small business rate, and leave what you do not need personally to grow there. Whether it pays depends on how much of your income you can afford to leave in the corporation.
This guide covers how dental professional corporations work in Ontario, who can own the shares, the tax mechanics, what changed for income splitting, and the costs. It is part of our guide to dental bookkeeping and accounting.
Key Takeaways
- In Ontario, every voting share must be owned by a dentist who is a member of the RCDSO. Non-voting shares can be owned by the dentist’s spouse, children or parents.
- The corporation needs a certificate of authorization from the RCDSO before it can practise.
- Active practice income up to $500,000 is taxed at about 12.2% in Ontario, compared with personal rates up to 53.53%. The saving is a deferral until you take the money out.
- Since 2018, the TOSI rules have removed most of the benefit of paying dividends to family members who do not work in the practice.
- Incorporation does not protect you from professional liability.
How a Dental Professional Corporation Works
A dental professional corporation is an ordinary Ontario corporation with extra conditions. Under Ontario Regulation 39/02, each voting share must be legally and beneficially owned by a member of the Royal College of Dental Surgeons of Ontario. Non-voting shares can be owned by another member, by a family member of a voting dentist shareholder (their spouse, child or parent), or in trust for the dentist’s minor children.
The corporation’s name must identify it as a professional corporation, and it must obtain a certificate of authorization from the RCDSO before practising through it. The corporation then bills patients and insurers, pays staff and expenses, and pays you a salary, dividends or both.
Incorporating does not limit your liability for your own professional work. It can limit liability for some business obligations such as leases, but you still need malpractice coverage.
The Tax Advantage, With Real Numbers
A Canadian-controlled private corporation pays tax at the small business rate on the first $500,000 of active business income: 9% federally plus 3.2% in Ontario, about 12.2% combined. A dentist earning the same income personally pays graduated rates that reach 53.53% in Ontario.
The difference is a deferral, not a permanent saving. When you take money out as dividends, personal tax applies, and the system is designed so the combined tax ends up roughly similar. The benefit comes from leaving money in the corporation for years, investing it with pre-tax dollars and choosing when to draw it, for example in lower-income years or retirement.
If you spend everything the practice earns, the deferral is small and may not cover the extra costs. If you can regularly leave a meaningful amount in the corporation each year, it usually pays. Our salary vs dividend calculator and salary vs dividends worked example show how the mix of pay affects the result.
Income Splitting After the TOSI Rules
Before 2018, many dentists issued non-voting shares to a spouse or adult children and paid them dividends taxed at their lower rates. The tax on split income (TOSI) rules now tax most of those dividends at the top personal rate.
Some exceptions still apply. Dividends to a spouse are generally excluded once the dentist is 65 or older. Family members who work in the practice on a regular, continuous and substantial basis (generally at least 20 hours a week) can also be excluded. The “excluded shares” exception that helps other businesses is not available to professional corporations.
Paying a reasonable salary to a spouse or child who genuinely works in the practice, for example in reception or the business office, is still fully allowed.
Passive Income and the Small Business Limit
Money left in the corporation is usually invested, and investment income has its own rules. Once the corporation’s passive investment income goes above $50,000 a year, its small business limit starts to shrink by $5 for every $1 over, and it disappears at $150,000. That pushes practice income onto the higher general corporate rate.
This only bites for dentists with large investment portfolios inside the corporation, but it is worth planning for with corporate-owned insurance, an individual pension plan or the timing of capital gains.
HST, Costs and When to Incorporate
Most dental services are exempt from GST/HST, so a dental practice does not charge HST on its services and cannot claim back the HST it pays on equipment, supplies and rent. That is true whether or not you incorporate, so HST is not a reason to incorporate either way.
The costs are real: legal fees to incorporate and obtain the certificate, an annual corporate tax return and financial statements, payroll for your own salary, and more bookkeeping. Associates can incorporate too, but the numbers need to work for their own income level.
Signs it is time: steady practice income well above what you spend, a plan to buy or expand a practice, or a desire to build savings inside the company. Our guide to the T2 corporate tax return covers the annual filing, and tax planning for owner-managers covers how to pay yourself.
Thinking About Incorporating Your Practice?
We model the numbers for your practice before you incorporate, then handle the corporate tax, payroll and bookkeeping afterwards. See our corporate tax services or get in touch.
