Corporate tax
How to take money out of your professional corporation
The six routes out of an Ontario professional corporation, what each one costs, and the order most physicians and dentists should use them in.
6 min read
Services
Retirement
Turning a corporation and a set of registered accounts into an income. The order you draw in decides the tax, sometimes by six figures.
What we read
- Retained earnings, the shareholder loan balance and the capital dividend account.
- Registered account balances, and any defined benefit or individual pension entitlement.
- Your CPP and OAS estimates, and the ages you are planning around.
- What your household intends to spend in the first five years after your last clinic day.
What we assess
- The order of withdrawals across salary, dividends, the capital dividend account and registered plans.
- Whether the corporation is worth keeping after you stop billing, and for how long.
- Where the OAS recovery tax bites, and whether smoothing income avoids it.
- What your estate would owe if the plan stopped halfway through.
The trade-off
| Wind it up | Keep it running | |
|---|---|---|
| Filing and cost | One final return, then nothing. No annual accounting fee. favourable | A corporate return, financial statements and a College renewal every year. |
| Control over taxable income | The value comes out over a short period, often at high personal rates. | Dividends can be paid year by year to fill lower brackets and stay under the OAS threshold. favourable |
| The capital dividend account | Any balance must be used before the corporation is dissolved or it is lost. | Stays available as balances arise, including from a life insurance policy. favourable |
| Passive income grind | Stops mattering once there is no active income to protect. | Also stops mattering, but investment income is still taxed at the high refundable rate. |
| Estate complexity | Nothing left to value or unwind. favourable | Shares to be valued, and post-mortem steps needed to avoid double tax. |
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