There are a number of profession organizations in Ontario that allow their members to practice through a corporation and to benefit from the special tax rules that apply to professional income earned in a corporation. Some of the professions which qualify include:
- Lawyers and Paralegals
- Physicians and certain other health professionals
- Dentists
- Veterinarians
- Pharmacists
- Architects
- Engineers
- Chartered and Certified General Accountants
- Social workers and social service workers
Key Features
- Professional corporation must be certified by the respective governing body.
- A professional corporation does not limit professional or malpractice liability.
- There are restrictions on who may hold shares in the professional corporation, and additional restrictions on directors and officers.
- Professional corporations are required to carry on a business that is the practice of the particular professional. Importantly, however, the professional corporation may carry on activities that are related to, or ancillary to, the practice of the profession, including the temporary investment of surplus funds earned by the corporation.
Tax Advantages
- Professionals will directly benefit from the small-business deduction, which reduces the effective corporate tax rate on the first $500,000 of active business income to approximately 15.5 percent, depending on the province.
- Professionals can defer income tax on their earnings while it remains in corporation.
- Income splitting with family members; and
- A capital gains exemption of up to $750,000 for shareholders on the disposition (sale) of their shares in the professional corporation.
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