Category: Healthcare & Other Professionals

A July 22, 2026, Tax Court of Canada case considered whether an office assistant (an administrator) was an employee or Independent Contractor (IC) for multiple chiropractor professional corporations. CRA had determined that the worker was engaged in pensionable and insurable employment and assessed the payers with unremitted CPP and EI. The worker performed services under a verbal IC agreement and invoiced the payers separately for services provided to each.

Taxpayer wins – independent contractor

The court focused particularly on how mutual intention fits into the worker-status test, noting that the ultimate question is whether the worker is actually performing services as a person in business on their own account. Mutual intention does not replace that test. Rather, the court explained that intention provides the lens through which the parties’ actual conduct is assessed, and that the terminology used by the parties cannot override the objective reality of their relationship.

The court further observed that the weight afforded to intention depends on the circumstances: an informed choice by parties who understand the consequences deserves more weight than a purported agreement involving a worker with limited understanding of employee versus IC status. In this case, both the worker and payers understood the distinction and deliberately chose IC status. Their conduct consistently reflected this intention, which included separate invoices, no source deductions, no T4s or record of employment and no employee benefits.

The court then examined the traditional objective factors through the lens of mutual intention to determine whether these factors contradicted the parties’ chosen relationship. The worker received little supervision (she was an experienced administrator), had discretion over how to accomplish her tasks and enjoyed considerable scheduling flexibility, which supported IC status from a control perspective. The financial risk and opportunity for profit angle pointed toward employment because she had essentially no investment, expenses or financial exposure and could increase earnings mainly by working additional hours. The tools were provided by the payers (work premises, computer, and telephones), but the court discounted this factor because patient confidentiality and data security reasonably required use of clinic equipment. The ability to subcontract angle was neutral. The worker did find replacements when needed; however, those replacements were remunerated directly by the payers and not through the worker.

Consequently, the objective factors were mixed and inconclusive; however, they were not inconsistent with the parties’ mutual intention. As such, the court concluded that it was an IC relationship, as originally understood by the parties. The payer was not liable for unremitted CPP and EI.

Ensure that both the payer and worker clearly understand the terms of engagement and the status of the working relationship prior to commencing work. 

Summary: With year-end approaching, October provides Canadian professional partnerships an important window to review their structure, remuneration, income splitting, retirement planning, capital purchases, and other tax moves while there is still time to act.

This article focuses on the tax strategies professional partnerships can use before December 31, from incorporation and the small business deduction to income splitting, retirement planning, and succession, while explaining the rules that can narrow or limit those options.

Why Partnership Structure Changes the Tax Playbook

For Canadian professional firms structured as partnerships, year-end tax planning starts with a basic question: who is taxed on the firm’s income? Unlike a corporation operating on its own, a partnership generally is not the taxpayer. Instead, income flows through to the partners, and whether they practise as individuals, through professional corporations, or through a combination of both determines how that income is taxed.

When your firm is structured as a partnership, it generally does not pay income tax itself.¹ Its net income or loss is allocated among the partners. An individual partner reports their share personally, while a professional corporation that is a partner reports its allocated share as corporate income.

That distinction shapes almost every tax decision in your practice: the rate you pay, the deduction available to you, how you compensate yourself, and how you plan for retirement. It also determines how important rules such as the small business deduction and specified partnership income apply to your situation.

Professional corporations that are members of partnerships, and partnerships in which at least one member is an individual, professional corporation, or another affected partnership, generally report business income on a calendar-year basis.²

Because many of the moves that shape your final tax position need to happen before December 31, October becomes the planning window for your company.

To Incorporate or Not: The Professional Corporation Decision

Incorporating a professional practice can create useful tax and retirement-planning options, but it also entails additional costs, administrative work, and restrictions. The potential value depends largely on how much income you can leave in the corporation and what you want that retained capital to accomplish.

Potential benefits include:

• Tax deferral: A qualifying Canadian-controlled private corporation (CCPC) can claim the small business deduction (SBD) on eligible active business income. The federal small-business tax rate is 9%, plus applicable provincial or territorial corporate tax. By comparison, 2026 federal personal marginal tax rates range from 14% to 33%, on top of provincial or territorial tax.^{3, 3.1} For professional corporations earning income through a partnership, however, the specified partnership income rules can significantly restrict how much partnership income receives the lower rate.
• More cash retained in the corporation: Paying the lower corporate rate upfront can leave more after-tax cash inside the corporation for working capital, debt repayment, investment, or future retirement needs. Personal tax is generally deferred until funds are withdrawn from the corporation. If nearly all earnings must be withdrawn each year to fund personal spending, however, there is much less tax left to defer.
• More remuneration and retirement-planning options: A professional corporation can generally compensate an owner through salary, dividends, or a combination of both. Salary is earned income for Registered Retirement Savings Plan (RRSP) purposes and can also be used to support an individual pension plan (IPP).

Professional corporation rules vary by province and profession. In Ontario, for example, certain family members may own non-voting shares of physician and dentist professional corporations, while voting-share ownership remains restricted to members of the relevant profession. CPA Ontario applies a different ownership framework to accounting professional corporations.^{5 , 5.1}

Whether incorporation makes sense for you comes down to your specific circumstances. The advantages in tax deferral and planning flexibility are real, but so are the compliance costs, administrative burden, and the question of how much income you can actually afford to leave in the corporation.

The trade-offs include:

• Higher operating costs: A professional corporation has its own accounting, corporate tax return, legal records, and regulatory obligations. Incorporation and annual maintenance costs can reduce the benefit, particularly when little income is retained.
• More administration: The corporation requires separate bookkeeping and filings. It also needs to administer payroll, source deductions, remittances, and T4 reporting.
• Limits on family income splitting: The tax on split income (TOSI) rules can subject certain dividends and other income received by family members from a related business to tax at the highest marginal rate unless an exclusion applies.⁶ Simply issuing shares to a spouse or adult child therefore does not automatically create a tax advantage.

Ultimately, incorporation must fit your personal finances and tax plan. Household cash flow, debt obligations, and other financial commitments affect how much income you can realistically retain in the corporation.

The Small Business Deduction Trap for Partnerships

One common mistake in a professional partnership is assuming that incorporating each partner creates a new $500,000 federal small-business limit. It does not.

For a CCPC that is a partner, the specified partnership income (SPI) rules generally limit the amount of partnership income that can qualify for the SBD. Broadly, the corporation’s SPI limit is based on its pro rata share of one notional $500,000 business limit for the partnership, rather than a separate $500,000 partnership limit for each incorporated partner.⁷

For example, if 10 professional corporations are equal partners, they would generally divide the same notional $500,000 partnership business limit. That would give each corporation an SPI limit of $50,000 from the partnership, not $500,000. Qualifying active business income earned by a corporation from other sources may still be eligible for the SBD, subject to its overall available business limit and other applicable rules.⁷

The rules can also apply where a professional’s corporation is not formally a partner but provides services or property to a partnership in which the professional has an interest. In certain circumstances, the corporation can be treated as a designated member, preventing the structure from being used simply to create additional access to the SBD.⁷

There are two other federal limits to watch:

• Passive investment income: The federal business limit begins to fall when the combined adjusted aggregate investment income of the CCPC and its associated corporations exceeds $50,000 and is phased out as that income rises to $150,000.⁸
• Taxable capital: The federal business limit is also reduced when the CCPC and its associated corporations have taxable capital employed in Canada of between $10 million and $50 million, based on the previous year. At $50 million or more, the federal SBD is unavailable.⁸

Importantly, these two reductions are not simply added together. Whichever reduction is higher applies.⁸ Provincial tax treatment can also differ. Ontario, for example, does not apply the federal passive-income business-limit reduction to its provincial small business deduction.⁹

The takeaway is that incorporation can still provide value, but the SBD advantage in a professional partnership depends on how the available limit is allocated and preserved. It cannot simply be multiplied by incorporating each partner.

Income Splitting After TOSI: What Still Works

If you were planning to share income with family members through your professional corporation, TOSI has largely closed that option. Since 2018, dividends, interest, and certain other amounts paid to family members from a related business are taxed at the top marginal rate unless a specific exclusion applies.¹⁰

Professional and service businesses face another hurdle. The “excluded shares” exception is not available to professional corporations. Even where it might otherwise apply, it requires that less than 90% of the corporation’s business income come from providing services. If you are an accountant, dentist, lawyer, physician, veterinarian, or chiropractor, both conditions work against you.⁶

While traditional dividend sprinkling has narrowed, other family tax-planning options are still available:

• Salary for genuine work: TOSI does not apply to salary. A spouse or adult child can therefore be paid for legitimate work performed for the business. The amount should be reasonable for the services provided and supported by appropriate records.¹⁰
• Active involvement: Income from a related business may fall outside TOSI when an adult family member is actively engaged in the business on a regular, continuous, and substantial basis. The CRA provides a bright-line test of an average of at least 20 hours per week during the portion of the year in which the business operates. Qualifying involvement in any five prior taxation years can also satisfy the excluded-business rule, and those five years need not be consecutive.¹⁰
• Reasonable return: For an individual aged 25 or older, an amount may also qualify as an excluded amount where it represents a reasonable return based on factors such as work performed, property contributed, and risks assumed. This can be particularly relevant to professional corporations because the excluded-shares exception itself is not available to them.¹⁰
• Age-65 spouse rule: Additional relief may be available where one spouse or common-law partner is at least 65, and the amount would have been an excluded amount if it had been received by that spouse.¹⁰
• Spousal RRSP: This is not a TOSI exception, but contributing to a spouse’s RRSP can help balance taxable retirement income later. Contributions use the contributor’s RRSP deduction limit. Withdrawal-attribution rules must also be considered, particularly where contributions were made in the year of withdrawal or either of the two preceding years.¹¹

A prescribed-rate loan can also be used, in appropriate circumstances, to lend investment capital to a lower-income spouse, provided the legal requirements are met. The applicable rules require that interest be charged at no less than the prescribed rate when the loan is made, and that the interest be paid within 30 days after the end of each year.¹²

Does TOSI Apply to Me? A Quick Test

1. Are you being paid salary for work you perform?

If yes, TOSI does not apply to salary. The amount should still be reasonable for the work performed if the business is claiming a deduction.

2. Are you receiving income from a related business?

Certain dividends, interest, partnership or trust income, and capital gains may be subject to TOSI unless an exclusion applies.

3. Do you work regularly in the business?

If you average at least 20 hours per week while the business operates, you are deemed actively engaged. The exclusion can also apply if you met the test in any five previous years.

4. Are you 25 or older?

You may qualify for the reasonable-return exception based on factors such as your work, property contributions, and risks assumed. For professional corporations, the separate excluded-shares exception is not available.

5. Are you between 18 and 24?

The exceptions are narrower. An excluded business can still qualify, along with certain returns on safe-harbour capital or arm’s-length capital.

6. Is your spouse or common-law partner 65 or older by year-end?

Special relief may apply if the income would have been excluded from TOSI had your spouse or partner received it.

The takeaway: If you receive non-salary income from a related business and no exclusion applies, TOSI may apply. Your age, involvement in the business, source of the income, and how the payment is structured all matter.

Retirement, Remuneration, and Year-End Levers

Year-end tax planning also affects how much you build for retirement and what you keep when you eventually leave your profession. If you are incorporated and earn substantial employment income, an IPP may be worth considering. Under CRA rules, an IPP is a defined-benefit pension your corporation funds and deducts, with contribution room tied to your years of service and salary history. For older, high-earning incorporated partners, it can shelter significantly more than an RRSP.⁴

That makes your salary-versus-dividend mix one of the more consequential decisions you make each year. Salary builds the earned income used to calculate future RRSP deduction room and generally creates pensionable earnings for Canada Pension Plan (CPP) purposes. Dividends do not create RRSP room and generally do not attract CPP or Quebec Pension Plan contributions.^{13, 13.1} The right mix depends on your cash needs, other income, province of residence, and retirement goals.

An eventual sale is worth planning for before you need to. Canada’s general capital gains inclusion rate remains 50% after the federal government decided not to proceed with the proposed increase.¹⁴ The Lifetime Capital Gains Exemption (LCGE) has a $1.25 million base, with indexation resuming in 2026. With the 2026 federal indexing factor at 2.0%, the LCGE is $1.275 million for 2026 on qualifying property, including qualifying small-business corporation shares.^{15, 15.1}

However, the exemption is not automatic. Your shares must meet specific conditions, including tests covering the corporation’s assets and ownership during the 24 months before the sale.¹⁶ Planning ahead matters because some eligibility problems cannot be fixed just before closing.

One more thing to plan for: large gains or an LCGE claim trigger alternative minimum tax (AMT). The revised federal AMT rate is 20.5%, though any excess AMT you pay can generally be carried forward for up to seven years and applied against regular federal tax when the conditions are met.¹⁷

Year-End Tax-Planning Checklist for Professional Partnerships

Before December 31, work through these questions:

• Remuneration: Finalize your salary and dividend decisions and review any year-end remuneration accruals. If salary, wages, or other employment remuneration remain unpaid 180 days after the end of the taxation year, you generally cannot deduct them as an expense for that earlier year.¹⁸
• Capital purchases: If capital cost allowance (CCA) forms part of your year-end plan, consider when any equipment or other depreciable property you purchase will become available for use. You can usually begin claiming CCA when the property becomes available for use.¹⁹
• Prescribed-rate loans: If you are setting up a new prescribed-rate loan, confirm the rate that applies when the loan is made and make sure the required interest is paid within 30 days after each calendar year-end.¹²
• Sale readiness: If you may sell shares of your corporation in the future, review your eligibility for the LCGE well before negotiations begin. Some qualifying-share tests look back 24 months, so you may not be able to fix certain eligibility issues immediately before a sale.¹⁶
• Retirement income: If you receive eligible pension income, check whether you can split it with your spouse or common-law partner. You may be able to jointly elect to allocate up to 50% of eligible pension income to your spouse or partner.²⁰

The strongest year-end plan considers these decisions together rather than one at a time.

Final Thoughts: Build a Smarter Year-End Tax Strategy

Tax planning for a professional partnership rarely comes down to a single decision. Incorporation, the small business deduction, income splitting, remuneration, retirement funding, and eventual succession can all affect one another. The right approach depends on how your firm is structured, how much income you need personally, and what you want your business to support over time.

With December 31 fast approaching, reviewing these decisions early gives you more time and flexibility to act. A well-planned approach can help you preserve available tax advantages, manage cash flow, and keep your personal and business goals moving in the same direction.

Please connect with your advisor if you have any questions about this article.

References

[1] Canada Revenue Agency, “Reporting Partnership Income” https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/t5013-partnership-information-return-filing-requirements/reporting-partnership-income.html/1000

[2] Canada Revenue Agency, “Fiscal Period for Income Tax Purposes” https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/business-income-tax-reporting/fiscal-period-income-tax-purposes.html

[3] Canada Revenue Agency, “Corporate Tax Rates” https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-tax-rates.html

[3.1] Canada Revenue Agency, “Payroll Deduction Table” https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4032-payroll-deductions-tables/t4032oc-jan/t4032oc-january-general-information.html

[4] Canada Revenue Agency “Registered Pension Plans Glossary” https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/registered-pension-plans-glossary.html

[5] Ontario, Ontario Regulation 665/05 https://www.ontario.ca/laws/regulation/050665

[5.1] CPA Ontario, Registration Guideline https://www.cpaontario.ca/members/regulations-guidance/accounting-firms/register-firm/professional-corporations/register-with-cpa-ontario

[6] Canada Revenue Agency, “Tax on Split Income” https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults/excluded-shares.html

[7] Canada Revenue Agency, “Corporation Income Tax Guide Chapter 4 — Specified Partnership Income https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4012/t2-corporation-income-tax-guide-chapter-4-page-4-t2-return.html

[8] Canada Revenue Agency, T2 Corporation Income Tax Guide, Chapter 4 — Small Business Deduction Limits https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4012/t2-corporation-income-tax-guide-chapter-4-page-4-t2-return.html

[9] Canada Revenue Agency, “Provincial Territorial Corporation Tax” https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/provincial-territorial-corporation-tax/ontario-provincial-corporation-tax/ontario-small-business-deduction.html

[10] Canada Revenue Agency, “Guidance on Split Income Rules” https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults.html

[11] Canada Revenue Agency, “Withdrawing from Spousal or Common Law Partners” https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/making-withdrawals/withdrawing-spousal-common-law-partner-rrsps.html

[12] Canada, Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), sections 74.5(1) and 74.5(2) https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-74.5.html

Canada Revenue Agency, “Prescribed Interest Rates” https://www.canada.ca/en/revenue-agency/services/tax/prescribed-interest-rates.html

[13] Canada Revenue Agency, “Definitions: Registered Retirement Savings Plan (RRSPs)” https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/definitions-rrsps.html

[13.1] https://www.canada.ca/en/services/benefits/publicpensions/cpp/contributions.html

[14] Canada Revenue Agency, “Report on Federal Tax Expenditures” https://www.canada.ca/en/department-finance/services/publications/federal-tax-expenditures/2026/part-6.html

[15] Department of Finance Canada, “Lifetime Capital Gains Exemption — 2026 Indexed Amount” https://www.canada.ca/en/department-finance/corporate/transparency/briefing-materials/2026/c15-eng.html

[15.1] Canada Revenue Agency “Income Tax Rates and Income Thresholds” https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/income-tax/reducing-remuneration-subject-income-tax.html

[16] Canada Revenue Agency, “Capital Gains” https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html

[17] Department of Finance Canada, Budget Implementation Act, 2024, No. 1 — Revised Alternative Minimum Tax https://www.canada.ca/en/department-finance/corporate/transparency/2024/nffn-part-3.html

[18] Canada, Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), section 78 https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-78.html

[19] Canada Revenue Agency, “Self-employed Business, Professional, Commission, Farming and Fishing Income” https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002/t4002-6.html

[20] Canada Revenue Agency, “Pension Income Splitting” https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html

[21] Aprio “Professional Services”

[22] Aprio “Business Tax”

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This article was written by Aprio and originally appeared on 2026-10-16. Reprinted with permission from Aprio LLP. © 2026 Aprio LLP. All rights reserved. https://www.aprio.com/insights-events/tax-planning-strategies-for-canadian-professional-services-firms-structured-as-partnerships-ins-article-tax/

“Aprio” is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC (and its subsidiaries), provide professional services. LLP and Advisory (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. LLP is a licensed independent CPA firm that provides attest services, and Advisory and its subsidiaries provide tax and business consulting services. Advisory and its subsidiaries are not licensed CPA firms.

This publication does not, and is not intended to, provide audit, tax, accounting, financial, investment, or legal advice. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Readers should consult a qualified tax advisor before taking any action based on the information herein.

Background

Historically, Professional Corporations (PCs) have been used by professionals as a vehicle to enjoy significant tax advantages, particularly through the deferral of personal taxes. By incorporating their practices, professionals are able to earn income within the corporation and take advantage of lower corporate tax rates on retained earnings. This structure is only available to individuals in regulated professions, such as accountants, lawyers, and doctors, among others. With the support of trusted advisors, professionals are able to implement tailored tax planning strategies to minimize their tax liabilities and achieve their cash flow objectives.

Benefits of Using a Professional Corporation

Deferral of Personal Tax

One of the primary benefits for professionals to incorporate is the ability to take advantage of the lower corporate tax rates compared to the higher personal income tax rates on active business income. By retaining a portion of their professional earnings within the corporation, professionals can defer paying personal tax on their earnings until a later date when the funds are withdrawn from the corporation as dividends.

Income that is taxed in the PC may be eligible for the small business deduction and be taxed at the lower corporate rate. Income above that threshold will be taxed at the general corporate rate, which is still significantly lower than the higher marginal personal tax rates.

The Small Business Deduction (SBD) applies to active business income (income earned from professional activities) under $500,000 and is taxed at a combined federal and provincial rate of 11.2% in Ontario (effective July 1, 2026). This provides for a tax deferral on profits left in the corporation versus unincorporated professionals earning the same income and paying personal tax on the entire amount.

Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption (LCGE) is an invaluable tax and estate planning tool and can be utilized on the sale of shares or the death of the shareholder. If the shares of the PC meet certain criteria, this exemption provides the ability to shelter a significant portion, if not all of the capital gains on the sale of the shares or the deemed disposal of the shares on death. To qualify for this exemption, the shares must be held for certain periods of time and no significant non-business assets can accumulate. Tax planning can be done to ensure that the PC shares qualify for this exemption. There is no similar deduction for unincorporated practices. This is primarily a benefit to professionals with saleable practices. As of 2026, the LCGE can shelter up to $1,275,000 of capital gains on private company shares.

Income Splitting

While the opportunity to split income among family members, such as spouses and children, through a PC is still available, it has become more restrictive with the passing of the Tax On Split Income (TOSI) rules in 2018. These rules stipulate certain conditions that must be met by the family members receiving dividends from the PC or via a family trust. If these conditions are not met, the individual will be taxed at the highest personal rate on the income received from the PC.  The main eligibility criteria are that the family member being compensated must be actively engaged in the business on a “regular, continuous, and substantial basis” in either the current or preceding five years. Guidance has been provided to indicate that an average of 20 hours a week will satisfy this criterion. Additionally, once the professional is 65 or over, the PC is able to pay dividends to the spouse of the shareholder without the TOSI rules applying. There are other limited circumstances where TOSI rules are not applied.

Limited Liability

Since a corporation is a separate legal entity, a PC provides limited liability to its shareholder, similar to other corporations.  This offers the professional protection of their personal assets if the PC faces any financial difficulties. It provides them with creditor protection, as creditors can only go after the assets of the corporation and not the personal assets of the professional (shareholder). However, the limited liability protection applies primarily to the business operations and the corporation’s debts and liabilities, not the professional responsibilities of the shareholder. Professionals can still be held personally liable for any malpractice or negligence.

Flexibility in Remuneration Planning

A PC provides professionals with flexibility in their remuneration planning. Depending on their financial goals and needs, they can take a salary, or a dividend, or a combination of both. Working with a tax professional, enables individuals to optimize their tax planning and helps them achieve their specific financial goals, such as managing cash flow, retirement planning, or reducing personal tax liabilities. For instance, many professionals will take a sufficient salary to generate contribution room and contribute to their RRSP, enabling them to maximize their retirement savings while minimizing their personal taxable income.

Disadvantages of Using a Professional Corporation

Sharing the Small Business Deduction (SBD)

When a professional corporation is part of a partnership, this advantage could be reduced or lost if income of the partnership is greater than the $500,000 limit because all corporate partners must share the $500,000 SBD.

Restriction on Business Activities

While there are limitations on the ability of a professional corporation to use accumulated wealth in other revenue generating activities, they can invest retained earnings inside their PC as long as these activities are considered ancillary to the practice of the professional. Rules vary by professional regulation boards, so it is important to consult federal and provincial regulations specific to the profession before any investments are undertaken in the PC. A further caveat is that the SBD does not apply to investment income, and it is taxed at the highest corporate rate which is only slightly lower than the highest personal rate; however, there is an opportunity to receive a portion of that tax back once dividends are paid out to the shareholder. Additional consideration is needed, if planning to claim the Lifetime Capital Gains Exemption (LCGE). The PC will need to ensure investments are not significant enough to prevent it from qualifying. It is important to consult a tax advisor for any additional tax planning needed to meet the eligibility criteria in a tax-efficient manner. There are alternative structures and tax planning opportunities available for PC’s looking to invest surplus funds.

Additionally, when earning significant passive income, the SBD can be reduced. Specifically for every $1 of passive income earned above the $50,000 threshold, $5 of the SBD is clawed back for the PC and any associated corporations. Once the passive income is greater than $150,000, the SBD is eliminated.

Additional Costs and Compliance

There are additional costs incurred when a professional incorporates instead of operating as a sole proprietor or as part of a partnership. Among these costs are the legal fees to incorporate and maintain corporate records, and accounting fees related to annual compliance and filing requirements, such as financial statements, corporate tax returns, T5 slips for any dividends paid, and T4 slips and returns for salaries. These additional reporting requirements can be both cumbersome and costly to the professional.

A PC must also comply with both federal and provincial regulations specific to their profession, which could result in extra paperwork related to regulatory approvals, and adherence to specific operational guidelines.

Takeaway

While a PC does offer valuable benefits, such as the deferral of tax via lower corporate tax rates on active income, it also comes with additional costs and tax considerations.

For more detailed advice on whether a professional corporation is right for you, please contact one of our trusted advisors.

 

 

 

As of June 20, 2024, certain psychotherapy and counselling therapy services have become exempt from GST/HST. This means that those providing these exempt services are no longer required to collect GST/HST on their services, and these service providers are no longer able to claim Input Tax Credits (ITCs) on inputs acquired to provide these services.

Psychotherapy and counselling therapy services are now exempt if the provider:

• is licensed with a provincial body responsible for the regulation of psychotherapy services (regulated only in Ontario) or counselling therapy services (regulated only in New Brunswick, Nova Scotia, and Prince Edward Island); or
• operates in a province with no regulatory body but has the equivalent qualifications required to meet the licensing requirements in a regulated province.

In addition, to be exempt from GST/ HST, those providing the services must do so within the profession’s scope of practice in the respective regulated province.

If all of a registrant’s services are GST/ HST exempt, they may close their GST/ HST account with CRA. If only some of their services are exempt, they must keep their account open and continue to charge GST/HST on nonexempt services and goods.

In addition, on June 20, 2024, there may be a deemed sale and repurchase of certain capital property (e.g. computers, furniture) used in the provision of these services due to the change from a taxable to an exempt supply. This generally means that the taxpayer will have to repay all or part of the GST/HST they claimed (or were entitled to claim) as an ITC when they bought the property and when they made any improvements to it. The required repayment of GST/HST is adjusted if the assets have declined in value since the acquisition.

If psychotherapy or counselling therapy services are provided, consideration should be provided to determine if the supply is now exempt.