Tax Advices for Dentists, Family Doctors and Lawyers

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As a practicing Dentist, Family Doctor and Lawyer, it may come as a surprise that the Canada Revenue Agency will be taking close to half of your hard earned money.  Did you know the marginal tax rate for income over $150,000 is about 47.97% and increases to 53.53% for income over $220,000?

Here are guidance and tax saving strategies for Dentists, Family Doctors and Lawyers:

First, set up a professional corporation.

There are three potential significant tax benefits of incorporating a professional corporation for a Dentist, Family Doctor and Lawyer:

  • Issuing salary or dividends to family members in lower tax brackets;
  • A tax deferral is possible by retaining earnings in the professional corporation;
  • The $800,000 capital gains exemption available for sale of a small business can only be claimed on the sale of shares of a qualifying corporation and not for the sale of a sole proprietorship or a partnership.

In Ontario, the combined federal + Ontario tax rate on the first $500,000 of active business income earned by a professional corporation is only 13.5% for 2018 and 12.5% for 2019. The average tax rate to earn the same amount of income personally is about 45%. The professional corporation provides a 30% deferral of tax leaving you with more cash to reinvest in your practice. Personal tax will be payable when funds are extracted from the professional corporation.

Secondly, pay reasonable salaries to family members in a lower tax bracket

If a family member performs administrative duties for the practice, you can pay him or her a salary as long as it is reasonable (i.e. comparable to what you would pay anyone else to perform the same duties).  If your family member is in a lower tax bracket, this would result in an overall tax savings.

If you would like to take advantage of these tax planning opportunities for your practice, contact us today.



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