Physicians practicing in Ontario can incorporate their medical practices and operate as a medicine professional corporation (“MPC”). The privilege to incorporate was a concession of the Ontario government in the early 2000’s, intended to confer tax planning options to doctors in lieu of service-related fee increases. Other professionals, such as dentists, veterinarians and real estate agents, enjoy similar advantages.
However, the decision to incorporate is not a slam dunk and is often informed by not only short-term opportunities but also by long-term planning objectives. Several distinct advantages come to mind when thinking about incorporating an MPC:
- Limited Personal Liability — an MPC, as a corporation, is a separate legal entity and provides physicians with some protection from liability (outside the scope of their professional liability).
- Tax Deferral — where earnings can be retained in the corporation, an MPC can take advantage of the Small Business Deduction which is applied on the first $500,000 of active business income.
- Expense Treatment — in certain settings, business expenses can be funded directly through the MPC and be treated as deductions, as opposed to being paid with personal, after-tax dollars.
- Income Splitting – though narrowed substantially by the tax on split income rules (TOSI), an MPC can be used to distribute income amongst eligible family members (i.e. parent, spouse or child) who would hold non-voting positions in an MPC.
Depending on the physician’s personal situation, the advantages of incorporating an MPC can be meaningful and form part of a comprehensive tax-planning strategy.
Conversely, creating a company does come with the following drawbacks:
- Legal Compliance — various pieces of Ontario legislation govern the creation and administration of MPC’s, including the Business Corporations Act and the Regulated Health Professions Act, 1991, which may require professional services to navigate.
- Administrative Costs — there are hard costs associated with incorporating an MPC, maintaining its records and having financial statements prepared and filed annually.
- College Matters — MPCs are required to obtain a Certificate of Authorization from the College of Physicians and Surgeons of Ontario, which must be renewed annually.
The reality is that the decision to incorporate is an important one and involves the evaluation of several factors. A physician’s employment, income and family dynamics can all play a role, as well as tolerance for administrative complexity. However, where the drawbacks and administrative costs are acceptable, there is no doubt that carrying on a medical practice through an MPC can be a powerful strategy.