Every physician gets told to incorporate. It is offered as though it were a single decision with a single right answer, usually by someone who benefits from the answer being yes. The reality is duller and more useful: incorporating helps some doctors a great deal, does very little for others, and costs everybody money to set up and maintain.
Here is the way to think about it that does not require a spreadsheet.
Incorporating is a deferral, not a discount
This is the single sentence that clears up most of the confusion. When your practice income runs through a corporation, the profit left inside is taxed at the small business corporate rate, which everywhere in Canada is a fraction of the top personal rate. That looks like an enormous saving, and in the year it happens it is.
But that money is not yours yet. It belongs to the corporation. The moment you take it out, as salary or as a dividend, you pay personal tax on it. The system is designed so that the combined corporate and personal tax you eventually pay lands close to what you would have paid if you had earned the income personally in the first place.
What you actually gain is time. Tax deferred is money that stays invested and compounding for years, and income you can choose to receive in a year that suits you rather than the year it was billed.
That gain is real and it can be large. It is just a different thing from a discount, and understanding which one you are getting changes how you plan.
The test that actually matters
Forget your billings for a moment. The number that decides this is the profit you can leave inside the corporation after paying yourself enough to live on.
If you bill well but draw essentially all of it to cover a mortgage, childcare, debt payments and life, there is nothing left inside to defer. You have paid for a corporation, an annual return, bookkeeping and a certificate of authorization, and received almost no benefit in exchange. That is a common and expensive mistake.
If, on the other hand, there is meaningful profit sitting in the account at the end of each year that you genuinely do not need, deferral starts working for you, and it keeps working every year it continues.
What incorporating actually costs
Be honest about the running costs before you commit, because they recur every year:
- Legal fees to incorporate and prepare the minute book
- The provincial College of Physicians and Surgeons certificate of authorization, which also renews
- Bookkeeping, which now has to be done properly rather than approximately
- Annual financial statements and a T2 corporate return
- Payroll administration if you pay yourself or anyone else a salary
- Your own time on administration that did not exist before
None of these are enormous individually. Together they set a floor, and your deferral benefit has to clear that floor before incorporating makes you better off.
Reasons to incorporate that are not about tax
A few benefits get overlooked because they do not show up as a number on a return:
- Income smoothing. You control when money leaves the corporation. That matters during parental leave, a sabbatical, a reduced clinical year, or a year where you take on a fellowship.
- A place to build a retirement pool. Physicians without a pension often use the corporation as the primary long term savings vehicle, alongside RRSP and TFSA room.
- Flexibility with family. Several provinces permit certain family members to hold non voting shares in a medical professional corporation, though the rules differ from one province to the next and some do not allow it at all. Whether dividends to them are taxed at their own rates is a separate and much narrower question since the tax on split income rules tightened. Both tests have to be checked against the rules where you practise.
A caution on income splitting. Paying dividends to a spouse or an adult child no longer works the way it did before 2018. In many cases those dividends are taxed at the top marginal rate regardless of the recipient's own income, unless a specific exception applies. Some exceptions still work for physician families. Assuming yours does, without checking, is one of the more costly errors we see.
Reasons to wait
Incorporating usually should wait if you are still in residency, if you are in your first partial year of practice and the income picture is not yet stable, if you are aggressively paying down student debt with everything you earn, or if you are about to change provinces or practice arrangements. None of these are permanent. Incorporating a year later is a minor loss. Incorporating a year too early and unwinding it is not.
If the answer is yes
Then the decisions come quickly and several of them are hard to change later. The share structure, who holds which class of shares, and above all your fiscal year end, which does not have to be December 31 and usually should not be for a new corporation. These are the cheapest decisions to get right at the start and the most irritating to fix afterwards.
The Incorporated Physician's First Year Checklist
Twenty three things to put in place in the first twelve months of a medical professional corporation, in the order they need to happen.
The short version
Incorporate when there is profit you can genuinely leave in the corporation, when you expect that to continue for several years, and when the annual running cost is comfortably smaller than the benefit. Wait when it is not. Anyone who gives you a billing threshold without asking what your household spends is guessing.
If you want that worked out with your actual numbers rather than a rule of thumb, that is what the free consultation is for.