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Introduction to medical practice incorporation

Are you thinking about incorporating your medical practice? Learn about the basics of incorporating, what the advantages are, and what you need to beware of.

 

You’ve invested a lot of time, effort and money to become a physician.

Once in practice, you’ll still have a lot of decisions to make—including whether to incorporate your medical practice.

On the plus side, incorporating can help you save money.

On the minus side, a corporation is harder to administer and adds complexity to your financial plan.

But it’s not a decision you have to make on your own. MD Financial Management can help.

To make incorporating worthwhile, you need to earn more than you spend each year.

If you can’t afford to leave money in your corporation, then it might not make sense to incorporate.

Here’s the thing about incorporating your practice: up to $500,000 of your earnings after expenses is taxed at about 13%, [CKV1] depending on your province or territory.

Compare that with top marginal personal tax rates, which can be around 50%. That’s a huge difference.

If you can keep this money in the corporation after it was taxed at about 13% [CKV2] and let it grow inside your corporate account, you’re enjoying what’s called the tax deferral benefit.

Eventually, when you take that money out of the corporation, you will have to pay tax on your withdrawals. But you may well be in a lower personal tax bracket when you retire.

Instead of making taxable withdrawals, you could use this money more effectively for certain business costs like debt repayment.

So…what are the drawbacks of incorporating?

Incorporation comes with extra costs and complexity.

You’ll have to deal with a lawyer and an accountant. And you’ll have to balance the investments in your corporation with the rest of your finances, such as your RRSPs, tax-free savings accounts and insurance.

MD can help you make the right decision about incorporation because we look beyond the tax-deferral advantages.

An MD Advisor will discuss the other strategies for building the assets in your corporation, like deciding how to pay yourself and planning your investments.

We can also help you prepare the right strategies for when you eventually retire and start developing your estate plan.

Incorporating makes a lot of sense for most physicians. The key is to get personalized advice.

If you have any questions, please contact an MD Advisor.

Thanks for watching.