Medical & Professional Clinics (Doctors, Dentists)
Physicians and dentists operating through a professional or medicine corporation are working under a tax framework specifically shaped around their profession — and specifically tightened in recent years. The rules around paying family members through the corporation, the risk of the corporation being seen as an investment vehicle rather than a practice, and the mechanics of multiple related corporations all carry more nuance than the general small business rules most owners assume apply.
The Problems We Solve
- TOSI and income splitting. Since the Tax on Split Income rules took effect, dividends paid to family shareholders of a professional corporation are only respected if those individuals are genuinely and actively engaged in the practice — a stricter test than many physicians assume, and one that’s commonly misapplied.
- Two separate passive-income risks. These get lumped together, but they’re not the same thing. First, passive investment income between $50,000 and $150,000 (across associated corporations) grinds down the Small Business Deduction on your active practice income. Second, and separately, if a corporation’s principal purpose becomes earning income from property — rent, interest, dividends — rather than carrying on an active practice, CRA can classify the whole entity as a Specified Investment Business, which is taxed differently again. Monitoring one doesn’t automatically cover the other.
- Association rules between multiple corporations. Group practices with multiple physicians, each with their own corporation, need to carefully assess whether those corporations are “associated” for tax purposes — a determination that affects how the Small Business Deduction limit is shared.
- Capital Dividend Account treatment on practice sale. When practice goodwill is eventually sold, CDA treatment needs to be calculated correctly to minimize the shareholder’s personal tax on the resulting distribution.
- Locum and associate income allocation. In shared-overhead clinic arrangements, income needs to be clearly allocated between the individual practitioner and the corporation, which gets complicated quickly in group settings.
- HST on exempt health services. Most professional health services are HST-exempt supplies, which means HST paid on clinic expenses often can’t be recovered as an input tax credit unless the clinic also has taxable supplies (cosmetic or other uninsured services, for example). This mixed-supply question is one of the more commonly missed HST issues in this sector.
Why Medical & Professional Corporations Are Taxed Differently
TOSI was specifically designed with professional corporations in mind, and the “actively engaged” test for family dividend recipients is stricter than most physicians expect — simply being a shareholder, or doing occasional part-time administrative work, usually isn’t enough anymore. Combined with the Specified Investment Business risk, professional corporations face a genuinely different set of constraints than a typical owner-managed small business.
Our Expertise
Our work with owner-managed corporate structures includes close attention to how shareholder activity, income allocation, and passive investment growth interact with the Small Business Deduction — exactly the kind of analysis professional corporations need given how tightly TOSI and Specified Investment Business rules are drawn around this sector.
Common Questions
Can I still pay dividends to my spouse from my medicine professional corporation? Only if they’re genuinely and actively engaged in the business on a regular, continuous, and substantial basis — the bar under TOSI is higher than simply being a shareholder.
If two physicians share a clinic but have separate corporations, are they automatically associated? Not automatically — it depends on the actual control and relationship between the corporations, which is worth reviewing carefully rather than assuming either way.
Will my corporation lose its Small Business Deduction if it holds significant investments? Two things can happen, and it’s worth knowing which applies. If passive investment income lands between $50,000 and $150,000, it grinds down (but doesn’t eliminate) the SBD on your active practice income. If the corporation’s principal purpose shifts toward earning property income rather than running the practice, it can be classified as a Specified Investment Business instead — a more serious reclassification. Either way, it’s worth monitoring rather than discovering at reassessment.
Ready When You Are
TOSI, association rules, and the passive-income trap — professional corporations have their own tax rulebook. Worth a review before it becomes a reassessment.
Why choose Syed CPA
Contact Info
- +1 (647) 977 8977
- admin@syedcpa.ca
