Time to Incorporate? 5 Common Questions and Answers…
We’ve been getting a lot of phone calls these days from foreign trained dentists and new grads looking to set up dentistry professional corporations (“DPCs“). So I figured I would take some time to answer a lot of the questions that you might have about the process… So here’s the top 5 questions / answers about DPCs:
1. When is a good time to incorporate?
This differs for everyone, but typically when you’ve used up all your tuition credits and are able to live and save some money (i.e. put some money in your corporation to be taxed at a lower rate) and / or when you have a family that you can income split with. Some accountants use the following example: when you make $120k in earnings and can live on $80k, then it’s time to incorporate and leave $40k in your corporation. OR you can have your spouse, parents, and adult children as shareholders and split the income (through dividends and maybe even salary) to multiple persons and pay less tax overall.
2. What are the benefits of incorporating?
Saving taxes! First, DPCs are taxed at 15.5% for the first $500k of active business income. Second, you can income split with family. Third, you can save on estate administration taxes by having a Corporate and Non-Corporate Will. Fourth, you can repay a loan quicker through a corporation than you can personally. Fifth, there is some degree of creditor proofing when you enter into contracts through a corporation instead of personally (note: a DPC cannot shield you from professional liability such as medical malpractice – that’s why you have insurance). Sixth, you can have an employment agreement with $10k death benefits to save some more taxes when you pass. Seventh, you can sell the shares of your DPC down the road and qualify for the lifetime capital gains exemption and save almost a ton in capital gains taxes. And I’m sure there are more benefits (e.g. having an Individual Pension Plan, having your corporation pay for your life insurance policies, etc.).
3. How long does it take to incorporate?
If we have all the information we need from you and your dental accountant about incorporating, we can usually finish things on our end within a few days. Then we need to apply to the RCDSO for a Certificate of Authorization to allow your DPC to practice dentistry.
4. How much does it cost to incorporate?
Best thing is to call DMC LLP to find out. If you’re a new grad, we offer discounts. But it’s always a flat fee for legal fees, HST, and disbursements (which are out of pocket expenses, such as minute book, government fees for filing the articles of incorporation
5. What could go wrong?
It was maybe too early for you to incorporate. Don’t forget about the ongoing legal and accounting costs (tax returns, filing annual returns, renewing the Certificate of Authorization with the RCDSO, etc.). And finally, what if it turns out that the CRA thinks you were nothing but an incorporated employee (called a personal services business)? That’s a risk you’ll need to be comfortable with if you’re associating and want to incorporate. You can read up more about that here.
For more information, check out our eBook entitled “Ontario Dental Law” (which you can download for free on the top right corner of this website).
Please note that the information provided herein is not legal advice and is being provided for educational purposes only. If you require legal advice or representation, contact DMC LLP today!