Getting right into it, here are the top benefits of incorporating your medical practice.
1. Life Insurance
Once you’ve incorporated your practice, you can pay for a life insurance policy directly from the corporation. This is one of the biggest advantages of incorporating and will help you avoid taxes on the personal side.
2. Reduced Tax Rates
Doctors and other medical professionals are in the highest income tax bracket and pay over 53% marginal tax rate in Ontario. However, if you incorporate your practice you can defer taxes to a lower corporate tax rate of 15%.
3. Planning for Retirement
Another benefit of incorporating is that money left in a corporation can be used when you go through major life changes such as marriage, travel and even retirement.
With a corporation, you can defer taxes to your retirement years which will cause the marginal tax rates to remain low over the life of the corporation. This way you won’t have to pay taxes right away at high marginal rates.
4. Car and Travel Expenses
Did you know that your medical corporation can be used to purchase vehicles for the director’s use? Keep in mind that every situation different and mileage logs will need to be kept for every car. Typically, travel from the director’s home to their place of work is not deductible.
A corporation can provide you with up to $35,000 in dividends (depending on corporate tax rate). This amount shall not be subject to your personal taxes every year provided that you don’t have other personal income .
6. Shareholder Loans
If a shareholder takes out a loan from the corporation then it must be repaid by the end of the following fiscal year. So if one of the shareholders took out a loan in June 2018 and the corporation’s year end is in July 2018 then loan should be returned by July 2019. You also have the option to repay this loan via salary, bonus or dividends.