As independent business owners ourselves, our team here at McNabb Lucuk LLP in Grande Prairie takes pride in the growth of our community every time we see a new corporation launched. This desire for self-employment and business ownership expands across industries, including healthcare. Whether you’re a medical student, recent grad or seasoned professional, a prescription for incorporation could provide benefits to your financial health.
Why Incorporate in Healthcare?
If you’re a healthcare professional in Canada, you can incorporate your practice and experience some of the same tax advantages and liability protection awarded to other businesses. Current tax situation, business classification, and goals are key factors in determining if incorporation is the next step for a healthcare professional. We cover a few topics and items to consider below.
Tuition Tax Credits
Medical Professionals have some of the longest and expensive education in Canada. That tuition can be claimed as a tax deduction line on annual personal income taxes. As many medical students don’t have the income to claim the credit against, these amounts often accumulate with the Canada Revenue Agency (CRA) and used as a credit to reduce taxable income in the future. Incorporation is less tax advantageous while valuable tuition tax credits are available.
If tuition tax credits are depleted, incorporation is more favourable for taxation.
Sole Proprietorship
If operating as a sole proprietor, all revenue is taxed at the individual’s personal income tax rate. When earning more than required personally to cover debts and living expenses, incorporation can provide a tax advantage by reducing the tax paid on excess earnings. This change in business model also allows the proprietor to separate business and personal finances physically. Business owners can then manage business expenses from pre-tax dollars in the corporation and pay themselves a tax optimized personal income.
Staff or Resident Practitioner
Medical professionals who work in a residency or in a hired staff member position that is compensated by a wage or salary, do not have the option to incorporate unless they are leaving their current position to open their own business.
The Deal with Debt
If you’ve taken on debt personally to fund a practice, only the interest portion of debt payments is tax deductible. Transferring the debts to the corporation can create tax savings on the payments when made with pre-tax dollars. This means additional money can go towards paying off loans sooner.
Saving and Investing
A profitable corporation, meaning it’s earning more than its expenses, can invest excess funds in its business owner, into the growth of the business or in an investment vehicle. As an owner, the business should also be part of your personal long-term financial plan.
It’s important to note that while there are many advantages, there are additional expenses, administration and reporting requirements required when changing from a sole proprietor or opening a corporation.
There’s no easy formula that our team at McNabb Lucuk LLP can offer to Grande Prairie medical professionals who are considering incorporating, as each situation varies from medical profession and individual. We do, however, recommend seeking the guidance of a Chartered Professional Accountant before changing a business classification or taking the leap into business ownership. Ultimately, it’s your decision to make based on you or your family’s goals, lifestyles, and priorities, but we’re here to support you in whatever direction you choose.
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