This document has been updated on October 24th, 2017 and reflects the state of the Law, including draft amendments, at that date.

Incorporation of Professionals

One important benefit of incorporation is the fact that corporations enjoy a lower tax rate.16 In general, this benefit is only maximized if the income is not withdrawn from the company and is used to make capital expenditures or repay debts. Incorporation often results in a higher tax cost if all of the income earned by the company is paid out to the shareholder.

A decision to incorporate your professional practice requires a comprehensive analysis of the terms, conditions and restrictions applicable in each case. A tax specialist should be consulted to determine the best scenario for your situation.

Apart from the benefits (or lack thereof) related to corporate tax rates, income splitting possibilities, estate planning and opportunities for the use of the capital gains deduction by shareholders, as well as numerous corporate tax or administrative requirements, are other elements to consider in deciding whether or not to incorporate a professional practice 17.

When incorporating a business, consider income splitting by including your spouse and adult children as shareholders of the corporation, provided your professional order allows you to do so.

16  Since 2017, in Quebec, new criteria on the minimum number of hours paid restricts eligibility for the SBD for corporatons with a small number of employees. This new measure impacts in particular professionals wishing to incorporate their practice.

17 On July 18, 2017, the Canadian Finance Minister published measures for consultation intended to limit income splitting using private corporations (see Section II) .Based on the scope of the measures to be adopted in this regard, the possibility of splitting income with family members will no longer be a determining factor in deciding whether to incorporate.