Dissecting the Medical Professional Corporation – Part 2

Physicians practicing in Ontario are permitted to incorporate their medical practices and operate as a medicine professional corporation (“MPC”). The law grants corporations certain powers that may be financially beneficial for physicians, such as the ability to hold assets and incur liabilities; as well as certain added responsibilities which may be somewhat onerous, such as additional paperwork and fees.  For these reasons, recent graduates, solo or small groups of practitioners and newly resident physicians may be interested in exploring this option. This series of blogs explores the following topics:

i) Part 1: Advantages of incorporating as an MPC

ii) Part 2: Pre-incorporation considerations

iii) Part 3: Key steps in MPC incorporation


Prior to incorporating as an MPC, there are several considerations that a physician and their professional advisers must consider. These considerations include:

  1. Transfer of Practice (if applicable)

After the MPC is incorporated, the physician will need to transfer their existing practice to the new entity. To avoid tax repercussions, assets and liabilities must be transferred to the MPC at fair market value (“FMV”). The medical practice (including goodwill etc.) could be sold to the MPC triggering a capital gain that could be used against any capital loss carry forwards. Another option is a tax-efficient option that would transfer the existing medical practice to an MPC on a tax-free basis using a Section 85 Rollover as permitted under the Income Tax Act (Canada) (“ITA”). This involves following the provisions of the ITA to transfer the medical practice to the MPC in exchange for non-voting shares and/or debt equal to the FMV of MPC. Any accumulation of goodwill could result in capital gains or additional legal and accounting fees. It is recommended that physicians considering transferring an existing practice to an incorporated entity consult a tax professional to avoid these additional costs.

  1. Structuring Retained Earnings and Tax Deferral

Careful planning will be required in order to optimize the approach the MPC will adopt in remunerating the physician via a mix of salary and/or dividends in order to keep the physician in a lower personal income tax bracket with the excess taxed in the MPC. This planning should also take into account minimizing the additional personal tax payable on earnings retained in the MPC that are paid out as income in the future.

  1. Structuring Income Splitting

An MPC is only permitted to issue voting shares to registered physicians. If the physician wishes to engage in income splitting, the MPC must issue non-voting shares to family members in order to allow them to receive dividends on those shares. The recipients of those dividends will then be taxed at their marginal personal income tax rate. Family members include the physician’s spouse, parents and adult children (this includes step-parents, step children and common law spouses). If the physician has minor children (under 18 years old) the physician must hold the shares for them in trust until they turn 18 at which time the shares will be transferred to that child directly.

  1. Multiple Practitioners (if applicable)

Where an MPC is in partnership with other MPCs or practitioners, it is important to note that the physician must share the SBD with these partners. Physicians and their advisers must consider this consequence prior to engaging in any such partnerships. When the MPC is in a partnership, the financial year end of the MPC must be December 31st.

  1. Additional Costs

Corporations must issue financial statements, file corporate income tax returns, prepare payroll-reporting forms and maintain up-to-date corporate governance records. These requirements involve additional annual costs and should be considered prior to incorporating an MPC.

  1. Sale of Corporation

Selling an unincorporated practice may result in substantial capital gains. However, an MPC that qualifies under the small business capital gains exemption rules would be exempt from capital gains up to the first $800,000 (or as adjusted upwards for inflation). The value of the lifetime capital gains exemption could be further multiplied by the number of family members who own shares. As such, ensuring that an MPC is structured in a manner to take advantage of the small business capital gains exemption rules can be extremely valuable.

We are always happy to discuss any of the considerations enumerated above, and answer any questions you may have about establishing an MPC.

Note: Tax information was graciously provided by our friend Scott Vloet, Partner at Vloet & Kan LLP.