Dentistry professional corporations can be used to save a dentist money in a number of ways. Let’s review some of them, shall we? Don’t forget that it’s always advisable to speak with a dental accountant or dental lawyer before implementing any of these suggestions.
Strategy 1: Dividends to Low-Income Family Members
If you have family members who are shareholders (e.g. spouse, children, your parents), and they have little or no income from any other source in a year, then you can have the dentistry professional corporation declare and pay them dividends of up to about $40,000, and they will pay $0 Federal Tax and only a nominal amount of provincial health tax.
Strategy 2: Employ a family member and give them a reasonable salary
If you have a family member that is not employed, you can hire them to provide you with administrative and routine tasks (e.g. bookkeeper, receptionist, etc.) or even make them integral to the business (e.g. office manager, marketing manager, etc.). The amount of money that the dentistry professional corporation pays them is a deduction (i.e. expense) to the Corporation, which results in the Corporation paying less tax. The key thing here is to make sure whatever the Corporation pays as a salary is REASONABLE – otherwise, the CRA will challenge the expense!
Strategy 3: Sell the Shares of a Dentistry Professional Corporation
If you are selling your practice, you’ll typically want to sell the shares of a dentistry professional corporation (as opposed to selling assets). This may result in you having to pay little or no capital gains tax. You can read the blog post I wrote here to understand how this works.
Strategy 4: Having Dual Wills
If you have a dentistry professional corporation, you should have two (2) Wills in place to avoid paying probate fees (about $14,500 if the value of the shares of your dentistry professional corporation is worth $1-million at the time of your death). You can read about this here.
Strategy 5: Employment Agreement with Death Benefits
If you have a dentistry Professional Corporation and you are a practicing dentist providing services to that corporation, you should have an employment agreement in place. The best part is that that agreement can specify that, upon your death, the Corporation must pay up to $10,000 to your named beneficiaries. The Corporation gets to deduct (as an expense) up to $10,000, and your beneficiaries receive this money tax-free!
Strategy 6: Pay only 15.5% on the first $500k of “Active Business Income”
That’s right. You may personally be in the highest tax bracket for income tax. But a professional corporation that earns “active business income” (i.e. not passive income, like rents, royalties, etc.) will only be required to pay 15.5% tax on the first $500,000 of taxable net income.
Strategy 7: Tax-Free Loan
If you are a shareholder, you can take a tax-free loan out of the corporation so long as you follow certain rules. You can read about this strategy here.