Buy it when three conditions hold at once
Buy the building when the practice is staying at that address for another decade, when it already generates cash well past the rent and a fair wage for you, and when a corporation other than the professional corporation is ready to take title. Those three conditions do more work than any lease-versus-mortgage spreadsheet, because they are the ones that turn out to be wrong later. Dentists almost never regret the interest rate they signed. They regret buying two years before the plaza lost its anchor tenant, or before an associate left and production dropped, or after title went into the practice corporation because that was the entity with the bank account.
The argument that usually starts this conversation, that rent is money you never see again, is true and incomplete. The honest comparison is not rent against a mortgage payment. It is rent against the mortgage, property tax, building insurance, the roof and the parking lot and the rooftop unit, a reserve for the capital items that arrive on their own schedule, and whatever the down payment would have earned elsewhere, set against the equity and the appreciation you keep. Ownership generally wins that comparison over a long hold and loses it over a short one, because the costs of buying and selling commercial property are heavy at both ends.
The second condition deserves a plain test. Print the practice statements, add back the current rent, subtract a market wage for the dentistry you personally perform, and see what is left to carry a mortgage plus every ownership cost above. If the answer only works in your best year, or only at today's posted rate, the practice is not ready. A building does not improve a practice that is thin; it converts a flexible monthly obligation into a fixed one with a lender attached.
The third condition is the one dentists are least often warned about, and it is why this decision is different for a regulated professional than for any other business owner. Where the title lands matters more than what you pay for it, because the professional corporation you already own is usually the wrong owner, and undoing that choice later means moving land instead of moving shares.
Dentistry pays twice for a building it does not own
Dentistry sinks more capital into its premises than almost any other tenant, and that is what makes this question different from the same question in an office or a retail unit. Operatory plumbing and suction lines, the compressor room, dedicated electrical, shielding for imaging, millwork, and a sterilization area built to standard are not fixtures you unscrew and carry to the next address. They are built into a building, and under a lease they are built into a building that belongs to someone else.
Tax treats them exactly that way. Leasehold improvements are written off over the term of the lease plus a renewal period rather than over the twenty or more years the work will actually last, and when the lease ends the improvements belong to the landlord: that is the first payment. The second one arrives at renewal, when the landlord knows precisely what it would cost you to leave: a fresh build-out, months of disruption, and the real risk that part of the patient base does not follow you across town. A dental practice is close to the most captive commercial tenant there is, and renewal rents reflect it.
Owning changes where that money ends up rather than how much of it there is. The build-out still costs what it costs, but it is added to a building your own group holds, and the renewal negotiation disappears. The building is then depreciated for tax at a much slower annual rate than leaseholds, with a larger allowance available for non-residential buildings when the property is placed in its own class and the election is filed. Land is not depreciable at all, so the purchase price has to be split between land and building on a defensible basis at closing, and that split follows the property for as long as you own it.
None of that is free money, and it is worth saying so before the enthusiasm sets in. Capital cost allowance claimed along the way comes back as recapture when the property eventually sells above its depreciated cost, and half of any gain above original cost is taxable in the corporation that holds title, with the other half credited to the capital dividend account. What ownership buys is control of the premises and an asset that still has value after you stop practising. What leasing buys is the freedom to merge, move or double in size, and for a young practice that freedom is worth real money.
The title does not belong in your dentistry professional corporation
Put the building in a separate realty corporation, not in the corporation that practises dentistry. Ontario professional corporations are built to do one thing: a health profession corporation may not carry on a business other than the practice of the profession, though it may carry on activities related or ancillary to that practice, including investing its surplus funds. A building your practice fully occupies can sit inside that frame. The moment you lease the spare suite to a physiotherapist or a denturist, you are running a landlord business inside a corporation that is only licensed to practise dentistry, and that is a conversation with the Royal College of Dental Surgeons of Ontario nobody wants to have.
The share rules matter even more. A dentistry professional corporation must have its voting shares held by dentists, with non-voting shares available to certain family members, which means a holding company cannot sit on top of it. So the professional corporation is the one entity in your structure that can never be owned flexibly, and putting an appreciating asset inside it locks that asset behind the same restriction. A separate realty corporation carries none of that: it is an ordinary Ontario corporation, so its shares can be held by you, by a spouse, by a family trust, or by a holding company, and its ownership can change over time as the practice ownership cannot.
Be careful about one thing here: family ownership of the realty corporation is not automatic income splitting. The tax on split income rules look through to whether the dividend traces back to a business a related person is active in, and rent paid by your own practice to your own realty company is exactly that fact pattern, so an exception has to be found rather than assumed. Where the separate company genuinely earns its keep is in control of the asset, growth accruing outside the practice, and an estate plan that can move shares. Treat the splitting question as something to test with your accountant rather than as a selling feature, the same discipline we bring to how you pay yourself in salary versus dividends for incorporated dentists.
Separation also protects the exit, because when you sell the practice most buyers want the operatories, the charts, the team and the goodwill, and very few want to finance commercial real estate on top of the price. A building inside the professional corporation either shrinks that buyer pool or forces a carve-out on the eve of closing, at fair market value, with tax on the accrued gain and Ontario land transfer tax, negotiated under deadline pressure. It can also disturb the tests behind the lifetime capital gains exemption, which asks that the corporation's assets be substantially devoted to active business use, a question that gets harder to answer as soon as part of the building is rented to strangers. If you have not yet incorporated at all, that decision comes first and we cover it in should a dentist incorporate in Ontario.
Where each dollar lands: leasing versus owning through a realty company
The comparison below assumes the realistic version of ownership, which is a realty corporation holding title and leasing the space to your practice at a market rent, invoiced and actually paid. Read it as a map of where money goes rather than as a verdict.
| What you are deciding | Leasing the space | Owning through a realty corporation |
|---|---|---|
| Monthly cash out | Rent plus your share of taxes, insurance and maintenance, reset upward at each renewal | Mortgage principal and interest plus every ownership cost, fixed for the term but exposed at loan renewal |
| The operatory build-out | Written off over the lease term, then left behind for the landlord | Added to a building the family group keeps, with the building itself depreciated slowly for tax |
| HST on occupancy | HST on commercial rent is a real cost, because most dental services are exempt supplies and the practice recovers little of it | Same cost on the internal rent, but the realty corporation can recover HST on the purchase and on capital work, since rent to the practice is a taxable supply |
| Deductions | Rent is deductible to the practice | Rent is still deductible to the practice, and the realty corporation deducts interest, property tax and capital cost allowance |
| Flexibility | Move, merge or expand at lease end, at the cost of a new build-out | Selling takes months and carries agent fees, legal work and a mortgage discharge |
| Financing | No down payment; the landlord carries the capital | A substantial down payment, a shorter amortization than a home loan, and almost always your personal guarantee |
| When you sell the practice | The buyer inherits the lease, and the landlord may want new terms | You can sell the practice and keep the building, leasing it to the buyer as retirement income |
| At death or transition | Nothing to pass on beyond the practice | Shares of the realty corporation can be frozen, divided among heirs or held for income |
The HST row is the one that surprises people, so it is worth stating plainly. Because dental services are largely exempt, your practice is not a full recovery business for sales tax, and the HST charged on rent is mostly a real expense whether the landlord is a stranger or your own second corporation. The election that lets closely related companies invoice each other without charging tax generally does not help, because it requires both companies to be engaged exclusively in commercial activity and a dental practice is not. Owning still improves the picture, since the realty corporation registers and recovers the HST on the purchase price and on future capital work, but nobody should promise you that internal rent becomes a wash, so price it before you sign.
The bank reads the practice and the building as one story
Lenders underwrite the practice first and the real estate second, even when the mortgage is the larger number. Dental practices are treated as reliable cash-flow assets in Canada, so the credit question is whether production, hygiene and associate costs support the debt after you take a reasonable income, and only then whether the property supports its own value. Expect a debt service coverage test on the combined obligations, an appraisal, an environmental review on older commercial sites, and a personal guarantee across both loans. The federal small business financing programme includes a real property class that can apply to premises used in the business, which is worth asking about alongside conventional commercial terms.
The structure question reappears at the bank. Typically two borrowers exist: the professional corporation carrying the practice loan and the realty corporation carrying the mortgage, with cross-guarantees between them and you personally behind both. That is normal and manageable, but it means the lease between the two companies is a credit document, not a formality, and its term should at least match the mortgage amortization the bank is relying on. Where the purchase of the practice and the purchase of the building happen together, as they often do when a retiring dentist owns both, this becomes one negotiation with two closings, and the details are set out in financing a dental practice purchase.
Set the internal rent at a defensible market number, not at whatever balances the two bank accounts. Rent set too high strips profit out of the practice, can be challenged as unreasonable, and makes the practice look weaker to the next buyer, who will value it on the earnings left after occupancy cost. Rent set too low starves the realty corporation and leaves the mortgage dependent on shareholder loans. An appraisal or a broker opinion at the start, revisited every few years, settles the question and gives you a file to point at.
All of this depends on practice reporting that can answer questions on demand: production by provider, hygiene contribution, lab and supply cost as a share of production, associate compensation, and occupancy shown as its own line rather than buried in overhead. That is standard in our dental practice accounting and tax planning work, and it is what turns a financing application from an argument into a document.
The facts that swing this decision
Six facts decide it, and most dentists can answer them over a coffee:
- How long you will practise at that address. Ten years or more of intended occupancy makes ownership plausible; anything shorter usually favours a longer lease with options.
- Whether the building is the right size. A unit your practice fully occupies is a clean asset. Spare suites make you a landlord, which changes the professional corporation analysis, the HST treatment and the tax character of the rent.
- Where the down payment comes from. Corporate dollars have paid only corporate tax so far, so funding the purchase from within the group puts more money to work than drawing it personally first and buying with what survives.
- Partners and associates. If two or three dentists buy the building together, decide now what happens when one leaves the practice but keeps the shares, and put it in a shareholders agreement before closing.
- The unrecoverable HST on internal rent. Model it for the full holding period. It is a genuine annual cost of the two-company structure and it does not appear in most lease-versus-buy comparisons.
- Your exit intention. Selling the practice while keeping the building as retirement income is one of the strongest arguments for buying, and it only works if the property was never inside the professional corporation.
We run this as a defined-scope project: the affordability model on the practice's real numbers, the ownership structure, the lease and rent evidence, and coordination with your lawyer and lender before anyone signs an offer. As a CPA firm for incorporated healthcare professionals in Ontario, we would rather look at the structure a month before closing than reorganize it three years later, and our dentist tax planning work carries the same decision through pay mix, surplus and eventual sale. If a building is on your desk now, start with a free 15-minute discovery call and we will tell you which entity should take title and why.
