The spread is the strategy
Everything useful in physician tax planning flows from one gap: roughly 12.2% corporate tax on the first $500,000 of active practice income in Ontario against a top personal rate of 53.53%. Earn inside the MPC, pay out only what the household actually needs, and the rest compounds from dollars that were taxed at a fraction of your marginal rate. The gap is a deferral, not an escape; tax comes due when money leaves the corporation. But a deferral sustained for twenty years behaves a lot like a pension.
That is also the honest limit of the structure. A physician who spends everything they bill gets almost nothing from it, which is why our Tax Planning & Advisory work starts with your spending number, not your billing number. The plan is rebuilt annually because brackets, limits and your life all move.
Salary, dividends, or the usual answer: both
Integration means the combined corporate-plus-personal tax on a dollar lands in roughly the same place either way, so the real decision is about side effects, and the side effects differ sharply:
| Question | Salary | Dividends |
|---|---|---|
| Deductible to the MPC? | Yes, reduces corporate income | No, paid from after-tax profit |
| RRSP room? | Creates room at 18% of salary | Creates none |
| CPP? | Both sides paid: a real cost now, a pension later | No contributions, no accrual |
| Administration | Monthly source deductions and a T4 | A resolution and a T5 after year-end |
| Timing | Fixed through the year | Can be timed against a parental leave or a slow year |
The pattern we see hold up most often: salary sized to maximize RRSP room, dividends to top up cash needs, revisited every year. Past 40, an individual pension plan frequently beats the RRSP alone; contributions are larger, deductible to the MPC, and the assets leave the passive-income measurement entirely, which matters more than most physicians expect.
The $50,000 problem is a high-saver problem
Once the MPC's investments earn more than $50,000 of passive income in a year, the federal small business limit shrinks by $5 for every extra dollar above it and disappears at $150,000. This is not an exotic edge case. It is the default destination of a physician who retains well: two decades of retained earnings at ordinary yields walks straight into the grind.
Ontario never adopted the federal grind, and the consequence is worth knowing precisely: income that loses the federal small business rate but keeps Ontario's 3.2% rate is taxed around 18.2%, not the full 26.5% general rate. Painful, not catastrophic, and very plannable:
- Count what actually counts. Only the taxable half of a capital gain enters adjusted aggregate investment income, so a growth-tilted corporate portfolio grinds far slower than an interest-heavy one.
- Move assets outside the measurement. IPP assets and corporately owned permanent life insurance generate no AAII at all.
- Pay some out on purpose. RRSP and TFSA room filled personally is retirement capital the grind can never touch.
- Watch the refundable tax account. The corporation recovers refundable tax when it pays taxable dividends, so payout years and portfolio years interact; we model them together rather than one at a time.
Family income, and what TOSI actually leaves open
Your spouse, children and parents may hold non-voting MPC shares, but TOSI taxes most dividends paid to them at the top personal rate, and the excluded-shares escape is closed to professional corporations. Three doors remain open: reasonable salary for genuine work in the practice, dividends to your spouse once you turn 65, and the excluded-business test for a family member who really does work about 20 hours a week in the clinic. The share mechanics and the setup decisions live on the Incorporation side; the annual decision about who gets paid what, and how it is defended, lives here.
Plan the endgame while it is cheap to change
Retirement for an incorporated physician is usually a decade or more of dividends drawn from the MPC at far lower brackets than the practice years; the deferral finally paying out on schedule. The questions that shape it, when the Certificate of Authorization ends, what happens to the corporate portfolio, whether the shares and investments are positioned for your estate, get easier and cheaper the earlier they are asked. We connect that work directly to Estate Planning so the corporate plan and the personal one are the same plan. Most engagements begin with a free 15-minute discovery call and a fixed written quote.
