To CORP or not to CORP: Strategic tax considerations for investing.

Abstract

The introduction of the medical corporation in Canada has opened a host of financial opportunities for physicians. When residents first graduate, they are advised by most of their colleagues to incorporate. The reasons vary. Some advocate that this affords an effective means of income splitting. There are advantages in sequestering professionally derived fees from other sources of income. There may also be some advantages in terms of estate planning. The most often cited benefit, however, is the tax rate. In 2012, the corporate tax rate on business income dropped to 15% for most corporations. In contrast, for many plastic surgeons, professionally derived income would be taxed at the highest marginal tax rate of close to 50%. This rate disparity has important implications in terms of the decision to sequester income within the corporation rather than realize it personally.