What Is a Professional Corporation?
A Professional Corporation (PC) is a special type of corporation designed for regulated professionals in Ontario. This includes doctors, lawyers, accountants, dentists, chiropractors, registered nurses, massage therapists, social workers, veterinarians, optometrists, pharmacists, and other licensed professionals.
Professional corporations allow these professionals to access the same tax advantages as a regular corporation, such as tax deferral and investment growth, but do not provide limited liability for professional negligence.
Since 2000, Ontario law has permitted professionals to incorporate, offering a structured way to reduce taxes and build wealth while operating their practice.
Why Consider Incorporating a Professional Corporation?
1. Reduce Your Taxes
Incorporating a PC allows you to pay tax only on the income you withdraw from the corporation, rather than all your professional earnings. This leaves extra funds in the corporation that can be invested, often at a lower corporate tax rate, generating higher long-term returns.
2. Increase Investment Capacity
Retaining profits within a PC enables you to grow your investment portfolio faster than investing your full income personally. This strategy can be especially useful for professionals who earn more than their living expenses.
3. Strategic Financial Planning
A professional corporation can be an important tool for:
- Income smoothing across years
- Estate planning and succession strategies
- Retirement planning and wealth accumulation
Tip: Professionals considering licensing a Personal Real Estate Corporation (PREC) should also be aware of the regulatory restrictions around allowable business activities.
Advantages of a Professional Corporation
- Significant corporate tax savings
- Ability to defer taxes on retained earnings
- Opportunity to invest corporate profits for higher returns
- Greater financial flexibility for planning income, retirement, and estate
- Access to the Small Business Deduction, if eligible
Disadvantages of a Professional Corporation
- No protection from liability for professional negligence
- Must comply with regulatory requirements, including annual Certificate of Authorization renewal
- Initial setup cost: approx. $2,000
- Annual maintenance: approx. $500/year, excluding accounting fees
- Must follow profession-specific rules for shareholders and operations
Is a Professional Corporation Right for You?
A PC may be right for you if:
- You earn more than your personal living expenses
- You want to maximize tax efficiency
- You plan to invest retained earnings for growth
- You are looking for long-term financial and succession planning
The experienced corporate lawyers at Kalfa Law Firm can help assess whether a PC aligns with your goals, including tax planning, investment strategies, and professional requirements.
