Whether you are a new graduate, working as an associate, running your own practice or approaching retirement, tax, financial and retirement planning will always play a key part at every stage of your career. As your personal, professional and financial situations evolve, you should ensure that you’ve done appropriate planning to help you achieve your goals and objectives throughout the different stages of your professional life.

Starting out

Even if you’re an associate in a practice, you may be eligible to work as an independent contractor. See below on the difference of being an employee to a contractor.

What to keep in mind as an independent contractor

  • Cashflow management: how are you keeping track of your income and expenses?
  • Asset Allocation: What do you do with leftover money once expenses are paid?
  • Disability Planning: How are you protecting yourself from unexpected events?
  • Estate Planning: If you were to unexpectedly pass, where do your assets go?

Structuring your own Medical Professional Corporation

What to know when having your own medical professional corporation (MPC).

  • The taxable income earned is taxed in the corporation. You may wish to draw a salary from the corporation or receive a dividend distribution from the corporation as remuneration, both of which would be taxable to you personally in the year it is received.
  • If the professional income is earned in your PC, the taxable income would be considered “active business income” (ABI) for tax purposes and be subject to a general federal corporate tax rate of 15% plus the applicable provincial or territorial corporate tax rate.
  • Further, if your corporation is a CCPC throughout the tax year, your corporation may benefit from the small business deduction (SBD) which lowers the federal tax rate to 10% for 2018 and 9% for 2019 on its first $500,000 of ABI (known as the “business limit”).
  • As a result of these lower corporate tax rates for ABI, if you incorporate your practice, you may have more aftertax business income to invest inside your corporation.

Considerations to make in a professional corporation

When it makes sense to open a holding company alongside your MPC

  • A CCPC will have its federal business limit reduced on a straight line basis where the CCPC and its associated corporations earn between $50,000 and $150,000 of passive investment income in a year. The business limit will be reduced by $5 for every $1 of passive investment income above the $50,000threshold. The business limit will be eliminated if a CCPC, and its associated corporations, earn at least $150,000 of passive investment income in a year. As such, you may want to ensure that the passive investment income earned in your PC does not grind down your business limit.

How to obtain finance start-up costs for your practice

  • If you are starting out on your own, you will need to prepare a business plan to present to the lending institution. The typical business plan includes a current balance sheet and projected financial performance, an income statement and a cash flow analysis. A solid business plan will help you identify how much you need to borrow, how to allocate resources and opportunities for growth.
  • If you are buying into an existing practice, structuring the buyin is usually the most important part of the arrangement. The buy-in can be structured in a number of ways, for example, the existing partners or shareholders may allow you to pay up-front for the partnership interest or PC shares or allow you to pay for same over a few years with interest.

Joining professionals in a group structure

  • If you are planning on joining other professionals in a group structure, you should ensure you understand the terms and conditions of the shareholders’ agreement or partnership agreement and are in agreement prior to finalizing the deal. A shareholders’ agreement is an agreement among some or all of the shareholders of a corporation, which among other things, set out the rules relating to the governance of the corporation, dividend policies, funding requirements and dispute resolution.

Seeking the right advice

  • The fees you pay professional advisors may help you save money and reduce your risks in the long run as they may be able to better engage in reviewing and negotiating contracts, and tax planning for your circumstances. Also, a good practice management consultant can help you establish efficient systems and educate you on how to run a dental or medical practice.
  • Lastly, consider engaging a qualified financial planner to have a comprehensive financial plan prepared which should address all aspects of your financial affairs, including cash and debt management, tax and investment planning, risk management, and retirement and estate planning.