Tax Strategies for Professional Corporations
Professional corporations (PCs) offer unique tax advantages for regulated professionals in Canada. While the benefits are significant, proper planning is essential to avoid costly mistakes. Here are key areas to consider:
1. Optimize Compensation – Salary vs. Dividend
Balancing salary and dividends can impact RRSP room, CPP contributions, and overall tax efficiency. The right mix depends on your income level and long-term goals.
Balancing salary and dividends can impact RRSP room, CPP contributions, and overall tax efficiency. The right mix depends on your income level and long-term goals.
2. Small Business Deduction (SBD)
PCs can access lower corporate tax rates on active business income. However, passive income rules and associated thresholds can reduce this benefit if not managed properly.
PCs can access lower corporate tax rates on active business income. However, passive income rules and associated thresholds can reduce this benefit if not managed properly.
3. Passive Income & Holding Companies
Retained earnings and investments inside your corporation require careful planning to avoid punitive tax rates and loss of SBD. Holding company structures may help—but only if implemented correctly.
Retained earnings and investments inside your corporation require careful planning to avoid punitive tax rates and loss of SBD. Holding company structures may help—but only if implemented correctly.
4. Income Splitting & TOSI Rules
Tax on Split Income (TOSI) limits family income splitting. There are exclusions, but compliance is complex and requires documentation.
Tax on Split Income (TOSI) limits family income splitting. There are exclusions, but compliance is complex and requires documentation.
5. Capital Gains & LCGE
Selling shares of a professional corporation can unlock the Lifetime Capital Gains Exemption (LCGE)—over $1 million tax-free—but only if your corporation meets strict criteria.
Selling shares of a professional corporation can unlock the Lifetime Capital Gains Exemption (LCGE)—over $1 million tax-free—but only if your corporation meets strict criteria.
6. Retirement Planning – RRSP, IPP etc.
Consider advanced tools like Individual Pension Plans (IPPs) for enhanced retirement savings beyond RRSP limits.
Consider advanced tools like Individual Pension Plans (IPPs) for enhanced retirement savings beyond RRSP limits.
Why Professional Advice Matters
Each strategy involves detailed compliance with CRA rules. Each strategy has its cost-benefit analysis which needs to be evaluated considering overall objectives and long term goals. Missteps can lead to penalties or lost tax benefits.
At Mitesh Patel Professional Corporation, we design tailored plans for professionals to minimize taxes, maximize wealth, and stay compliant.
Ready to optimize your professional corporation?
Contact Mitesh Patel CPA for personalized tax planning and wealth strategies.
