A “Regulated Professional” is an individual in a profession that is regulated by the Province of Ontario (who would’ve thunk?). Examples of regulated professions are Physicians, Dentists, Optometrists, Accountants and Lawyers. A more exhaustive list can be found here.
Regulated Professionals in Ontario have been able to incorporate their practice into what are known as “Professional Corporations” since 2000. The ability to incorporate is an incredible tool available to Regulated Professionals to maximize their income, minimize their tax liabilities and care for their families.
Many Regulated Professionals are unaware of the benefits of practicing through a professional corporation, and as a result incur incredibly high taxes. As of 2019, the combined Federal and Provincial tax rate on income over $220,000.00 a year is taxed at 53.53% – yes, you read that correctly. Compare that rate to a combined Federal and Provincial small business rate of 12.5% on the first $500,000.00 of income after deductions.
i. “Reasonable Business Expenses”. Corporations are allowed to deduct expenses from their taxable income that they would reasonably incur. Examples of Reasonable Business Expenses include: Vehicles (Up to $800 + HST per month), Home-Office Expenses (a proportional amount of mortgage interest, property taxes and utilities) and Meals and Entertainment with clients (up to 50%).
ii. “Salary and/or Dividend”. Corporations can pay their employees salaries (useful for corporations approaching the $500,000.00 small business limited) and their owners can pay themselves through dividends. The ability to control the amount of money being paid to the Regulated Professional is perhaps the most powerful tool in tax planning.
iii. “Income-Splitting”. Certain Regulated Professionals practicing through a Professional Corporation can split their income with their spouses, children, parents or siblings. The benefits to income-splitting are that a family will be able to take advantage of lower tax rates rather than a single individual individual bringing in the same amount of income that is pushed into a much higher tax bracket. ($100,000.00 a year is subject to 7 levels of income brackets from 20.05% to 43.41%)
iv. “Dividends”. Shareholding family members of the Professional Corporation who receive no other income from any other sources can receive approximately $30,000.00 a year tax-free through dividends.
v. “Retirement vehicle”. Professional Corporation are often used for retirement and savings purposes as the lower corporate tax rates leave more after-tax income than there would be through personal earnings. This allows for more savings inside the corporation, and more money going towards investments.
If you have any questions regarding any of the information and content, or would like to schedule a meeting, please contact me at firstname.lastname@example.org or contact my office at 416-320-6008.
405 Britannia Road East, Unit 101B
Mississauga, Ontario L4Z3E6
Fax : 866-320-6008
*All information and content posted by the author is their opinion alone and does not reflect the views held by any other corporation, firm or individual. All information and content is for entertainment purposes only and can in no way be construed as legal or financial advice.