Restructuring a Dental Practice for Maximum Tax Deferral

The client

Dr. A operates a high-volume dental clinic in the GTA, generating approximately $1.2M in annual gross revenue. After deducting associate fees, staff salaries, clinical supplies, and facility rent, the practice generates a net professional income of ~$450,000.

The challenge

Prior to our engagement, Dr. A was operating as a sole proprietor. Under this structure, the entire $450,000 was taxed on her personal T1 return. In Ontario, the 2026 tax brackets remain aggressive: any income exceeding ~$253,400 is taxed at the top combined marginal rate of 53.53%.

Dr. A’s personal lifestyle needs-including mortgage, family expenses, and personal savings-required only $150,000 per year. This meant $300,000 of her income was being taxed at the 53.53% rate, despite her not needing that cash for personal use. She was effectively losing over half of her "surplus" earnings to the CRA before she could even think about reinvestment.

The solution

We implemented a comprehensive corporate reorganization designed to "trap" the surplus income at lower tax rates.

1. 01Established a Dentistry Professional Corporation (DPC): Structured to comply with RCDSO O. Reg. 39/02, allowing the practice to be taxed as a corporation.
2. 02Section 85 Rollover: We executed a tax-deferred transfer of the practice’s "goodwill" (patient lists) and clinical equipment into the DPC in exchange for shares. This avoided immediate capital gains tax on the transfer while providing the DPC with a cost base for the assets.
3. 03Strategic Compensation: We set Dr. A’s salary at $150,000. This achieved two goals: it funded her personal lifestyle and maximized her RRSP contribution room for the following year.
4. 04Holding Company Integration: We layered a "Holdco" above the DPC. This allows the DPC to pay tax-free inter-corporate dividends to the Holdco, protecting the surplus cash from clinical liabilities and preparing the practice for future LCGE purification.

The result

By shifting the surplus income from a personal return to a corporate return, Dr. A achieved a massive "tax deferral" benefit.

Tax Rate Comparison (2026 Ontario)

Over a 20-year career horizon, reinvesting that extra ~$124,000 annually inside the corporation-even at a conservative 5% return-is projected to generate roughly $4.1M in additional retirement wealth compared to investing personal "after-tax" dollars.

If your professional income is exceeding your lifestyle needs, you are likely overpaying the CRA. Let’s discuss whether a Professional Corporation is the right vehicle for your practice.