Restructuring a Dental Practice for Maximum Tax Deferral

The client

Dr. A is a successful dentist operating a busy clinic in the Greater Toronto Area. The clinic generates approximately $1.2 million in annual gross revenue. After associated dentists, staff salaries, rent, and supplies, Dr. A's net professional income is $450,000.

The challenge

Dr. A was operating as a sole proprietor. The entire $450,000 of net income was reported on his personal T1. In Ontario, any income over $246,752 (2024) is taxed at the top marginal rate of 53.53%. Dr. A only required about $150,000 annually for personal living expenses, but the sole-proprietorship structure meant he paid roughly $200,000 in personal income tax every year — leaving very little capital to save for retirement or reinvest in new clinic equipment.

The solution

We recommended an immediate transition to a Dentistry Professional Corporation (DPC).

• Incorporation: coordinated with legal counsel to establish a DPC compliant with RCDSO regulations
• Asset rollover: executed a Section 85 rollover, transferring assets of the sole proprietorship (equipment, patient lists, goodwill) into the new corporation on a tax-deferred basis
• Compensation strategy: the DPC paid Dr. A a $150,000 salary to cover personal living expenses — sufficient to maximize his RRSP contribution room for the following year

The result

Under the new structure, the DPC earned the $450,000 in net professional income. It paid Dr. A a $150,000 deductible salary, leaving $300,000 of active business income inside the corporation. Because the DPC qualifies for the Small Business Deduction, that $300,000 was taxed at the Ontario corporate rate of 12.2% — $36,600 in corporate tax. The surplus capital is now being invested within the corporation to build a long-term retirement portfolio.