Professional Corporations for Dentists: How to Maximize Tax Deferral

For an Ontario dentist, the Dentistry Professional Corporation (DPC) is the single most valuable financial structure available - but only if it’s built and maintained properly. The RCDSO has specific compliance requirements, the CRA has specific tax requirements, and the gap between a DPC that works and one that doesn’t is often hundreds of thousands of dollars over a career. The fundamental "why" behind incorporation is tax deferral: keeping more of your clinical earnings available for investment today by delaying personal tax until tomorrow.

What the DPC actually buys you

Incorporation isn’t about avoiding tax-it’s about controlling the *timing* of tax. By leaving money inside the corporation, you are effectively receiving an interest-free loan from the government to invest in your own future.

The 30-year deferral math: A Tale of Two Dentists

Let’s look at the math for two dentists, both netting $450,000 in professional income (after expenses) and needing $180,000 for personal living costs.

### Scenario A: Sole Proprietor

• Net Income: $450,000.
• Tax (Personal): ~$188,000.
• Cash Remaining: $262,000.
• Living Expenses: $180,000.
• Annual Savings: $82,000.

### Scenario B: Dentistry Professional Corporation (DPC)

• Net Corporate Income: $450,000.
• Corporate Tax (12.2%): $54,900.
• Cash in Corp: $395,100.
• Salary/Dividend (to net $180k personally): ~$230,000 (including corp-side costs).
• Annual Savings (Inside Corp): ~$165,100.

The Result: The incorporated dentist saves $83,100 more every single year. Over 20 years, even at 0% growth, that’s a $1.6M difference. With 5% compounded investment growth, the incorporated dentist will be millions of dollars ahead of the sole proprietor.

RCDSO compliance - non-negotiable

• Voting shares must be held by dentists licensed in Ontario.
• Non-voting shares can be held by family members (spouse, children, parents), though Tax on Split Income (TOSI) rules apply to their dividends.
• The DPC must carry on only the practice of dentistry and activities related to it.
• The corporate name must include "Dentistry Professional Corporation" or "Professional Corporation."
• A Certificate of Authorization from the RCDSO is required before the DPC can practice.

Family income splitting after TOSI

The Tax on Split Income (TOSI) rules introduced in 2018 largely shut down "passive" dividend sprinkling. However, several legitimate strategies remain:

1. 01Reasonable salary: Pay a spouse or child for actual work (receptionist duties, bookkeeping, office management). The pay must be "reasonable" compared to what you’d pay a stranger.
2. 02The Age 65 Exception: Once the dentist turns 65, they can pay dividends to a spouse without TOSI application, mirroring the federal pension splitting rules.
3. 03The "Excluded Business" Test: If a family member works more than 20 hours per week in the practice (on average) during the year, they are exempt from TOSI on dividends.

The Holdco overlay

For many dentists, the DPC shouldn’t stand alone. A holding company (Holdco) sitting above the DPC provides additional layers of safety and flexibility.

• Asset protection: By paying tax-free inter-corporate dividends from the DPC to the Holdco, you move cash away from the "operating" entity. If the DPC is sued by a supplier or landlord, the Holdco assets are generally protected.
• Purification for Sale: To use the LCGE when you sell your practice, the DPC must be "clean" of passive investments. A Holdco allows you to strip out cash and investments continuously so the DPC is always ready for a tax-free sale.

Step-by-Step Incorporation Process

1. 01Financial Analysis: Determine if your surplus income (after personal needs) justifies the $3k-$5k annual accounting/legal overhead.
2. 02Articles of Incorporation: Work with a lawyer to ensure RCDSO-compliant share structures.
3. 03Certificate of Authorization: Apply to the RCDSO (this takes 4-6 weeks).
4. 04Bank & Payroll Setup: Move all clinical billings to the corporate bank account.
5. 05Annual Maintenance: File a T2 corporate return, T4/T5 summaries, and RCDSO renewals.

If you are currently a sole proprietor netting over $200k, you are likely overpaying the CRA every month. Let’s look at your numbers and see if a DPC is the right move for your career stage.