Professional Corporations in Canada: Who Can Incorporate?

Which professionals can incorporate, and what approval do I need?

A licence alone does not give a professional the right to practise through a corporation. Check the law for your province and profession, then obtain the required corporate authorization from your regulator before the corporation provides regulated services (Ontario Business Corporations Act, s. 3.1; Québec Professional Code, s. 187.11).

Ontario permits professional corporations for the regulated health professions and the other professions named in its Act, including law, accounting, social work and veterinary medicine, subject to each profession's governing law. An Ontario professional corporation must hold a valid certificate or other authorizing document. Its articles must restrict the business to the profession and related activities, and its name must meet the Act's rules (Ontario Business Corporations Act, ss. 3.1–3.2).

Québec uses a different framework: members of a professional order may practise within an organization if they meet the Professional Code and any applicable order rules, including security for the organization's professional liability. That is why an Ontario incorporation checklist cannot be assumed to work in Québec (Québec Professional Code, s. 187.11).

Before preparing articles, identify your province, professional order, proposed services, shareholders and practice partners. Confirm the regulator's current rules for authorization, name, insurance and ongoing reporting. If an existing practice will transfer contracts or assets, see moving a business into a corporation.

If you incorporate an existing practice, the corporation gets a new business number; old GST/HST and payroll accounts do not transfer automatically (CRA: change of legal status). A resident corporation files its own T2 even if inactive, within six months after its tax year ends (CRA: T2 filing; CRA: filing deadline). See which returns your business files.

Who can own shares in a professional corporation?

Share ownership follows the profession's provincial rules, not a general Canadian rule. Decide who may hold voting and non-voting shares before issuing either class (Ontario Business Corporations Act, s. 3.2; Québec Professional Code, s. 187.11).

Permission to own a share says nothing by itself about how dividends on that share will be taxed. The tax on split income is a separate federal test (Income Tax Act, s. 120.4).

Can a realtor incorporate?

Realtors can use a personal real estate corporation where their province permits it, but it may have different rules from a professional corporation. Ontario and British Columbia both allow the structure under their real estate laws, with different registration and licensing mechanics (Ontario Trust in Real Estate Services Act, s. 5(3); BC Real Estate Services Regulation, Part 10).

In Ontario, the broker or salesperson must own the equity shares and be the sole director and president. Family may hold permitted non-equity shares. The corporation must work through the brokerage under a written agreement and cannot act as a brokerage itself; the regulator must receive notice before it receives remuneration. A change affecting eligibility or the notice details must be reported within five days (Ontario Personal Real Estate Corporations Regulation, ss. 2–6).

In British Columbia, the individual must own all voting shares, be sole director and president, and obtain a personal real estate corporation licence connected to the same brokerage. Permitted affiliated persons may own non-voting shares. Both the individual and corporation need the required licences (BC Real Estate Services Regulation, ss. 10.2–10.6).

Does a professional corporation limit my liability?

A corporation can separate ordinary corporate obligations from its owners, but it is not a shield against professional claims. Ontario expressly preserves a professional shareholder's liability for professional claims, including specified errors and omissions while the person was a shareholder. If the corporation joins a partnership or limited liability partnership, its shareholders have the same liability they would have as direct partners (Ontario Business Corporations Act, ss. 3.4, 92).

British Columbia likewise says a personal real estate corporation does not change the controlling individual's liability or duties to clients (BC Real Estate Services Regulation, s. 10.6(3)). Check your own province's statute, regulator requirements and professional liability coverage before treating any claim as a corporate debt only. A personal guarantee or a director's own obligation can also create personal exposure, so review the contracts you sign.

Does a professional corporation get the small business deduction?

A professional corporation may claim the federal small business deduction if it is a Canadian-controlled private corporation throughout its tax year and earns eligible active business income in Canada. Professional status does not create a separate deduction or a separate business limit (Income Tax Act, s. 125(1); CRA T2 guide).

The ordinary federal business limit is $500,000 before any required sharing or reduction for associated corporations, taxable capital, investment income or a short tax year (Income Tax Act, s. 125). The corporation's T2 and Schedule 7 determine eligible income. The small business deduction can also be limited by the related-corporation and partnership rules below. A corporation that may instead be a personal services business needs a different review; see personal services businesses (CRA T2 guide).

What if my corporation bills a clinic I own or is a partner in a firm?

Billing a related incorporated clinic or working through a professional partnership can restrict the small business deduction even when the professional corporation itself is a valid corporation. Check the payer's ownership and the partnership agreement before assuming all professional fees qualify (Income Tax Act, s. 125(7)).

Billing an unrelated clinic does not trigger this rule by itself; partnership and personal services business rules can still matter.

Gather the clinic's shareholder list, invoices, the firm's partnership agreement, any business-limit assignments and the corporation's other customer revenue. Those facts determine which restriction applies; a clinic invoice alone does not answer the question.

For a clinic assignment, the clinic reports the amount on its T2 and the professional corporation on Schedule 7; each files with its own return. A partnership-limit assignment goes on Schedule 7 for both the assigning partner and the receiving corporation, with each filing it with its own return (Income Tax Act, ss. 125(3.2), (8); CRA: T2; CRA: Schedule 7). Routing fees through another person or partnership to avoid these limits can also disqualify the income (Income Tax Act, s. 125(9)).

Can my family share in the corporation's income?

Family members can receive dividends only if provincial share rules allow their ownership, and the federal tax on split income may still apply. An Ontario physician or dentist's permission to issue family non-voting shares is therefore a legal starting point, not a tax exemption (Ontario Health Profession Corporations Regulation; Income Tax Act, s. 120.4).

The federal “excluded shares” exception cannot apply to a corporation carrying on the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor, because the Income Tax Act defines “professional corporation” that way for this test. Other exceptions may depend on a family member's work, age and contribution. A realtor's personal real estate corporation is not automatically within that federal definition, but an all-service business fails the excluded-shares service-income test even if it meets the other conditions (Income Tax Act, ss. 120.4(1), 248(1); CRA: excluded shares).

Before a family dividend, record the shareholder's permitted share class, work in the business and capital contributed. See paying family members for the detailed salary and dividend tests.

Example

Illustrative Canadian-dollar amounts; no tax is calculated. An Ontario physician has an authorized professional corporation. It bills C$200,000 to a private corporation operating a clinic in which the physician owns shares. It has no expenses, so its net active business income from the clinic is C$200,000; other active business income is C$0. The clinic assigns no business limit to the professional corporation.

The corporation's licence does not itself make the clinic income eligible for the small business deduction. Schedule 7 removes the C$200,000 of clinic income and adds back C$0 of specified corporate income, leaving C$0 eligible income (Income Tax Act, s. 125(7); CRA: Schedule 7, Parts 6–7). If the physician later adds a spouse as a non-voting shareholder, the Ontario share rule may permit it, but a dividend to the spouse still needs a separate tax-on-split-income review (Ontario Health Profession Corporations Regulation; Income Tax Act, s. 120.4).

Different for you?

• You are deciding whether to incorporate at all: compare the costs and tax effects in sole proprietorship or corporation.
• You bill one business much like an employee: the personal services business rules may change the tax result.
• You already own a practice: moving contracts, equipment or goodwill into the corporation needs its own plan. See moving a business into a corporation.
• You are choosing how to pay yourself: see salary or dividends.
• You want family dividends or wages: share permission and income-splitting tax need separate review. See paying family members.
• The corporation will invest surplus funds: provincial practice limits and corporate investment tax may matter. See holding and investment corporations.
• The corporation will make taxable supplies: assess its own GST/HST registration; an old sole proprietorship account does not automatically move to the corporation (CRA: change of legal status; CRA: registration rules). See when to register for GST/HST.
• Your regulator, clinic ownership or partnership terms are unusual: bring your licence, proposed articles, ownership chart and billing agreements for business formation help.