Accounting for incorporated professionals

A professional corporation is not simply a small company with a licence attached. It exists under the statute governing the profession, which sets who may hold shares and how the corporation must be named and permitted. Only once those conditions are met does the tax analysis — deferral, compensation mix, retirement saving — become relevant. Most structuring mistakes in this vertical come from doing those two steps in the wrong order.

What is different about professional corporation accounting

A professional corporation answers to a regulator as well as to the CRA, and the regulator usually decides who may hold shares. That single constraint shapes the remuneration options, the family-income planning that is available, and the value of the corporation on the way out.

The regulator decides the share structure

Each profession’s governing body sets its own rules about who may own voting and non-voting shares, and they differ by profession and by province. Some permit family members to hold non-voting shares; others restrict ownership to licensed members entirely. Because the share structure drives every later planning option, it is the first fact to establish and the last thing to change casually.

Income is high, stable and fully taxable in the year earned

Unlike a product business, a practice has little inventory, few capital assets outside equipment and leaseholds, and income that arrives predictably. That makes the corporation primarily a timing tool: profit left inside is taxed at the small business rate now and the remainder when it is drawn out. Where a professional needs every dollar for personal spending, incorporation delivers little beyond cost, which is a legitimate conclusion, not a failure.

Associated corporations share one small business deduction

The reduced corporate rate applies to a limited amount of active business income, and that limit is shared among associated corporations. A professional with a practice corporation, a clinic corporation and an interest in a partnership can find the limit divided in ways that were never intended. The association rules turn on control and share ownership, including shares held by family, which is why they interact directly with the regulator’s rules above.

Retained profit invested inside the company has a cost

Investment income earned on funds left in the corporation is taxed at high rates, and above a threshold it also reduces access to the small business rate on the active practice income. For a practice that accumulates surplus year after year, that grind is the central planning question and the usual reason a holding company enters the conversation.

Splitting income with family is narrow

The tax on split income rules apply the top marginal rate to dividends paid to family members who are not sufficiently involved in the business, with exclusions that are hard for a professional practice to meet. Paying a spouse a reasonable salary for work actually performed remains available and defensible; paying dividends to a non-participating adult child generally is not.

Practice-specific assets and events

Buying into a practice, buying out a retiring partner, or acquiring goodwill are capital transactions with their own treatment, not deductible costs. Dental and medical practices carry equipment and leasehold improvements written off over defined periods, and lawyers and engineers carry unbilled work in progress. Each one changes what the year-end statements should show.

The guides, tools and pages for this vertical

Grouped by where a professional corporation is in its life: deciding and setting up, then running it, then the questions that arrive at the end of one.

Deciding and setting up

• Accounting for incorporated professionals — the service page: what an engagement covers for a professional corporation.
• Dental practice incorporation — the profession-specific version, including equipment and associate arrangements.
• Model the incorporation decision — models the difference between earning professionally and through a corporation. Run it before committing.
• Federal versus provincial incorporation — why professional corporations usually follow the provincial route.
• The post-incorporation checklist — the accounts, filings and elections needed in the first weeks.
• Keeping a minute book — the corporate records a regulator or a buyer will eventually ask to see.

Getting paid

• Salary versus dividends calculator — models both routes on your own numbers. Worth re-running each year.
• Salary versus dividends, in depth — the reasoning, including the RRSP room a salary creates and dividends do not.
• CPP for incorporated owners — why taking dividends means opting out of CPP, and when that is a poor trade.
• Leave it in, or take it out — the deferral question that decides most compensation plans.
• Tax on split income — the rules that limit dividends to family, and why professionals rarely meet the exclusions.
• Paying a spouse a salary — the route that remains available, and what has to be true for it to hold.
• Health spending accounts, a way to pay medical costs through the corporation rather than personally.

Structure, surplus and growth

• Passive income and the small business deduction — the grind that applies once investments inside the corporation earn enough.
• Associated corporations — how the reduced-rate limit is shared, and what causes association.
• Holding companies — when a company above the practice corporation earns its complexity.
• Multiple corporations — clinic, practice and property companies, and when separating them helps.
• The capital dividend account — the balance that lets certain amounts be paid out tax-free.
• Shareholders agreements — the tax consequences buried in a document usually drafted for other reasons.
• The lifetime capital gains exemption — what a practice sale can qualify for, and the conditions that have to be met first.
• Estate freezes — locking in today’s value ahead of a transition.

Practice and city pages

• Dental accountant, Abbotsford — framed for dental practices in the Fraser Valley.
• Incorporated professionals, Maple Ridge — the same work for practices east of the Pitt River.
• Professional corporations, Calgary — for Alberta professionals, where provincial rules and rates differ.
• Dues and subscriptions — licensing, college fees and insurance, and who deducts them.
• Home office through a corporation — for the administrative work that happens outside the clinic.
• Corporate tax hub — the T2, deadlines and instalments that apply to every professional corporation.

Who this fits

This hub is written for physicians, dentists, lawyers, engineers, architects, accountants, optometrists, chiropractors, veterinarians and other licensed professionals operating through a professional corporation — whether solo, in an associate arrangement, or as one owner among several. It also fits professionals still deciding whether to incorporate, and those approaching a buy-in, buy-out or retirement. Consultants who are not licensed by a regulator have more structuring freedom and should start with the agency and consulting hub.

How this runs remotely

EverStone CPA is a sole-practitioner CPA firm at 32615 South Fraser Way in Abbotsford, BC, and the work is fully remote. Professionals in practice have the least flexible schedules of any client group, so meetings happen by video outside clinic hours, records move electronically from the practice management system and the bookkeeper, and corporate and personal returns are filed directly with CRA. The same process serves a dentist in Abbotsford and an engineer in Calgary; what changes is the provincial regulator’s rules and the provincial tax rate, not the way the work is done.

For the same questions answered against one set of facts rather than in the abstract, see a worked Langley example.

If the assessment puts you in the middle or high band, the next step is a written review of your actual arrangement. See a CPA review of your PSB risk.