A professional corporation builds surplus faster than almost any other private company and has fewer places to put it. Your regulator decides who may hold the shares. The Income Tax Act names your profession in the rules that stop income splitting. The passive income rules penalise the obvious answer of investing the surplus. The result is a corporation with two or three million dollars in it and a professional who is not sure what it is for.
What we see most often
- A specialist or dentist in their forties or fifties with $200,000 or more of retained surplus a year and a spouse who holds non-voting shares that cannot usefully be paid dividends.
- A portfolio inside the corporation that has crossed the $50,000 passive income threshold and is quietly raising the tax on practice income.
- A holding company set up by a previous advisor that, for a physician, cannot hold voting shares and so does not do what it was meant to do.
- Group and association coverage that will end at retirement, and nothing permanent behind it.
How we approach it
- Read the bylaw before the balance sheet. What your college or society permits decides whether a holding company can own anything, whether a management fee is needed, or whether the practice company should own the policy directly. The answer is different for a dentist than for an accountant.
- Find the surplus that is not working. Income above what you draw, the passive income that is grinding the small business limit, and the registered room you have already used.
- Fund permanent insurance from the corporation. The growth inside an exempt policy is not passive income, there is no contribution limit, and the death benefit reaches your family through the capital dividend account without the split-income rules touching it. That is the one route by which corporate surplus leaves a professional corporation for the family tax-free.
What to bring to a first conversation
Corporate financial statements, the central securities register showing each share class and who holds it, last year's personal return, and your regulator's current shareholding rule if you have it. We work with your accountant on the structure before any illustration is run.
Guides for this situation
Professional corporations in British Columbia: where the surplus goes
Shareholding limits, the split-income exclusion and the passive income grind, and why they push professional surplus toward corporate-owned insurance.
Corporate-owned life insurance and the capital dividend account
How a corporate policy turns a death benefit into a tax-free capital dividend, and the adjusted cost basis mechanics that decide how much.
Leveraged corporate life insurance: how it works and when it does not
Borrowing against a corporate policy to keep the capital working: the tax treatment, the three numbers that decide the arithmetic, and the risks.