Introduction

Dentists in Ontario are frequently told that incorporation is the “next step” once income increases. While incorporation can be a powerful planning tool, it does not automatically create tax savings and it is not appropriate in every situation.

For dentists, the decision to incorporate depends on income level, personal cash needs, long-term plans, and how much profit can remain inside the corporation. Understanding how dental professional corporations actually work helps avoid unnecessary complexity and disappointment.

Key takeaways

Incorporation does not automatically reduce total tax
The main benefit is tax deferral, not tax elimination
Dentists who retain profits benefit more than those who withdraw everything
Professional corporation rules limit income splitting
Timing matters, especially early in a career

Who this applies to

This applies to associate dentists, practice-owning dentists, and dentists planning to purchase or buy into a practice in Ontario.

How dental professional corporations work

Dentists in Ontario may operate through a dental professional corporation, subject to provincial regulatory rules. The corporation earns income from dental services and pays corporate tax on its profits. Personal tax is paid when income is withdrawn as salary or dividends.

The small business deduction may apply to active business income, allowing profits to be taxed at a lower corporate rate before withdrawal.

What incorporation means in practice for dentists

Incorporation is most effective when a dentist earns more than they need personally and can leave surplus funds inside the corporation. Those retained funds can be used for future investments, debt repayment, or income smoothing.

Dentists who need to withdraw most or all earnings each year often see little immediate tax benefit due to integration between corporate and personal tax.

Common misconceptions

Many dentists believe incorporation eliminates personal tax or allows broad income splitting. In reality, income splitting opportunities are limited and personal tax still applies when funds are paid out.

Incorporation also introduces additional costs such as corporate tax filings, bookkeeping, and compliance obligations.

Frequently asked questions

Is there a minimum income level where dentists should incorporate?
There is no fixed threshold. The decision depends on cash flow needs and long-term planning.

Can associates incorporate before owning a practice?
Yes, but incorporation is not always beneficial for associates early in their careers.

Does incorporation provide liability protection?
It offers some protection, but it does not replace professional liability insurance.

Closing

For dentists, incorporation should support long-term financial stability rather than serve as a default step. Evaluating income patterns, lifestyle needs, and future goals helps determine whether and when incorporation makes sense.