Introduction

A dentist who sells their practice — after thirty years of building patient relationships, investing in equipment, and paying down a practice acquisition loan — often receives the largest single cheque of their life. That cheque is the product of decades of work, and what happens to it over the next year has lasting consequences.

This article addresses what dentists specifically should know about managing the proceeds from a practice sale — beyond the deal itself.

What the Proceeds Look Like After Tax

A dental practice sold for $1.5 million in a share sale — where the selling dentist's LCGE shelters the first $1.25 million of capital gain — leaves approximately $250,000 of capital gain taxed. At a 50% inclusion rate and Ontario's top marginal rate, the personal tax on the unsheltered portion is approximately $67,000. Net proceeds after tax: approximately $1.43 million.

For an asset sale of the same practice, the tax leakage is higher — corporate tax on the asset gains, then personal tax on the distribution. Net proceeds may be closer to $900,000–$1.1 million on the same headline $1.5 million sale. The structural difference matters enormously.

The Holdco Question Post-Sale

If the sale was a share sale, the dental professional corporation (DPC) has been sold — it no longer belongs to the dentist. The proceeds arrived personally.

If the dentist had a holding company that held shares of the DPC, the holdco received the sale proceeds (via the share purchase by the buyer, which may have involved redemption of the holdco's DPC shares). The holdco now holds the cash proceeds and continues to be the dentist's investment vehicle.

For dentists whose corporations continue to exist post-sale (as a holdco or residual entity), the drawdown planning discussed in Article 119 applies: capital dividends first, return of PUC, then taxable dividends managed over retirement years.

The RRSP Contribution Opportunity

In the year of the practice sale, the dentist typically has significant RRSP room accumulated from prior years of salary payments through the DPC. If any unused RRSP room exists, the year of the sale — before the proceeds are invested in a taxable account — is the moment to maximise the RRSP contribution.

A $100,000 RRSP contribution in the sale year, deducted against sale-year income, saves approximately $53,500 in personal tax at the top Ontario marginal rate. This is the highest-value RRSP contribution the dentist will ever make — because the marginal rate in the sale year is almost certainly the highest it will ever be.

Managing the First Year's Taxable Income

The sale year is almost always the highest personal income year of the dentist's life — practice income from the year up to closing, plus the capital gain (unsheltered portion), plus possibly a consulting fee for the transition period. Managing total net income in this year is important.

Strategies to manage the sale-year income:

•  Maximise all deductible contributions (RRSP, first home savings account if applicable)

•  Confirm the capital gains reserve is available and applicable for any deferred consideration

•  Review the timing of any remaining DPC dividends or salary distributions in the sale year

The Investment Platform Decision

After the sale, the dentist has a significant sum to invest — potentially through the holdco, the RRSP, and a personal non-registered account. The investment platform decision (which institution, which advisor, what products) is a personal financial planning matter beyond tax. But the tax consequences of the investment structure — how much is inside the holdco vs. personal, RRSP vs. TFSA vs. non-registered — affect the after-tax return over the retirement years and should be considered alongside the financial planning.

When to Speak With a CPA

The transition from practice owner to retired investor is a significant shift. A CPA who has managed the practice's corporate tax can continue to manage the holdco's passive income tax and model the retirement drawdown. This continuity of advice from accumulation through distribution is one of the most valuable long-term CPA relationships for a retiring dentist.

Rotaru CPA works with dentists from practice ownership through the sale and into retirement income management. Book a consultation to discuss your post-sale plan.