Section 6 – Businesses
Incorporation of Professionals
One important benefit of incorporation is the fact that corporations enjoy a lower tax rate.15 In general, this benefit is only maximized if the income is not withdrawn from the company and is used to make capital expenditures or repay debts. Incorporation often results in a higher tax cost if all of the income earned by the company is paid out to the shareholder.
A decision to incorporate your professional practice requires a comprehensive analysis of the terms, conditions and restrictions applicable in each case. A tax specialist should be consulted to determine the best scenario for your situation.
Apart from the benefits (or lack thereof) related to corporate tax rates, estate planning and opportunities for the use of the capital gains deduction by shareholders, as well as numerous corporate tax or administrative requirements, are other elements to consider in deciding whether or not to incorporate a professional practice.16
15 In Quebec, a criterion on the minimum number of hours paid restricts eligibility for the SBD for corporatons with a small number of employees. This measure impacts in particular professionals wishing to incorporate their practice.
16 Since 2018, the measures regarding the tax on split income have been expanded, which significantly limits income splitting possibilities among family members who are not involved in the business (see Section II).
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.