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Tax Planning For Physicians: An Actuarial Perspective

Category 2: Satisfy wants

Being a physician in Canada brings unique financial planning considerations. With high incomes and the option to incorporate, doctors have access to sophisticated tax strategies to build and preserve wealth. 

This article from your family team at Taxevity covers approaches to tax planning for physicians.

Selecting The Right Accountant For Physicians

While there are many accountants in Canada, finding the right one takes effort and care. Here are important considerations:

Specialization: Choose an accountant who works with healthcare professionals to receive tailored guidance for the unique financial challenges doctors face. 

Communication style: Choose an accountant with whom you can communicate quickly and effectively. This will be important for building a strong working relationship that lasts decades.

Fees: Compare the fees of different accountants. Some charge hourly rates, while others charge a flat fee. While you likely don’t want the cheapest accountant, understand what you get for your money.

Proactive: Look for an accountant who brings you strategies to minimize your tax liability and maximize your wealth. This is much better than a reactive accountant who merely reviews strategies you find. 

Collaborative: Implementing tax strategies requires expertise in niches outside accounting. Look for an accountant who actively collaborates with other independent experts like lawyers, wealth managers and insurance advisors. You can then benefit from a comprehensive and coordinated approach to your financial planning.

We can introduce you to a suitable accountant if you need one. 

Benefits Of Having A Medical Professional Corporation (MPC)

Incorporating your medical practice transforms how you are taxed. Rather than paying high personal taxes on all your earnings, you can retain profits in a private corporation and benefit from the lower small business tax rates on active income. Less tax means more capital to invest.

When you eventually pay yourself via dividends, ordinary income, or a combination, you can split earnings with family members (though restrictions apply as of 2017) and smooth your income over time. This income splitting and tax deferral leads to substantial tax savings.

Here are some of the main benefits of incorporating as a physician:

  • Lower corporate tax rates on active business income (e.g., 12.2% on the first $500,000 of active business income in Ontario until your passive investment income exceeds $50,000)
  • Retaining earnings gives more capital to invest
  • Income splitting with family members
  • Tax deductions for medical practice expenses
  • Potential capital gains exemption on sale of shares

Incorporation unlocks significant advantages but comes with complexity. This is why selecting your team of advisors with care matters.

Tax Reduction Strategies

As a high-income professional, you experience some of the highest marginal tax rates. For taxable income over $246,752 in 2024, the Ontario personal tax rates are 53.53% on ordinary income and 47.74% on dividends.

Strategic tax planning is essential to reduce your taxes and maximize your accumulation of wealth.

Income Splitting

One of the most significant benefits of a corporation is the ability to split income with family members in lower tax brackets. According to CRA, this can be done by:

  • Paying dividends or income to a spouse who is over 65
  • Paying a spouse, adult children or grandparents for work performed

To avoid scrutiny from CRA, ensure paid duties are correctly documented, and the compensation is reasonable. At least 20 hours of work per week must be done in the current year for tax-effective income splitting to be possible.

Income can also be split with a family member who has worked in the business for 5 years, consecutive or not, at any point in the past, provided they worked 20 hours per week in each of those years. This allows splitting even if the family member is no longer working in the business.

If income is split in a way that does not follow CRA guidelines, the income will be taxed at the highest marginal rate in the hands of the recipient, and the income will not be tax-deductible to the corporation.

IPPs, RCAs and CIRPs

Individual Pension Plans (IPPs), Retirement Compensation Arrangements (RCAs) and Corporate Insured Retirement Plans (CIRPs) are powerful retirement planning tools for physicians who are incorporated.

An IPP allows tax-deductible corporate contributions far above personal RRSP limits. In most cases, incorporated physicians transfer their RRSPs into their IPPs.

An RCA provides another way to save for retirement. The contributions and investment income get taxed at 50%, and this tax is refunded to the RCA when retirement benefits are received.

A CIRP does not create tax deductions but does allow tax-sheltered investment growth and tax-free access via loans. In contrast, income from an IPP or RCA is taxable. 

Typically, doctors start with an RRSP and upgrade to an IPP at age 40 or older. An RCA or CIRP may also be added. The specifics depend on your unique situation.

Estate Freezes 

An estate freeze “locks in” the value of assets, reducing future estate taxes and allowing wealth transfer to future generations while the physician retains control and income.

With the lower tax rates on capital gains, your heirs can realize gains and dividends at lower tax costs than leaving future growth in your hands.

The Capital Dividend Account (CDA)

The Capital Dividend Account (CDA) is used to distribute tax-free capital dividends to shareholders. This mechanism provides a highly tax-efficient way to extract corporate funds since salary and conventional dividends get taxed at high personal tax rates. 

To simplify, the CDA gets credited with: 

  • The untaxed portion of realized capital gains, less realized capital losses
  • Capital dividends from other corporations or trusts
  • The death benefit from life insurance less the Adjusted Cost Basis (different from the conventional Adjusted Cost Base, though both are abbreviated as ACB)

For example, Dr. Tanaka’s MPC owns $1 million of life insurance on her life with an Adjusted Cost Basis of $0. When she passes away, her corporation receives the $1 million death benefit tax-free and a CDA credit of $1 million. Her family can then withdraw $1 million tax-free from the corporation as capital dividends.

You will find more details in our article about the Capital Dividend Account.


Philanthropic physicians support causes they care about and also reduce their taxes. Charitable donations from your medical corporation give tax deductions. Personal donations give tax credits instead. Which is better depends on the specific situation.

Tax planning tools with philanthropic impact include donor-advised funds, foundations and life insurance.

Insurance Strategies

Life insurance and health insurance are core parts of financial planning for physicians. Besides providing protection, insurance can also provide tax advantages.

Permanent life insurance with a cash value gives tax-sheltered compound investment growth, tax-free access to the cash value via loans and a tax-free death benefit. While life insurance can be owned personally, corporate ownership is more common among doctors. Your medical professional corporation owns the insurance, pays the premiums and receives the tax-free death benefit.

Insurance tax strategies that work the same way as for non-physicians include:


Physicians have tax planning opportunities to reduce taxes, access retained earnings, and create charitable impact. With high earnings and the ability to incorporate, tax and estate planning are critical to maximize wealth accumulation. 

To discuss planning opportunities tailored to your situation, consult your family team at Taxevity. We can work in collaboration with your accountant, lawyer and wealth manager. 

Frequently Asked Questions

Here are questions that doctors often ask us.

What are the most common tax planning mistakes physicians make?

Here’s what we see going wrong: 

  1. Neglecting to Track Business Expenses: Physicians often incur various business expenses for equipment, subscriptions, conferences, and travel. Failing to track and deduct these expenses can lead to overpaying taxes.
  2. Ignoring Depreciation of Assets: Medical equipment and other assets gradually lose value. Deducting this depreciation lowers taxable income, but many physicians miss this strategy.
  3. Improper Use of Incorporation: A medical professional corporation offers tax benefits, but there is added complexity and cost. Carefully consider and seek professional guidance before incorporating too early. 
  4. Underestimating Capital Gains Tax: Selling investments or medical practice assets can trigger capital gains tax, and physicians may underestimate the potential tax bill.
  5. Neglecting Estate Planning: Physicians often have significant assets, making estate planning crucial to minimize tax burdens for their families. Unfortunately, the planning is often ignored, delayed or improperly implemented.
  6. Overlooking Tax Benefits of Life Insurance: Certain insurance plans and employee benefits have tax implications. Understanding these can help physicians avoid unexpected tax hits.
  7. Over-Reliance on DIY Tax Preparation: The complexities of the Canadian tax system can lead to costly mistakes if physicians prepare their own income tax returns. Consulting a qualified tax professional ensures efficient and compliant tax filing.
  8. Picking the Wrong Accountant: An accountant without experience in working with physicians and collaborating with other advisors brings the risks of missed opportunities, costly errors, communication gaps, and delayed decisions with long-term consequences.

How much income splitting can I really do?

Income splitting is very powerful but needs to be executed carefully. The key is paying family members reasonable salaries or dividends for the duties performed. This could include spouses helping with administration, children editing websites or blogs, and parents providing childcare. Document activities to justify compensation and satisfy CRA. 

Do talk to your tax advisor about your specific situation.

What are the pros and cons of an Individual Pension Plan?

IPPs provide significant tax-deductible contributions, creditor protection, and control over investments. The main downsides are set-up and administration costs. IPPs work best for physicians aged 40 or older who earn over $150,000 annually.

What are common life insurance mistakes?

The biggest mistake is not using permanent life insurance at all. The products provide valuable tax and estate planning advantages that especially benefit incorporated physicians. 

Some doctors who own life insurance make the mistake of owning the policies personally instead of corporately. 

What are strategies to maximize charitable tax credits?

Donate appreciated securities instead of cash to avoid capital gains tax. Bundle multiple years of donations together. Make donations early in the year to maximize tax benefits. Explore donations of life insurance. Consider donations from your corporation to get tax deductions rather than personal tax credits.

What recent changes impact physician tax planning?

Tax regulations keep changing and require careful monitoring. The current tax rules for split income mean minors can no longer be part of income-splitting strategies. Recent passive investment income rules also limit access to the small business deduction based on the amount of investment income earned by a corporation’s holdings.

How do I get my other questions answered?

We have other articles and videos for your self-study. When you are ready for tailored answers to your questions, you can arrange a chat. We’re here to help.

Tags: physicians, doctors, tax minimization, tax planning