Professional corporations
You earn far more than you spend. The corporation is where the difference is taxed.
Physicians, dentists, lawyers, accountants, engineers. A professional corporation reaches the $50,000 passive income line early, and the whole practice stops the day you cannot work. Both problems have the same shape.
Licensed across Canada. What to expect
A professional corporation hits the line faster than any other kind.
Retain a few hundred thousand a year and within a decade there are millions inside the corporation. At five percent, a million in GICs is already at $50,000 of passive income. Past it, every dollar over strips five dollars of small business limit, up to $30,000 a year in extra tax, on top of the 50% on what it earns.
Corporate-owned participating whole life is the container that does not count toward the line, grows without annual tax, and is paid for with 11.2% corporate dollars rather than income you took out at 53.53%. It is why so many professional corporations hold one.
See what leaving it there costs each year, on your own numbers.
The premium math
A dollar of premium costs the corporation a fraction of what it costs you personally. That difference compounds for thirty years.
Not counted toward the line
Growth inside the policy is not passive income. The small business rate stays where it is.
The exit
At death the benefit passes to your family through the capital dividend account, tax-free. The largest tax-free transfer a Canadian corporation can make.
When a professional stops, the revenue stops the same day.
There is no plant to keep running. The billing is you. Rent, staff, equipment leases and the practice loan continue while you recover, and EI sickness pays an owner over 40% nothing unless they opted in a year ahead. Eighty percent of people survive a stroke. The median time to a full return to work after cancer is eight months.
Corporate-owned critical illness pays the corporation a tax-free lump sum on diagnosis, usually thirty days later. It keeps the practice open, the staff paid and the lease serviced until you are back, or funds the exit if you are not. Where partners share the practice, it funds the buy-sell.
The overhead
Rent, staff, equipment leases and the practice loan continue for the months you are not billing.
Covered by corporate-owned critical illnessThe patients and clients
They wait for a while, then they go somewhere else, unless there is money to bring in a locum or an associate.
Covered by a lump sum that pays for interim coverageThe partners
Two principals, one diagnosis, and a partnership agreement with no money behind it.
Covered by a funded buy-sell
