Canada · Incorporated & Self-Employed Dentists · 2026
Tax Techniques & Tricks for Canadian Dentists
A practical walkthrough of legitimate strategies dentists use to reduce tax — incorporation, income splitting, retirement plans, insurance structures, expense claims, and the rules that limit each one.
Incorporation
Salary vs. Dividends
TOSI & Income Splitting
IPP & RRSP
Holdco & CDA
Vehicle & Expenses
PHSP
LCGE
GST/HST
"Strategic incorporation and income splitting can save dentists $30,000–$100,000+ per year in combined personal and corporate tax — but every lever has rules, limits, and documentation requirements that determine whether it actually holds up."
— Summary of CPA guidance for Canadian dental practices, 2026
Foundations
The Four Ideas Behind Every Strategy in This Deck
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1. Two tax "buckets"
Personal tax (up to ~53% at high incomes) and corporate tax (as low as ~9–12.2% on active income up to $500,000). Almost every strategy is about moving income between these buckets, deferring it, or splitting it among family members.
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2. Income splitting has hard limits
TOSI (Tax on Split Income) rules tax dividends/income to family members at the top rate unless they genuinely work in the practice or pass narrow exemptions. "Sprinkling" dividends to a non-working spouse is largely off the table.
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3. Documentation = defense
Every strategy below survives or fails on paperwork: mileage logs, job descriptions, loan agreements, plan documents, T2054 elections. The tax saving is identical whether or not you have the paperwork — the CRA reassessment risk is not.
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4. Timing & thresholds matter
The $50,000 passive income grind, the 24-month LCGE holding period, the $500,000 small business limit, the 3% prescribed rate — these are moving thresholds that should be checked every year, not set once.
Reminder: Nothing here is personalized advice. Run every strategy past a CPA/tax lawyer who works with dental professional corporations before acting.
Foundations
Marginal vs. Average Tax Rate — and Tax Instalments
Almost every strategy in this deck works because of one fact: the tax rate on your next dollar of income (your marginal rate) is much higher than the average rate across all your income.
~24% vs ~43%
Example: a dentist earning $100,000 has an average tax rate around 24%, but a marginal rate around 43% — every additional dollar earned (or saved via RRSP/deduction) is taxed/relieved at the higher marginal number.
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Deductions vs. credits
A deduction (RRSP, business expense) reduces taxable income and saves tax at your marginal rate. A credit (tuition, donation, medical) reduces tax owing at a fixed rate (~15% federally) regardless of your income level — like a fixed-percentage coupon vs. a discount that's bigger the more you spend.
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Timing income & expenses
Income is taxed on an accrual basis (when earned, not when paid) and capital purchases get only 50% of normal depreciation in the year of purchase (the "half-year rule"). Tactical timing — e.g., buying equipment Dec 31 or delaying a December procedure to January — can shift income between tax years.
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Personal tax instalments
Self-employed dentists and shareholders don't have tax withheld from each pay like an employee. Once your net tax owing exceeds ~$3,000 in two consecutive years, the CRA requires quarterly instalment payments (Mar 15, Jun 15, Sep 15, Dec 15) based on your prior year's bill — a refund this year doesn't cancel instalments if income is expected to stay similar.
Avoiding a CRA review: file and pay on time, report all income (including cash), keep claims consistent with prior years and industry norms, and watch high-risk categories — meals/entertainment, auto, home office, donations, and family payroll are the most commonly scrutinized.
In plain English
Your average rate is "of everything I earned this year, what % went to tax overall" — useful for budgeting. Your marginal rate is "if I earn (or save) one more dollar, how much of that specific dollar is tax" — and this is the number that matters for planning. An RRSP contribution made while your marginal rate is 43% saves you 43 cents per dollar contributed; the same contribution in a low-income year might only save 20 cents. That's why timing — not just the amount — matters.
Special Situation
New Graduates with $100K–$200K+ in Student Debt
Most of the strategies in this deck assume you have surplus income to shelter. A new grad carrying six figures of debt is in the opposite position — but several of the ideas above still apply differently, and a few extra ones matter most in these first years.
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Debt vs. invest — do the math, don't guess
Government student loans are often in the 5–8% range. If your loan rate is higher than what you'd realistically earn investing, paying it down faster is the "guaranteed return." If your rate is low and you have access to tax-sheltered room (TFSA/RRSP), splitting between debt paydown and saving is common. Re-run this comparison whenever rates change.
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Don't waste tuition & interest credits
Tuition tax credits and student loan interest credits are non-refundable — they only reduce personal tax you actually owe. If your income is low in year one (e.g., part-year associate), unused tuition credits can be carried forward to a higher-income year rather than "wasted" against near-zero tax.
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Incorporation usually waits
The low corporate tax rate only helps with money you don't need personally. Early on, nearly every dollar earned is going toward debt and living costs — so the corporate "piggy bank" stays empty and incorporation mainly adds cost. (See the next slide for the typical turning point.)
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Associate expense claims still matter
Even without a corporation, associates (especially those billed as contractors) can deduct professional dues, CE courses, malpractice insurance, and a reasonable share of vehicle/home-office costs against their income — reducing the personal tax bill while debt is being paid down.
In plain English
Picture two buckets: a "debt bucket" (your student loan) and a "savings bucket" (TFSA/RRSP/future down payment). Every extra dollar you have can go into one or the other. If your loan charges more interest than your savings would realistically earn, the debt bucket usually wins — paying it down is like earning a guaranteed return equal to the interest rate. Most new grads do a mix: pay down debt aggressively while still contributing something to a TFSA so the saving habit (and tax-free growth) starts early.
Bottom line: the strategies in this deck (IPP, Holdco, CDA, LCGE, income splitting) become relevant as debt comes down and surplus income builds — not instead of paying down debt. Revisit this deck every year or two as your financial picture changes.
Foundations
Associate Status: Employee vs. Self-Employed — Why It Matters
Before any of the tax-saving strategies in this deck apply, your working arrangement has to actually qualify as "self-employed." This is decided by facts, not by what your contract calls you.
| Factor | Employee | Self-employed |
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| Control | Principal sets hours, treatment approach, schedule | You set your own hours and can accept/refuse work |
| Tools & equipment | Provided by the practice | You supply your own loupes, handpieces, etc. |
| Opportunity for profit | Fixed remuneration (salary) | Income varies with patients seen; can work at multiple clinics |
| Financial risk | Principal bears business risk | You bear your own business/liability risk |
| Expense deductions | Almost none — auto, CE, dues, home office generally not deductible | Full range of business deductions available |
The incorporation trap (PSB): if an associate incorporates but the CRA would still view them as an "employee in substance," the corporation is taxed as a Personal Services Business (PSB) — losing almost all expense deductions and paying corporate tax at roughly 44.5% instead of 13.5%. Confirm self-employed status before incorporating, not after.
In plain English
Receiving a T4 slip from a clinic means you're an employee for tax purposes — no business deductions, full stop. To be self-employed (and eventually benefit from a PC), you generally need real autonomy: you choose your hours, bring your own equipment, can work at more than one clinic, and carry your own professional risk. If your associate agreement reads more like an employment contract than a business arrangement, talk to your accountant before assuming any of the corporate strategies in this deck apply to you.
1 · Structure
Incorporating the Practice — The Foundation
Why it works
- Lower rate on retained income. Active business income up to the small business limit is taxed at roughly 9% (Manitoba) to 12.2% (Ontario/Quebec) combined federal/provincial — vs. 50%+ personally above ~$220K–$235K.
- Tax deferral. Profit you don't need to spend stays in the corporation at the low rate and is invested; personal tax is paid only when withdrawn, ideally in a lower-income year.
- Income smoothing. Salary/dividends can be timed across good and lean years.
Where it falls short
- If you need to withdraw nearly all profit each year, the rate advantage mostly disappears — you still pay the second layer of personal tax.
- Added cost: corporate filings, payroll, accounting.
- Provincial dental colleges restrict who can hold shares in a "Dentistry Professional Corporation" (usually dentists and immediate family) — this caps how much splitting is even legally possible.
9–12.2%
Combined small-business corporate tax rate across provinces — vs. 50%+ marginal personal rates above roughly $220,000–$235,000 of income.
In plain English
Think of your corporation as a separate "piggy bank" with its own tax rate. If your practice earns $400,000 and you only need $150,000 to live on, the leftover $250,000 can sit in the corporate piggy bank taxed at ~12% instead of going straight into your personal income where it would be taxed at ~50%. You pay the rest of the tax later, only when you actually take that money out for yourself.
Timing
Is There a "Golden Time" to Incorporate?
There's no fixed CRA rule or magic date — but there is a clear signal that the timing has arrived, and a couple of situations where it pays to wait.
~$150K+
Commonly cited net-income threshold (after expenses) at which incorporation starts to clearly pay for itself — though the real trigger is behavioural, not a hard number (see below).
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The real signal: surplus you don't need yet
The moment you're consistently earning more than you spend — and that surplus is just accumulating in a personal savings account anyway — is the moment incorporation starts saving real money. Every year you wait, that surplus is taxed at ~50% instead of ~9–12.2%.
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When it pays to wait
New grads with $30,000+ of unused tuition credits are often better off waiting 1–2 years — those credits only offset personal tax, so using them while personal income is still meaningful avoids "wasting" them against a near-empty corporation.
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Practical triggers practices use
Buying into or purchasing a practice (ownership share usually requires/benefits from a corporation), net income consistently exceeding ~$150,000, or building $75,000–$100,000+ of annual retained earnings that would otherwise sit and get taxed personally.
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Weigh against running costs
Incorporation adds ongoing costs: corporate tax filings, payroll, separate accounting. If the projected tax deferral is small, those costs can eat most of the benefit — this is the practical (not legal) reason the ~$150K figure gets cited.
In plain English
Don't incorporate on day one just because it sounds "professional." Incorporate when you notice money piling up in your personal chequing/savings account that you're not spending and don't need for a few years — that's the signal CRA is about to take roughly half of money you were going to save anyway. New grads still working through tuition credits or student debt usually aren't at that point yet (see previous slide) — but it's worth checking in with your accountant every year, because the "right time" can arrive faster than expected once debt is paid down.
2 · Mix & Match
Salary vs. Dividends — Mixing Personal & Corporate Tax
Once incorporated, every dollar you take personally is either salary (T4) or a dividend (T5) — or a blend. This is the core "mix and match" lever between personal and corporate tax.
| Factor | Salary | Dividends |
|---|
| RRSP room | Generates room (18% of earned income, up to $33,810 for 2025) | None — not "earned income" |
| CPP contributions | Required — both employer & employee portions | None (but no future CPP benefit either) |
| Corporate deduction | Fully deductible — reduces corporate tax | Paid from after-tax income |
| Personal tax treatment | Fully taxable | Dividend tax credit offsets some double-taxation |
| Needed for IPP funding? | Yes — IPP requires T4 earnings | Not eligible |
Typical approach: enough salary to build RRSP room and/or qualify for an IPP and mortgage underwriting, with dividends topping up remaining cash needs. Revisit the split every year — it depends on age, CPP goals, and corporate retained earnings.
In plain English
Salary = paying yourself like an employee (a "T4 slip" — same form your hygienist gets). It builds RRSP room and CPP (government pension) credits, but you and the corporation both pay CPP premiums on it. Dividends = paying yourself as an owner (a "T5 slip"). No CPP, no RRSP room, but less total tax is "lost" in the process. Most dentists use a blend — like a recipe with two ingredients you adjust each year.
3 · Family
Income Splitting — and the TOSI Trap
TOSI (Tax on Split Income) taxes "split income" paid to family members at the top marginal rate, eliminating most of the benefit of dividend sprinkling — and the "excluded shares" exemption that other small businesses rely on does not apply to professional corporations, including dental ones.
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Excluded business test
A spouse/adult child can receive dividends without TOSI if they're actively and regularly engaged — generally read as 20+ hrs/week during the year, or in any 5 prior years.
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Reasonable salaries
Pay family members market-rate wages for real work (reception, hygiene, bookkeeping). Keep timesheets, job descriptions, and market-rate comparisons — CRA requests these on review.
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Spousal RRSP & pension splitting
Contribute to a spouse's RRSP within your room; in retirement, up to 50% of eligible pension/RRIF/IPP income can be split with a lower-income spouse.
Documentation is everything: job descriptions, hours logs, wage benchmarking, share certificates, and shareholder minutes for any family member receiving salary or dividends.
In plain English
"Income splitting" means moving some income to a family member in a lower tax bracket so the family pays less tax overall — like pouring water from a fuller cup into an emptier one. TOSI is the CRA rule that says: if your spouse owns shares in your dental corporation but doesn't actually work there, any dividends paid to them get taxed as if you earned them — at your top rate. So simply handing your spouse dividend cheques rarely works anymore unless they're genuinely part of the team.
4 · Retirement
Individual Pension Plans (IPP) — Beyond the RRSP Limit
An IPP is a one-person defined benefit pension sponsored by your corporation — one of the strongest deferral tools for dentists roughly 40–65.
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Bigger contribution room
Can meaningfully exceed the RRSP limit (~$33,810 for 2025), with the gap widening with age. Past-service contributions can catch up under-funded years — a large, one-time deductible contribution.
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Fully deductible to the corporation
Contributions, investment management, and admin fees are all corporate deductions — unlike RRSP fees, which generally aren't deductible personally.
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Creditor protection
IPP assets are protected under provincial pension legislation — relevant given malpractice/litigation exposure for professionals.
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The trade-off
If investments underperform, the corporation may need to "top up" the plan with extra deductible contributions — less flexible than an RRSP, but can force disciplined saving.
Best fit: established practices, age ~40–65, with T4 salary income (your salary/dividend mix needs to support IPP funding).
In plain English
Think of an IPP as an "RRSP on steroids" that your corporation sets up just for you. A regular RRSP caps out around $33,800/year (2025). An IPP can let your corporation put away significantly more each year — and even make a big lump-sum "catch-up" deposit for past years you under-saved. The corporation gets a tax deduction for every dollar it contributes, just like an RRSP contribution reduces your personal taxable income.
5 · Structure
Holding Companies & the $50,000 Passive Income Grind
Why add a Holdco?
- Creditor protection — investments live outside the operating practice, separated from clinical liability risk.
- Cleaner passive-income management — separates investment assets from active business assets.
- Easier eventual sale — keeps the operating company (Opco) "clean" for a future share sale.
- Dividends generally flow tax-free between connected corporations (Opco → Holdco).
The $50,000 grind: If a CCPC and its associated corporations earn over $50,000 of passive investment income in a year, the $500,000 small-business limit is reduced $5 for every $1 over the threshold — fully gone at $150,000 of passive income. The excess active income then gets taxed at the higher general corporate rate.
Tools to manage this: corporate-owned life insurance (doesn't generate the same annual taxable passive income), an IPP (sits outside the corporation), or simply keeping investment balances modest relative to the threshold.
In plain English
A "Holdco" is just a second corporation that sits above your dental corporation and holds your savings/investments, instead of leaving them inside the practice itself. Why bother? Two reasons: (1) if a patient ever sues the practice, money sitting in the Holdco is harder for them to reach; and (2) if your dental corporation's investment income (interest, dividends, capital gains — "passive income") goes over $50,000/year, the CRA starts taxing your active dental income at a higher rate too. Separating the savings helps manage that.
5 · Structure
Hygiene / Technical Service Corporations (HSC/TSC)
For larger or growing practices, a second operating corporation that bills for hygiene and technical/lab services can effectively double access to the low small-business tax rate.
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How it works
The HSC/TSC bills the practice (or patients) for hygiene services and technical work (e.g., CEREC/E4D milling, ortho lab work). If structured so the HSC/TSC is not "associated" with the PC for tax purposes, each corporation gets its own $500,000 small-business limit taxed at ~13.5%.
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Wider shareholder pool
Unlike a Dentistry PC (restricted to the dentist and immediate family), an HSC/TSC has no professional-college shareholder restrictions — siblings, parents-in-law, aunts/uncles, or even other corporations can hold shares, opening up more income-splitting options.
Association risk: if the same dentist (or the same small group, e.g., a dentist and spouse) controls both the PC and the HSC/TSC, the CRA may treat them as "associated" — forcing the two corporations to share a single $500,000 limit, eliminating the benefit. Careful, well-documented separation of ownership and operations is essential, and this structure only tends to make sense once combined practice income is comfortably above $500,000.
In plain English
Normally, only the first $500,000 of your dental corporation's profit gets the good ~13.5% tax rate — anything above that is taxed at roughly double. An HSC/TSC is a second company that handles a slice of the business (hygiene, lab work) and bills separately. If it's genuinely owned/controlled differently from your dental PC, it gets its own $500,000 low-rate bucket. Think of it as opening a second corporate "piggy bank" — but the ownership has to be real and separate, not just paperwork, or the CRA collapses the two buckets back into one.
6 · Insurance
Whole Life Insurance & the Capital Dividend Account
Often pitched as a "tax-free wealth" strategy. It's real — but it's a long-term estate-planning tool, not an annual tax-return trick.
🏢1. Corp owns the policy
Holdco/Opco owns a permanent (whole/universal life) policy on the dentist. Premiums paid with corporate dollars taxed at the low rate.
📦2. Tax-deferred growth
Cash value grows tax-deferred inside the policy — can help manage the $50,000 passive-income grind.
💀3. Tax-free death benefit
On death, the corporation receives the benefit tax-free. The amount above the policy's adjusted cost basis (ACB) credits the Capital Dividend Account (CDA).
🎁4. Tax-free payout
CDA balance can be paid to shareholders as a tax-free capital dividend — file CRA Form T2054 on or before the payment date.
Reality check: permanent insurance is expensive and illiquid early on. It only makes sense if you have a genuine insurance need and excess corporate cash you won't need for years — compare against simply investing, funding an IPP, or paying down debt.
In plain English
Normally, when your corporation pays out leftover money to you (or your family/estate), that payout gets taxed again. The Capital Dividend Account (CDA) is like a special "tax-free coupon" account inside your corporation. A life insurance payout on your death adds a big coupon to this account, which can then be paid out to your family completely tax-free. It's mainly an estate-planning tool — the big payoff happens after you pass away, not during your working years.
7 · Expenses
Business Expenses, Vehicles & Capital Cost Allowance
Vehicle limits to know — 2026
| Item | 2026 Limit |
|---|
| CCA ceiling — Class 10.1 passenger vehicle | $39,000 before tax (up from $38,000) |
| CCA ceiling — Class 54 zero-emission vehicle | $61,000 before tax (unchanged) |
| Deductible lease cost | $1,100/month before tax (new leases) |
| Deductible loan interest | $350/month (new vehicle loans) |
| Tax-exempt per-km allowance | 73¢/km first 5,000 km, 67¢/km after (provinces) |
What's commonly deductible
CE/conferences, professional dues & licensing, malpractice insurance, lab fees & supplies, equipment (via CCA), staff wages & benefits, rent, accounting/legal fees, software, marketing.
Vehicle: corporate vs. personal
Corporate-owned vehicle with personal use creates a taxable benefit unless reimbursed/logged. Often simpler: own the vehicle personally, have the corp pay a tax-free per-km allowance at CRA rates.
Audit risk: vehicle and mixed-use expenses (home office, travel, meals) are among the most commonly reassessed items. Keep a mileage log and retain receipts.
In plain English
"CCA" (Capital Cost Allowance) is just the tax term for depreciation — instead of deducting the full cost of a $40,000 dental chair the year you buy it, you deduct a portion of it each year as it "wears out." For your car: if you buy the car personally and drive it for practice errands (bank runs, supply pickups, CE courses), your corporation can pay you a tax-free per-kilometre amount (e.g., 73¢/km) instead of you owning a "company car" — simpler and avoids extra paperwork for personal-use tracking.
8 · Benefits
Health Spending Accounts (PHSP) — Convert Personal Cost to Pre-Tax
100% / 100%
Contributions are 100% deductible to the corporation, and reimbursements are 100% tax-free to you, your spouse, and dependents.
What it covers
Most expenses eligible under the federal Medical Expense Tax Credit list: dental work and orthodontics, vision care, physiotherapy, psychology, fertility treatment, and more — for you and your family.
Why it beats paying personally
Personal medical expenses only qualify for a credit above ~3% of net income. A PHSP converts the full amount into a pre-tax corporate expense — an effective saving often cited at 25–40% depending on marginal rate.
Use a third-party PHSP administrator with proper plan documents and claims adjudication — informal/DIY arrangements risk being reclassified as a taxable benefit.
In plain English
Say your kid needs $3,000 of orthodontic work or you need new glasses. Paying that out of your personal bank account gives you little to no tax break. Instead, your corporation pays a PHSP provider $3,000, the provider reimburses you $3,000 tax-free, and your corporation deducts the full $3,000 as a business expense. Same money in your pocket, but the corporation — not you — absorbs the cost at its lower tax rate.
9 · Exit Planning
Selling the Practice — Lifetime Capital Gains Exemption
$1,275,000
LCGE for 2026 per individual on Qualified Small Business Corporation (QSBC) shares — potentially $2.5M+ for a couple who each hold qualifying shares.
Qualification tests
- Company is a CCPC.
- ≥90% of asset fair market value used in active Canadian business at the time of sale.
- >50% of asset value used in active business throughout the prior 24 months.
- Shares held ≥24 months, without disqualifying ownership during that period.
The trap: a practice that has built up a large investment portfolio inside Opco can fail the 90%/50% "active asset" tests. Many dentists move investments into a Holdco years ahead of a planned sale to "purify" Opco. Last-minute purification can create its own tax problems — plan early.
Family trusts have historically been used to multiply LCGE access among family members holding shares — but post-TOSI, the dividend income to those beneficiaries before a sale needs careful review.
In plain English
When you eventually sell your practice, normally you'd pay tax on the profit (the "capital gain"). The LCGE is like a one-time voucher that lets you receive up to $1,275,000 of that profit completely tax-free. The catch: your corporation needs to look like an "active dental business" at the time of sale — not a corporation that's mostly become an investment account. If you've been stockpiling savings inside the dental corporation itself, that can disqualify you, which is why a Holdco (Slide 7) is often set up well in advance.
9 · Exit Planning
Selling the Practice — Assets vs. Shares, and the AMT Catch
Asset sale (buyers usually prefer)
- Buyer gets a fresh, depreciable "cost base" on equipment, leaseholds, and goodwill — bigger future deductions for them.
- Recapture (past depreciation claimed in excess of actual decline in value) is 100% taxable to your corporation; only the remaining gain on goodwill/equipment is 50% taxable.
- No CGE available — the PC pays corporate tax first, then you pay personal tax again when the proceeds are distributed as dividends (some recovered via the refundable tax/CDA mechanism on the 50% portion).
- HST may apply to certain assets (e.g., leaseholds) in an asset deal.
Share sale (sellers usually prefer)
- Proceeds go straight to shareholders personally as a capital gain — only one level of tax.
- LCGE can shelter up to $1,275,000 per qualifying shareholder (multipliable across family equity-holders).
- No HST implications on the sale of shares.
- Buyer inherits the PC's liabilities — often priced into the deal or addressed with reps/warranties and indemnities.
Alternative Minimum Tax (AMT): the LCGE doesn't fully escape tax. AMT runs a parallel calculation that limits how much benefit you get from the CGE (and other preferences) in the year of sale. Any extra AMT paid is recoverable over the following 7 years against regular tax — but you need enough future taxable income (e.g., associate work, investment income, RRIF withdrawals) to recover it. AMT does not apply if the share disposition is triggered by death.
🧹Purification
If your PC has accumulated too much "passive" cash/investments to pass the LCGE's 90%/50% active-asset tests, those assets can be moved to a Holdco on a tax-deferred basis — "purifying" the PC so its shares qualify. Best done years before a sale, not last-minute.
🔒Crystallization
A "notional sale" that locks in your LCGE today by exchanging your common shares for new shares at today's fair market value — securing the exemption even if you don't plan to sell for years, protecting against future rule changes or an unexpected death.
In plain English
Buyers usually want to buy your practice's assets (equipment, charts, goodwill) because it gives them better future tax write-offs — but that path can mean two rounds of tax for you and no LCGE. Sellers usually want to sell shares of the corporation itself — one round of tax, plus the LCGE "voucher." Expect this to be a negotiation point, sometimes reflected in price. Two extra wrinkles: AMT means the LCGE doesn't make the whole gain disappear in the sale year (though most of the extra tax comes back over the next 7 years), and if your corporation has built up too much cash/investments, you may need "purification" well in advance to even qualify for the LCGE on a share sale.
10 · Compliance
GST/HST — The 2025 Rule Change Most Practices Missed
How dental services are taxed
Most dental services are GST/HST-exempt (no tax charged to patients). Orthodontic appliances and purely cosmetic procedures are typically zero-rated or taxable.
Input Tax Credits (ITCs)
Full ITCs generally remain available on capital equipment used >50% in taxable/zero-rated activities. General expenses are claimed pro-rata based on actual use.
As of January 1, 2025, CRA revoked the long-standing administrative arrangement that let dentists claim a flat 35% of GST/HST paid as ITCs. Practices must now apply the standard ITC rules under the Excise Tax Act — based on actual use of inputs in taxable vs. exempt activities, with better record-keeping required.
Practical impact: most practices relying on the old 35% shortcut will see ITC claims fall unless they can document a higher taxable-use percentage. Have your accountant review the 2025+ filing methodology.
In plain English
GST/HST is the sales tax you see on most purchases. Dental treatment itself is "exempt" — you don't charge patients GST/HST on a filling or cleaning. But your practice still pays GST/HST on things it buys (equipment, supplies). Normally a business gets that tax back as an "Input Tax Credit (ITC)." Because most of what dentists do is exempt, dentists can only get back a small slice of the GST/HST they pay — and as of 2025, that slice must be calculated based on actual use, not the old flat 35% shortcut.
11 · Family Planning
Prescribed Rate Loans & Family Trusts
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How it works
Lend funds to a lower-income spouse, adult child, or family trust at the CRA prescribed rate (3% for Q2 2026) to invest. Investment returns are taxed in the borrower's hands, not attributed back — provided interest is paid by Jan 30 each year under a written agreement.
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Rate lock-in
The rate can be locked for the life of the loan at the time it's made — loans set up when rates are low stay advantageous even if the prescribed rate rises later.
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Family trusts
Can receive dividends and allocate income among multiple beneficiaries (subject to TOSI for corporate dividends), or hold assets bought with loan proceeds for flexible future distribution.
In plain English
Say you're in the top tax bracket and your spouse earns very little. You "lend" your spouse $200,000 at the government's official low rate (3%), they invest it, and any growth above that 3% is taxed at their low rate instead of yours — as long as they pay you the 3% interest each year, on paper, like a real loan. It's a legitimate way to shift future investment growth to a lower-income family member without running into the dividend-sprinkling (TOSI) problem from Slide 5.
12 · Also Worth Knowing
Other Techniques — Don't Stop at the Big Ones
🏦RRSP / Spousal RRSP / TFSA / FHSA
Standard tax-deferred and tax-free saving; spousal RRSPs equalize retirement income; FHSAs help associates/new grads save for a first home.
🎓Student loan interest credit
Interest on qualifying government student loans earns a non-refundable credit — frequently missed by new dentists.
🏥Practice acquisition loan interest
Interest on money borrowed to buy a practice or buy into a partnership/corporation is generally deductible against the related income.
🎁Donate appreciated securities
Donating securities (vs. cash) eliminates capital gains tax on the donated amount and still generates a donation credit. For a corporation, the full gain (not just 50%) can credit the CDA.
🧑⚕️Associates & contractors
Associates paid as contractors can deduct CE, dues, malpractice insurance, and proportional vehicle/home-office costs — confirm contractor vs. employee status for CPP/EI treatment.
🏬Multi-practice / DSO structures
Management-fee structures across multiple clinics enable income splitting and overhead consolidation — but associated-corporation rules mean the $500,000 small business limit is shared across related entities.
Legacy Planning
Estate Planning: Wills, Probate & the CDA on Death
A dental corporation adds a layer of complexity to your estate — getting the basics right can save your family tens of thousands in probate fees and unlock a valuable tax-free payout.
📄Double wills
A "primary" will covers assets that must go through probate (real estate, bank accounts) and a "secondary" will covers assets that don't (private company shares, personal effects). Shares of your dental PC routed through the secondary will avoid probate entirely.
⚖️Probate fees
In Ontario, probate (estate administration tax) runs roughly 1.5% of estate value above $50,000. On a corporation worth $1–2M, that's $15,000–$30,000 — largely avoidable with proper will structuring.
💰CDA on death
Life insurance held inside the corporation pays out to the Capital Dividend Account on death, allowing the proceeds to flow to heirs as a tax-free capital dividend — a major reason dentists fund insurance through the PC (Slide 8).
RRSP/RRIF rollover: naming your spouse as beneficiary of your RRSP/RRIF lets the full balance roll over to them tax-deferred, avoiding a large terminal-year tax hit. Without a spousal rollover, the entire RRSP/RRIF value is taxed as income in the year of death.
In plain English
Probate is a court fee charged on assets that pass through your "regular" will — think of it as a toll on your estate. A "double will" structure puts your corporation's shares in a separate will that skips that toll, saving real money. Meanwhile, if your corporation owns life insurance on you, the payout on your death lands in a special account (the CDA) that lets your corporation pay that money to your heirs completely tax-free — making corporate-owned insurance a quiet but powerful estate-planning tool, not just a "buy insurance" decision.
Retirement
Retirement Income: OAS, CPP, RRIF & Pension Splitting
After decades of deferring tax into RRSPs and corporations, retirement is about drawing that money out as efficiently as possible — and avoiding clawbacks along the way.
📉OAS clawback
Old Age Security starts getting "clawed back" once net income passes roughly $75,910 (2018 threshold, indexed annually), at 15 cents per dollar above that — fully eliminated around $123,000. Large RRIF withdrawals or corporate dividends in retirement can trigger this.
🏛️CPP
Canada Pension Plan benefits depend on contributions made during your working (often self-employed) years — as a corporation owner paying yourself dividends instead of salary, you may accrue little or no CPP, which is a deliberate trade-off to factor into retirement planning.
🔄RRIF conversion
RRSPs must convert to a RRIF (or be cashed out / annuitized) by the end of the year you turn 71, with mandatory minimum annual withdrawals starting the following year — these withdrawals are fully taxable income.
🤝Pension income splitting
Up to 50% of eligible pension income (including RRIF withdrawals after 65, and IPP/RCA pensions at any age) can be allocated to a lower-income spouse on your tax return — no formal transfer required, just a joint election when filing.
Age amount credit: a non-refundable credit available once you turn 65, but it's reduced once net income exceeds a threshold (~$38,000) and fully eliminated at higher incomes — another reason to manage retirement income levels carefully, especially in the years RRIF minimums and corporate withdrawals overlap.
In plain English
Think of retirement income planning as turning down several taps at once — OAS, CPP, RRIF withdrawals, corporate dividends — without flooding any single year with too much income. Pull too much in one year and you can trigger the OAS clawback (lose 15 cents of OAS per dollar over ~$76K) or lose the age credit. Pension splitting lets a couple pour income into whichever spouse's "bucket" has more room, often saving thousands per year. The IPP/RCA structures from Slide 4 become especially useful here because their payouts qualify for splitting at any age, not just after 65.
Action Plan
Year-Round Planning Checklist
1. Compensation
Revisit salary/dividend mix annually — don't set and forget.
2. Family payroll/dividends
Confirm reasonableness & the TOSI "excluded business" test are documented for every family member paid.
3. IPP review
If 40+, get an IPP feasibility analysis vs. RRSP.
4. Passive income tracking
Watch the $50,000 threshold; consider Holdco/insurance if approaching it.
5. PHSP set up
Establish a Health Spending Account if you don't have one.
6. Vehicle log
Keep a contemporaneous mileage log; reassess corporate vs. personal vehicle ownership.
7. GST/HST methodology
Confirm your ITC approach reflects the 2025+ standard rules if you do any taxable/zero-rated work.
8. LCGE / exit prep
If selling within 5–10 years, start "purifying" the corporation now.
9. Charitable giving
Donate appreciated securities instead of cash where possible.
10. Prescribed rate loans
Re-evaluate given the current rate (3% as of Q2 2026) and family marginal rates.
References
Sources
For educational purposes only — not personalized tax, legal, or financial advice. Consult a CPA and tax lawyer experienced with dental professional corporations before implementing any strategy.
