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You may know veterinarians who have professional corporations and the arrangements work very well for them. You likely know other veterinarians who don’t have professional corporations – and those arrangements work equally well for them.
Some clients choose dividends, some clients choose salary, and some have a combination of both. We spend a lot of time talking to our clients about the right salary / dividend mix to determine what the best solution is for our clients; again this is not a one-size-fits all decision, and there are many factors that are considered. Some clients prefer the structure of a professional corporation, and the payment of regularly scheduled salary and / or dividends to themselves personally, as this allows them to better plan and budget their personal spending and cash flow.
As a Veterinarian in Ontario, unlike a dentist or doctor, you cannot have additional non-veterinarian shareholders of your corporation. You can, however, create a holding company that allows you to own your shares indirectly. Therefore when you sell your practice, with a holding company in place, you can move non-business related assets out of your professional corporation and into the holding company. With the proper structure in place you can move surplus funds from your professional corporation to your holding company, over time or at the time of a sale of your practise, thereby still allowing you to utilize the capital gains exemption at the time of sale of your shares of the professional corporation that you own personally. After the sale you will still have your holding company intact with all your investments that you have accumulated over the years from the income you have earned in your professional corporation.
On the other hand, if you currently invest surplus income after paying personal tax, keeping these funds in a corporation could allow you to invest up to 38.5% more. Additionally, if you have significant practise debt, are looking at purchasing or setting up a new practise or are looking at selling your practise there can be significant tax and cash flow advantages.
There are also costs to consider. Establishing a professional corporation involves set up costs as well as ongoing legal and accounting costs. These include incorporation fees and annual accounting fees for financial statements and T2 corporate tax returns.
Your MNP advisor can help you work through the advantages, savings and costs of incorporating so that you can make the decision that is right for your circumstances.
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