Should You Have a Holdco? What Medical Professionals Need to Know
Introduction
As a medical professional, you juggle patient care, practice management and long‐term financial planning. Incorporation often becomes part of that conversation because a Medical Professional Corporation (MPC) can help defer taxes and protect assets. But what about a holding company (Holdco)? Should you add another layer to your corporate structure?
At Dexado Accounting & Tax, we specialize in proactive tax planning for physicians and other professionals. Our team is led by Boris Davidkov, a former Canada Revenue Agency auditor who understands both the tax code and the CRA’s enforcement mentality. In this article, we’ll explore whether a Holdco makes sense for your practice by examining provincial ownership rules, potential benefits and pitfalls, and the steps involved in creating one. Our goal is to arm you with practical insights – in plain language – that empower you to make sound decisions while staying compliant.
1. Holdco Ownership Rules by Province
| Province/Territory | Can Holdco Own Voting Shares? | Can Holdco Own Non‑Voting Shares? | Notes |
| Ontario | ❌ No | ❌ No | The College of Physicians and Surgeons of Ontario requires that voting shares be held directly by the physician; non‑voting shares may be issued only to family members, not a corporate entity. |
| Alberta | ❌ No | ❌ No | Alberta law requires voting shares to be owned by the professional, and non‑voting shares may be held only by spouses, children or certain trusts. Holdcos are not permitted |
| British Columbia | ✅ Yes (if physician‑owned) | ✅ Yes | BC allows a holding company to own voting or non‑voting shares of an MPC if all shareholders are licensed physicians and the Holdco meets eligibility standards. |
| Manitoba | ❌ No | ✅ Yes (with conditions) | Voting shares must be owned by licensed physicians or another medical corporatio. Non‑voting shares may be held by the physician’s spouse, child or a corporation wholly owned by them. |
| Saskatchewan | ❌ No | ✅ Yes (restricted) | Only physicians can own voting shares. Non‑voting shares may be owned by a restricted Holdco or family members, subject to professional rules |
| Nova Scotia | ❌ No | ✅ Yes | A majority of voting shares must be owned by physicians Shares owned by non‑physicians must be non‑voting【so a Holdco can only hold non‑voting shares. |
| New Brunswick | ✅ Yes (restricted) | ✅ Yes | New Brunswick allows a restricted Holdco to own voting shares; non‑voting shares are generally unrestricted |
| Prince Edward Island | ✅ Yes | ✅ Yes | A restricted Holdco may own voting shares, and non‑voting shares may be held by family members or a Holdco |
| Newfoundland & Labrador | ❌ No | ❌ No | Only physicians may hold voting shares, and non‑voting shares may be held by natural persons (not corporations) |
| Quebec | ✅ Yes (restricted) | ✅ Yes | Quebec allows a restricted Holdco to own voting shares. Non‑voting shares may be owned by family members or a Holdco, so long as physicians retain control. |
Why This Matters
If you practice in a province that prohibits corporate ownership (Ontario, Alberta, or Newfoundland and Labrador), forming a Holdco to own your MPC shares is not an option. In those jurisdictions, you would instead hold your shares directly and may explore alternative structures (such as an AdminCo for managing clinic assets). In other provinces, a Holdco can offer significant benefits, but you still must follow the specific share‑ownership rules – particularly around who controls voting shares. Non‑compliance can lead to sanctions or loss of your professional corporation status. Dexado ensures your corporate structure complies with provincial regulations from day one.
2. Understanding Holdco: What It Is and Why It’s Different
A holding company, or Holdco, is a separate legal entity created to own shares of another corporation – in this case, your MPC. Its primary role is to “hold” investments and retained earnings rather than carry on an active business. The Holdco receives dividends from your MPC, holds investments, and may own other assets like real estate or marketable securities.
At first glance, a Holdco may sound like an extra layer of complexity. But for physicians who generate surplus cash in their MPC, a Holdco can act as a tax shelter and risk management tool. When your MPC pays dividends to a Holdco instead of to you personally, the funds remain inside the corporate environment. This defers personal income tax and allows you to invest and compound wealth at lower corporate tax rates. In provinces that allow it, a Holdco can also hold or lease equipment and property to the MPC, keeping significant assets separate from practice risks.
In Ontario and some other provinces, the CPSO and provincial legislation require physicians themselves to hold MPC shares and restrict holding companies from owning those shares[483993771102831†L250-L258]. Nevertheless, physicians can still establish a separate management corporation (AdminCo) to own clinic assets (like equipment and leases) and provide administrative services to the MPC. Dexado can help structure such arrangements to optimize tax, protect assets and stay compliant.
3. Is a Holdco Right for You? Common Goals & Scenarios
Deciding whether to incorporate a Holdco depends on your financial goals, life stage and province. Below are typical scenarios where a Holdco adds value:
3.1 Building Long‑Term Wealth
Many established physicians have strong cash flow and are accumulating retained earnings inside their MPC. Leaving surplus funds inside the active corporation can be risky because operational liabilities (lawsuits, lease disputes, malpractice claims) could put those assets at risk. By upstreaming the surplus to a Holdco, you separate practice income from personal or investment assets. This isolation helps you grow wealth securely while continuing to practice.
3.2 Protecting Retained Earnings
A Holdco creates a “firewall” between your medical practice and your investments. If your MPC faces a lawsuit or creditor claim, the funds transferred to Holdco as dividends are generally beyond reach. This protection is especially valuable for physicians performing higher‑risk procedures or those operating clinics in litigious environments. Dexado works with you to structure transfers correctly and maintain documentation so that creditor protection stands up under scrutiny.
3.3 Preparing for Retirement or Exit
If you plan to retire or scale back practice in five to ten years, a Holdco offers a controlled way to transition. By moving retained earnings and investments into a Holdco, you can gradually wind down the MPC, eventually dissolving it or transferring it to another doctor. A Holdco allows you to continue receiving passive investment income and draw funds on your own schedule. Dexado uses cash‑flow modelling to determine when a Holdco adds the most value relative to winding up your practice corporation directly.
3.4 Income Splitting & Family Planning
In provinces that permit non‑voting shares to be held by spouses or adult children, a Holdco can facilitate income splitting. Dividends from the Holdco or MPC can be paid to family members in lower tax brackets, subject to the Tax on Split Income (TOSI) rules. However, physicians must be careful: TOSI can eliminate the tax benefits if family members aren’t actively involved in the business. Dexado assesses your family situation and designs share structures (including family trusts) that comply with TOSI while maximizing after‑tax income.
3.5 Optimizing Tax Timing
A Holdco allows you to time personal withdrawals. You can leave funds in the Holdco until a year when your personal income is lower, thus paying less tax on dividends. The ability to control the flow of dividends is particularly useful when your income fluctuates (e.g., when going on parental leave or temporarily reducing your practice). Dexado monitors your marginal tax brackets and suggests the best time to distribute dividends.
4. How a Holdco Creates Tax Advantages
The core tax benefit of a Holdco lies in intercorporate dividends. Under Section 112 of the Income Tax Act, a Canadian corporation can pay dividends to another Canadian corporation without triggering tax at the receiving corporation. Practically, your MPC can pay dividends to your Holdco, transferring funds tax‑free. You only pay personal tax when you eventually withdraw money from the Holdco.
4.1 Tax Deferral & Compounding
By delaying personal withdrawals, you defer paying personal tax at your marginal rate. Meanwhile, the funds in your Holdco grow at the corporate tax rate, which is often lower than the personal rate for high‑income physicians. This deferral is powerful when the Holdco invests in marketable securities or real estate, allowing compounding to work over many years.
4.2 Passive Income & the $50,000 Threshold
While Holdcos enjoy tax deferral, they also face rules on passive investment income. If your Holdco and its associated corporations earn more than $50,000 of passive income in a year, your MPC may lose access to the small business deduction (SBD), causing its corporate tax rate on active business income to jump from around 12–15 % to 25–30 %. Dexado tracks your passive income and uses techniques such as capital dividend account (CDA) planning, RDTOH (Refundable Dividend Tax on Hand) management and share freezes to keep your passive income below the threshold or to mitigate the impact when you exceed it.
4.3 Intercorporate Dividends vs. Salaries
Unlike salaries, dividends are not subject to payroll taxes such as CPP. However, they don’t create RRSP contribution room. Dexado models the mix of salary and dividends from both the MPC and Holdco to maximize retirement savings while minimizing current taxes. In many cases, you continue to draw a salary from the MPC to create RRSP contribution room while distributing surplus earnings as dividends to the Holdco.
5. Creditor Protection and Risk Management
Practicing medicine carries inherent risks. Beyond malpractice, physicians face lease liabilities, employee disputes and business debts. Even if you carry insurance, lawsuits can be stressful and expensive. Separating business assets from investment assets through a Holdco adds a protective layer. Should a claim arise against the MPC, the plaintiff generally cannot access assets held by the Holdco because the entities are separate legal persons.
Example: Dr. K runs a busy dermatology clinic and owns both the building and the medical corporation. By transferring retained earnings and the clinic property to a Holdco (where allowed by provincial rules), Dr. K shields those assets from any malpractice claims against her MPC. Dexado helped structure the lease between the Holdco and the MPC, ensuring fair market rent and proper documentation. When a minor patient complaint escalated into a lawsuit, the plaintiff’s claim was limited to the MPC’s assets; the Holdco’s real estate and investments were protected.
Risk management isn’t just about lawsuits. A Holdco also protects against business creditors if your practice encounters financial difficulties. Dexado advises on corporate separations and ensures compliance with fraudulent conveyance rules so that transfers to Holdco are legitimate and cannot be clawed back.
6. Investing Through a Holdco
A Holdco opens the door to investment opportunities that may be impractical inside your MPC.
6.1 Real Estate
Holding real estate in a separate company isolates property liabilities and allows you to lease space to your clinic. In provinces where a Holdco may own assets but not MPC shares (like Ontario), doctors often use an AdminCo to hold real estate and equipment and lease them to the practice at market rates. Rental income may qualify as active business income if structured properly, which can help preserve the SBD. Dexado assesses whether the income from leasing is considered active or passive and structures leases to maximize tax benefits.
6.2 Equipment & Leasing
Expensive diagnostic equipment or office fit‑outs can be purchased by a Holdco and leased to the MPC. This arrangement spreads the cost over time and adds another layer of protection if equipment is damaged or the practice faces a legal claim. Dexado ensures lease payments reflect fair value to avoid CRA scrutiny.
6.3 Portfolio Investments
Holdcos can invest in stocks, bonds, mutual funds and ETFs. While the tax rate on passive income can be higher, corporate taxation on capital gains and eligible dividends may still be advantageous. Dexado works closely with investment advisors to select tax‑efficient investments and manages the dividend refund and RDTOH accounts so that tax paid inside the Holdco can be refunded when dividends are paid to you personally.
6.4 Private Equity & Alternative Investments
Physicians with significant surplus funds sometimes invest in private businesses or limited partnerships. A Holdco may be an ideal vehicle for such ventures, isolating risks and facilitating joint investments with other investors. Dexado reviews offering documents, models the tax consequences and ensures you don’t inadvertently taint your MPC’s qualified small business corporation (QSBC) status.
TOSI Reminder: Income splitting through Holdco dividends is heavily constrained by TOSI rules. Family members who are not actively engaged in the business may face the highest marginal tax rate on dividends. Always consult with professionals like Dexado before paying dividends to spouses or adult children.
7. Succession Planning & Estate Considerations
A Holdco is a powerful estate planning tool. It allows you to separate practice assets from investments, facilitating an orderly wind‑up or sale of your MPC.
7.1 Planning an Exit
When you sell or wind down your practice, there are typically two types of assets: active business assets (the clinic) and investment assets (stocks, bonds, real estate). Active assets can be sold through your MPC, while investment assets remain in the Holdco. This separation simplifies the transaction and may reduce the purchase price for the buyer, making your practice more attractive.
7.2 Lifetime Capital Gains Exemption (LCGE)
Selling MPC shares may qualify for the Lifetime Capital Gains Exemption, which shelters up to approximately $1,000,000 of capital gains from tax (indexed annually). However, the LCGE is only available if you personally own the shares of a qualified small business corporation. If your Holdco owns your MPC shares, you cannot claim the LCGE on those shares. To address this, Dexado often recommends a hybrid share structure where you personally hold a portion of the voting shares to preserve LCGE eligibility while your Holdco holds non‑voting or preferred shares. This hybrid arrangement requires careful planning and periodic purification of passive assets to keep your MPC qualified.
7.3 Estate Freezes and Family Transfers
A Holdco enables you to implement estate freezes and pass future growth to your children in a tax‑efficient manner. In a typical freeze, you exchange your MPC common shares for fixed‑value preferred shares and allow a family trust or your Holdco to subscribe for new common shares. All future growth accrues to the new shareholders while your own value is locked in. When you eventually pass away, the tax on your preferred shares is manageable because their value was frozen. Dexado designs estate freezes and subsequent share redemptions to minimize probate fees, leveraging dual‑will strategies in provinces like Ontario.
8. When a Holdco Might Not Be the Right Choice
Despite the advantages, a Holdco isn’t for everyone. Situations where it may not make sense include:
- Province Prohibitions: If you practice in Ontario, Alberta or Newfoundland and Labrador, you cannot use a Holdco to own MPC shares. You may still benefit from an AdminCo for assets, but not for share ownership.
- Limited Surplus Funds: Physicians who withdraw most of their MPC earnings for personal living expenses won’t have enough retained earnings to justify the cost and complexity of maintaining a second corporation.
- Short Time Horizon: If you plan to retire soon or dissolve your practice, the set‑up costs and ongoing administration of a Holdco may outweigh the tax deferral benefits.
- Administrative Burden: A Holdco requires annual filings, bookkeeping, and potentially separate bank accounts and tax returns. If your practice is small and your surplus modest, the complexity may not pay off.
Dexado conducts an upfront analysis of your cash flow and retirement timeline. We tell clients honestly when the costs exceed the benefits and propose simpler alternatives where appropriate.
9. Steps to Set Up a Holdco
If your province allows a Holdco and your financial profile justifies it, here’s how we typically proceed:
- Review Your Current Structure: Dexado collaborates with your lawyer to examine your MPC’s share structure and identify any amendments required. We ensure you meet provincial rules on voting share ownership.
- Incorporate the Holdco: We register the Holdco federally or provincially. In some provinces, you’ll need to register a restricted Holdco and file additional documents with your college.
- Transfer Shares via Section 85 Rollover: To avoid immediate capital gains tax when transferring shares to the Holdco, we use a Section 85 rollover. This involves exchanging your existing MPC shares for shares in the Holdco at an agreed value. Dexado prepares the necessary election forms and works with your legal counsel to complete the process.
- Register CRA Accounts and Open Bank Accounts: The Holdco will need its own business number, corporate tax account and (in most cases) bank accounts. Dexado coordinates this setup and explains how to manage intercorporate dividends and loans.
- Implement Ongoing Corporate Maintenance: Both the Holdco and MPC require annual meetings, minute book updates and separate tax filings. Dexado provides accounting services and monitors compliance with both CRA and provincial college rules.
Each situation is unique. If your family trust is involved or if you’re purchasing real estate, additional steps and valuations may be needed. Dexado manages these complexities so you can focus on patient care.
10. Real‑Life Example: Dr. A’s Story
Dr. A is an orthopedic surgeon practicing in Ontario. By 2021, her MPC had accumulated significant retained earnings. She planned to continue practising for another decade but wanted to diversify into real estate and protect her savings. Even though Ontario prohibits Holdcos from owning MPC shares, Dexado structured a dual‑corporation setup:
- AdminCo: We created an administration company to purchase a commercial condo unit. The AdminCo leased this space to Dr. A’s MPC at fair market rent. Rental income qualified as active business income because the AdminCo provided substantial maintenance and management services.
- Investment Holding Company: Since Dr. A couldn’t use a Holdco for MPC shares, Dexado established a separate investment company to hold non‑clinic investments. We used dividends and salaries from the MPC to fund the investment company, ensuring compliance with Ontario’s ownership rules.
- Outcome: Over three years, Dr. A’s real estate investment appreciated while her MPC continued to grow. By segregating assets, she shielded the property from malpractice liabilities and enjoyed tax‑deferred compounding on her investments. She now plans to sell her practice in five years and will use her investment company for estate planning.
This case illustrates that even in restrictive provinces, strategic corporate planning can deliver many of the benefits of a Holdco. Dexado tailors solutions to provincial rules and personal objectives.
Conclusion
A Holdco can be a powerful tool for physicians seeking to build and protect wealth. It provides tax deferral, asset protection and estate planning benefits. Yet its suitability depends on your province, retained earnings, time horizon and personal goals. Importantly, creating a Holdco is not a do‑it‑yourself exercise – mistakes can lead to costly tax consequences or sanctions from your professional college.
Dexado Accounting & Tax is your partner in designing and managing the right corporate structure. With our ex‑CRA expertise and deep understanding of provincial rules, we help you navigate complex regulations, maximize tax savings and stay audit‑proof. If you’re generating surplus cash in your practice or thinking about retirement, let’s explore whether a Holdco or alternative structure is right for you.
Ready to take control of your financial future? Book a personalized consultation with Dexado today and let’s build a proactive strategy that keeps your hard‑earned wealth working for you.
