Tax Planning of Compensation for Incorporated Health Professionals in Canada
You worked hard to build your medical practice. If you’re incorporated, how you pay yourself can add up to large savings over time and reduce stress at tax season. The goal isn’t choosing salary or dividends once and for all. It’s picking a simple blend that suits your income, province, and cash needs and keeps you in line with your college and CRA rules.
At Dexado, we design owner‑pay plans that are easy to run and audit‑ready. Our Ex‑CRA perspective means we build the file the way a reviewer wants to see it, clear, consistent, and well‑documented.
The simple starting point: salary vs. dividends (plain language)
Salary
- Creates RRSP room (18% of earned income up to the annual limit).
- Builds CPP benefits.
- Looks good to lenders and smooths cash flow with withholdings at source.
- In many common cases (e.g., Ontario, $100,000 owner income), salary can leave more after‑tax cash than taking only dividends and it builds retirement room for later.
Dividends
- Flexible timing and no CPP deductions.
- Simpler admin (no payroll), useful once income is high and retirement room is already built.
- But dividends do not create RRSP room, and family dividends are limited by TOSI (split‑income rules).
For most doctors: Start with a straightforward salary that covers your living needs and creates RRSP room. Add a small dividend late in the year if it helps smooth your tax bracket or release extra clinic cash.
What’s different for medical professionals
Professional corporations are more regulated than other businesses. In many provinces, only licensed professionals can hold voting shares, and income‑splitting options are limited. That means fancy structures used in tech or SaaS don’t always fit. Your best results usually come from getting the basics right: the salary‑dividend mix, retirement saving inside the practice, and a few efficient benefits.
Your pay plan by income level
$75k–$150k of personal income
Keep it clean and simple.
- Salary‑led pay to create RRSP room and CPP credits.
- Add a Health Spending Account (HSA/PHSP) so the practice deducts eligible health and dental costs and you receive them tax‑free.
- Consider a small year‑end dividend only if it helps your bracket.
$150k–$300k
Balance growth and savings.
- Balanced mix: salary high enough to meet cash needs and build retirement room; dividends for top‑up.
- If you’re 40+ with steady T4 income (~$100k+), look at an Individual Pension Plan (IPP) — a corporate‑funded pension with room that increases with age and is creditor‑protected.
$300k+
Keep admin light, stay efficient.
- A dividend‑heavier mix can make sense once you’ve built enough registered savings (no CPP on dividends, fewer payroll chores).
- Still top up salary as needed to maintain lender‑friendly T4 income or to support an IPP if you’re using one.
Retirement tools that work well for doctors
Individual Pension Plan (IPP) — a bigger, safer “RRSP‑style” bucket
- Paid by the corporation, deductible to the practice.
- More room as you age; attractive for 40+ physicians with stable T4 income around $100k+.
- Creditor‑protected under pension rules; can recognize past service and allow terminal funding near retirement.
- Requires salary and actuarial oversight, Dexado coordinates the setup and annual filings.
Group RRSP for staff (and you)
- Company contributions show up as a taxable benefit, but you claim the RRSP deduction, so the net tax is neutral while improving cash flow via lower withholdings.
- Great for retention in busy clinics; easy to automate through payroll.
Health Spending Account (HSA/PHSP)
- The practice deducts eligible medical expenses; you receive benefits tax‑free when the plan is set up properly as a PHSP.
- Covers dentistry, vision, paramedical and more — an efficient alternative to raising salary.
(Advanced options like RCAs or complex stock plans are usually not needed for medical practices and add cost and complexity. We keep it practical.)
Helpful clinic‑level planning
Holdco to protect working capital
If your clinic builds cash you don’t need right away, consider moving surplus to a holding company. Benefits include creditor protection, flexibility on dividend timing, and cleaner planning if you expand or buy into a clinic building. Keep an eye on passive‑income rules so you don’t erode the small business rate.
Car ownership: keep it personal
A company car can create punishing taxable benefits (standby and operating). Most doctors are better off owning the car personally and billing reasonable mileage. Keep a simple log, it’s usually the lower‑tax, lower‑hassle answer.
Shareholder loans: tidy or tax
If you draw funds as an informal “loan,” CRA requires prescribed interest, documentation, and on‑time repayment. If not, amounts can be included in your income. Clearing balances with planned salary or dividends avoids surprises.
Paying family members: keep it real, keep it reasonable
Dividends to non‑physician family members are often restricted by professional rules and TOSI. You can still pay a spouse or adult child a salary if they actually work in the practice and the pay is reasonable for the role (e.g., admin, bookkeeping). Keep hours and duties on file. This approach is simple, defensible, and compliant.
What a Dexado plan looks like (and how it helps you)
- We model your numbers — salary vs. dividends by province, adding the impact of RRSP/IPP, CPP, HSA, and your monthly cash needs. You see the outcome before you decide.
- We right‑size salary — enough to meet life costs and build retirement room, not more. Dividends fill the gap neatly at year‑end.
- We add the easy wins — HSA/PHSP and, when it fits, an IPP or group RRSP. You get structure without complexity.
- We keep you audit‑ready — clear minutes, payroll records, and support for any family salaries — designed with our Ex‑CRA lens.
Result: You pay yourself confidently, save more for retirement, and spend less time worrying about tax.
Myth vs. Reality
- Myth: “Dividends are always cheaper.”
Reality: Once you value RRSP room, CPP accrual, and lender needs, a salary‑first or balanced plan usually wins at common income levels for doctors. We test it with your numbers, not assumptions. - Myth: “Company car is a perk.”
Reality: The taxable benefit often costs more than it’s worth. Personal car + mileage is usually better. - Myth: “I can just take money as a loan.”
Reality: Poorly handled shareholder loans can be taxable. Use proper salary/dividends or document the loan by CRA rules.
A quick example you can feel
Dr. Lee takes $180,000 a year from her corporation.
- We set salary at $120,000 to create RRSP room and keep lenders happy, and schedule $60,000 in dividends near year‑end to top up.
- The clinic adds a $6,000 HSA (family), and Dr. Lee starts an IPP (age 45) for larger, protected retirement savings.
- We keep a mileage log instead of a company car and clean up an old shareholder‑loan balance with planned T4 and T5 amounts.
Outcome: less tax leakage, steady retirement growth, and fewer surprises at year‑end with documents ready if CRA asks.
Ready to simplify your pay?
Dexado builds plain‑English compensation plans for health professionals practical, compliant, and designed for peace of mind.
👉 Book a consultation with Dexado today and let’s design your owner‑pay plan for the next 12 months.
References
- Comprehensive Tax Planning Analysis for Management and Shareholder Compensation in Canada salary vs. dividend, HSA/PHSP rules, vehicle benefits, group RRSP mechanics, holdco planning, and medical‑specific notes.
- Additional Compensation Strategies for Canadian Business Owners IPP advantages (age‑based room, creditor protection, past service).
Disclaimer
This article is educational and not tax or legal advice. Medical college rules and provincial tax rates vary. Please contact Dexado Accounting & Tax for advice tailored to your practice.
