Tax Tips for Doctors in Canada: 2025 Guide to Smarter Tax Planning
If you’re a medical professional running your own practice in Canada, smart tax planning can help you reduce your tax bill and keep more of what you earn. Whether you’re incorporated or still a sole proprietor, this 2025 guide will walk you through the most effective corporate tax minimization strategies available for doctors. From income splitting to Registered Retirement Savings Plans (RRSPs), this article covers what works, what to avoid, and how to keep Canada Revenue Agency (CRA) happy.
1. Income Splitting: Proceed with Caution
Doctors incorporated under a professional corporation have limited options for income splitting due to Tax on Split Income (TOSI) rules. In many provinces, the shares of a professional medical corporation must be owned only by licensed medical professionals. This means your spouse or children generally cannot be shareholders unless they are also practicing doctors. Always check with a corporate lawyer to confirm the rules in your province.
Workaround: you can pay a reasonable salary to your spouse or children if they actually work in the practice-helping with administration, bookkeeping, marketing, etc. The salary must reflect real work at a fair market rate. This is where working with a tax professional is important to ensure you’re compliant with TOSI.
What about a management company? You can set up a separate management company owned by a spouse or other individual. That company can invoice your professional corporation for services like admin or tech support. If structured properly, this can shift income to a lower tax bracket, as long as the services are real and fairly priced. A tax professional can help you assess if this is right for you.
2. Small Business Deduction: Pay Only 12% Corporate Tax
Medical corporations can benefit from the small business deduction, which lowers your corporate tax rate to around 12% on the first $500,000 of active business income. But there’s a catch.
If you only work for one clinic or bill just one payer, the Canada Revenue Agency might consider your business a “Personal Services Business”-meaning you’re basically seen as an employee working through a corporation. If this happens, you lose the small business deduction and end up paying much higher taxes.
What to do: Work for multiple clinics or offer services to several clients to show you’re really running a business. A tax professional can help you build the right structure and avoid this pitfall.
3. Use a Management Company to Increase Tax Savings
If your spouse owns a management company and provides services to your professional corporation and the two companies are not considered “associated” you might be able to claim the small business deduction twice.
This could double your tax savings, letting you earn up to $1 million of income taxed at just 12% instead of a higher corporate rate.
But be careful: If CRA determines the two companies are associated (through ownership or control), the limit must be shared. This is a great strategy for profitable practices but only if you work with a tax expert who understands how to keep the structures separate and compliant.
4. RRSP Contributions for Owner-Employees
You can contribute to a Registered Retirement Savings Plan (RRSP) through your professional corporation if you’re paid a salary. This helps reduce your personal taxes and lets your investments grow tax-free until retirement.
The same can apply for your staff offering RRSP contributions can be a smart way to attract and retain good employees. A tax advisor can guide you on the ideal mix of salary and dividends to get the best of both worlds.
5. Invest in Private Equity for Tax-Deferred Income
Your corporation can invest in stocks, bonds, and private equity. If your corporation earns more than $50,000 in passive income, it could reduce your small business deduction.
One powerful option is private equity or partnerships that return your capital first. This means the money you initially invested is paid back tax-free until the full amount is returned. You could enjoy income for years with no immediate taxes unlike interest or dividends, which can be taxed at about 50%.
It’s a complex area. A tax professional can help you structure these investments so you don’t lose key tax benefits.
6. Use Dividends to Trigger the Refundable Dividend Tax on Hand
When your corporation earns investment income, it also pays extra tax, which goes into a special refundable account called the Refundable Dividend Tax on Hand (RDTOH).
To get that tax back, you must pay dividends to shareholders. If you don’t, the refund stays locked up. A tax planner can help you decide how much to pay and when, so you don’t leave money on the table.
7. Apply Business Losses to Reduce Taxes
If your corporation has had losses in previous years, those losses can be used to reduce taxable income in more profitable years, saving you taxes either now or in the future.
A tax professional will make sure no opportunity is missed and the carryforward or carryback is applied in the best way possible.
8. Health Spending Account for Medical Expenses
A Health Spending Account (HSA) is a tax-effective way for your corporation to provide health benefits to you and your employees. With an HSA, your corporation contributes funds to a dedicated account, and those contributions are fully deductible as a business expense.
When you or your staff submit eligible medical expenses, the HSA reimburses them using the funds already set aside. The reimbursements are non-taxable to the employee, making this one of the most cost-effective health benefit options for small medical practices.
Examples include dental, vision, prescriptions, massage, and more. It works like a pay-as-you-go health plan without monthly premiums.
For smaller practices, this is one of the most efficient ways to provide health benefits. A tax advisor can help set it up and keep it compliant.
9. Life Insurance for Estate and Tax Planning
While life insurance premiums are not deductible, they are still a great tax strategy:
- Premiums are paid from after-tax corporate income taxed at 12%
- The death benefit is tax-free to your estate
- Proceeds can help pay future taxes when shares of the corporation are passed on
Whole life or universal life policies also build up cash value that you can access later. This is a long-term strategy that a tax advisor or financial planner should help implement.
10. Reinvest in the Business and Deduct More
Putting money back into your clinic not only improves operations it also reduces your taxes.
- You can deduct technology, furniture, and upgrades
- Accelerated Capital Cost Allowance rules let you write off many purchases faster
Documented policies on capital purchases and tax planning can help you stay consistent. A tax professional can help build this into your overall strategy.
11. Home Office Deductions: Small but Worth It
If you do some work from home like admin or virtual appointments you can deduct a portion of:
- Internet and utilities
- Property tax or rent
- Mortgage interest (if you own your home)
The amounts are usually modest but still worth claiming. A tax professional can help calculate the right portion.
12. Vehicle Expenses: Track Every KM
If you use your personal car for business purposes, you can deduct a share of:
- Fuel, maintenance, and insurance
- Lease payments or depreciation
- Parking and tolls
But you must keep a mileage log that shows business versus personal use. No log = no deduction in the eyes of CRA. We always recommend setting a simple system to track this and getting advice on how much to claim.
13. Go Electric and Write It Off Faster
Buying an electric vehicle (EV) through your corporation can save you tax. The government allows accelerated write-offs under Capital Cost Allowance rules.
- You can write off up to $61,000
- Charging equipment is also deductible
This is a win-win: tax savings and a greener footprint. Talk to a tax advisor to confirm eligibility and maximize deductions.
Final Thoughts: Your Accounting Should Feed Your Tax Plan
Running a professional medical corporation in Canada offers many ways to reduce your tax burden if done right. But it’s easy to miss out or even make costly mistakes if you go it alone.
At Dexado Accounting and Tax, we do more than just file your returns. We work proactively, helping you set up structures, policies, and planning strategies that save you tax year after year.
Good accounting feeds great tax planning. Great tax planning increases your wealth and secures your future with lower risk of issues with the Canada Revenue Agency.
Book a consultation today at dexado.ca or email us at info@dexado.ca. Let’s plan smarter for 2025 and beyond.
