For professionals and high-income business owners like doctors, lawyers, tradespeople, and entrepreneurs, incorporation can be a powerful tool to optimize tax strategies, protect personal assets, and plan for the future. But when does it make sense to incorporate?

According to Rick Morson of Morson Carson Wealth Counsel, the decision to incorporate depends on several factors that require careful consideration:

 

1. Income Level and Tax Deferral

“Incorporation makes the most sense when your income is consistently high,” Rick explains. He suggests that professionals with incomes in the $300,000+ range should seriously consider incorporation. “By retaining earnings within the corporation, professionals can benefit from the lower corporate tax rate. Deferring taxes in this way allows for the reinvestment of funds into the business, maximizing its growth potential over time.” This tax-efficient strategy enables professionals to build long-term wealth while reducing immediate tax burdens.

 

2. Limited Liability Protection

While tax deferral is a key benefit, incorporation also provides significant protection. “Incorporation helps separate personal and business assets, which is critical for professionals at risk of legal exposure,” Rick advises. This limited liability protection is particularly valuable for individuals in professions with higher risks of litigation, such as healthcare or construction.

 

3. Pension Planning and Employee Benefits

Rick emphasizes the underutilized benefit of pension planning through incorporation. “Incorporation allows you to set up Individual Pension Plans (IPPs),  which can be a major advantage for professionals like physicians and other high-income earners. It’s a way to build retirement savings while deferring taxes.” Additionally, incorporation opens the door to offering employee benefits such as group health plans, making it easier to attract and retain top talent.

 

4. Succession Planning and Selling Your Practice

For professionals thinking about the long-term future of their business, Rick highlights the importance of planning for succession early. “Incorporation can be a smart move if you're planning to sell your practice or retire. The Lifetime Capital Gains Exemption (LCGE) applies when selling shares of a qualifying small business corporation, potentially saving you a substantial amount in taxes. However, this requires careful, long-term planning to ensure you maximize the benefits.” Rick advises that thinking ahead by 10 to 15 years is ideal for professionals planning their exit strategy, as it ensures a smoother transition and greater financial benefits.

 

Is Incorporation Right for You?

While incorporation offers numerous advantages, Rick emphasizes that “it’s not a one-size-fits-all solution.” The decision depends on the unique financial situation of each professional, their long-term goals, and whether the benefits outweigh the costs and complexities. “Everyone’s story is different,” he adds, “and the key is to build a strategy that works for your individual circumstances.”

For more information on the benefits of incorporation, you can visit the Government of Canada’s resources on incorporation.

 

Get Personalized Advice on Incorporation

Is incorporation the right choice for you? Connect with our team: Morson Carson Wealth Counsel for personalized advice tailored to your unique situation. We’re here to help you make informed decisions for your financial future.