What a BC dental corporation pays in tax
Key takeaways
- A BC dental corporation pays about 11 percent on the first $500,000 of active income.
- Active income above $500,000 is taxed at about 27 percent.
- The savings come from deferral, taxed at the corporate rate now, personal rate later on withdrawal.
- Passive investment income between $50,000 and $150,000 a year shrinks the $500,000 small business limit.
The corporate rate for a BC dental corporation
A Canadian-controlled private corporation pays about 11 percent on active income up to $500,000. That is 9 percent federal plus 2 percent in BC. Above $500,000 the rate is about 27 percent, or 15 percent federal plus 12 percent BC.
The 11 percent rate applies to income from providing dental services through the corporation. It does not apply to investment income inside the corporation, which is taxed at higher rates.
| Income band | Corporate tax rate | Personal top rate comparison |
|---|---|---|
| $0 to $500,000 | about 11% | above 50% |
| Over $500,000 | about 27% | above 50% |
How the small business deduction works
The low 11 percent rate comes from the small business deduction. It applies only to the first $500,000 of active business income a year. If the corporation earns $400,000 from dentistry and $50,000 from investments, only the $400,000 is active income eligible for the deduction.
The deduction is shared among associated corporations. If you own more than one dental corporation, they must split the $500,000 limit.
What happens above $500,000
Once the corporation’s active income passes $500,000 in a year, every additional dollar is taxed at about 27 percent. That is still well below the top personal rate above 50 percent, so the deferral continues to apply on surplus income up to a point.
A dentist earning $800,000 through their corporation pays about 11 percent on the first $500,000 and roughly 27 percent on the remaining $300,000. The blended rate is about 17 percent, still far below the top personal bracket.
Why incorporation saves money even above the limit
Why this matters: the total corporate rate of about 27 percent above $500,000 is less than half the top personal rate. A high-earning dentist still saves roughly 23 points of tax per dollar above the small business limit by leaving money in the corporation rather than drawing it personally.
The saving above $500,000 is smaller than the 39-point saving below the limit, but it is still significant. At $200,000 above the limit, the deferral is about $46,000 a year.
Frequently asked questions
Is the 11 percent rate locked in?
No. It applies to each year’s active income up to $500,000. If rates change or the small business deduction is modified, the calculation changes.
Does the 11 percent rate apply to passive investment income?
No. Investment income such as interest, dividends, and rental income is taxed at higher rates inside a corporation. Only active business income gets the deduction.
Can I incorporate more than one dental practice to get more than one $500,000 limit?
No. Associated corporations share one $500,000 limit. Two dental corporations owned by the same dentist would split the limit between them.
How does taking a salary affect the corporate tax?
Salary is a deduction for the corporation. Paying yourself a salary reduces the corporate income that is subject to tax, but you pay personal tax on the salary instead. The net result depends on your personal rate.
Is the corporate tax ever refunded when I pay a dividend?
Yes, partly. The corporation pays refundable tax on investment income that is refunded when dividends are paid out. The active business rate of 11 percent is not refundable, that tax is permanent.
Full breakdown of dental corporation tax at ghumans.ca/accounting-for-dentists.
General information only. Talk to us about your situation.