When should a doctor incorporate after residency
Key takeaways
- The benefit of incorporation is proportional to the income you retain in the corporation at about 11 percent versus paying personally at above 50 percent.
- A new physician billing under $100,000 a year after expenses may not benefit enough to justify the cost and complexity of incorporation.
- Once your practice income consistently exceeds $150,000 to $200,000 a year after practice costs, incorporation starts to produce meaningful savings.
- You can incorporate partway through a tax year, you do not need to wait until the next year.
The numbers test
Incorporation costs money. You need a corporate tax return, a minute book, annual filings, and legal costs for the initial setup. The annual cost of running a medical corporation is typically $2,000 to $4,000 for a simple structure.
Against that cost, the benefit is the deferral: income left in the corporation pays about 11 percent instead of your personal marginal rate. The question is whether the deferral exceeds the compliance costs.
| Annual practice income after expenses | Approximate corporate deferral | Worth incorporating? |
|---|---|---|
| $60,000 | about $23,000 | Borderline, costs may eat the benefit |
| $100,000 | about $39,000 | Probably worth it |
| $200,000 | about $78,000 | Clearly worth it |
| $300,000 | about $117,000 | Absolutely worth it |
The deferral estimates assume you leave all income in the corporation and draw only what you need for personal expenses. If you plan to draw most of the income personally anyway, the benefit shrinks.
The early years: residency and locum
During residency, your income is modest enough that incorporation makes no sense. The story changes once you finish and start billing at a higher rate as a locum or associate.
Many new physicians try a locum arrangement for one to two years to see where their practice is heading before incorporating. That allows them to compare the benefit of incorporation against a real income number.
You can incorporate mid-year
You do not need to wait until January 1. If your practice income is running at $200,000 a year and you are three months into the calendar year, you can incorporate now and start billing through the new corporation. The pre-incorporation income is reported on your personal return; the post-incorporation income goes through the corporation.
There are some technical rules about how income before incorporation is handled (it is personal income, not corporate income), but they do not prevent a mid-year incorporation.
The non-financial reasons to wait
Beyond the numbers, some new physicians wait because:
- They want to see which province they will settle in before choosing where to incorporate
- Their CPSBC or CPSA professional corporation permit may take time to process
- They want to first build a patient base and understand their billings before committing to the corporate structure
Why this matters: incorporating too early costs money without much benefit. Incorporating too late means missing years of deferred tax. The right time is when your income is high enough that the $2,000 to $4,000 annual cost is a small price for a roughly $39,000 per $100,000 deferral.
Frequently asked questions
Can I incorporate before I finish residency?
Technically yes, as long as you have a valid billing number and a College professional corporation permit. But the income is typically too low during residency to make it worthwhile.
Do I need to be at a specific income level before incorporating?
There is no minimum income rule. The decision is based on whether the tax deferral exceeds the compliance costs. As a rough guide, cash income above $100,000 to $150,000 after expenses is when incorporation starts to make sense.
Can I incorporate if I work as a locum?
Yes. Locum physicians can incorporate and bill through their corporation. The PSB risk is lower for locums who have genuine independence, control their schedule, and work at multiple sites.
What happens if I incorporate mid-year and my income is uneven?
Your pre-incorporation income goes on your personal return. Your post-incorporation income goes on the corporate return. Both are taxed according to the normal rules for each period.
Does it matter what province I incorporate in?
Yes. The provincial corporate rate, the College’s share rules, and the personal tax rates all affect the benefit. Incorporate in the province where you primarily practise.
Talk to us about whether now is the right time at ghumans.ca/doctors.
General information only. Talk to us about your situation.