Medical Professional Corporations, Holding Companies, and Management Companies for Physicians
CRA’s standpoint, CPSO constraints, and when complex structures make sense
Most physicians are told a version of the same idea:
“Incorporate, add a Holdco, maybe a trust, and you’ll pay less tax.”
That advice is incomplete.
A physician’s structure isn’t evaluated by how sophisticated it looks. It’s evaluated by whether it is:
- permitted under professional regulation (CPSO/Health Profession Corporations rules in Ontario), and Ontario+2CPSO+2
- defensible under the Income Tax Act, and
- consistent with CRA’s view of economic reality.
At MiAccounting, we help physicians understand the CRA standpoint and tax implications of each structure—what it accomplishes, what it doesn’t, and where the risk sits. For advanced reorganizations and estate-style planning, you will also need a strong tax lawyer and (often) a Trust and Estate Practitioner (TEP) to design and document the legal architecture properly.
1) The Medical Professional Corporation (MPC): the anchor entity
An MPC exists because professional regulation allows it—within boundaries. In Ontario, key constraints are tied to Health Profession Corporation rules and CPSO requirements around authorization/renewal and ownership rules. CPSO+2Ontario+2
CPSO / Ontario ownership rules: why they matter for tax planning
A common misconception is that “we can just have the Holdco own shares of the MPC.”
In Ontario, voting shares must be owned (legally and beneficially) by a member of the College (i.e., the physician). Ontario+1
Non-voting shares can be held by permitted persons (including certain family-member ownership and certain trusts for minor children), but the permitted-owner list is specific and does not generally include corporations—which is why “Holdco owns the MPC” is typically not available in Ontario physician structures. Ontario+1
Practical takeaway: tax planning must be built around what CPSO/Ontario rules actually allow—not what someone saw online for a different profession or province.
2) Tax foundation: where the MPC can actually create value
The corporate tax advantage is primarily a deferral when you can retain income inside the corporation.
The Small Business Deduction rules live in ITA s.125. Department of Justice Canada
Whether you get meaningful advantage depends on one question:
Do you consistently earn more than you need to live on (after personal tax), so you can retain and deploy capital inside the corporate group intentionally?
If the answer is “not really,” then adding layers (Holdco/trust/management company) can increase compliance cost and risk without producing real benefit.
3) Holding companies: when they’re powerful, and when they’re pointless
A Holdco is usually used for:
- asset separation (surplus investments away from practice operating risk)
- centralized investing
- long-term estate planning coordination (with legal advisors)
- receiving intercorporate dividends
Intercorporate dividends: the core mechanism
When an MPC pays a taxable dividend to another Canadian corporation, ITA s.112 generally allows a deduction to the recipient corporation, producing a “tax-free” intercorporate dividend outcome (subject to exceptions and anti-avoidance rules). Department of Justice Canada+1
This is why Holdcos exist in physician planning: they can receive surplus via dividends and invest it.
The passive income trap (AAII) that physicians need to understand
Holdcos do not magically “shield” passive income from the corporate group.
CRA’s own T2 guide explains that the business limit is reduced when the CCPC (and associated corporations) earn combined passive investment income in the $50,000–$150,000 range, and goes to nil beyond that range; it also identifies this as adjusted aggregate investment income (AAII). Canada
So, if your corporate group’s passive income rises, you can lose access to the small business limit under the ITA s.125 framework. Department of Justice Canada+1
When a Holdco makes sense
- consistent surplus (not just occasional)
- a coordinated corporate investing plan
- a long horizon (years, not months)
- intentional planning around AAII/SBD interaction
When it often doesn’t
- little surplus retained
- no real risk-separation objective
- planning is “add entities first, decide later”
4) Family trusts: what they’re for now (and what they’re not)
Many physicians still associate trusts with “income splitting.”
The modern constraint is TOSI—the tax on split income rules in ITA s.120.4. Department of Justice Canada
CRA also provides guidance on specific exclusions such as “excluded shares” (which can be relevant in some businesses, but physicians should not assume these exclusions apply in the way they expect). Canada
What trusts are usually for now
- estate and succession flexibility
- future-proofing (with legal design)
- certain family planning objectives that are not “sprinkling for the sake of sprinkling”
Where you need a lawyer + TEP
If you’re discussing:
- estate freezes
- trust deeds / beneficiary classes
- succession across generations
- coordination with shareholder agreements
you’re beyond accounting execution—you need legal drafting and a coordinated advisory team.
5) Management companies: where CRA scrutiny is highest
Management companies are often pitched as a way to move profit out of the MPC via “management fees.”
This is where physicians get hurt.
CRA and ITA pressure points
Reasonableness of expenses is a direct statutory test: ITA s.67. Department of Justice Canada
If management fees are inflated or not commercially grounded, CRA can deny the deduction.
CRA can also apply broader anti-avoidance thinking (including GAAR) where the structure creates a tax benefit through avoidance transactions that misuse or abuse the Act: ITA s.245, supported by CRA’s GAAR guidance publications. Department of Justice Canada+1
And where money is being routed for a benefit conferred, the Act includes rules that can pull amounts back into income in certain circumstances (see the concept reflected in ITA s.56(2) language on payments/transfers for a taxpayer’s benefit). Department of Justice Canada
When management companies can be legitimate
- real shared-services arrangements (multi-physician clinic)
- actual employees / leases / systems / admin infrastructure
- properly priced services, contracts, and evidence
- legal + accounting alignment from day one
When they usually don’t make sense
- solo physician “fee loop” structures
- family entities with thin documentation
- “we’ll paper it later” arrangements
If it can’t be explained clearly to CRA with documentation and commercial logic, it doesn’t belong in your structure.
6) CRA reassessment risk: what it looks like in real life
Here are common patterns that lead to expensive outcomes (even when intentions were “normal”):
- Denied management fee deductions because services weren’t substantiated or fees weren’t reasonable (ITA s.67). Department of Justice Canada
- Passive income surprises: SBD grind hits and the corporate tax rate jumps because AAII wasn’t monitored (CRA T2 guidance; ITA s.125). Canada+1
- TOSI surprises: family dividends taxed at top marginal rates because exclusions weren’t available (ITA s.120.4). Department of Justice Canada
- GAAR exposure when the structure is primarily tax-driven without supporting purpose (ITA s.245; CRA GAAR guidance). Department of Justice Canada+1
7) Where MiAccounting fits (and how we work with your lawyer/TEP)
MiAccounting helps physicians:
- understand CRA’s likely lens on the structure (risk areas, documentation expectations, reasonableness tests)
- model the tax implications across MPC + Holdco (including AAII/SBD impact)
- implement clean accounting workflows so the structure stays defensible year after year
For complex planning, we coordinate with your:
- tax lawyer (reorgs, shareholder agreements, freezes, legal documentation)
- TEP (trust and estate architecture, succession intent, proper drafting)
Good structures are boring, stable, and explainable. That’s the goal.
