Medical Professional Corporations, Holding Companies & Management Companies for Physicians (Ontario)
CRA’s standpoint, CPSO constraints, and when complex structures actually make sense
Most physicians are told a version of the same advice:
“Incorporate, add a Holdco, maybe a trust, and you’ll pay less tax.”
That advice is incomplete—and often dangerous.
A physician’s corporate structure is not judged by how sophisticated it looks. It is judged by whether it is:
- Permitted under professional regulation (Ontario Health Profession Corporation rules and the College of Physicians and Surgeons of Ontario),
- Defensible under the Income Tax Act, and
- Consistent with CRA’s view of economic reality, not just legal form.
At MiAccounting, we help Ontario physicians understand what each entity actually accomplishes, what it does not, and where CRA scrutiny typically lands. For advanced reorganizations, estate freezes, or trust-based planning, a tax lawyer and often a Trust and Estate Practitioner (TEP) are essential to properly design and document the legal architecture.
Good structures are coordinated. Fragmented structures are expensive.
1) The Medical Professional Corporation (MPC): the anchor entity
The Medical Professional Corporation exists because professional regulation allows it—within strict boundaries.
In Ontario, physicians are governed by Health Profession Corporation legislation and authorization rules administered by the CPSO. These rules directly affect what tax planning is even possible.
CPSO ownership rules: why they matter for tax planning
One of the most common misconceptions we see is:
“We can just have a holding company own the MPC.”
In Ontario, this is generally not permitted.
- Voting shares of the MPC must be owned legally and beneficially by the physician, who must be a CPSO member.
- Non-voting shares may be held by permitted persons (such as certain family members or specific trusts), but the permitted-owner list is narrow and typically does not include corporations.
Practical takeaway:
Tax planning for physicians must be built around what CPSO and Ontario law actually allow, not what applies to non-regulated businesses or physicians in other provinces.
2) The tax foundation: where an MPC actually creates value
The primary benefit of incorporation for physicians is tax deferral, not tax elimination.
Access to the Small Business Deduction is governed by Income Tax Act section 125. The benefit only materializes when income can be retained and deployed inside the corporation intentionally.
The most important question is simple:
Do you consistently earn more than you need personally, allowing surplus to remain inside the corporation?
- If the answer is yes, corporate planning can be powerful.
- If the answer is no, layering entities often increases cost, complexity, and CRA risk without delivering real benefit.
Incorporation does not create savings on its own. Your cash-flow behaviour determines the outcome.
3) Holding companies: when they are powerful—and when they are pointless
What holding companies are typically used for
- Separating surplus assets from operating risk
- Centralized corporate investing
- Long-term estate coordination (with legal advisors)
- Receiving intercorporate dividends
Intercorporate dividends: the core mechanism
Under Income Tax Act section 112, dividends paid from one Canadian corporation to another are generally deductible to the recipient corporation, subject to anti-avoidance rules. This allows surplus to move from the MPC to a Holdco without immediate tax.
This is why Holdcos appear so frequently in physician planning.
The passive income trap (AAII)
Holding companies do not shield passive income from the corporate group.
CRA guidance explains that when adjusted aggregate investment income (AAII) earned across associated corporations exceeds $50,000, the Small Business Deduction begins to grind down and is fully eliminated beyond the upper threshold.
This directly affects eligibility under ITA section 125 and can cause physicians to lose access to the low corporate tax rate without realizing it.
When a Holdco makes sense
- Consistent retained surplus
- A defined corporate investing strategy
- A long-term planning horizon
- Ongoing monitoring of AAII and SBD interaction
When it usually does not
- Little or no retained earnings
- No real asset-protection objective
- Entities added “just in case”
A Holdco is a tool, not a strategy.
4) Family trusts: what they are for now (and what they are not)
Many physicians still associate trusts with income splitting. That era is largely over.
The Tax on Split Income (TOSI) rules under Income Tax Act section 120.4 significantly restrict dividend sprinkling. While certain exclusions exist, physicians should not assume they apply automatically.
What trusts are typically used for today
- Estate and succession flexibility
- Long-term family planning
- Future-proofing ownership structures
Trusts are no longer about short-term tax savings. They are about control, continuity, and planning optionality.
Where legal expertise is mandatory
If planning involves:
- Estate freezes
- Trust deeds and beneficiary classes
- Multi-generation succession
- Shareholder agreements
You are beyond accounting execution. Proper legal drafting is essential.
5) Management companies: where CRA scrutiny is highest
Management companies are often marketed as a way to move profit out of the MPC through management fees.
This is where physicians most commonly get reassessed.
CRA pressure points
- Reasonableness of expenses is a statutory test under Income Tax Act section 67
- Inflated or unsupported management fees can be denied entirely
- General Anti-Avoidance Rule (GAAR) may apply where structures are primarily tax-driven (ITA section 245)
- Payments routed for a taxpayer’s benefit can be recharacterized under concepts reflected in ITA section 56(2)
When management companies can be legitimate
- Multi-physician or clinic environments
- Real shared services (staff, leases, systems)
- Arm’s-length pricing
- Written contracts and evidence from day one
When they usually fail
- Solo physician “management fee loops”
- Family entities with weak documentation
- “We’ll paper it later” arrangements
If it cannot be clearly explained to Canada Revenue Agency with documentation and commercial logic, it does not belong in your structure.
6) CRA reassessment risk: what it looks like in real life
The most common outcomes we see in physician files include:
- Management fee deductions denied due to lack of evidence or reasonableness
- Unexpected Small Business Deduction grind from unmonitored passive income
- Family dividends taxed at top marginal rates due to TOSI
- GAAR exposure where structures lack non-tax purpose
Most reassessments are not about aggressive planning—they arise from poor execution and lack of coordination.
7) Where MiAccounting fits
MiAccounting helps Ontario physicians:
- Understand CRA’s likely lens on their structure
- Model tax outcomes across MPC and Holdco, including AAII and SBD impact
- Maintain clean, defensible accounting year after year
For advanced planning, we work directly with your:
- Tax lawyer (reorganizations, freezes, shareholder agreements)
- Trust and Estate Practitioner (TEP) (estate and succession architecture)
Our philosophy is simple:
Good structures are boring, stable, and explainable.
That is exactly what CRA prefers—and what protects you long term.
Toronto Physician Tax Planning — Done Properly
If you are considering a Medical Professional Corporation, holding company, trust, or management company, the right question is not “Can this reduce tax?”
The right question is:
“Will this survive CRA scrutiny and still make sense five years from now?”
That is where proper planning begins.
The Bottom Line for Ontario Physicians
If you’re considering a Medical Professional Corporation, holding company, trust, or management company, the real question isn’t whether it can reduce tax.
The real question is whether it will still make sense—and still stand up to CRA scrutiny—five or ten years from now.
At MiAccounting, we don’t sell complexity. We design CRA-defensible, CPSO-compliant structures that match how physicians actually earn, spend, and invest over time.
If you want clarity before adding another entity, another layer, or another risk—book a physician planning call.
We’ll tell you, plainly, what makes sense, what doesn’t, and why.
