If you’re an incorporated doctor in Canada, you’ve already taken a major step toward optimizing your financial future. But there’s a more advanced layer to tax planning that too many physicians overlook: setting up a holding company.
For doctors operating in Ontario, Alberta, British Columbia, Saskatchewan, or Manitoba, a holding company can provide strategic advantages—from sheltering passive investment income to protecting your assets and maximizing long-term tax deferral. Let’s break down how this structure works, and how it can fit into your financial strategy as a physician.
What Is a Holding Company?
A holding company is a corporation created to own investments or shares in other corporations. For incorporated doctors, this typically means using the holding company to own shares of your medical professional corporation (MPC). It may also hold investments such as real estate, market securities, or retained earnings from your medical practice.
Under Canadian tax law, dividends can often be transferred from your MPC to your holding company tax-free, using an intercorporate dividend. This keeps the funds growing inside a separate corporate structure, creating room for more sophisticated tax planning.
- Passive Income Sheltering: Preserving the Small Business Deduction
Since 2018, Canadian tax rules have limited access to the Small Business Deduction (SBD) if a corporation earns more than $50,000 in passive investment income annually. The more passive income your MPC generates, the more your small business tax rate shrinks.
By transferring surplus funds from your MPC to a holding company, you can reduce the amount of passive income inside your operating company. This helps preserve access to the SBD and the lower tax rate on your first $500,000 of active business income.
It’s a common and effective strategy for doctors who don’t need to withdraw all of their earnings and want to grow their retained profits more tax-efficiently.
- Asset Protection: Separating Risk from Wealth
While your medical practice may have limited liability protections, your corporation’s assets could still be exposed in the event of a lawsuit or creditor claim. A holding company can act as a shield, legally separating valuable assets from the operating business.
By transferring retained earnings, real estate, or investments from your MPC into a holding company, you isolate them from potential operational risks. This provides an additional layer of security for your accumulated wealth.
For doctors who have spent years building financial stability, this level of protection can be critical.
- Tax Deferral and Wealth Building: Letting Money Grow Inside the Corporation
When dividends are paid from your MPC to your holding company, there is typically no immediate personal tax. The funds stay in the corporate environment and can be invested, allowing you to benefit from tax deferral. Over time, this can lead to significant compound growth, especially when compared to investing personally with after-tax income.
This approach allows doctors to grow their long-term wealth within the corporate structure and only pay personal tax when funds are eventually withdrawn. It’s an ideal strategy for physicians who want to delay major personal spending and keep more of their investment earnings working inside the corporation.
- Estate Planning and Intergenerational Wealth Transfer
Holding companies can also be part of a broader estate planning strategy. Doctors can freeze the value of their MPC and issue new growth shares to a family trust or other beneficiaries. This limits the future growth of your estate subject to capital gains tax while allowing your heirs to benefit from future corporate earnings.
When structured correctly, this allows you to retain control during your lifetime while reducing tax exposure on death. It’s a forward-looking strategy for doctors who want to build multi-generational financial legacies.
Is a Holding Company Right for Every Incorporated Doctor?
Not always. Setting up and maintaining a holding company involves legal and accounting fees, and the benefits only apply if you’re retaining income in your corporation or building investment assets.
However, if you:
- Have surplus income after personal and practice expenses
- Are investing within your corporation
- Want to protect accumulated assets or defer personal taxes
…then a holding company may be a highly effective solution worth considering with your tax advisor.
Talk to MedTax Before You Move Forward
Using a holding company is not a one-size-fits-all decision. It should be part of a larger tax and investment strategy that aligns with your long-term goals as a physician.
At MedTax.ca, we specialize in helping incorporated doctors across Ontario, Alberta, B.C., Saskatchewan, and Manitoba navigate advanced corporate structures like holding companies. Our approach is tailored to the unique financial lives of physicians—practical, compliant, and focused on lasting value.
Want to explore whether a holding company is right for you?
Visit MedTax for a free 15-minute consultation for more information or to connect with our team of tax experts for doctors.
