Whether you’re preparing to retire, sell your clinic, or transition your practice to a new physician, one thing is certain: tax planning plays a critical role in maximizing the value of your exit. For doctors working in Canada, the rules around practice transitions are complex—and with tax changes on the horizon, it’s more important than ever to approach this move strategically.
From capital gains exemptions to shifting inclusion rates, here’s how physicians across Canada (excluding Quebec) can minimize tax liabilities during a practice transition in 2026 and beyond.
- Take Advantage of Incorporation and the Lifetime Capital Gains Exemption (LCGE)
If your medical practice is incorporated, you may be eligible for the Lifetime Capital Gains Exemption, which can shield over $1 million in capital gains from tax when selling shares of your professional corporation.
To qualify:
- More than 90% of the corporation’s assets must be used in an active business at the time of sale
- You must have held the shares for at least 24 months
- The business must be a Canadian Controlled Private Corporation (CCPC)
Planning at least two years in advance is essential to meet the eligibility criteria and avoid unexpected tax exposure.
- Choose the Right Sale Structure
There are two typical structures for selling a medical practice:
- Share sale: Often more tax-efficient for the seller due to LCGE
- Asset sale: May be more attractive to the buyer but can trigger higher personal taxes for the seller
While share sales generally favour the seller, each option comes with its own tax and legal implications. In some cases, a hybrid structure may strike the right balance for both parties.
It’s important to align early with tax and legal advisors to structure the deal effectively.
- Prepare for the New Capital Gains Inclusion Rate
Beginning in June 2024, the federal government will increase the capital gains inclusion rate from 50% to 66.67% on annual capital gains exceeding $250,000 per individual.
For physicians selling a practice in 2026 or later, this means:
- Any taxable capital gains beyond the LCGE threshold may be subject to a higher tax rate
- You may benefit from restructuring the sale to spread gains over time or across multiple taxpayers using tools such as a family trust
Understanding how these changes apply to your situation is key to avoiding a larger-than-expected tax bill.
- Consider an Estate Freeze for Family Successions
If you plan to pass your practice to a child or family member, a corporate estate freeze may be a strategic move. This allows you to lock in the current value of your shares and transfer future growth to the next generation.
Benefits include:
- Deferral of future capital gains taxes
- Simplified succession
- Potential income splitting through a family trust
An estate freeze should be carefully designed to ensure it meets your long-term financial and tax planning objectives.
- Coordinate Retirement Planning with Your Exit
Your transition strategy should include more than just the sale — it should also align with your personal retirement plan.
Consider tax-smart options such as:
- Deferring income within a professional corporation post-sale
- Paying dividends to a spouse or adult children (where applicable)
- Contributing to RRSPs, TFSAs, or Individual Pension Plans (IPPs) to support long-term financial goals
A coordinated approach can significantly reduce your tax burden during retirement while providing income stability.
- Start Early and Build a Transition Timeline
One of the most common mistakes physicians make is waiting too long to start planning. Tax-efficient transitions often require multiple years of preparation.
Working with advisors who understand the complexities of medical practices—corporate structures, billing systems, regulatory restrictions—can help you avoid costly missteps and position you for a smoother, more profitable exit.
Final Thoughts
Transitioning out of practice is a significant milestone. Whether you’re planning a full sale, partial transition, or family succession, starting early and staying strategic will make a major difference.
With new tax policies rolling out and market dynamics shifting, physicians need a plan tailored to their goals, timelines, and evolving tax landscape.
Ready to start planning your transition the smart way? Let us help you navigate your next steps with confidence and clarity at MedTax.
