If you have decided to incorporate your medical practice, you need to know how a company operates and how it differs from being a self-employed individual.
As a self-employed individual, any income you earn during the year will be included on your personal tax return. You are only required to keep track of your income and expenses and any revenue you earn can be deposited into your personal bank account and spent as you wish.
A corporation is a legal entity that is distinct from you personally. This means that all activity that occurs within the corporation is separate from your personal income taxes. Only when funds are removed from the corporation are they taxed personally.
Requirements
Additionally a corporation is required to:
- Have a corporate bank account
- Have a corporate credit card
- Prepare an income statement and balance sheet
- File a corporate tax return
- Pay corporate tax instalments
- File T4’s (payroll) and T5’s (dividends)
- Maintain a corporate minute book
Once you setup a corporation you are the owner of the company and an employee as well. This means that all transactions recorded in the corporation must be business related. Since you and the corporation are separate entities, you treat them as such.
You are entitled to two forms of remuneration from the company:
- Salary – as an employee
- Dividend – as a shareholder
A corporation does increase the administrative work required, but there are significant benefits that can be realized as I discussed in my previous blog.
Proper tax planning must be done to ensure there are no unforeseen significant tax liabilities when you file your personal and corporate tax returns.
In my next blog, I will discuss the steps required to incorporate your medical practice.