Can naturopaths and hygienists incorporate in Ontario?
Allan Madan, CPA, CA
Dental hygienists and naturopaths can incorporate in Ontario because of new laws passed. Incorporation can lead to many benefits, such as tax savings and reduced liability.
Incorporation of Hygienists and Naturopaths after 2006
Hygienists – changes to laws for incorporation
In 2006 the Ontario government created Bill 171, the Health Systems Improvements Act. This bill allows dental hygienists and naturopath doctors to incorporate. Schedule B(pg.3) implements new changes to the Dental Hygiene Act, 1991. Before 2006 hygienists could incorporate, but many chose not to because they were under the supervision of their dentists. Under this new bill, hygienists as a collective group are now a stand-alone body separate from dentists.
Naturopaths – changes to laws for incorporation
Schedule P and Q introduces new legislation called Naturopathy and Homeopathy Act, 2006 (pg. 13,14) Until the introduction of this bill, Naturopathic and Homeopathic doctors were governed by the Drugless Practitioners Act (DPA), which did not allow them to incorporate their practices. Now naturopaths and homeopaths are considered part of the Regulated Health Professions Act and are free to incorporate.
Who can be shareholders & directors of Naturopathic and Hygienists Professional Corporations?
Only dental hygienists, naturopathic or homeopathic doctors who are licensed members of their respective colleges can be shareholders, officers and directors of the professional corporation. There are restrictions on who can have shares in the corporation. Currently only dentists and doctors are permitted to have non member shareholders such as a spouse or child. Dental hygienists and naturopathic doctors are hopeful this will change, since the tax savings can be substantial from income splitting with family members.
Tax Savings through incorporation of Hygienists and Naturopaths
Profit |
Tax for Sole Proprietor |
Tax for Corporation |
Tax Savings |
| $60,000 | $11,873 | $9,300 | $2,573 |
| $90,000 | $22,259 | $13,950 | $8,309 |
| $200,000 | $71,958 | $31,000 | $40,958 |
From the table above, you can see that a professional corporation provides substantial tax savings versus a sole proprietorship. The savings range from $2,573 to $40,958, or higher!
Small Business Deduction
By incorporating your naturopathic or hygienists practice in Canada, you will gain access to the many tax deductions available to corporations. The small business deduction allows incorporated businesses to be taxed at 15.5% on its first $500,000 of active business income. This provides small businesses with additional capital to help its continued growth.
The chart above illustrates the difference in tax saving between a sole proprietor and an incorporated business with this new law. If you choose to incorporate, the more you earn, the more you will save. The small business deduction and increased personal tax rates on higher income is the reason for this substantial savings.
Another advantage of incorporation of hygienists and naturopaths is the use of dividends. In Canada there are many different dividend credits and deductions available, making it the preferred form of corporation pay outs.
Limited Liability Protection through Incorporation of Hygienists and Naturopaths
A major advantage of incorporating is reduced liability. Examples of liabilities that could arise in the normal course of your business are:
- Claims from creditors in case of a down-turn in the company
- Claims in respect of contracts with supplies
- Claims related to long term lease agreements
As a sole proprietor you assume all the risk with respect to debt and liabilities. If you file for bankruptcy creditors will be able to go after your personal assets such as your car, house, and other equity you may possess. Now, dental hygienists and naturopathic doctors can reduce their liability by incorporation.
Note that malpractice or other claims for professional negligence will still exist even if you are incorporated.
Conclusion: Should Naturopath Doctors and Dental Hygienists incorporate in Ontario
The new Health Systems Improvements Act, 2006 allows incorporation of hygienists and naturopaths and save tax as a result. Not only is the tax savings advantageous, incorporation also allows these professionals to have reduced liability. Please speak to your accountant prior to incorporation.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
