Converting a Medical Corporation to Holding Company at Retirement

by David Wiitala using ChatGPT Deep Research - general information only, not to be used as advice

Incorporated physicians approaching retirement face an important decision: what to do with their Medical Professional Corporation (MPC) once they stop practicing. In Canada, doctors often operate via an MPC to enjoy tax benefits during their working years, but upon retirement the MPC’s future must be addressed (What Happens to Your Medical Practice Corporation After You Retire?) (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group). Generally, there are three paths for a retiring physician’s corporation: sell the practice, convert the MPC into a holding company, or dissolve the corporation (What Happens to Your Medical Practice Corporation After You Retire?). Each option has unique tax, legal, and financial implications. This report focuses on the increasingly popular strategy of converting an MPC into a holding company at retirement, with attention to federal rules and key provincial differences in Ontario, Alberta, and British Columbia. (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group)why this strategy can make sense (and when it might not), outline the conversion process (e.g. using dual-corporation structures, estate freezes, or section 85 rollovers), and discuss practical considerations for post-retirement investing, income splitting, estate planning, and winding down the corporation over time. The goal is to present clear, relatable guidance for the average Canadian doctor making real-life retirement decisions about their corporation.

Options for Your Medical Corporation at Retirement

Retiring as an incorporated physician means deciding the fate of your MPC. The main options are:

• Sell the Medical Practice (MPC) – If you have a buyer (e.g. a younger physician or perhaps a physician child interested in taking over), you could sell the shares of your MPC. Keep in mind that only a licensed physician can own an MPC, so any buyer must be a doctor in good standing in your province (What Happens to Your Medical Practice Corporation After You Retire?). In provinces like Ontario and Alberta, this effectively means selling to another physician (often within your family or practice) because non-physicians cannot hold voting shares. If a sale is feasible, it’s worth che (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group)ualify for the Lifetime Capital Gains Exemption (LCGE) on the sale of your MPC shares. For 2023, the LCGE for qualified small business corporation shares was up to $971,190 (What Happens to Your Medical Practice Corporation After You Retire?) (this limit is indexed and has increased to around $1 million by 2024). If your corporation qualifies as a Qualified Small Business Corporation (QSBC) – meaning 90% or more of its assets are used in the active practice of medicine at the time of sale – a share sale could let you extract proceeds largely tax-free via the LCGE (What Happens to Your Medical Practice Corporation After You Retire?). However, many retiring doctors have significant investments inside their MPC (passive assets like stocks or real estate) that could disqualify the corporation as a QSBC unless those assets are “purified” (removed or spun-out) before a sale. Selling the practice is also only practical if you have someone lined up to buy it; otherwise, most retiring physicians look to either wind up or repurpose their corporation.

• Dissolve (Wind Up) the MPC – This means liquidating the corporation entirely at or after retirement. You would stop practicing, sell any remaining clinic assets, pay off liabilities, distribute the remaining funds to yourself as the shareholder, and then legally dissolve the corporation. Dissolution is straightforward if your MPC is small or has minimal assets left. In fact, if your corporation doesn’t hold a lot of assets, the tax consequences and professional fees involved in maintaining or converting it may outweigh any benefits, making dissolution a sensible choice (What Happens to Your Medical Practice Corporation After You Retire?). However, dissolving a corporation triggers taxation on any distributions. All the retained earnings and unrealized gains inside the corp will eventually be taxed in your hands (often as dividends on wind-up), potentially resulting in a large one-time tax hit at retirement. Thus, dissolving is most attractive when the remaining assets are small enough that this tax hit is minimal. From a regulatory standpoint, you must also notify your provincial College of Physicians and follow any rules for canceling your Certificate of Authorization for the professional corporation. For example, in British Columbia you need to file an “Inactive Notification” and surrender your medical corporation permit with the College before winding up (What Happens to Your Medical Practice Corporation After You Retire?). In Ontario, the College of Physicians and Surgeons of Ontario (CPSO) requires that you cease using the “Professional Corporation” designation – in fact, Ontario law mandates removing the term “Professional Corporation” from the company name once it ceases to practice med (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group) (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group). We’ll detail these provincial steps later. Dissolution, in summary, is simple but can be tax-inefficient if your MPC holds substantial retained earnings.

• Convert the MPC into a Holding Company – This strategy let (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth)he corporation alive to hold investments and manage income in retirement**, even though you’ve stopped practicing medicine. Essentially, the corporation would no longer operate a medical practice; instead, it becomes an investment holding company (a regular corporation) that you continue to own. Converting to a holdco can provide ongoing tax deferral, estate planning advantages, and flexibility in drawing income during retirement. Unlike an active MPC, a holding company only earns passive investment income (interest, dividends, rents, capital gains, etc.) and perhaps some ancillary retirement income (like consulting fees if you do occasional work). Many doctors choose this option if they have significant savings trapped in the corporation that they don’t need to withdraw all at once. By keeping funds in the corporate structure, they can defer personal taxes and withdraw money gradually over the years in a tax-controlled manner (What Happens to Your Medical Practice Corporation After You Retire?). Converting to a holding company is our main focus in this report. We’ll explore why this can be beneficial and how to do it properly.

Choosing the right option depends on your circumstances. Some doctors even pursue a combin (Private Corporation TOSI Rules )mple, selling a portion of the practice assets but rolling the rest into a holdco). It’s wise to consult your tax and legal advisors on these options (What Happens to Your Medical Practice Corporation After You Retire?). For many retiring physicians with sizable corporate investments, converting to a holding company is an attractive route, offering continued tax sheltering and control. But it’s not without complexity – there are regulatory hoops, tax rules, and planning considerations to address, which we cover below.

Why Consider a Holding Company in Retirement?

There are several compelling reasons why converting your medical professional corporation into a holding company (or setting up a separate holdco alongside it) may make sense at retirement:

• Tax Deferral and Efficient Withdrawals: Perhaps the biggest advantage is continued tax deferral on investment growth. If you were to deregister the MPC and pay out its assets to yourself upon retirement, you might face a very large personal tax bill in a single year. Instead, by keeping those assets inside a corporation, you’ve already paid the relatively low corporate tax on them (particularly if they originated as active business income taxed at the small business rate). You can then draw funds as needed over time in retirement, smoothing out your personal taxes. For example, you might pay yourself dividends each year up to a threshold that keeps you in a lower tax bracket, rather than recognizing a huge lump sum. Remaining funds can continue to grow tax-sheltered inside the company. This corporate tax deferral can be significant – during practice years it was the spread between the small business corporate rate (about 11–12% in many provinces) and the top personal rate (~50%). In retirement, active business income may cease, but passive investment income in the corporation is still taxed at ~50% (interest and foreign dividends are around 50% corporate tax). Importantly, part of that tax is refundable when the corporation (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth)le dividends, via the Refundable Dividend Tax on Hand mechanism. This means investment income earned inside the holdco is effectively taxed at roughly the personal rate eventually, but you control when that tax is paid. You also might take advantage of the Capital Dividend Account (CDA) to withdraw some amounts completely tax-free (What Happens to Your Medical Practice Corporation After You Retire?). For instance, capital gains realized inside the corporation contribute to the CDA (50% of the gain is not taxed and can be paid out tax-free as a capital dividend), and life insurance proceeds on a corporate-owned policy also credit the CDA. By planning your withdrawals (taxable dividends vs. capital dividends) and timing, you can minimize and delay personal taxes. In short, a holding company lets you decide when and how much income to take, giving you more control over your retirement tax situation than a one-time wind-up would (What Happens to Your Medical Practice Corporation After You Retire?).

• Continued Control of Investments: With a holding company, you remain at the helm of the assets you worked hard to accumulate. You decide how the funds are invested post-retirement and for what purposes. You might, for example, restructure the portfolio inside the corporation – perhaps selling off riskier assets or converting non-income-producing assets (like raw land or a dormant clinic property) into an investment portfolio that generates dividend and interest income for you (What Happens to Your Medical Practice Corporation After You Retire?). All of this happens within the corporate wrapper. You maintain control over the company’s investment policy and can change course as needed. This is in contrast to, say, taking the money out and putting it in an RRIF or personal taxable account where there may be more constraints or less creditor protection. The holdco can also be used to hold specific assets in a structured way – for instance, some physicians use their corporation to hold rental real estate or to retain their clinic’s real estate while divesting the practice. Keeping those inside a company can simplify bookkeeping and potential future transfers. In summary, converting to a holdco means the corporation lives on as your family investment vehicle, with you (and possibly your spouse/family) as the directors controlling those assets.

• Income Splitting Opportunities: A holding company may facilitate income splitting in retirement, which can reduce your family’s overall tax burden. If your spouse or adult children are shareholders of your corporation (or can be added as shareholders of the new holding company), you could pay them dividends to utilize their lower tax brackets (What Happens to Your Medical Practice Corporation After You Retire?). In the past, this was a very popular strategy – doctors would often make family members (typically a spouse and perhaps adult children) shareholders of the MPC (usually via non-voting shares) to “sprinkle” dividends. However, federal tax rules known as TOSI (Tax on Split Income) introduced in 2018 now heavily restrict dividend income splitting with family members who didn’t actively contribute to the business. The good news is that in a pure holding company scenario post-retirement, some of these restrictions may ease. Once you have ceased practicing (no active business), dividends paid by the corporation might no longer be considered derived from a “related business” for TOSI purposes (Private Corporation TOSI Rules ). In other words, if your corporation’s only activities are investing its own money and you are no longer earning medical income, dividends to your adult family shareholders could be “excluded amounts” not subject to the TOSI penalty tax (Private Corporation TOSI Rules ). Furthermore, once you (the primary physician-shareholder) reach age 65, any dividends paid to your spouse are exempt from TOSI as long as those dividends would not have been TOSI if received by you (Private Corporation TOSI Rules ). This over-65 rule essentially mimics pension income splitting – it allows an incorporated business owner to split income with a spouse in retirement regardless of the spouse’s involvement. The practical upshot is that if your spouse is a shareholder (or you add them during the conversion), after age 65 you can direct dividends to them and be taxed similarly to how pension splitting works, which is very advantageous. Even before 65, if you have adult children who at some point worked in the practice or contributed (e.g. as an employee or by a significant capital contribution), they might meet an exclusion to receive dividends at lower rates. Bottom line: using a holding company can keep the door open for family income splitting in retirement (What Happens to Your Medical Practice Corporation After You Retire?) – either immediately if TOSI doesn’t apply, or eventually once conditions are met – whereas dissolving the corporation would eliminate this tool. (Always consult a tax advisor on the TOSI rules; they are complex, but the post-retirement scenario is generally more favorable for income splitting than when the practice was active.)

• Asset Protection: A secondary but important reason to use a dual-corporation structure is creditor protection and liability management. While practicing, a physician’s professional corporation does not shield them from malpractice liability – doctors remain personally (What Happens to Your Medical Practice Corporation After You Retire?) (Retirement Planning for Physicians | Siskinds Lawyers)egligence. However, a corporation can protect against other creditors or risks (for example, lease obligations, employee lawsuits, or slip-and-fall liability at the clinic). By the time you retire, malpractice risk largely retires with you, but there could still be lingering liability or lawsuits from past incidents or run-off liabilities (hence many doctors maintain tail malpractice insurance). If you had kept all your savings in the MPC during practice, those assets were theoretically exposed to any claims against the corporation (since the MPC was the operating entity). A holding company can serve to separate assets from the operating risk. Many physicians establish a holdco while still practicing – if allowed – specifically to receive dividends of excess earnings from the MPC. Those di (What Happens to Your Medical Practice Corporation After You Retire?) (Private Corporation TOSI Rules )e holdco, away from the operating company’s direct reach. Then, if the practice company ever faced a claim or creditor, the bulk of assets were already upstream in the holding company, out of reach. For example, in British Columbia it’s permissible for a holding corporation to own shares of the MPC (What Happens to Your Medical Practice Corporation After You Retire?) (so a doctor can structure an Opco/Holdco). In Ontario and Alberta, holdcos cannot directly own an MPC’s shares (more on that later), but some doctors achieved a similar result with a family trust or by periodically withdrawing and reinvesting funds. At retirement, using a holdco ensures that as you wind down the clinical operations, your accumulated wealth stays in a separate entity. Even if you don’t anticipate any creditors, it can protect against future surprises. Additionally, if you plan to continue a bit of practice (e.g. Dr. C in our examples later, who continues part-time), having an investment holdco plus a small operating MPC isolates the investments from any ongoing practice liabilities. In summary, a holding company can add a layer of protection for your retirement nest egg.

• Estate Planning and Flexibility: Converting to a holding company gives you more flexibility in how you pass on assets or wind them down eventually. You maintain the corporation as a vehicle that can be transitioned to your heirs in a tax-efficient manner. For instance, you could perform an estate freeze when you retire: you exchange your common shares of the MPC for preferred shares (locking in the current value), and allow a holding company or a family trust (for your children) to subscribe for new common shares that will capture all future growth in value. This way, the future investment growth inside the corporation accrues to the next generation, and your value is fixed (which can ease the tax on your eventual death). An estate freeze can be done on a tax-deferred basis (Section 85 or 86 of the Income Tax Act) so that no immediate capital gains tax is triggered () (). Later, your preferred shares (frozen value) can be redeemed or distributed to your heirs with planning. Using a holdco at retirement also means you can more easily implement dual-will estate planning (especially in Ontario). You could have one will for your general assets and a separate secondary will for your private company shares to avoid probate fees on those shares – a common estate planning strategy for business owners. Additionally, the holdco structure allows you to rollover shares to a surviving spouse or a spousal trust at death smoothly (shares of a private corporation generally transfer to a spouse tax-free upon death of the first spouse). Only when the second spouse passes would the final tax be paid. If you and your spouse both ultimately pass owning the corporation, the estate may face double taxation (once on the deemed disposition of shares, and once when the corporation distributes assets). With proactive planning, strategies like the “pipeline” method or life insurance funding can mitigate this. (A pipeline involves the estate selling shares to a new company and extracting corporate funds as a capital transaction rather than dividends, reducing the double tax.) The key point is that keeping the corporation gives you tools to manage the tax and timing of wealth transfer to your children or beneficiaries. By contrast, if you had collapsed the corporation at retirement and held everything personally, you might pay more tax upfront and have less flexibility in estate planning. Many physicians value the ability to leave a portion of their incorporated wealth inside a company to delay taxes and potentially have their estate deal with it in a planned way.

• Preserving Corporate Tax Advantages: Even though an investment holding company won’t have active business income to qualify for the small business tax rate, it can still take advantage of some corporate tax perks. For example, the corporation can pay certain eligible expenses pre-tax. Some retirees keep expenses like professional membership fees (if maintaining a license), conferences (if doing occasional consulting), or even a modest vehicle allowance within the company if they have any business activity left. A corporation can also own life insurance for estate planning, as you may have done during practice. Paying life insurance premiums through the corporation can be cost-efficient because you’re using after-corporate-tax dollars (which are taxed lower than personal in the case of active income) – one illustration showed that a doctor in a 40% personal tax bracket needs ~$16,667 in pre-tax personal income to pay a $10,000 premium, whereas if paid from the corporation taxed at 12.5%, only ~$11,428 pre-tax corporate earnings is needed (Health Professional Incorporation - Robert CPA) (Health Professional Incorporation - Robert CPA). While life insurance premiums aren’t tax-deductible, the cost is effectively lower when paid with corporate funds. Upon death, the policy’s payout can be credited to the capital dividend account and withdrawn by heirs tax-free. Using a holdco to maintain such insurance strategies is common. Additionally, corporations can make charitable donations and receive a full tax deduction, similar to individuals receiving a tax credit. A special advantage: if the corporation donates publicly traded securities with accrued gains, the capital gains tax is eliminated on those donated securities (The Navigator). The corporation also gets a deduction for the fair market value of the donation and an addition to its CDA (allowing more tax-free dividends) (The Navigator). This means charitable giving through the holdco can be very tax-efficient – you support causes you care about, get a deduction against corporate income (which could offset taxable investment income), and avoid capital gains that you’d incur if you sold assets to donate cash. In retirement, you might decide to give a portion of your accumulated wealth to charity; doing so directly from the corporation (especially in the form of appreciated stocks or mutual funds) magnifies the tax benefit.

In summary, converting to a holding company offers tax-efficient wealth management, control, and planning flexibility. It effectively turns your practice corporation into your personal “pension corporation” to fund your retirement and legacy. You keep the benefits of incorporation even after you hang up the stethoscope: lower tax on investment income (with deferral), control over distributions, potential income splitting, and a vehicle for estate/succession strategies. Of course, these benefits mainly accrue if your corporation has substantial retained earnings or assets built up. If not, maintaining a corporation might not be worthwhile, as discussed next.

When a Holding Company May Not Be Appropriate

Despite the advantages above, there are situations where converting your MPC to a holdco (or keeping a corporation at all after retirement) may not be the best choice:

• Minimal Retained Earnings: If your corporation doesn’t have much in the way of retained earnings or assets (for example, you always withdrew most income for personal use, or you’re selling the clinic assets for a modest amount), the effort and costs of maintaining a corporation may outweigh the benefits. There are fixed costs to keeping a corporation alive: annual accounting, tax returns, legal filings, possibly annual corporate registration fees, etc. If the remaining corporate assets are small (say only $50,000 of investments), dissolving and investing personally might be simpler. As one advisor notes, if an MPC holds very few assets, the tax and legal costs of converting may outweigh the benefits of continued deferral or planning (What Happens to Your Medical Practice Corporation After You Retire?). In such cases, it’s often better to distribute the funds, pay the personal tax, and close the corporation.

• No Need for Passive Income Management: Some physicians use the holding company strategy primarily to manage and defer tax on significant passive investment income in retirement. If you do not anticipate substantial investment income (perhaps because you plan to spend down the assets quickly or you don’t have investments in the corp), a holdco offers less value. For example, if you only have a small surplus that you’ll withdraw in the first year or two of retirement for a home renovation and a few vacations, keeping it in the corp doesn’t buy you much – you’ll be paying it out (and thus paying personal tax) almost immediately anyway. Similarly, if you intend to use up the corporate funds to, say, pay off debt or fund a child’s education in the near term, there’s little long-term deferral to be gained. In short, the longer your investment time horizon and the larger your asset base, the more a holdco helps. If neither is true, winding up is simpler.

• Lack of Complexity in Estate or Family Situation: If you are a sole shareholder with no spouse (or no desire to split income) and you’re comfortable simply drawing out and paying tax, a corporation might be unnecessary. Some retirees with very straightforward estates prefer to simplify and not carry a corporation into old age – especially if they have concerns about who would manage it in future. For instance, if a physician is single or widowed with no children, or all assets will eventually go to charity, the elaborate estate planning via corporation might be overkill. It could be more practical to liquidate the corporation and perhaps use vehicles like RRIFs, trusts, or testamentary gifts for any remaining wealth.

• Low Corporate Tax Rates Unavailable (No Active Income): Once your MPC stops practicing, it no longer earns active business income that qualifies for the small business tax rate. All income in a pure investment holdco is passive income taxed at about the full corporate rate (which is often ~50% combined federal/provincial for interest and other passive streams). Notably, because of federal “Passive Income Rules” for CCPCs, if a corporation (or associated group) earns more than $50,000 in passive income, it loses access to the small business deduction for active income (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth). In a retirement scenario, if you continue any active business (e.g. part-time medical work) alongside a large investment portfolio in the same corporation, the active income could be taxed at the higher general rate due to these passive income rules. For example, a corporation with over $150,000 of passive income would have its small business limit ground to zero (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth), meaning any active earnings are taxed ~26%–30% instead of ~12%–15%. If you plan to do a bit of clinical work in retirement, having it in the same corporation as a big investment portfolio can erase the small business tax benefit. In such cases, some doctors either segregate the activities (e.g. keep the MPC for active practice and move investments to a separate holdco) or decide it’s not worth doing a little active income inside the corp at all. If your retirement income will be mostly passive anyway, losing the small business rate is not a concern – but if you intended to, say, earn $100,000 of consulting income at low corporate tax, be aware that a large holdco asset base could defeat that purpose. If maintaining the corporation actually increases tax on any continued business income, one might reconsider the structure.

• Provincial Restrictions Forcing Closure: In some provinces, the law or regulatory body may not allow you to simply keep the corporation once you cease practicing, which can make conversion impractical. Alberta is a prime example: the College of Physicians & Surgeons of Alberta (CPSA) explicitly states that physicians must be actively registered to maintain a Professional Corporation, and the PC “will automatically close when the physician’s practice permit ends.” (Can I keep my Professional Corporation (PC) after I retire? - College of Physicians & Surgeons of Alberta | CPSA). In other words, in Alberta if you fully retire and give up your license, your professional corporation’s registration is effectively terminated. There isn’t a provision to just continue it as an investment company unless you take action before your permit ends (more on this in the Alberta section). If you are unable or unwilling to maintain at least an inactive license or other workaround, you might be forced to wind up the corporation at retirement. Each province has its own rules – if those rules effectively prohibit a retired physician from keeping an MPC (or converting it), then the holdco strategy might be off the table unless you find a creative legal solution. We will discuss how Ontario, Alberta, and BC differ on this front. The key takeaway is that your province’s regulations could determine the feasibility of converting to a holdco.

• Costs and Complexity: Running a corporation involves ongoing compliance. In retirement, you may not want the headache of corporate bookkeeping, multiple tax filings, and legal maintenance. Some physicians prefer to simplify their financial life as they age – consolidating accounts, eliminating unnecessary legal entities, etc. If the corporation’s benefits don’t clearly justify the hassle for you, it may not be worth it. For example, if your corporation holds a small stock portfolio that you could just as easily hold personally in a taxable account or TFSA, you might choose to close the corp and simplify, even if it means a bit more tax early on. There is also the risk of mistakes: with a corporation, you need to manage things like paying yourself the correct mix of salary/dividends, keeping track of the CDA/RDTOH balances, filing T5 slips for dividends, etc. In retirement, if you’re not comfortable doing this or paying an advisor to, those mistakes could be costly. Thus, if simplicity is a high priority and the dollars at stake are not huge, dissolving the corp can be the “sleep at night” choice.

In summary, a holding company strategy makes the most sense for physicians who have built up significant corporate wealth and want to continue the tax deferral and control into retirement. If that’s not the case – e.g., low assets, no family to split with, restrictive provincial rules, or simply a desire to simplify – then winding up or other options might serve you better. Always weigh the cost-benefit: the benefits of a holdco grow with the size of assets and the length of deferral, while the costs (monetary and effort) are more fixed.

Federal Tax Considerations for Converting to a Holdco

Converting your MPC into a holding company triggers a number of federal tax rules and planning opportunities to be mindful of. Here’s an overview of key considerations under the Income Tax Act that apply Canada-wide:

• Section 85 Rollover (Tax-Deferred Transfers): Section 85 of the Income Tax Act is a provision that allows assets to be transferred into or out of a corporation on a tax-deferred basis, provided certain conditions and elections are met. This is highly relevant if you are restructuring your corporation at retirement. For example, suppose you want to transfer investments or real estate out of your professional corporation into a new holding corporation without triggering immediate capital gains tax. A Section 85(1) rollover can be used: your MPC would transfer the assets to the Holdco in exchange for shares (and possibly a promissory note), and you file a joint election to defer the gain. This strategy is often used when a province doesn’t allow a holdco to directly own the MPC’s shares (like Ontario/Alberta). Instead of a direct share transfer, you move specific assets. Another common use at retirement is if you decide to freeze the value of your MPC: you could rollover the common shares of the MPC to a Holdco (if allowed) at a chosen value. The mechanics can be complex and require professional help, but the outcome is that assets move between corporations (or between you and a corporation) without immediate tax, preserving deferral. It’s critical that such rollovers be done before you lose the corporation’s eligibility (e.g., while you’re still an active shareholder), and in compliance with professional corp restrictions. Any Section 85 transfer requires filing the appropriate election form with CRA in a timely manner. Done right, this can facilitate moving investments to a new structure (or bringing in a new shareholder like a family trust or spouse via a corporation) as part of the conversion plan. Be aware that if the transfer is to a corporation owned by your spouse or minor children, corporate attribution rules may apply (which essentially prevent you from shifting assets to family in a way that avoids tax – the rules could attribute income back to you unless an exception is met). A qualified tax advisor will ensure any estate freeze or rollover is structured to avoid these traps (for example, by taking back shares with certain rights or electing at the right value).

• Passive Investment Income Rules: As mentioned, the 2018 federal tax changes introduced a passive income threshold for CCPCs. If your combined corporation (or associated corporations) earns more than $50,000 in passive investment income in a fiscal year, your business limit (the amount of income eligible for the small business tax rate) is reduced in the following year (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth). For every $1 above $50k of passive income, the small business limit is cut by $5. By $150k of passive income, the small business deduction is eliminated (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth). In a pure holding company, this rule is moot because you have no active business income to shelter. But if you continue any active business or have an associated corporation that does, be mindful that a large investment portfolio in your holdco could remove the small business rate on the active income. Some physicians mitigated this by separating their practice corporation and investment holding corporation so that only the practice corp’s income counts for the SBD and the holdco’s passive income is in a separate “unassociated” silo. However, the association rules usually treat a holdco and its subsidiary MPC as associated (common control). One strategy if you are continuing part-time practice is to limit passive income to $50k or less in the operating company year by year (perhaps by paying out extra dividends from Opco to Holdco or to yourself to keep investment assets lower in Opco). The key point: after retirement, if you’ve converted to a holdco and no longer have active business income, the passive income rules don’t directly hurt you (you’re just paying the high rate on passive income as expected). But during any transition period with both active and passive income, watch out for the clawback. Practically, many retiring docs accept that once they have a large nest egg in the corp, they won’t benefit from small business rates on any residual income – and they factor that into their planning (maybe by drawing that income as personal instead if it’s going to be taxed high in corp anyway).

• Capital Dividend Account (CDA): As a retired corporation, one of your best friends is the CDA. The CDA is a notional tax account that tracks the non-taxable portion of certain gains and proceeds inside a CCPC. The main contributors are: the non-taxable half of capital gains (net of capital losses), death benefits from life insurance (excess of proceeds over ACB of policy), and certain capital dividends received from other companies. The balance of the CDA can be paid out as a tax-free capital dividend to shareholders. This is a huge boon for extracting investment gains without further tax. For example, suppose your holding company sells some stocks and realizes a $100,000 capital gain. Normally, the corporation would pay tax on $50,000 (the taxable half) at the passive rate (~25% federal + provincial, some refundable). The other $50,000 goes to the CDA. You could then elect to pay yourself a $50,000 capital dividend – completely tax-free to you personally. This way, only half the gain (the taxable half) ever faces tax, similar to if you held it personally. Using the CDA effectively means the tax treatment of capital gains and certain other amounts remains favorable even inside the corporation. In retirement, you should keep track of your CDA balance. When converting to a holdco, ensure any pre-existing CDA from past gains or insurance is accounted for. You may choose to pay out a capital dividend before winding anything down or at strategic times (e.g. if you get a life insurance payout in the corporation, you’d pay that out via CDA to the heirs). Capital dividends must be properly elected and documented, but they are a powerful tool to reduce the double-tax issue on corporate investments. The holding company strategy is partially attractive because it preserves the ability to pay yourself capital dividends over time, whereas if you collapsed the corporation, future gains would just be in your personal hands (which are still 50% taxable to you – no further break beyond the personal capital gains inclusion rate). Remember: do not accidentally pay more in capital dividends than your CDA balance, as CRA imposes penalties for excess elections. Work with your accountant to time and declare these dividends.

• Refundable Dividend Tax on Hand (RDTOH): Alongside CDA, another tax mechanism to understand is RDTOH. When your corporation earns passive investment income (like interest, taxable capital gains, foreign dividends), it pays a high rate of tax, but a portion of that tax is added to an RDTOH account. When your corporation pays out taxable dividends to you (specifically eligible or non-eligible dividends, depending on the type of income), it gets a refund of a certain amount of that taxed paid. In effect, the system tries to ensure that investment income earned in a corp is ultimately taxed similar to if you earned it personally – the corp pays upfront, but on payout it can reclaim some tax so that after you pay personal tax on the dividend, the total is roughly integrated. As a retiree using a holdco, you don’t need to get deep into the formula, but the practical point is: whenever you pay yourself a dividend from the holdco, the corporation may recover some tax. For example, in 2025, for every $1 of eligible dividends paid out from the corporation, it can refund $0.385 of its Part IV tax (assuming eligible RDTOH pool). This is why many advisors say “you might as well pay out the investment income eventually because otherwise the government holds onto that refundable tax.” One strategy is to periodically “purge” the RDTOH by paying dividends to trigger the refund, especially if you can absorb those dividends at a reasonable personal tax rate (such as in years you have low other income). The conversion to a holding company doesn’t change these tax mechanics, but it means you’ll be dealing purely with passive income and refundable tax going forward. Ensure your accountant tracks eligible vs non-eligible RDTOH (there are two pools since 2019 changes) so that you pay the right kind of dividend (eligible dividends generally come from income taxed at the general rate or from eligible portfolio dividends, and carry a higher gross-up/credit to you). This can optimize your personal tax outcome.

• Tax on Split Income (TOSI): We touched on this under income splitting, but to reiterate from a compliance angle: if you plan to pay dividends to family members (spouse, adult children, etc.), be very cautious about the TOSI rules. Post-2018, any “split income” (like dividends from your corporation to a family member) could be taxed at the top rate for that family member (basically negating the benefit) unless it’s an “excluded amount.” Excluded amounts include dividends to a spouse over 65 (as mentioned), or to an adult child who was actively engaged in the business for at least 20 hours per week in any 5 prior years, or reasonable returns on capital they contributed, etc. When you convert to a holdco, technically your corporation stops being a related business (since it’s not carrying on the medical practice anymore). Some tax interpretations suggest that once the business has ceased, ongoing dividends might not be “split income” at all (Private Corporation TOSI Rules ). This is a nuanced area – effectively, the relationship between you, the corporation, and the income changes when you retire. To be safe, if you start distributing significant dividends to family, have your tax advisor sign off that they are excluded from TOSI. Failing that, one might hold off until age 65 for spouse dividends. The last thing you want in retirement is a surprise reassessment charging top tax on what you thought was a nicely split dividend. So, tread carefully and document that any family dividends meet an exclusion (for instance, document that the business ceased and thus the income is derived from property, not a related business, if taking that position (Private Corporation TOSI Rules )).

• Lifetime Capital Gains Exemption (LCGE) Planning: We discussed earlier that selling your MPC shares could qualify for the LCGE if the corporation is a QSBC. Once you convert to a holding/investment company, however, the corporation will no longer meet the “active business” asset test for a QSBC (it will be mostly passive assets). This means down the road you likely cannot sell the shares and claim an LCGE, since it won’t be a qualifying small business corp. If you think you might sell the corporation itself in the future (perhaps to a younger physician who wants the shell company with its investments? – not common, as buyers prefer active practices, not investment holdcos), then losing QSBC status is a consideration. Most often, though, once it’s an investment holdco, you will not be selling it to a third party. Instead, the “exit” is you withdrawing the assets or your estate winding it down. So QSBC/LCGE is typically moot after conversion. One planning point: if you have significant goodwill or value in the practice itself and also large investments, you could consider purifying the corporation before retirement and doing a one-time sale to use LCGE on the practice portion. For example, you might spin out the investment assets to a new holdco (via a divisive reorganization or just paying them out) and then sell the now-pure MPC to a buyer (or to a family member) at retirement, using your LCGE to shelter that gain. Then you’d be left with a holdco that has the investments. This is a complex butterfly transaction that must be done carefully to avoid anti-avoidance rules, but it’s worth mentioning for completeness. Most doctors, however, cannot really sell their practice for much (patients can’t be bought and sold in the same way as a business’s client list, though sometimes a modest goodwill or equipment sale is possible). Therefore, they opt to keep the corp and draw out the money over time rather than selling shares.

In short, federal tax law provides both the opportunities and guardrails for this conversion strategy. You’ll be navigating rollover provisions for a smooth transition, dealing with passive income taxation, and leveraging accounts like CDA/RDTOH to optimize cash flow. The key is to work closely with a tax professional when undertaking these steps to ensure elections are filed and rules are respected – mistakes can be costly, but a well-planned conversion can legitimately yield large tax savings and flexibility.

Province-Specific Rules and Requirements

Healthcare professional corporations are governed by both provincial corporation law and the rules of provincial medical colleges. As such, converting an MPC to a holding company (or using a dual-corp structure) must be done in accordance with provincial requirements. Let’s look at how the rules differ, focusing on Ontario, Alberta, and British Columbia:

Ontario (ON)

In Ontario, a Medicine Professional Corporation is created under the Ontario Business Corporations Act (OBCA) with a Certificate of Authorization from the CPSO. Ontario has strict ownership rules: only physicians licensed in Ontario can hold voting shares, and only certain family members of the physician (spouse, children, parents, and minor children via a trust) can hold non-voting shares (). Holding companies or family trusts (other than a trust for minors) are not permitted to be shareholders of an Ontario MPC (). This means during your practicing years, you cannot interpose a holding corporation as a shareholder of the MPC – the doctor must directly own the shares (with family owning allowed non-voting shares directly, not through a corp). Consequently, Ontario physicians typically cannot set up the classic Opco/Holdco structure while actively practicing (unlike in BC).

So how do you convert to a holdco at retirement in Ontario? The process is essentially to remove the professional corporation status so that these ownership restrictions no longer apply. Concretely, when you decide to stop practicing:

• You must notify the CPSO and likely surrender your Certificate of Authorization for the professional corporation. Often this coincides with resigning your CPSO membership or changing it to an inactive class. The CPSO will then no longer consider the corporation an authorized MPC.

• You need to file Articles of Amendment under the OBCA to change the corporation’s name and potentially its purpose clauses. Ontario law requires that a professional corporation’s name include “Professional Corporation” and the profession (e.g., “Dr. Jane Doe Medicine Professional Corporation”). Upon ceasing to practice, the OBCA mandates removing the term “Professional Corporation” from the name (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group). So you might rename it to “123456 Ontario Inc.” or some other holding company name. The articles can also be amended to delete any restrictions that were required for an MPC (for example, MPCs often have restrictions in their articles that the corporation only practice medicine and related activities). After amendment, the corporation becomes a regular business corporation. Importantly, it is the same legal entity – only the name and status change, not the existence. So all assets and liabilities remain with the company (there’s no need to transfer assets to a new company in this case). One law firm notes that to re-characterize an MPC as an investment holding company in Ontario, you must notify CPSO and file articles of amendment, steps with which they routinely assist physicians (Retirement Planning for Physicians | Siskinds Lawyers).

• Ensure that your share ownership structure is adjusted if needed. For example, if you had a minor child owning non-voting shares through a trust (allowed in ON for minors) or if your parents owned non-voting shares, you might want to consolidate or simplify shares once it’s a normal holdco. Since the restriction is gone, you could even issue new classes of shares or convert shares as part of an estate freeze (now you could involve a family trust or a holding company if desired, because it’s no longer an “MPC” bound by those rules). Many Ontario doctors simply keep the same share structure initially (with family non-voting shares intact) but now that it’s a holding company, you have more flexibility to, say, add your spouse as a voting shareholder, etc., if beneficial and if done properly through share exchanges. This should be done under guidance to avoid unintended tax (e.g. adding a new shareholder could be a disposition event unless via an estate freeze).

One thing to note: In Ontario, you cannot maintain an MPC after retirement unless another physician is a shareholder. Unlike BC (discussed below), Ontario doesn’t allow a non-physician to own any portion of an MPC’s voting shares. Therefore the only way an Ontario doctor could “keep” the MPC without converting would be if, say, their spouse or child is also a physician licensed in Ontario and becomes the voting shareholder in their place. In that scenario, the corporation could continue as an MPC (because it still has a physician at the helm), and the retired doctor could perhaps retain non-voting shares. However, they would no longer control the company. As RBC notes, maintaining the MPC by giving up your voting share to a physician family member means you lose control, making it an unviable option for most retirees (What Happens to Your Medical Practice Corporation After You Retire?). Practically, most Ontario doctors don’t pursue that, opting instead to convert or dissolve.

Ontario’s CPSO typically requires notification of any changes. If you simply stop renewing the Certificate of Authorization (which expires annually if not renewed), the CPSO will eventually revoke it. The corporation then ceases to be authorized to practice (and you must stop using the protected titles). It’s good practice to proactively inform CPSO and get confirmation of the status change.

In summary for Ontario: Converting to a holdco is a formal but straightforward process – change the name/articles, notify CPSO, and you’re free of the professional corp shackles. After that, you can treat it as a regular private corporation for all intents and purposes (you could even continue it federally or extra-provincially if you move, etc.). Remember to update any legal documents: for instance, if the corporation owns life insurance or property, update those to the new company name (though the CRA has clarified that a mere name change isn’t a disposition for tax purposes, and one financial advisor notes that changing the corporate name on a life insurance policy has no tax consequences since the entity didn’t change (What Happens to Your Medicine Professional Corporation When You Retire? - Levine Financial Group)). This is simply an administrative cleanup.

One more Ontario-specific tip: consider implementing Dual Wills (primary and secondary will) now that you have a holding company. Ontario levies an Estate Administration Tax (probate fee) of ~1.5% on the value of assets that go through probate. Privately held corporation shares can be covered by a secondary will that is not submitted for probate, thereby legally bypassing that fee. It’s a common practice for Ontario business owners and can save significant money for your estate if your holdco shares are valuable.

Alberta (AB)

Alberta’s rules for professional corporations are in some ways stricter. The College of Physicians & Surgeons of Alberta (CPSA) requires an active practice permit to maintain an MPC (Can I keep my Professional Corporation (PC) after I retire? - College of Physicians & Surgeons of Alberta | CPSA). This means if you fully retire and give up your license, your professional corporation cannot continue to exist in its current form – it essentially loses its right to practice and will be struck off as a professional corp. The CPSA explicitly states: “Physicians must be active on the CPSA register to maintain a Professional Corporation… The PC will automatically close when the physician’s practice permit ends.” (Can I keep my Professional Corporation (PC) after I retire? - College of Physicians & Surgeons of Alberta | CPSA). This automatic closure implies that the structure is tied to your licensure.

So how can an Alberta doctor convert to an investment holdco? There are a few considerations:

• If you plan to maintain an active registration (license) even after retiring from practice (perhaps as a non-practicing or retired member), you might technically keep the corporation active a bit longer. But CPSA’s wording suggests that if you’re not actively practicing (i.e., your permit lapses), the corp ends. Alberta doesn’t have the same concept of non-physician family shareholders for MPCs as Ontario does (in AB, only physicians can own voting shares; family members can own non-voting shares if specified – in fact AB allows spouse and children as shareholders, but not parents, under its regulations ()). However, even having family shareholders doesn’t solve the issue if you are no longer a physician. The law in Alberta (Business Corporations Act and Health Professions Act) likely requires that if there are no voting shareholders who are physicians, the corporation’s permit is revoked. If you have a physician child or spouse, theoretically you could transfer the voting share to them (similar to Ontario’s scenario) and step down. This would keep the corporation as a valid professional corp (now effectively owned by your family-member physician). You could retain non-voting shares. But again, you’ve lost control, and CPSA might still require the corp name to change if you (the original named physician) are out. Alberta’s system strongly discourages non-physicians from benefiting off an MPC.

• The more realistic approach in Alberta is to undertake a reorganization before you retire/lose your permit. One strategy is to incorporate a new holding company (Holdco) while you still have your MPC active, and transfer the assets from the MPC to the Holdco. Since AB doesn’t allow the Holdco to own shares of the MPC (corporations are not allowed shareholders of an MPC in AB ()), you can’t just do a share rollover like BC. Instead, you might do an asset transfer: e.g., have the MPC pay out some assets as dividends to you and you reinvest them into a new corporation (that triggers personal tax, though), or better, do a Section 85 rollover of assets from the MPC to Holdco. The latter would involve the MPC transferring, say, its investment portfolio to the Holdco in exchange for shares of the Holdco. Because the MPC is transferring assets, a Section 85 election can be filed (a corporation is a “taxpayer” that can elect) and the MPC would receive shares of the Holdco at a chosen transfer value (likely cost basis to defer gains). Now the MPC’s assets are largely just those Holdco shares (and maybe a promissory note for any boot). Then you could wind-up or dissolve the MPC. The wind-up of a subsidiary into a parent (if your MPC became a subsidiary of the Holdco by that share transfer) could potentially be done tax-free under Section 88 if structured correctly (requiring 90%+ ownership, etc.). Even if not, you could simply withdraw remaining minimal assets and let it dissolve when your permit ends. The net result: your investments are now sitting in a regular corporation (Holdco) that was never an MPC, and your MPC is gone when you retire. This achieves the goal of continuing the tax deferral.

• The timing is key: You’d want to do any reorganization while you still hold a valid permit – essentially before you formally retire or as part of the retirement process. The CPSA advises contacting a lawyer/accountant “before your PC ends” (Can I keep my Professional Corporation (PC) after I retire? - College of Physicians & Surgeons of Alberta | CPSA), implying that proactive planning can save you from the automatic closure problem. A professional advisor in Alberta might structure a plan where on your last day of practice, you file to cancel the professional corp status and simultaneously complete the asset transfers to a new company.

• If you do nothing and simply let your license lapse, the PC’s certificate is revoked. Likely the corporate registry could dissolve the company after a period. If that happens with assets still inside, it could be messy (there’d be an unplanned distribution of assets to shareholders with tax consequences). So an Alberta physician definitely should not just ignore the PC at retirement – one should either dissolve it properly or convert it preemptively.

• Another nuance: In Alberta, allowable shareholders (during practice) are the physician, their spouse or common-law partner, and their children (any age, it appears) as voting or non-voting as long as the physician owns at least 51% and all voting shares (). Parents are not allowed in AB. Trusts are only allowed for minors (as a legal mechanism for the child’s shares) but not as independent shareholders (). No corporations allowed. So, if you had family involved, those shares simply become shares of the holdco after conversion (if you convert in-place by amending articles once a physician is still on board – but since AB likely doesn’t allow in-place conversion without a physician, the approach is instead transferring assets to a new corp, in which case you might issue shares in that new corp to family as desired). For instance, you could have the new Holdco owned by you and your spouse (since after retirement it’s not a professional corp, you can freely allocate shares). This could actually improve your ability to income split compared to the old MPC rules (because previously maybe your spouse could only have non-voting shares; now you could make them an equal voting shareholder of the holdco if you want).

• On the provincial tax side, Alberta has one of the lowest corporate tax rates in Canada (general rate 8% provincial, 11% combined small biz rate as of 2023 (Tax Planning for Physicians - Professional Corporations - BMO Private Wealth)). But once it’s an investment holdco with no active income, the corporate rate on passive income is effectively ~50.67% (Federal 38.7% + AB 12% on investment income, with some refundable). There’s no special provincial twist here beyond the national rules.

To summarize Alberta: Plan ahead before retiring. Consider creating a holding company and moving your MPC’s assets to it under a tax rollover prior to ending your permit. Once that’s done, let the MPC lapse or dissolve it. You will then operate with the holdco going forward. Always coordinate with CPSA’s requirements – you may need to inform them of your PC’s cancellation or any changes in shareholders if you did, say, bring a physician family member on board temporarily. Given the “auto-close” rule, most retiring AB docs effectively cannot keep the exact same corporation into retirement unless they maintain some form of licensure or transfer voting shares to another doctor. Thus, the practical path is a new holdco (or simply dissolving and investing personally). It’s a bit more involved than in Ontario, but achievable with the right steps.

British Columbia (BC)

British Columbia is relatively more flexible in certain aspects. In BC, as in most provinces, only physicians can own voting shares of a medical corporation. However, unique to BC (and a few other jurisdictions like Manitoba), a holding company is explicitly allowed to be a shareholder of an MPC, provided that the holding company is 100% owned by a physician (What Happens to Your Medical Practice Corporation After You Retire?). This means a BC physician, during their practicing years, can create a Holdco and have that Holdco own (for example) 99 voting shares of the MPC and the physician personally own 1 voting share – or other configurations – as long as ultimately every share is benefically owned by a physician. In practice, BC’s College requires that the physician be the owner of any Holdco that holds voting shares in the MPC (What Happens to Your Medical Practice Corporation After You Retire?). The implication is BC doctors can establish an Opco/Holdco structure pre-retirement. They might use it to stream dividends up to the holdco regularly (which, note, inter-corporate dividends from an active sub to a parent holdco are generally tax-free under Part IV as long as both are Canadian and connected). BC also allows family members (spouse, children, parents, and trusts for minor children) to own non-voting shares, similar to Ontario, and they allow those family members to hold their shares via a trust or holding company if desired (). In fact, BC’s rules are among the most permissive: the RBC chart shows BC permits even parents, adult children, or trusts to own shares, and yes, corporations too (with the physician ownership caveat) (). So BC physicians have maximum flexibility in share structuring while practicing.

Given this flexibility, converting to a holding company in BC is often simpler: you may already have the holdco set up! For example, many BC doctors would have a holdco that owns their MPC’s shares. When they retire, they can simply continue using the holdco and wind up the MPC. One approach: if the holdco owns 100% of the MPC, they could do a vertical amalgamation or wind-up – merging the MPC into the holdco or liquidating the MPC and having the holdco receive all its assets as a tax-deferred wind-up (Section 88(1)). This effectively leaves just the holdco containing all assets. They would then inform the BC College (CPSBC) that the professional corp is no longer practicing. BC’s College of Physicians has a straightforward process: a physician must submit an “Inactive Notification” form and surrender the medical corporation permit when the corporation ceases practice (What Happens to Your Medical Practice Corporation After You Retire?). This is the regulatory step. Legally, you may either keep the corporation alive but inactive or dissolve it. Since BC allows a holdco to be a voting shareholder, one could maintain the same corporation and just change its status. However, typically the College issues a permit for a “medical corporation” – once you’re not practicing, you likely won’t renew that permit. Some BC physicians choose not to dissolve the corporation but just let it exist and not practice (it essentially becomes a holding corp). But the safer course is to amend the articles to remove medical specific references and possibly rename it, as with Ontario.

If a BC physician did not already have a holdco, they can still convert similarly to Ontario: notify the College, remove the professional designation, and continue the corp as a regular company. The advantage BC has is if you want to bring in a new holdco or trust as part of an estate freeze, it’s allowed even while you’re practicing. For example, at retirement a BC physician could transfer their MPC shares to a new holdco via Section 85 rollover without any violation of College rules (because BC permits corp shareholders). This is a clean way to set up the holdco structure at the point of retirement if it wasn’t in place earlier. Essentially, BC doesn’t trap you in the one-shareholder individual model.

To summarize BC: Converting to a holdco is relatively easy and often already implemented. The key steps are to inform the College (fill out the form, surrender permit) and handle the corporate procedure (either wind up the MPC into the holdco or amend it to become a normal company). BC doctors should ensure they follow the CPSBC rules on naming and permit surrender. Post-retirement, there’s no requirement to maintain a physician shareholder if the corp is no longer an MPC. So you could, after conversion, add your spouse or others as shareholders freely because it’s now just a regular company. While not required, you might still want to keep your medical license active in the short term if you want to ensure everything is smooth (some keep an inactive license for a year or two just in case, but it’s not needed for the corp after permit surrender).

Other Provinces: (Briefly, for completeness) Most other provinces follow similar patterns to one of the above. E.g., Manitoba also allows holding companies as shareholders (like BC). Nova Scotia is unique in that for medical corporations, they don’t restrict share ownership to family at all – as long as doctors own a majority of voting, anyone can own shares () – but in practice few outsiders would own them. In Quebec, family ownership of professional corps was recently allowed (spouse, children, parents) and holding companies are allowed too (QC tends to align with allowing trusts and such). The conversion process in any province will involve notifying the College and amending or dissolving the corp according to that province’s business corporations act. So always check your provincial requirements as you plan this transition.

The Conversion Process: From MPC to Holdco

Now let’s outline the technical process of converting a professional corporation into a holding company or setting up a dual-corporation structure. While the exact steps differ slightly by province, a general roadmap is:

1. Plan the Timing Around Retirement: Decide when you will stop (or greatly reduce) practicing and coordinate the corporate changes with that. Ideally, pick a fiscal year-end or quarter where you’ll finalize active income, and then convert the corporation after that point. Communicate with your accountant early so that final professional income can be accounted for separately if needed (especially if splitting fiscal years between active business vs pure investment). If you’re in a province like Alberta where license status is critical, plan to execute reorganization steps before surrendering your license.

2. Notify and Coordinate with Your Medical College: Before making any legal filings, consult the guidelines of your provincial College for closing or changing a professional corporation. Typically, you will need to file a notice or form indicating that the corporation will cease practicing medicine as of a certain date. The College may then issue a letter or acknowledgement. For example, BC has an “Inactive Form” (What Happens to Your Medical Practice Corporation After You Retire?); Ontario expects a letter or for you to simply not renew your annual corp registration and maybe inform them; Alberta’s CPSA would need to be informed that you’re ending practice (likely as part of ending your permit). This step ensures you are compliant and that, for instance, no one later accuses you of practicing without a permit through the corporation. Once the College is informed, you usually will need to update the corporation’s name to remove any protected professional terms. You might reserve a new name (or use a numbered company format) and then proceed with articles of amendment.

3. Amend the Articles of Incorporation: Work with a lawyer to draft Articles of Amendment for your corporation. Key changes often include: changing the name (e.g. from “Dr. X Professional Corporation” to “XYZ Holdings Inc.”), deleting any professional-specific restrictions or share clauses, and sometimes changing the share structure (if you want to implement new classes for future planning). You will submit these to the provincial corporate registry. Once approved, your corporation is legally a regular business corporation. In Ontario, for instance, after this step the corporation is no longer governed by the special professional corp provisions and is just like any other OBCA company. Ensure the timing of this is such that you still qualified to file it (if your license was needed to maintain the corp up to that point – don’t wait so long that the corp’s authorization was revoked, or you may have to revive it).

4. Reorganize Shareholdings (if needed): After conversion, you might want to reorganize who owns the company and in what proportions, to optimize your retirement planning. If you were the sole shareholder of the MPC, perhaps now you’d like to add your spouse as a co-owner to enable income splitting (especially once you’re 65+). You could do this by an estate freeze: e.g., you exchange your common shares for fixed-value preferred shares (locking in the current value), and issue new common shares to your spouse (and/or a family trust for children) that will participate in future growth of the portfolio. Because at retirement the “future growth” might not be huge (depending on how aggressively you invest), some people skip a formal freeze and directly gift or sell some shares to a spouse for a nominal amount – but caution, a direct transfer to spouse can trigger attribution rules (the Income Tax Act could attribute future income back to you if shares are gifted to a spouse for less than fair value). A proper estate freeze avoids that because you retain the current value in preferred shares; the spouse is effectively only getting future growth which under attribution rules is usually permissible if the transferor (you) keeps adequate interest (this is a complex rule – section 74.4). Generally, use professionals to implement any such transfers to ensure it’s tax-neutral and legally sound. If you already had family shareholders (spouse/kids with non-voting shares in the MPC), you might just carry on with them, but now you have the flexibility to alter voting rights or percentages since it’s a normal company (subject to tax planning considerations). For instance, you could collapse multiple classes into one, or distribute some of your shares to kids as part of an early inheritance plan, etc. This step is highly individualized – some will choose to keep it 100% owned by themselves for simplicity; others will bring in the family.

5. Adjust Corporate Documents: Update your minute book, share certificates, any shareholder agreements, and other documents to reflect the changes. Cancel the old share certificates labeled “Professional Corporation” and issue new ones as needed. If you had a shareholder agreement (common if multiple physician owners, or with family shareholders), you may need to amend it because perhaps the corporation’s purpose changed or one shareholder (the physician) stepped down. If you’re sole owner, ensure your estate plan reflects the corporation (e.g. your will mentions the shares of “NewCo” rather than “Dr. X PC”). Inform your bank if the corporation has accounts – they might need a copy of the amended articles and new name. Do the same for investment brokers (since many physicians hold their investment accounts in their corp’s name – the name change needs updating on those accounts). Generally, ensure continuity of all contracts: lease agreements, insurance policies, etc., should be endorsed to the new name.

6. Consider Winding-Up the Old Corp (if using a new holdco structure): In some conversions, especially in Alberta, you might end up with two corporations – the original MPC and a new holdco that now holds assets. In that case, you likely want to eliminate the extra company eventually. You could wind up or amalgamate the MPC into the holdco in a tax-deferred manner once the practice is done. A wind-up (liquidation) of a wholly-owned subsidiary into a parent is tax-free for most assets (section 88 rollover), but consult your accountant to do it correctly. The end goal is to simplify to a single corporation that will carry on as your holdco. If you converted in place (like in Ontario/BC via amendment), then you don’t have an extra corp – you’re already down to one.

7. Final Tax Filings and Clearances: The year you convert, you may need to file two tax returns for the corporation: one for the portion of the year it was active business (up to the date of change) and one for the period after (if there was a year-end triggered). Sometimes changing the status doesn’t technically trigger a new fiscal year (unless you formally wind up a company). But if you dissolved the MPC and started a new holdco, you’ll have a short-year return for the MPC and a new initial return for holdco. It’s also often advised to obtain a tax clearance certificate from the Canada Revenue Agency when you wind up a corporation, to ensure no taxes are owing. Because in our plan you’re not really winding up everything (just maybe the MPC, not the holdco), you might do a clearance for the MPC. Also deregister for GST/HST if the corporation was registered (most MPCs registered for GST if they had any taxable supplies like cosmetic procedures or non-OHIP services – once you retire, if the corp only earns passive investment income, it likely doesn’t need a GST number anymore). So cancel any business licenses, GST, payroll accounts (if you won’t have employees or salary anymore) for the MPC or adjust for the holdco.

Following these steps, you will have effectively transitioned into a holding company structure. The process can be done seamlessly such that there’s no interruption in, say, your investment holdings – they simply carry on under the new company name or in the new company. The biggest procedural pitfalls to avoid are forgetting to notify the College, or not properly doing the tax rollover steps, which could accidentally trigger a taxable event. With good advice, those are manageable.

Considerations for Sole Owners vs. Those with Family Shareholders

Your share ownership situation will influence your strategy:

• Sole-Owner Physicians: If you are the only shareholder of your corporation (no family members owned shares during your practice), then converting to a holdco is fairly straightforward in terms of share structure – you don’t have to navigate others’ interests. You maintain 100% ownership and simply carry on. However, post-retirement you may want to bring on a spouse or adult child as a shareholder to help split income now that it’s allowed. If so, you’ll effectively be adding a new shareholder for the first time, which must be done carefully (as described, usually via a freeze or direct share subscription at nominal value). If you remain the sole shareholder throughout retirement, you have maximal control but also no immediate income splitting (aside from the potential to pay dividends to yourself in lower-income years). A sole owner should pay attention to who will manage things in the event of incapacity or death – ensure you have a Power of Attorney that covers your shares/company or mechanisms in place so that if you become unable to manage the holdco, someone can. Also consider if you truly need the corporation or if you would be just as well off dissolving; sole owners with small estates might lean toward simplicity. But many sole-owner docs with large retained earnings keep the corp and later involve family only through inheritance.

• Family as Shareholders: Many physicians involve family members (usually spouse and possibly adult children) as shareholders of the MPC to utilize lower marginal tax rates. With the advent of TOSI, some of those arrangements became less useful between 2018 and retirement, but they still could be in place. For example, your spouse might own, say, 40% of the non-voting shares and you 60% voting of the MPC. Upon conversion to a holdco, those share percentages carry on. In retirement, the TOSI rules might no longer apply to those dividends (for reasons discussed, especially after you turn 65 or cease active business) (Private Corporation TOSI Rules ) (Private Corporation TOSI Rules ), meaning you can start actually distributing the passive income to those family shareholders as intended. That could be a big win – one of the reasons to keep the corp is now you can finally fully utilize the spouse’s low bracket without punitive tax. However, if your spouse or child never participated in the practice and you are under 65, you should consult a tax pro to confirm if dividends to them will be considered “excluded” from TOSI after retirement. (There’s some interpretative grace that they would be, since the business has ended (Private Corporation TOSI Rules ).) If not comfortable, you might hold off on heavy splitting until 65 or structure them as a shareholder loan payback, etc. Another consideration: if family members are shareholders, you should discuss with them the plans for the corporation. For instance, adult children shareholders might prefer the corporation be wound up when you retire so they can get their share of assets (although, paying them out would trigger personal tax to them as dividends). If the goal was purely tax savings and those are no longer there, some families simplify by redeeming the family members’ shares or buying them out. Redemption of shares will cause a dividend to that person (or a capital gain, depending on share basis), so plan that out. If family shareholders remain on, you now have essentially a family investment company. You might consider formalizing how it’s managed: maybe the spouse becomes a co-director, or you clarify what happens on your death to their shares (does your spouse get your shares, etc.).

• Multiple Physician Owners / Group Practices: The question focuses on incorporated medical professionals, and some MPCs involve more than one physician (if allowed). For instance, a group of doctors can sometimes form a single corporation (in some provinces) or more commonly each has their own but they might share a management company. In case of an MPC with multiple physician shareholders (partners who practice together), retirement of one doctor usually means that doctor sells or redeems their shares rather than the corporation converting (since the others are continuing to practice). So conversion to a pure holdco would only happen when the last physician of the group retires and they decide to repurpose the corp. If you are in a cost-sharing group and each had separate MPCs, then it’s an individual decision for each. But if you did have a multi-physician corporation and all are retiring concurrently, you’d each have to coordinate extracting your portion. Possibly you’d split the corporation into separate holdcos via a tax-free split (a butterfly transaction) so each doc gets their own holdco with their share of assets. That’s beyond scope, but just note that group scenarios can be more complex and typically require professional guidance to avoid unintended tax (there are strict anti-avoidance rules on split-ups).

In summary, sole owners have simplicity but might add family later, whereas existing family shareholders provide immediate splitting opportunities but require attention to tax rules. Each setup has to be handled a bit differently in the conversion.

Example Scenarios

Let’s illustrate with a few hypothetical case studies that mirror common situations:

Case Study 1: Dr. A – Sole Practitioner with Large Retained Earnings
Dr. A is a 65-year-old family physician in Ontario who has been incorporated for 20 years. She was the sole shareholder of her MPC (only she held shares, though her spouse was an employee). Over the years, she accumulated about $3 million in retained earnings invested inside the corporation. Now she is fully retiring from practice. Dr. A decides to convert her MPC into a holding company rather than dissolve it. If she dissolved, that $3M would be paid out as a taxable dividend to her, likely largely at the top tax rate (~47% in ON for non-eligible dividends), resulting in a ~$1.4M tax bill in one shot. By converting to a holdco, she can defer this.

• Process: She notifies the CPSO that she is retiring and will not renew her corporation’s Certificate of Authorization. She works with her lawyer to amend her articles, changing the name from “Dr. A Medical Prof. Corp.” to “A Holdings Inc.” and removing the restriction that it practice medicine. The CPSO confirms receipt and the OBCA amendment is approved. Now A Holdings Inc. is just a regular corporation holding her investment portfolio. Dr. A does not add her spouse as a shareholder yet; she keeps 100% ownership but notes that since she’s 65, she could pay dividends to her spouse even without making them a shareholder by first transferring some shares to him. Instead, she decides to keep things simple initially: the holdco will pay her an annual dividend of, say, $150,000 which along with other retirement income (CPP, RRIF, etc.) keeps her in a moderate tax bracket each year. This amount is sustainable because her investments generate ~$120,000/year in dividends/interest, and she’ll draw a bit on principal. The corp will recover some RDTOH on each dividend. She also sells some stocks in the corp to rebalance, generating a capital gain of $50,000 – which creates $25,000 CDA. She promptly elects a $25,000 capital dividend to herself, tax-free, on top of her regular dividend. This helps fund a trip without extra taxes.

• Outcome: Dr. A effectively uses the corporation as a retirement income vehicle. Over the next 10 years, she draws down the $3M gradually. By age 75, the portfolio is $2M (she’s withdrawn $1M net). She then does an estate plan: she executes a freeze, exchanging her shares for $2M preferred shares and issuing common shares to a family trust for her adult children. This means any growth above $2M will go to the kids. She also updates her will to have a secondary will for the corp. When Dr. A passes away at 82, the corporation still has $1.5M in assets. The preferred shares trigger a deemed disposition of $2M on her final tax return, but that is offset by the fact that the corporation can pay out much of that as capital dividends or via a pipeline to avoid double taxation. In the end, the family was able to use the corporation to spread the tax impact over decades instead of all at once in her 60s. Dr. A’s decision to convert to a holdco saved her significant immediate tax and gave her flexibility in retirement spending. It made sense because she had high retained earnings and a desire for ongoing passive income management.

Case Study 2: Dr. B – Incorporated with Family Involvement (Estate Freeze and Family Trust)
Dr. B is an Alberta orthopedic surgeon, age 60, who incorporated 10 years ago. His wife and two adult sons (ages 30 and 28) are shareholders of his MPC – during incorporation, his accountant set up a structure where Dr. B owns 100 Class A voting shares, and a family trust (with wife and sons as beneficiaries) owns Class B non-voting shares that participated in dividends. Due to TOSI, in recent years that trust structure didn’t actually save tax (dividends to the sons were taxed at top rate, so B mostly stopped paying them and just accrued earnings). Now Dr. B is semi-retiring: he plans to stop doing surgeries but will continue some consulting work say earning $100,000 for a couple more years. His MPC has $1.5M in retained investments. Being in Alberta, Dr. B knows he can’t keep the professional corp indefinitely once he fully stops practicing. Here’s his strategy:

• While still licensed and before year-end, he incorporates “B Holdings Ltd.” and implements an estate freeze: He exchanges his shares of the MPC for fixed-value preferred shares (valued at $1.5M + goodwill). The family trust (which is already in place) subscribes for new common shares of the MPC for a nominal $1. Now he does a Section 85 rollover of those freeze preferred shares – he transfers them to B Holdings Ltd. in exchange for shares of B Holdings. After this, B Holdings Ltd. owns the preferred shares (worth $1.5M) of the MPC, and the family trust owns the common shares of the MPC (which will get any growth beyond $1.5M). Dr. B owns all the shares of B Holdings (so he indirectly still has the frozen $1.5M value). Immediately after, the MPC pays a dividend of $50,000 up to B Holdings (as the preferred shareholder) – since that dividend comes from active earnings, it’s tax-free inter-corporate. He does this to start moving cash up. Dr. B then retires fully and resigns his permit. Because an active physician (him) no longer holds voting shares of the MPC, technically the MPC’s permit is no longer valid. However, since the family trust’s common shares are likely non-voting, we have a situation – but perhaps one of the sons is a physician? (If not, this exact structure might face an issue with CPSA rules – they may require dissolution since no physician voting share. Dr. B might tweak this by making one of his physician colleagues temporarily hold a voting share or by timing it so the MPC is wound up quickly.) He proceeds to wind-up the MPC into B Holdings Ltd. Because B Holdings owns preferred shares that are 100% of value, effectively B Holdings ends up with all MPC assets on wind-up, and the family trust’s common shares end up worthless (since no growth occurred between freeze and wind-up, or he could even redeem them prior). The wind-up is done tax-efficiently (B Holdings and MPC were associated; with proper advice the $1.5M transfers without immediate tax via 88(1)). Now Dr. B has one corporation: B Holdings Ltd., which holds $1.5M of investments. The family trust now holds shares of B Holdings Ltd. (depending how the wind-up was structured, possibly the trust got some shares in exchange – but let’s say he structured it that the trust gets common of B Holdings instead to carry on the freeze). Now B Holdings is a regular corporation (it was never a professional corp) with wife and sons as beneficiaries via the trust.

• Post-conversion: B Holdings now generates passive income on the $1.5M. Dr. B continues to do $100k consulting but instead of doing it in the corp (which would face general tax because passive income nixed the small rate), he does it as an independent contractor paid directly to him or through a separate new small corporation that isn’t associated (since B Holdings owns no active business now, he could incorporate a new PC for consulting if he kept his license active just for that – or more simply, just bill personally and use his personal basic exemption, etc.). The main $1.5M stays growing in B Holdings. Because Dr. B is 60, they decide not to pay dividends to the wife yet to avoid TOSI (wife wasn’t active in his practice). Instead, B Holdings pays Dr. B what he needs and maybe some dividends to the sons if they have no other income (the sons are 30 and 28 – if they’re not active in the corp, TOSI could apply, but if they each work in other jobs making decent income, perhaps they could receive about $50k dividends and pay some tax at their marginal rate, which could still be beneficial if their marginal rate is lower than Dr. B’s top rate). They proceed cautiously with tax advice on that. Dr. B’s plan is to hold B Holdings until death and use the pipeline method for his estate: He’s frozen his value at $1.5M, so when he dies, his preferred shares in B Holdings are $1.5M deemed disposition. His sons (via the trust or estate) will then have the common which got any growth. They will do a pipeline to avoid double tax on distributing the $1.5M (basically the estate will sell the shares to a new company of the sons and withdraw cash over time as a return of capital). In the meantime, the family trust can be used to distribute some dividends to the sons free of TOSI eventually because once Dr. B is out of the picture and the business was gone, the income might not be considered split income.

• Outcome: This was a complicated scenario, but it shows how a family with a trust can transition. The key reasons it made sense: Dr. B had a large amount of money in the corp and wanted to pass a lot to his kids eventually. By using a freeze, he capped his tax exposure and gave future growth to his sons. The holdco (B Holdings) allowed the assets to be preserved and managed even though the practice ended. They navigated Alberta’s tough rule by effectively moving to a new corporation that wasn’t under CPSA oversight (since B Holdings wasn’t an MPC). This saved potentially hundreds of thousands in immediate tax and set up the next generation with continued deferral. On the flip side, if Dr. B had low retained earnings or no family shareholders, he might have dissolved the corp and called it a day instead of this intricate plan.

Case Study 3: Dr. C – Partial Retirement with Continued Practice Income
Dr. C is a 55-year-old general surgeon in BC who is slowing down. He doesn’t want to give up work entirely – he plans to do about $200,000 a year in elective surgeries for the next 5 years, then fully retire at 60. His MPC has saved up $800,000 in investments. Because BC allows it, Dr. C already set up a structure a few years ago where C Holdings Ltd. (his holdco) owns 100% of his MPC’s shares. This was initially done for creditor protection and to invest surplus cash. Now that he’s entering semi-retirement, here’s his approach:

• He keeps the MPC active for the next 5 years for his surgical income, but he makes sure to regularly sweep excess profits up to the Holdco. Each year, his MPC pays him a reasonable salary to maximize RRSP (say $30k) and maybe a small dividend, but most of the after-tax profit, e.g. $100k, is paid as a dividend to C Holdings Ltd. Because both companies are in BC and connected, that dividend is tax-free to Holdco (with some Part IV tax that is refundable when Holdco eventually pays Dr. C). This prevents the MPC from accumulating too much passive income and potentially losing the small business deduction (though with $800k investments, assume ~$40k passive income, under the $50k limit, so he’s safe anyway – but if it grew over $50k, the strategy of paying up to holdco wouldn’t change the passive total since associated companies count together; however, keeping investments in holdco and not in the MPC helps the MPC’s balance sheet remain mostly active assets for QSBC status).

• At age 60, Dr. C fully retires and sells his practice’s assets (mainly some equipment and practice goodwill). Because he planned ahead, his MPC is fairly “clean” – over 90% of its assets are active (he kept the big investments in the holdco). This qualifies his MPC shares as QSBC shares. Rather than just wind them up, he actually finds a buyer: a young surgeon he’s been mentoring is willing to buy his MPC (essentially taking over his practice’s operations, billing number, etc.). The sale price is $500,000 (mostly paying for the goodwill/patient base and some transit of staff, etc.). They structure it as a share sale – the young surgeon’s holdco buys the shares of the MPC from Dr. C’s holdco (since holdco was the owner of MPC). Now, normally selling shares from one corporation to another wouldn’t qualify for the seller’s personal LCGE because the seller is a corporation (C Holdings Ltd.). However, Dr. C decides to “pipeline-out” this money rather than claim LCGE (since LCGE only helps if he personally owned the shares). He could have instead collapsed the holdco structure temporarily to own shares personally to use LCGE, but that would have taken some steps and in BC maybe he could have – but let’s say he didn’t bother because he had used his LCGE in the past on another business or something. In any case, C Holdings sells the MPC shares and now has $500k cash from the buyer. Because it was a share sale, that $500k is mostly a capital gain in C Holdings (the MPC’s book value was low). C Holdings pays tax on the $250k taxable portion (maybe ~$62k tax after refunds) and adds $250k to its CDA. It then winds up the now-empty MPC (the new owner likely renamed it and will continue it separately; or more likely the new surgeon just bought assets – but for simplicity assume share sale).

• Now Dr. C has C Holdings Ltd. with $800k investments + $500k from sale = $1.3M and no active business. He informs CPSBC and surrenders the permit for the old MPC (which he no longer owns anyway). Because his holdco was always a separate entity, there’s no additional conversion needed; it was always a normal company. He then gradually draws out funds. He can pay himself the $250k from the CDA as a capital dividend tax-free. The remaining $... he takes as dividends over time. He also has other income (personal investments, etc.), so he balances to minimize OAS clawback when he hits 65. He’s also mindful that any future gains in holdco can feed the CDA. Dr. C also, being charitably inclined, donates $100k of stocks from C Holdings to a charity, eliminating the capital gains on those stocks and getting a tax deduction in the corp which offsets some investment income (The Navigator). This helps reduce the annual tax the corporation pays on interest etc., and increases CDA (because no tax on that gain and it still flowed to CDA).

• Outcome: Dr. C utilized a dual-corporation structure effectively: the operating MPC and the holdco. This gave him flexibility to sell the practice and keep the investments separate. It also protected his investments from any unforeseen liability during those last years of practice. After retirement, he ended up with just the holdco containing all his wealth, which he will manage as his retirement fund. This scenario shows the benefit of having a holdco before retirement (possible in BC) – it made the transition seamless. The sale of the practice could also have been done personally to use LCGE if structured differently, but even without that, he got money out with a low effective tax (some inside corp and some via CDA).

Each of these cases highlights different facets: Dr. A (simple conversion to drawdown), Dr. B (complex freeze with family), Dr. C (using dual corp and partial retirement planning). Your own situation will dictate which elements apply, but many retiring physicians will see aspects of themselves in one of these scenarios.

Post-Retirement Financial Management with a Holding Company

Once your MPC is converted and you’re in the post-retirement phase, what should you be doing with your holding company? Here are some practical considerations:

• Investing Through the Corporation: Your holdco likely holds a portfolio of investments – it could be a mix of mutual funds, stocks, GICs, rental properties, maybe even an interest in other businesses. Work with a financial advisor who understands corporate investing. The tax characteristics of investments can differ inside a corp. For instance, interest income is taxed at the full corporate rate (~50% with a refund on dividend payout), eligible dividends from Canadian public companies are taxed at a lower rate in the corporation (the corp pays ~38% which is fully added to RDTOH, so effectively you’ll recover it when you pay yourself dividends designated as eligible), and capital gains are efficient due to only half being taxed and CDA creation. You might lean towards investments that generate capital gains or eligible dividends for better tax treatment inside the corp. Also be mindful of asset location: perhaps use your personal TFSA/RRSP for interest-bearing or foreign dividend investments, and keep Canadian dividend-paying stocks in the corp. If you own rental real estate in the corp, note that rental income is passive income (unless you have more than 5 full-time employees managing, which is rare for an individual’s property), so it’s taxed highly in corp but again much is refundable on payout. Real estate also has unique issues like no CDA on sale (since 100% of gain on real estate is taxable to corp aside from any depreciation recapture complexities). So some retirees choose to take real estate out personally at retirement if feasible (via a section 85 rollover at FMV, paying some tax but then holding personally to get principal residence exemption or easier transfer to heirs). Each asset class has pros/cons inside a corp.

• Drawing Income: Salary vs Dividends: After retirement, you likely won’t pay yourself a salary from the holdco because you’re not doing active work (salary from a corporation requires actually performing duties). Most retirees simply take dividends. One exception: if you want to contribute to the CPP for some reason or generate RRSP room (maybe you’re younger than 71 and want to maximize RRSP one last time), you could pay a small salary. But generally, dividends are more flexible and, at this point, you don’t need more RRSP as you’re withdrawing, not contributing. Dividends also don’t require source deductions or payroll accounts. Plan your dividend strategy in concert with your other income sources. For example, determine an annual “income budget” for yourself – perhaps you want $100k gross income per year to cover expenses and be tax-efficient. You might take $60k in dividends from the corp and rely on $40k from other sources (like pension, RRIF, etc.), or whatever fits. Eligible dividends (from the portion of corporate income that was taxed at the general rate or from received public dividends) carry a higher tax credit, which can help keep personal tax low if you have them. If your holdco has a large RDTOH balance, consider paying a sufficiently high dividend in a year to trigger a refund of that tax – essentially unlocking some cash that would otherwise sit with CRA. Keep in mind OAS clawback: if you’re 65+, the clawback kicks in around $86k of income (2025 thresholds may vary). If you want to minimize clawback, you might keep your personal taxable income just below that by adjusting dividends, especially if you have control and don’t strictly need more.

• Income Splitting and Remuneration to Family: If you have a spouse as co-owner or as a beneficiary of a trust owning shares, decide how to share the pie. For couples, it often makes sense for each spouse to receive some dividends to fully utilize both lower brackets. In the post-65 scenario, as noted, you can freely pay your spouse from the corp (either make them a shareholder or use a spousal trust mechanism) because it will be considered an “excluded amount” for TOSI (Private Corporation TOSI Rules ). Some couples equalize their incomes via corporate dividends, akin to what pension splitting would achieve if it were a RRIF – except here you have complete control of the split. If you have adult children who are shareholders, consider their tax situations: if they’re in lower tax brackets (perhaps in school, or just starting careers), you might stream some dividends to them. But if they’re high earners themselves, giving them dividends just forces them to pay more tax at high rates (unless you just want to gift them money). Another approach for children is instead of paying a taxable dividend, consider a tax-free strategy: The corporation could redeem some of their shares or reduce capital (which can sometimes return paid-up capital tax-free). Or you could plan to eventually transfer shares to them and let them wind it up after your passing (taking advantage of possibly triggering capital gains in their hands, etc.). Each method has implications, so get advice. Also remember to document any dividends with corporate resolutions and T5 slips at tax time.

• Life Insurance and the Corporation: If you have a permanent life insurance policy (whole life or universal life) in the corporation (a common strategy for high net worth individuals to shelter investment growth inside an insurance), continue to manage it wisely. The corporation will pay the premiums and on death, the insurance payout will credit the CDA. You should ensure the beneficiary structure is right – often the corp is beneficiary and then pays a capital dividend to the estate/heirs. Some retirees even consider moving a personally held policy into the corporation or vice versa at retirement depending on circumstances (transfer of a policy can trigger taxable gain if CSV exceeds ACB, so be careful). The benefit of keeping it corporate is using corporate dollars to pay premiums (cheaper in after-tax terms), and then using CDA to distribute the death benefit tax-free. If your spouse or kids are shareholders, you might arrange for a portion of that CDA dividend to go directly to them on death, aligning with your estate plan.

• Charitable Giving and Legacy Planning: We discussed donating publicly traded securities from the corp to save on taxes (The Navigator). If philanthropy is a goal, you could make annual donations from the corporation to get deductions (note: a corporation’s charitable donations can generally be deducted against income up to a limit of 75% of net income, similar to personal credits limit). If your corporation has more deductions than income (because maybe you donate a large amount relative to interest income), you can carry forward unused donations 5 years. Some physicians establish a donor-advised fund or private foundation and donate through their corporation – this yields the same immediate tax benefits but allows the giving to be disbursed over time. The earlier-cited RBC Wealth article points out that donating via the corp can yield three tax benefits: eliminating capital gains on donated securities, a tax deduction for the donation, and an increase in CDA (because the untaxed gain stillcontinues** (because the untaxed gain still contributes to CDA). In essence, your holding company can not only fund your retirement but also facilitate your legacy goals in a tax-smart way.

• Winding Down the Corporation Eventually: It’s wise to periodically re-evaluate whether you still need to keep the corporation. As you age, if the asset value shrinks or tax rules change, you might decide to wind up the holdco. Some physicians choose to start withdrawing larger amounts in their 70s to use up remaining corporate funds so that by the time they reach, say, 85 or 90, the corporation is nearly empty and can be closed, simplifying their estate. Others will keep it until death. If you keep it until you and your spouse have passed, your executor will have to deal with it. Without planning, the estate could face double or even triple taxation on those corporate assets. To avoid this, ensure your executor and advisors are familiar with post-mortem planning options (like the pipeline strategy or paying a capital dividend + taxable dividend mix to use up CDA and RDTOH efficiently). Buying a life insurance policy to cover the tax or to redeem shares can also be part of the plan to prevent erosion of value. The bottom line is: at some point, either you or your estate will unwind the corporation, so have a strategy for that. If you intend the corporation’s assets to go to your children, consider estate freezes or share transfers during your life to minimize taxes and probate. If your children don’t want to maintain an inherited corporation, the pipeline method can be used by your estate to extract the money with one layer of tax (capital gains at death) rather than two. Planning for this well in advance of your passing will ensure your heirs aren’t caught with an unnecessarily high tax bill. For instance, one financial planner noted that without planning, up to 71% of a corporation’s assets could be lost to combined taxes by the time they reach the children after both parents’ deaths – a frightening figure that underscores the importance of proper planning.

• Compliance and Administration: Even in retirement, you must continue to fulfill corporate obligations: file annual corporate tax returns (T2), pay any installment taxes on investment income, keep the corporation in good standing (annual minutes, etc.), and renew any extra-provincial licenses if you moved provinces but kept the corp from another province (or consider continuing the corporation into your new province if you relocate in retirement). If you ceased your medical license, you usually don’t have to worry about professional dues or insurance through the corp, but if you maintain a license (perhaps in an emeritus or part-time capacity), ensure you still comply with any professional corp renewal (in Ontario, once you convert, you’re no longer a professional corp so CPSO renewal stops; in BC if you kept the corp active you’d not renew permit once inactive). Most likely, you won’t deal with the college at all post-conversion except that initial notice. So corporate compliance becomes purely a corporate law/tax matter like any holding company.

• Avoiding Pitfalls: Continue to watch out for things like shareholder benefit rules – don’t use the corporate bank account to pay purely personal expenses without proper accounting (either treat them as taxable benefits or ideally just withdraw money personally and pay personal expenses from your own account). Don’t inadvertently put personal use assets on the company books (e.g., if the corporation owns a vacation property you use, that has tax implications). Keep a clear separation between personal and corporate to avoid nasty surprises (CRA can assess shareholders for benefits if you take personal advantage of corporate property). In retirement, people sometimes grow lax since “it’s my money anyway” – but as long as it’s in the corp, follow formalities.

Overlooked Risks and Common Pitfalls

We’ve touched on many risks along the way, but here is a recap of pitfalls to avoid when converting an MPC to a holding company and managing it thereafter:

• Regulatory Missteps: Failing to properly inform your provincial College and update your corporation’s legal status can lead to problems. For example, if you forget to surrender your permit or remove “Professional Corporation” from the name when required, you might technically be in breach of regulations or the corporate registry might refuse your filings. Always follow the rule: once you stop practicing, you cannot continue to call it a professional corporation. Handle the paperwork to avoid any compliance issues or fines.

• Not Planning for Passive Income Rules: If you continue a bit of practice income, don’t ignore the passive income grind-down of the small business deduction. Some doctors inadvertently lose their low tax rate and don’t realize it until tax time because their investment income was high. Either separate the corporations (if possible) or accept and plan for paying higher tax on that income. Likewise, be aware of the association rules: if you and your spouse set up two corporations to try to each get a small business limit, but you’re involved in each other’s corporations, they may be associated and share one limit. This is more relevant during active practice, but could come up if, say, you start a side business in retirement in another corp – it might associate with your holdco if you own both, which could have implications.

• TOSI and Attribution Pitfalls: As discussed, misapplying the TOSI rules can be costly. For instance, paying large dividends to an adult child who never worked in the business and is under 25 will invoke TOSI for sure (taxing at top rate). Even over 25, if they didn’t meet other tests, it can apply. If you assumed “I’m retired now so TOSI doesn’t apply” without verification, you could be in for a shock. Get clarity on whether your corporation’s income is still considered a “related business” or not. Similarly, if you reorganize shares (estate freeze etc.), beware of corporate attribution rules: if you transfer property to a corporation and a related person (like your spouse) ends up with shares, section 74.4 might impute a 5% annual interest benefit to you unless you structure the shares carefully (e.g., ensure any dividend entitlement you give away is frozen until your preferred shares get a certain dividend). These are technical tax traps that an experienced tax advisor can navigate, but DIY planners might overlook them. Always run proposed share changes by an expert.

• Estate Freeze Timing Errors: An estate freeze is powerful, but freezing too late means you locked in a very high value, missing the chance to shift more growth to the next generation. Freezing too early (when your assets are still growing fast) and then not updating it can also be problematic if circumstances change (or if asset values drop, leaving freeze shares higher than current value – potentially wasting some capital gains exemption if you had one, etc.). Also, if not done properly, the CRA could challenge the value of the shares or the structure (for example, if you froze and immediately started paying dividends to family members on new shares that seem unreasonably high relative to their equity, CRA could say it’s just a disguised dividend to you). Thus, ensure a professional valuation if the amounts are large, and follow common practices (like not declaring dividends on new freeze shares too aggressively unless justified by growth).

• Ignoring the Small Business Deduction Clawback in a Multi-Corp Setting: If you have multiple corporations (maybe you and spouse each have one, or you have an operating company and a holdco), you need to consider whether they are associated and how passive income in one might affect the other. As noted, if associated, passive income in holdco will reduce the operating company’s small business limit. Don’t be caught off guard by a higher tax bill because your holdco’s GIC interest blew past $50k. If necessary, one might purify by removing some investments (paying them out and investing personally or in a non-associated entity) to keep passive income under the threshold while you still have active business. This might not be worth the hassle for 1–2 years of partial practice, but it’s a thought.

• Corporate Dissolution Mistakes: If and when you decide to finally dissolve the corporation (holdco) down the road, do it in a tax-efficient order. Generally, you’d want to pay out any capital dividends first (tax-free) while the corp exists, and utilize the RDTOH refunds by paying taxable dividends, before distributing final capital. If a corporation is dissolved and it still had balances in CDA or RDTOH, those advantages may be lost. Also, formal dissolution should only be done after all assets are distributed. Sometimes people forget there’s a refund owing or an insurance policy still in the corp, etc. Clean it out fully. If you have substantial retained earnings at that final stage, consider doing a partial wind-up over a couple of years to take advantage of marginal rates or to trigger refunds optimally, rather than one final massive dividend.

• Legal Technicalities: Don’t forget to update things like your will (the executor needs power over the corporation’s shares), any shareholder agreements (if your spouse or kids become co-owners, have an agreement on what happens if someone wants out or on your death – to avoid conflict), and coordinate with family so they understand what the corporation means. There’s also the human aspect: some children might not understand that money in the corporation is not theirs until dividends are declared. There have been cases of disputes in families where one child is a co-owner and another isn’t, etc. Use agreements or trusts to make intentions clear to avoid fights.

• Assuming Asset Protection Where There Is None: While separating assets into a holdco can protect against certain creditors, it does not protect against your professional liability (malpractice) which follows you personally. Also, if you personally guarantee any debt (like a clinic lease or a bank loan) and that comes due, a holdco won’t shield those guaranteed obligations. Some doctors think their house or personal assets are safer if they incorporate – that’s not true for malpractice. Only adequate insurance and possibly creditor insurance on personal assets can do that. The holdco mainly helps if your corporation had other liabilities or if you fear future creditors unrelated to malpractice. It also helps shield from spousal claims if structured before a marriage (beyond our scope), but that’s another aspect of asset protection. In retirement, hopefully liabilities are few, but don’t take undue risk thinking your corp is an impenetrable trust – it’s not.

By staying aware of these pitfalls and working with qualified advisors, you can mitigate risks. A converted holding company can provide great benefits, but it must be handled with the same diligence you gave your practice finances.

Conclusion

Retirement for an incorporated physician brings both opportunity and complexity. Converting a Medical Professional Corporation into a holding company can be a highly effective strategy to preserve your wealth, defer and minimize taxes, facilitate income splitting with family, and plan for the smooth transfer of your estate. Federal tax rules provide mechanisms like rollovers, estate freezes, and dividend tax credits to support this strategy, while provincial regulations dictate the steps needed to exit the professional practice properly (especially in Ontario, Alberta, and BC with their specific requirements). The decision to convert to a holdco should be made after weighing the pros – asset protection, tax deferral, estate flexibility – against the cons – ongoing compliance and eventual tax on extraction – in light of the size of your retained earnings and your personal goals.

For many Canadian doctors, the holding company essentially becomes a “personal pension plan,” allowing them to draw retirement income on their own schedule and potentially last longer on their savings due to tax efficiencies. Those with minimal corporate assets or no desire for complexity may opt to wind up the corporation at retirement instead, and that’s perfectly valid. The key is that you make an informed choice. As we saw through the examples of Dr. A, Dr. B, and Dr. C, circumstances vary widely – from a sole retiree living off investments, to a complex family estate situation, to a semi-retiree easing out of practice. Each scenario can be navigated successfully with tailored planning.

In practice, if you decide to pursue the holdco route, assemble a team: a tax accountant well-versed in private corporations, a lawyer who can handle corporate amendments and estate planning, and a financial advisor to align the investment strategy. They will ensure compliance with steps like notifying your College (e.g. surrendering permits and amending articles), structuring any rollovers properly, and monitoring the tax outcomes (like keeping passive income below thresholds or paying out dividends to recover refundable taxes). The initial transition may incur some professional fees, but the potential tax saved and flexibility gained typically justify those costs.

Remember that laws and rules can change. Tax rates, thresholds, and even provincial policies on professional corporations might evolve (for instance, future governments could alter dividend taxation or introduce new rules affecting investment holding companies). It’s wise to stay informed with the help of your advisors. As of now, in 2025, the framework we discussed – including the new higher LCGE limit and the post-2018 income splitting rules – sets the stage for how we plan these retirements.

In closing, converting your medical corporation to a holding company at retirement is about making your hard-earned nest egg work for you under the most favorable conditions. It allows you to step away from medicine but not step away from the smart financial habits you cultivated by incorporating in the first place. By carefully executing this conversion and minding the details, you can enjoy retirement with the peace of mind that you’re maximizing the wealth you keep and minimizing the tax you pay – all while staying in control of your financial future and legacy. Always consult with your professional advisors for personalized advice, but hopefully this comprehensive overview has given you a solid understanding of the considerations and possibilities in this important transition.