RRSP vs Corporate Investing for Physicians – 2025 Cross-Canada Update

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

Introduction

Incorporation offers Canadian doctors a tax-deferral opportunity: you can either retain surplus income inside a professional corporation to invest, or withdraw it (paying personal tax) and invest in a registered plan like an RRSP. The classic question is “RRSP or invest in the corporation – what’s better for doctors?”. Originally explored with an Alberta focus, we now update and broaden the analysis for physicians across Canada, using 2025 tax rates and rules. We’ll highlight differences for Ontario, Alberta, andolumbia (while noting other provinces where relevant) and provide real-world case studies. Key topics include tax treatment, withdrawal strategies, estate planning, CPP/QPP, alternative investments (real estate, insurance), and annual decision-making frameworks. All data and examples reflect 2025 federal and provincial tax rates and current laws, ensuthe most up-to-date guidance.

Why this matters: Effective retirement planning is crucial for busy physicians. Choosing between RRSPs and corporate investments can significantly impact your after-tax wealth. Tax rates vary by province and have changed in recent years, and new rules (like the Tax on Split Income (TOSI) and passive income limits) affect strategies. By understanding the 2025 landscape, incorporated doctors can make informed decisions to maximize after-tax retirement income and meet their financial goals.

We begin with an overview of the tax landscape for doctors in 2025, then dive into comparing RRSPs vs corporate investing, followed by planning considerations and detailed examples from different provinces. All information is sourced from authoritative Canadian financial experts and official data for accuracy.

2025 Tax Landscape for Physicians: Corporate vs Personal

Physicians’ financial decisions hinge on tax rates – both corporate and personal. In 2025, tax rates in Canada remain progressive federally and provincially, but there are notable differences across provinces. Table 1 summarizes key tax rates relevant to an incorporated physician in three provinces (Ontario, Alberta, and B.C.):

Table 1: 2025 Tax Rates – Personal and Corporate (Selected Provinces)

Tax Rate (2025) Ontario Alberta B.C. Top personal income tax rate (combined) 53.53% 48.00% 53.50% Small business corporate tax rate¹ ~12.2% ~11.0% ~11.0% General corporate tax rate (above SBD) ~26.5% ~23.0% ~27.0% Top tax on eligible dividends (personal) 39.34% 34.31% 36.54% Top tax on non-elig (Individual Pension Plans - How physicians may benefit - Pyle Wealth)ends (personal) 47.74% 42.31% 48.89%

¹ Small business rate on act (Individual pension plans - Daniel Faust - RBC Wealth Management)s income up to the small business limit (generally $500,000 federally, with some provincial variations). Above that, the higher general corporate rate applies. Combined rates include federal and provincial tax.

Key insights:

• Personal taxes: The top combined personal income tax rate is about 53.5% in Ontario and B.C. (which have the highest provincial rates) versus 48% in Alberta (which has a lower provincial rate). Most other provinces fall somewhere in between. This means an Ontario or B.C. doctor pays over half of each additional dollar in the top bracket as tax, whereas an Alberta doctor pays just under half.

• Corporate taxes: Thanks to the Small Business Deduction (SBD), active business income of a Canadian-controlled private corporation (CCPC) (such as a professional corporation) is taxed at a low rate – roughly 11% in Alberta/B.C. and 12.2% in Ontario on the first $500,000 of practice income. Income above the SBD limit (or if the SBD is ground down by passive income, discussed later) is taxed at general corporate rates (~23% in Alberta, ~26.5% in Ontario, ~27% in B.C.). These small business rates allow significant tax deferral: a doctor’s corporation initially pays 11–12% instead of the ~50% that the doctor would pay if they took that income personally.

• Dividend taxes: If corporate earnings are later paid out as dividends, the shareholder pays personal tax (Individual Pension Plans - How physicians may benefit - Pyle Wealth)ividends. Eligible dividends (from income taxed at the general rate) get a dividend tax credit, yielding lower tax (e.g. ~39% top rate in Ontario) than non-eligible dividends (from income taxed at the small biz rate, ~47.7% top in Ontario). Alberta again has lower dividend tax – top ~34% eligible, ~42% non-eligible. These differences affect the integration of corporate vs RRSP strategies, as we’ll see.

Tax Integration: In a perfectly neutral tax system, earning income through a corporation and then paying yourself (salary or dividends) should result in roughly the same total tax as earning it directly. Canada’s tax system is designed to integrate corporate and personal taxes, and for the most part it succeeds: “combined corporate and personal taxes would equal the tax paid by an individual on the same income” in an ideal scenario. In reality, minor “tax costs” or “tax savings” arise depending on province and whether you take salary or dividends. For example, paying dividends instead of salary can cause a (RRSPs and TFSAs: Smart choices for business owners) cost of ~0.3%–7.5% in most provinces (meaning slightly more total tax), except in rare cases like New Brunswick which actually sees a slight tax saving. For active business income eligible for the small business rate, these differences are marginal – on the order of a few percentage points in tax cost or savings either way. This suggests no huge tax arbitrage between salary vs dividends for most provinces in 2025discuss salary vs dividend specifically in the RRSP context next.)

Tax Deferral: The real advantage of incorporation is the deferral of taxes. Table 1 shows that a corporation might initially pay ~11% tax on practice income that, if taken as personal income, would face ~48–53% tax. This difference (let’s say ~40% on average) is tax deferred – not avoided. It means more money stays invested upfront. CIBC’s analysis shows the tax deferral on small business income ranges from about 32.5% (in low-tax provinces) up to 43.3% (in higher-tax provinces). Even on general-rate income (if you’ve exhausted the small business limit), a deferral of ~17.5%–27% remains. Deferral = immediate investing advantage. For example, an incorporated physician in Alberta keeping a dollar in the corporation could have up to $0.37 more to invest (per dollar of pre-tax income) than if they withdrew it and paid tax personally. In Ontario or B.C., the upfront advantage is even larger (over $0.40 per dollar). This extra pretax capital can compound over years – but remember, when you eventually withdraw funds personally (as salary or dividends), the deferred tax must be paid. The question becomes: Is it better to use this corporate tax deferral for investing, or to use RRSPs (which also offer tax deferral and tax-sheltered growth)?

Before diving into RRSP vs corporate investing specifics, one must also be aware of two special tax mechanisms for corporations with passive investments:

• Refundable Dividend Tax on Hand (RDTOH): Passive investment income earned inside a corporation (interest, rent, taxable capital gains, etc.) is taxed at high rates (~50% – roughly equivalent to top personal rates). However, part of this tax is refundable to the corporation when it pays out dividends to shareholders. In essence, the tax on passive income is prepaid personal tax – the corporation can get a refund (via RDTOH) once it distributes that income as a taxable dividend. As of 2025, there are separate RDTOH pools for eligible and non-eligible dividends, to ensure the refund matches the type of dividend paid. This prevents gamesmanship and ensures that overall, passive investment income earned in a corp and then paid out to you will be taxed similarly to if you earned that investment income personally (roughly at your top marginal rate).

• Capital Dividend Account (CDA): Half of any capital gain realized in a corporation is tax-free (since only 50% of capital gains are taxable). The non-taxable half of corporate capital gains gets credited to a notional Capital Dividend Account. Funds in the CDA can be paid out to shareholders as tax-free capital dividends. Similarly, certain life insurance proceeds add to the CDA. The CDA exists to preserve the tax-free nature of these amounts upon distribution – it’s how a CCPC can pass along untaxed amounts without converting them into taxable dividends. We’ll see the CDA’s role when discussing life insurance and estate planning.

With this tax context in mind, we can now compare RRSPs and corporate investing directly on key factors: contributions, growth, and withdrawal.

RRSP vs Corporate Investing: Comparing Tax Treatment and Growth

Both RRSPs and retaining earnings in a corporation offer tax-advantaged growth, but they operate differently:

• RRSP (Registered Retirement Savings Plan): Contributions to an RRSP are made with pre-tax dollars (you get a tax deduction for contributions). Investments inside the RRSP grow tax-deferred, and withdrawals are taxed as regular income. In essence, an RRSP allows you to delay personal tax on a chunk of income from your high-earning years to a future year (ideally when your tax rate may be lower in retirement). However, RRSP contributions are limited – in 2025 the maximum contribution is 18% of 2024 earned income up to $32,490. (This is up from $31,560 for 2024. For reference, an income of about $180,500 in 2024 is needed to get the full $32,490 of RRSP room in 2025.) Earned income for RRSP purposes includes salary and professional income, but not dividends. So, to gene, an incorporated doctor must take sufficient salary from the corporation. If you only take dividends, your RRSP contribution room will be zero.

• Investing via Corporation: If a physician leaves surplus earnings inside the corporation (bey (What you need to know about the 2025 RRSP contribution limit)they need for living expenses), those dollars face the low corporate tax (11–12% on active income under the SBD). The net after-corporate-tax amount can then be invested in a corporate investment account (often in a portfolio of stocks, bonds, etc., held by the corporation). The investments grow, but unlike an RRSP, they are not fully tax-sheltered – the corporation must pay tax on any investment income each year (interest, dividends, realized capital gains), typically at about 50%. However, as noted, a portion of that tax is refundable when paying dividends. Effectively, the corporation acts like a tax deferral vehicle: it defers the major chunk of tax from the initial earning (e.g. deferring ~40% tax until later). The growth on investments is partially taxed along the way, but with planning (e.g. emphasizing capital gains which are only half-taxed, or using tax-efficient funds), the effective annual tax on investment growth can be minimized. Crucially, when you eventually withdraw money from the corporation for personal use, you’ll pay personal tax (either as salary or dividends, depending on how you take it out). That is when the deferred tax bill comes due.

So both strategies involve deferring taxes:

• RRSP defers personal tax on the contributed amount (which is taxed on withdrawal instead).

• Corporate retention defers personal tax by paying only corporate tax upfront (with personal tax to be paid when funds are taken out later).

Which yields more after-tax wealth? The answer can be complex and depends on many variables (current vs future tax rates, investment returns, how long money is invested, etc.). However, extensive analyses by experts have shown some general trends:

• If personal tax rates at contribution and withdrawal time are the same, an RRSP and investing in a corporation can end up providing very similar after-tax outcomes, provided all surplus is eventually withdrawn and taxes paid. Jamie Golombek (CIBC) illustrates that if tax rates remain constant, investment income in an RRSP or TFSA grows effectively tax-free, giving them an edge, whereas corporate investments are at a slight disadvantage due to the annual tax drag. In fact, a seminal 2017 analysis by Ben Felix (PWL Capital) demonstrated that an RRSP (and TFSA) will yield a larger after-tax lump sum in the future than a corporation, assuming full liquidation at retirement. The RRSP’s advantage was even more pronounced if your tax rate drops in retirement (since you got a deduction at a high rate and pay tax later at a lower rate).

• A 2025 CIBC report concurs: “withdrawing excess funds from a corporation and investing in an RRSP or TFSA may be the better choice for many business owners”. Essentially, taking advantage of the personal tax-sheltered accounts (RRSP/TFSA) often beats leaving the money in the corporation, especially when considering long-term compounding.

• The type of investment income matters. If the corporation’s investments are very tax-efficient – for example, primarily unrealized capital gains (like buy-and-hold stocks or swap-based ETFs that defer realizations) – the corporate tax drag is reduced. In such cases, the corporation comes closer to matching an RRSP. Golombek notes that a portfolio generating only deferred capital gains could allow the corporation’s strategy to approach or even slightly outperform, due to the ability to use the CDA for the untaxed half of gains and delay realizing gains indefinitely. But a typical balanced portfolio (with dividends and interest) inside a corporation will experience yearly taxation that an RRSP avoids.

• Tax rate changes: If future ps drop (e.g. you move to a lower-tax province in retirement, or your income is much lower), the RRSP becomes more attractive because you deduct at a high rate and include at a lower rate. If future tax rates rise, the RRSP’s advantage diminishes (TFSA would be superior in that case as it’s tax-free out, but TFSA has limited room).

• Integration quirks: integration were perfect and you ultimately pay the same total tax, investing via the corporation vs RRSP might yield the same. But in practice, small differences exist. For example, if a doctor only pays themselves in dividends (no salary), they avoid CPP contributions (more on that later) and also avoid RRSP room. Some accountants argue that skipping CPP (and reinvesting those savings) could tilt the scales toward the corporation in some scenarios. On the other hand, paying dividends means the corporation will eventually have to pay out non-eligible dividends (from income taxed at the small biz rate) which are taxed at higher personal rates than eligible dividends – this slightly worsens the personal tax outcome. In Ontario 2025, for instance, distributing an extra $100,000 as non-eligible dividends would incur about $700 more total tax than paying it as salary (a 0.7% “tax cost”). Alberta’s difference is similar (roughly 0.7% cost for dividends). These small costs mean there is no massive benefit to purely using the corporation for retirement saving if you’re ultimately going to withdraw the money; the RRSP often comes out ahead or at least very close.

Bottom line: For most incorporated physicians, maximizing RRSP (and TFSA) is generally beneficial, even if it means taking some salary out of the corporation, because the tax-deferral and tax-free investmen (What you need to know about the 2025 RRSP contribution limit)in those registered plans outweigh the slight loss of corporate deferral. Any remaining surplus can still be invested in the corporation. In other words, it’s often not an “either/or” but a combination: use RRSPs first, then invest extra funds corporately (or in a TFSA if room exists).

To illustrate, suppose Dr. A (Ontario) has $100,000 pre-tax she doesn’t need for current spending:

• RRSP route: She pays herself additional salary $100,000, pays personal tax on it but contributes $100,000 to her RRSP (generating a deduction that offsets the income). Net effect: that $100k is now in her RRSP growing tax-free. (She had to pay ~$11,000 in CPP contributions on that salary, which is a consideration, but ignore for now). In retirement, if she’s in a lower bracket, say 40%, she’ll pay ~$4draw it, netting $60k (plus all the investment growth which also gets taxed at withdrawal).

• Corporate route: She leaves $100,000 in her corporation. The corporation pays ~12.2% tax (Ontario small biz rate), leaving ~$87,800 to invest. That grows, but say part of the returns are taxed a bit each year. When she retires, she pulls the money out as dividends; suppose total personal tax ends up ~40% on those dividends (taking into account RDTOH refunds, etc.). On withdrawal, she’d pay roughly $35k in personal tax (40% of ~$87.8k, if we ignore growth for the moment), netting about $52-53k. Result: The RRSP route gave ~$60k net vs corp ~$52-53k net on the original principal in this rough example – a notable difference. The gap could narrow if the corp invested very tax-efficiently or if Dr. A stays in the top bracket in retirement (making her RRSP withdrawal tax ~50%), but generally the RRSP holds up well or wins.

Every individual’s numbers will vary. The critical point is to examine the long-term after-tax result, not just the immediate tax. Many doctors incorporate expecting the low corporate tax to automatically mean more after-tax wealth, but without an RRSP they might end up with a larger tax bill later. Multiple studies (PWL 2017, CIBC 2018/2025) conclude that most high-income professionals are best to utilize RRSPs and TFSAs for retirement saving, and treat corporate surplus as a secondary investment vehicle.

That said, there are some strategic considerations and exceptions:

• If a physician plans to leave money invested and not withdraw it personally (but rather pass it to heirs or charity), the corporate route can have estate planning advantages (discussed later). Essentially, if the final withdrawal as personal income is avoided or minimized, the corporation’s deferral advantage can shine.

• Current cash flow needs vs future: If a doctor needs all their earnings for living expenses, they’ll be withdrawing everything anyway (salary/dividends) and likely maximizing RRSPs as part of that. If they don’t need it all, they have flexibility to defer in corp or RRSP.

• Passive income rules: If the corporation’s passive investment income gets too high, it can erode the small business tax rate on the practice income. One way to mitigate that is to withdraw funds and invest in an RRSP/TFSA personally, thereby reduncome inside the corporation. This is an important annual consideration addressed below.

Next, we will explore how money comes out of these vehicles (withdrawal strategies) and the implications for retirement income, including government benefits like CPP and OAS.

Withdrawal Strategies and Retirement Income

RRSP Withdrawals: Eventually, RRSPs must be converted to a RRIF (Registered Retirement Income Fund) by the end of the year you turn 71, and then minimum annual withdrawals are required. Withdrawals from RRSP/RRIF are taxed as ordinary income at your full marginal rate in whatever province you reside in retirement. A key benefit is that RRSP/RRIF withdrawals qualify as “pension income” for income splitting and credits after age 65. This means a physician can split up to 50% of RRIF withdrawals with a spouse for tax purposes (if the spouse is in a lower bracket), and can also claim the $2,000 federal pension income credit (and corresponding provincial credits) against such income after age 65. By contrast, dividends from a corporation are not eligible for pension splitting (unless the spouse is a shareholder and receives dividends directly, which is constrained by TOSI rules until age 65 – more on that below). So RRSPs offer a built-in income-splitting mechanism in retirement for married doctors.

Optimal strategy with RRSPs is often to withdraw gradually and smooth your income over retirement to avoid creeping into very high brackets or triggering OAS clawbacks. For example, a doctor with a large RRIF might start withdrawals in their 60s (even before required) to take advantage of lower brackets, rather than waiting and then facing large mandatory withdrawals at 72+. Good planning can minimize taxwals and preserve government benefits.

Corporate Withdrawals (Salary vs Dividends): An incorporated physician has flexibility in how to pay themselves:

• Salary: Deductible to the corporation (reduces corporate tax) and taxed as personal employment income. Salary creates RRSP room year) and requires paying into CPP/QPP up to the annual maximum. Salary is also subject to provincial payroll taxes or WCB in some provinces and allows the corporation to contribute to a pension plan (IPP or group RRSP, etc.) if set up. In retirement, one might pay themselves a salary from the corporation (if still actively working part-time in the corp) but generally by retirement age most doctors stop drawing salary and switch to dividends or wind up the corporation.

• Dividends: Not deductible to the corp (come from after-tax corporate profits) and taxed in the shareholder’s hands with dividend tax credits. No CPP on dividends, and dividends do not create RRSP room. For an inactive retired doctor’s corporation, dividends are the typical way to get funds out.

A common approach while working is to pay just enough salary each year to maximize RRSP contributions and CPP benefits, then take any additional needed cash as dividends. For example, if the RRSP limit is $32,490 (2025) which requires about $180k salary, a docto180k salary and any further distributions as dividends. This “best of both worlds” approach ensures full RRSP room and the retirement benefits of CPP, while still using dividends for flexibility. BMO notes that “often physicians will draw sufficient salary to allow maximum RRSP contributions, and pay additional income in the form of dividends”.

CPP/QPP considerations: CPP (Canada Pension Plan) or QPP (Quebec Pension Plan) is essentially a forced savings/pension program. As an employee (which a doctor can be of their own corporation), you contribute a percentage of salary up to a yearly maximum, poration matches it (as employer). In 2025, the CPP contribution rate is 5.95% employee + 5.95% employer on earnings up to the Year’s Maximum Pensionable Earnings (YMPE, which is $69,700 for 2025). This means if you take at least $69,700 in salary in 2025, the total CPP cost is about 11.9% of that (approximately $8,300 from you and $8,300 from the corp). In exchange, you earn CPP benefit credits toward your retirement pension. If an incorporated physician opts for only dividends and zero salary, they pay no CPP – saving that ~11.9% contribution – but they also get no CPP credits for that year. Some physicians view CPP as a reasonably good investment (a indexed lifelong annuity in retirement, akin to a bond). Others feel they can invest the 11.9% themselves and possibly earn more. There is no universally correct answer; it depends on one’s confidence in investing, longevity expectations, and desire for a guaranteed income floor.

Important: If you do not contribute to CPP/QPP for many years, your CPP retirement benefit will be lower. A physician who incorporates right after residency at 30 and takes only dividends till 65 would have contributed $0 to CPP for 35 years – resulting in minimal CPP benefits. On the other hand, a physician who pays themselves at least the YMPE in salary each year will maximize CPP credits and on retirement (65 or later) could receive a significant CPP pension (the maximum CPP at 65 in 2025 is around $15,043/year if fully contributed). Deciding whether to take salary (and CPP) or not is part of the annual planning (see further below). Quebec doctors: QPP contributions are slightly higher than CPP (to account for QPP’s different funding), but the concept is the same. QPP maximum pension likewise requires contributing over your career.

OAS clawback: Old Age Security is a federal benefit starting at 65. High-income retirees must repay OAS at a rate of 15% for incomes above a threshold (~$93,454 for 2025). For very high incomes (around $150k+), OAS is fully clawed back. How does this relate to RRSP vs corporation?

• Large RRIF withdrawals in your 70s could push income into the clawback zone, effectively adding a 15% marginal cost on top of regular tax. For example, if a doctor has a big RRSP that converts to a RRIF, they might have to withdraw, say, $100k/year in their 70s, which could claw back all their OAS. Corporate dividends also count as income for OAS clawback. However, if one keeps money in the corporation, one could choose to withdraw just enough each year to stay below the clawback threshold (drawing on non-registered savings or TFSA for additional needs, or delaying withdrawals). There is some flexibility: you could even defer OAS to age 70 for a higher benefit if you expect high income at 65-69, etc.

• Some advanced strategies involve loaning money to a family trust or using prescribed rate loans to spouse to shift investment income, but those go beyond RRSP vs corp scope (and TOSI limits many such tactics for private corporations).

Retaining earnings into retirement: Some physicians accumulate a large investment portfolio inside their corporation during working years and then at retirement have essentialholding company** to draw income from. You can think of the corporation like a big “RRSP-like” pot (though not as tax-sheltered) that you tap into. One approach is to pay yourself dividends from the corporation enough to cover living expenses (and perhaps smooth out tax brackets). If structured well, a retired physician might manage their dividend withdrawals to keep themselves, say, in a middle tax bracket rather than taking a lump sum. Unlike an RRSP/RRIF, there is no forced withdrawal – you control the timing (you could even choithdraw in a given year if not needed, leaving the money to grow or to be his flexibility is a plus for the corporate strategy.

Potential pitfall: If a physician dies with a large RRSP/RRIF and no spouse beneficiary, the entire remaining RRSP is taxed as income in the final return – which often means ~50% taxation at death. In contrast, if a physician dies owning a corporation with a large investment portfolio, the estate faces a capital gains tax on the shares (fair market value of shares minus their adjusted cost base). The effective tax on those corporate assets at death may be lower than the RRSP scenario, because only the gain portion is taxed (and as a capital gain). We’ll cover this more in Estate Planning, but it’s worth noting in withdrawal planning: RRSPs are best used up (or rolled to spouse) by death, whereas a corporation can more tax-efficiently pass wealth to heirs if planned properly.

Tax on Split Income (TOSI) and retirement: Prior to 2018, many incorporated doctors would pay dividends to adult family members (spouse or children) to use their lower tax brackets – known as “income splitting.” Now, the expanded TOSI rules make most such dividends punitive: any dividends paid to family who aren’t actively involved in the business are taxed at the top rate by default. An exception is that once the business owner is 65, they can split with their spouse (dividends to spouse age 65+ are excluded from TOSI if the owner is also 65). This aligns with pension income splitting age. So a physician who plans to use their corporation to pay dividends to a lower-income spouse can only really do so freely once the physician is 65 (or if the spouse works ≥20 hours/week in the clinic, etc.). This is another relative advantage of RRSP/RRIF: with RRIF at 65, you can split with spouse regardless of their involvement in your practice. In summary: TOSI has curtailed most pre-65 income splitting via corp, so assume you’ll be taxed on dividends at your own rate (until you hit 65 and can bring your spouse in on dividends or just split RRIF withdrawals). Paying family members a reasonable salary for actual work (e.g., your spouse manages your office) is still allowed and not subject to TOSI.

To plan withdrawals smartly:

• Start with your desired retirement spending, then determine the mix of income sources (RRSP/RRIF, corporate dividends, CPP/OAS, other investments) that will fund it. he brackets:** If your corporation has a lot of surplus, you might choose to withdraw some in years between retiring and age 72 (before RRIF minimums and before OAS at 65) to take advantage of any lower tax bracket room.

• Defer what you don’t need: Money left in the corporation can continue to grow (albeit with some tax on investment income). Unlike an RRSP, there’s no age 71 rule forcing you to wind it up. Some doctors keep their corporation open well into their 80s, distributing funds only as needed or periodically as lump sums for gifting or major purchases.

• Estate plan in mind: If leaving inheritance, sometimes **not withd (What you need to know about the 2025 RRSP contribution limit)all corporate funds and instead using post-mortem strategies can save taxes (discussed next).

Estate and Succession Planning Considerations

Comparing RRSP vs corporation for estate planning reveals s (RRSPs and TFSAs: Smart choices for business owners)rences:

RRSP/RRIF at death: If you pass away with RRSP/RRIF assets and have a surviving spouse (or common-law partner), the RRSP can roll over tax-free to them. This is similar to a spousal rollover for capital property – it defers tax until the spouse withdraws the funds (or until their death). However, if you have no spouse (or upon the second spouse’s death), the remaining RRSP/RRIF balance is included in income on the final tax return (and possibly the year prior as well, via certain provisions). This typically results in a large tax hit at the highest marginal rate. For example, a $1 million RRIF would inc00k tax liability in Ontario if taken all in the final return (at ~50% rate). There are a few exceptions (RRSP left to financially dependent children/grandchildren can sometimes be rolled into annuities), but for most physicians the RRSP is fully taxable in the estate. This means potentially only ~50% of the value goes to heirs (the rest to CRA), unless a spouse can defer it.

Corporation at death: When a shareholder dies, there is a deemed disposition of their shares at fair market value, triggering capital gains tax on the appreciation of those shares. If the corporation holds a lot of investments, the share value will include retained earnings and unrealized gains. There are two levels of tax to consider: 1) the deemed capital gain on the shares in the final return of the deceased, and 2) the tax on actually extracting the corporation’s funds to heirs. Proper post-mortem planning aims to avoid double tax. Usually, executors can implement either the “pipeline” strategy or the “redemption” strategy (or a combination):

• Pipeline: After paying the capital gains tax on the shares at death, the estate can “pipeline” out the corporate assets as a return of paid-up capital (over a period of time) which can effectively allow the heirs to get the money out with no further dividend tax, using the high adjusted cost base (ACB) of shares step-up from the death. In essence, you substitute the capital gains tax for what would have been dividend tax. This can result in a single tax at ~26-27% (capital gains rate) on the corporate assets – much lower than 50%.

• Redemption: Alternatively, the corporation could pay out dividends to the estate/heirs and claim the capital dividend account where possible. Part of the dividends could be labeled as capital dividends (tax-free, using up CDA from any life insurance or past gains) and the rest taxable. This typically results in the estate getting a dividend refund (thanks to RDTOH) and paying dividend tax. If no pipeline, one might end up paying ~26% on the share gain at death plus ~35-40% on dividends = that could exceed 60%. But use of CDA and RDTOH can reduce it. Generally, professionals plan to avoid double tax.

The details are complex, but the key takeaway: A corporation allows more flexibility to minimize taxes on wealth transfer. By contrast, an RRSP is straightforward but brutally taxed if not rolled to a spouse.

Life Insurance as an estate tool: Many incorporated doctors use permanent life insurance within their corporation to address the tax on corporate assets at death. The corporation pays for a life insurance policy (with after-tax dollars, since premiums aren’t deductible usually), and when the doctor dies, the death benefit is paid to the corporation. The death benefit (minus any adjusted cost basis of the policy) credits the CDA, so it can be paid out tax-free to the heirs. Essentially, life insurance in a corp can fund the tax bill or provide a tax-free inheritance. Because life insurance payouts are tax-free, they bypass the usual dividend tax route. Additionally, using corporate-owned life insurance can be a way to invest corporate surplus in a tax-sheltered manner (we’ll discuss this in the next section on alternative investments).

Probate and estate fees: Provincial differences are notable:

• Ontario has probate (Estate Administration Tax) of 1.5% on estate value over $50k. So a $2M estate could face ~$29k in probate fees. However, RRSPs and life insurance with a named beneficiary do not go through probate (they pass directly to the beneficiary). Corporate shares, on the other hand, typically do go through the estate (unless dual-will planning is used; Ontario allows a second will for private company shares to avoid probate on those assets). Most estate planners for Ontario physicians will indeed set up a dual will if the corporation’s value is significant, thereby saving that 1.5% on the corporate assets. So, in practice, probate can often be minimized for corp assets.

• B.C. has probate fees of about 1.4% on estates over $50k. B.C. doesn’t have a dual-will mechanism like Ontario’s, so corporate shares would incur probate fees. But again, RRSPs with beneficiaries avoid probate. It might be slightly advantageous in B.C. to have investment assets in an RRSP (no probate if direct to spouse/kids) vs in a corporation (subject to probate). Still, 1.4% is far less impactful than income taxes.

• Alberta charges a flat probate fee (capped around $525). Essentially negligible in the big picture. So probate considerations are minimal for Alberta physicians’ planning – one of the advantages of Alberta.

• Quebec has no probate tax per se (notary and court fees are nominal). So not much difference there.

Beyond taxes, consider succession of the practice: Most doctors cannot really sell their practice goodwill for much value (unlike, say, a dentist who might sell a practice). When a physician retires, typically the professional corporation either gets wound up or continues as an investment holding company. If you have children or family you want to pass the corporation to, it’s possible to do an estate freeze while you’re alive – exchange your shares for preferred shares and have the child subscribe for new common shares – so that future growth accrues to them. But realistically, for pure investments, it might be simpler to just leave them the shares via your will.

Trusts and alternative structures: Some physicians set up a Family Trust while they’re working, making the trust a shareholder of their corporation (if allowed by provincial college rules – some allow only family members as shareholders, which a trust can accommodate by including them as beneficiaries). A trust could facilitate income splitting with adult children (if over 18) for education costs, etc., up until 2018. Now TOSI has neutralized that for minors and those 18–24 (the “kiddie tax” and extended TOSI apply). For older children who are full-time students, TOSI still catches them unless they fall into an exemption (rare for a passive shareholder). So trusts have lost some shine. They can still be useful for estate planning (transferring wealth or utilizing multiple lifetime capital gains exemptions in certain businesses – though a physician’s practice shares don’t qualify for the LCGE in most cases because a physician corporation’s assets are usually not all active business – they often have too high a passive component).

One lesser-known rule to mention: Lifetime Capital Gains Exemption (LCGE). This is a deduction (approx $971,000 in 2023, with an intended increase to $1,250,000 pending legislation) available on the sale of qualified small business corporation shares. Generally, a physician’s corporation could qualify as a QSBC if it meets certain tests (90%+ active business assets at sale, etc.). Ho (What you need to know about the 2025 RRSP contribution limit)st retiring doctors don’t have a market to sell their shares for a big gain – there is no acquisition of the corporation because the practice typically has minimal goodwill value (the doctor’s personal skill doesn’t transfer). Some niche scenarios (like a group practice where new doctors “buy in” via purchasing shares) might use this, but it’s not common. So the LCGE is usually not a factor in the RRSP vs corp decision for doctors, except to ensure if you have a corporation with large passive assets and you were hoping to use LCGE, those passive assets could taint the qualification. Ontario and some provinces didn’t mirror the passive income clawback for their provincial small business credit, which in theory could make more of the corporation’s value eligible, but if there’s no buyer, it’s moot.

Estate summary: If your goal is to maximize after-tax legacy to your children/heirs, a corporation can be a better vehicle than an RRSP. With proper planning (life insurance, CDA, pipeline strategy), the effective tax rate on passing corporate wealth can be around 25–30%. Passing RRSP wealth (beyond spouse) incurs ~50% tax. This is a compelling reason why very high net-worth individuals (including physicians with substantial savings) might lean toward retaining wealth in a corporation later in life rather than drawing it all into an RRSP. However, keep in mind you have to get that wealth in the corporation in the first place – which usually means either not contributing to RRSP or withdrawing early to reposition funds, which could have its own costs. Many will find a balance: use RRSPs to a reasonable extent for retirement needs and use corporate investments for any surplus intended for legacy.

In summary, RRSP vs Corporation in estate terms:

• Use RRSP/RRIF for income needs (and ideally have little left in it by second death).

• Use the corporation forght carry on to the next generation, with planning to minimize double taxation.

Next, we explore **alternative investment option corporations, and how they compare or complement RRSPs.

Alternative Investment Strategies for Incorporated Physicians

Beyond stocks and bonds, incorporated doctors often consider other inve ones are real estate and life insurance. Also, an alternative to RRSP that is only available if you have a corporation paying you salary is an Individual (IPP). We’ll examine each and how they fit into the RRSP vs corporate investing decision.

Investing in Real Estate

Personally vs Corporately: Doctors may invest in rental properties or commercial real estate. Holding real estate *personally (What you need to know about the 2025 RRSP contribution limit)ncome is reported on your T1 and taxed at your personal margih for a high-income doc could be ~48–53%). Capital gains on sale are taxed at 50% inclusion (so effectively ~24–27% at top rate). If instead the property is held in the corporation, the rental income is considered passive income to the corporation. The corp will pay roughly 50% tax on net rental income, similar to how interest is taxed, some of which is refundable when dividends are paid out. The taxable half of any capital gain on sale is taxed at the corporate rate (~50% with part refundable), and the other half goes to the CDA (can be paid out tax-free).

The net effect is that, eventually, when you extract the real estate profits to yourself, you’ll pay about the same total tax either way. If anything, due to integration, holding real estate in a corp and then paying out dividends results in an overall tax rate roughly equal to personal tax rates on rental income and capital gains. There’s not a huge tax savings either side. However, the big difference is the upfront money: If you use corporate funds to invest, you had more to start with (since only small biz tax was paid on that income). For instance, to invest $100k in a rental, a corporation could use $100k of pre-tax earnings (leaving $89k after small biz tax to invest) whereas personally you’d need to have taken out maybe $180k pre-tax to end up with $100k after personal tax to invest. So, a corp can get you into a property faster or with less “tax friction” initially. But the ongoing income is taxed heavily in corp. Some workarounds:

• Some doctors create a separate holding company for real estate (to maybe keep it separate from the medical corporation for liability or association rules reasons). Income would still be passive, though.

• Real estate can be financed with mortgages, so the rental income might be largely offset by interest and depreciation (capital cost allowance) in early years, meaning low taxable income anyway – in which case the difference between personal vs corporate is minor until the property is sold or becomes cash-flow positive.

One caution: If passive income in the corporation (including rental income) exceeds $50,000, it will start to grind down the $500k small business limit. If a doctor’s corp owns real estate that generates, say, $100k net rental income, that would erode the SBD completely (because $100k passive = reduce business limit by $5 for every $1 over $50k, so $50k excess *5 = $250k reduction; if passive $150k or more, zero SBD). Losing the small biz rate means paying the general rate on practice income – which drastically reduces the deferral advantage (e.g., paying ~27% instead of 11%). For a high-earning physician, that could cost tens of thousands in additional corporate tax annually. Thus, holding large income-generating investments inside the professional corporation can backfire. Some provinces (Ontario, NB) did not mirror this clawback for provincial tax, but the federal SBD limit still drops. To mitigate this:

• Use a separate corporation for passive investments (though if it’s associated under common ownership, the passive income still aggregates for the group for SBD test).

• Keep passive income low or invest in assets that produce mostly growth (capital gains) rather than income, to stay under $50k passive income annually.

• Or withdraw more funds (pay yourself dividends) to invest personally instead (which reduces passive income inside corp).

Principal residence vs rental: A side note – if a doctor wants to buy a house or vacation property, they might wonder if the corporation should buy it. Generally, it’s not tax-efficient for a corp to own a home that you use personally (that would be a taxable shareholder benefit). So personal home stays personal. For rentals, the above considerations apply.

Summary: Real estate can be a good investment regardless of RRSP or corporation. You cannot hold physical real estate in an RRSP (except indirectly via a REIT or through very limited/complex structures like trusts). So if real estate is part of your plan, you’ll be doing it in a corporation or personally. Using corporate retained earnings can be a convenient source of capital to invest in property, but be mindful of the passive income rules.

Corporate-Owned Life Insurance

Corporate-owned permanent life insurance (such as Whole Life or Universal Life) is a unique tool for incorporated physicians:

• Tax-Sheltered Growth: Funds invested inside a life insurance policy grow tax-free as long as the policy remains compliant (exempt). This means a corporation can use surplus cash to pay insurance premiums, effectively moving money into a tax-sheltered environment. No annual passive investment income is reported as long as earnings stay within the policy. This strategy can prevent breaching the $50k passive income threshold that would erode the small business rate.

• Estate Benefits via CDA: The life insurance payout on death is tax-free. When the corporation (as beneficiary) receives the death benefit, it credits the Capital Dividend Account, allowing those funds to be paid out to heirs tax-free. For example, if Dr. X’s corporation owns a $2 million life policy on him, when he passes the corp might add ~$2 million to its CDA and pay his estate a $2 million tax-free capital dividend. This can cover tax liabilities (like the deemed disposition on corporate investments or RRSP) and provide for the family without additional tax.

Essentially, corporate-owned life insurance can act as a “personal pension” or tax-free vault for part of your wealth:

• While you’re alive, the cash value in a Whole Life policy grows without annual tax. You can even access it via loans or certain policy withdrawals if needed (with caution to not ruin its exempt status).

• At death, it ensures a tax-efficient transfer of wealth.

Many physicians use this as a complement (not a replacement) to RRSPs. It’s particularly attractive if you’ve maxed out RRSP/TFSAs and still have surplus corporate cash, or you want to reduce corporate passive income (because investment in an insurance policy doesn’t count toward passive investment income tests). Always weigh fees and the fact that insurance ties up liquidity – it’s a long-term strategy best done with professional advice. But it can produce significant estate value; for example, one analysis noted a policy could yield more after-tax wealth for heirs than leaving equivalent funds in a taxable portfolio, especially if the physician lives to life expectancy or beyond.

Individual Pension Plans (IPPs)

An Individual Pension Plan (IPP) is a retirement plan available to business owners (like incorporated physicians) which functions as a defined-benefit pension for one person (and spouse, in some cases). It’s an alternative to an RRSP for those with a corporation:

• Higher Contribution Room: IPPs often allow larger tax-deductible contributions than RRSPs, especially for doctors over age 40. Contribution limits for IPPs increase with age; for example, a 55-year-old can shelter much more per year in an IPP than the RRSP limit. One source estimates an IPP can accumulate as much as $600,000+ more than an RRSP by retirement for a high-income individual.

• Corporation-Funded: The corporation contributes to the IPP and gets a tax deduction (like it would for salary or RRSP contributions if paying the doctor). Past service back to the incorporation date (or years of service) can often be contributed in a lump sum when starting the IPP, giving a big upfront deduction and boosting retirement assets.

• Locked-in & Defined Benefit: The IPP promises a pension benefit (often targeting the max allowed by CRA). It must be managed by an actuary with regular valuations. If the assets underperform, the corporation may need to top-up; if they overperform, future contributions might be limited. The funds are creditor-protected (like a pension) and generally locked-in (cannot be withdrawn in a lump sum easily before retirement age).

• Comparing to RRSP: The advantage is higher, forced savings sheltered from tax. The downside is cost and complexity (setup fees, annual actuarial filings, etc., usually only worth it if you’re consistently maxing RRSP and still have cash flow to do more). Also, if you wind up the corporation or leave the IPP, surplus assets might face tax or need to purchase annuities.

For physicians with no employer pension (which is most, except those in hospital salary positions with pensions like HOOPP), an IPP is worth considering around peak earning years. It works particularly well if you’re in your 40s or 50s and want to catch up for retirement in a tax-sheltered way beyond RRSP limits. For example, Dr. Patel (age 50 in Ontario) could contribute perhaps $40k+ per year to an IPP vs the ~$32k RRSP limit, scaling up as she ages, giving her more annual tax deferral. On retirement, the IPP can pay her a steady pension; any remaining funds are similar to a LIF (Life Income Fund). If Dr. Patel and her spouse pass with funds left in the IPP, the remainder can go to beneficiaries (taxed similar to an RRSP/RRIF in estate, unless rolled to spouse’s RRSP).

RRSP vs IPP: Think of an IPP as an extended RRSP for high-income individuals with corporations. If you are younger or not maxing RRSPs, an IPP likely isn’t needed yet. But for an established physician with surplus, it can be powerful. Note: IPPs do not make RRSPs obsolete – you typically have to roll existing RRSPs into the IPP when you set it up (to avoid double-dipping room). IPP rules are a bit niche, so specialist advice is essential.

TFSA and Other Accounts

We should not forget the Tax-Free Savings Account (TFSA). Every Canadian adult gets TFSA room annually ($7,000 in 2025). TFSA contributions are from after-tax dollars (no deduction, unlike RRSP) but growth and withdrawals are tax-free. For an incorporated physician, using TFSA is a no-brainer: you can either pay yourself a bit of extra salary/dividend to max the TFSA each year, or fund it from existing personal savings. While TFSA room is small relative to an RRSP, over a career it accumulates (by 2025, total room since 2009 is $102,000 if never contributed). TFSA is essentially “icing on the cake” – it won’t massively tilt the RRSP vs corporation debate, but any long-term savings plan should include maximizing TFSA because of its absolute tax-free advantage. If a physician has a spouse in a lower income bracket, the physician can gift funds to the spouse to contribute to their TFSA (no attribution on gifts that go into a TFSA).

Another new account is the First Home Savings Account (FHSA) (launched 2023) – a hybrid of RRSP/TFSA for home buying (up to $40k contributions, tax-deductible and tax-free on withdrawal for first home). It’s mostly relevant to younger physicians saving to buy a home. It doesn’t directly interplay with corporate investing, except that an incorporated doc could pay themselves to contribute to an FHSA if eligible.

Government Benefit Programs: We’ve covered CPP and OAS under withdrawal strategies. There aren’t specific “government programs” that give money to high-earning doctors (if anything, they claw back as with OAS). However:

• Enhanced CPP: By 2025, CPP is in a phase of being enhanced (higher contributions and future benefits). This means doctors contributing maximum CPP now will eventually get a bit more retirement pension than those who retired years ago. It slightly strengthens the case for contributing (via salary) since the ROI on CPP has improved for younger cohorts.

• OAS & GIS: OAS we discussed (clawback thresholds). GIS (Guaranteed Income Supplement) is only for very low-income seniors – most physicians won’t ever qualify unless they have a financial catastrophe or only low income and no assets by 65. So GIS is not part of our scenario planning for a successful physician retiree.

• Provincial Credits: Some provinces have senior benefits (like an additional means-tested payment or drug coverage) that might be lost if income is high. For instance, in BC there’s a Senior’s Supplement for low-income or certain drug plan benefits that phase out. But again, incorporated doctors aiming to have a comfortable retirement likely won’t qualify for low-income benefits anyway.

Putting It All Together – A Holistic View

By combining various tools, an incorporated physician can customize a retirement saving strategy:

• Maximize RRSP & TFSA first. These give the most tax shelter. Also consider an IPP in later years if appropriate.

• Use the corporation for additional investing, being mindful of passive income rules and aiming for tax-efficient investments (e.g., equity funds with capital gains, corporate class funds, etc., to defer taxes).

• Mitigate drawbacks: If lots of passive income, consider strategies like corporate-owned life insurance, investing some corp funds in growth assets that don’t yield immediate income, or periodically withdrawing excess to invest personally (especially if you have lower-income spouse who can invest, or to fund things like paying off personal debts, etc.).

• Plan for the long term: Recognize the strengths of each vehicle – RRSP for lifetime income, corp for legacy and flexible withdrawals, TFSA for tax-free supplemental cash, IPP for additional sheltered pension, insurance for estate tax liquidity.

In the next section, we’ll illustrate these principles in action with case studies of doctors in different provinces.

Case Studies: Doctors in Different Provinces

To make this comparison concrete, let’s examine a few scenarios. These hypothetical case studies reflect real-world decisions faced by incorporated physicians, with names and details adjusted for privacy. We’ll look at doctors in Ontario, Alberta, and B.C., highlighting how provincial differences and personal goals drive their RRSP vs Corporate investing strategy.

Case Study 1: Dr. Olivia Brown – Ontario (Mid-Career)

Profile: Dr. Brown is a 45-year-old family physician in Toronto with an incorporated practice. She earns about $300,000 after expenses. She’s married (spouse has modest income) with two kids. She wants to save aggressively for retirement and also help her kids with education in a tax-smart way. She plans to work until age 60.

The Numbers: With $300k income:

• If Dr. Brown withdrew it all as salary in 2025, she’d personally be in Ontario’s top tax bracket (~53.5%). That’s obviously heavy. Instead, she decides to split into salary + dividends:

  • She pays herself a salary of $180,000, which roughly maximizes her CPP contributions and will create the maximum RRSP room (about $32k for next year). On $180k salary, her personal tax is about $52k (Ontario) and her corporation also pays about $8k in employer CPP – leaving her around $120k net salary for living expenses.

  • The remaining ~$120k of corporate pre-tax profit she leaves inside the corporation, paying the small business tax (~12.2% in Ontario, leaving about $105k in the corp to invest).

• RRSP Strategy: Each year, she contributes the max to her RRSP (around $32k) and also contributes to a spousal RRSP for her husband to split future income (since she generates the contribution room but can put it in his name for his retirement, given he’ll likely be in a lower bracket).

• TFSA: She and her husband each contribute $7k/yr to TFSAs (funded from her net salary).

• Corporate Investments: Dr. Brown’s corporation now accumulates roughly $100k per year of surplus to invest. She works with a financial advisor to invest this in a mix of equity-heavy funds (for growth). They use tax-efficient ETFs that minimize annual distributions (focusing on capital gains). Her aim is to keep the annual passive interest/dividend income from this portfolio under $50k to preserve her small business rate. At a 4% yield, $50k income implies an invested portfolio of about $1.25M; she’s a few years away from that threshold, but by her mid-50s she might reach it. At that point, her advisor might suggest buying a corporately-owned Whole Life policy with some of the cash flow – this would redirect some surplus into a tax-sheltered insurance investment, keeping taxable passive income under control and building up a death benefit for estate.

• Outcome at Retirement (age 60): Dr. Brown retires and stops drawing salary. By 60, her RRSP has grown substantially – let’s say it’s now ~$750k. Her TFSA combined with her husband’s is ~$300k. Her corporation’s investment portfolio (after some insurance strategy and after paying for a part-time locum in final years, etc.) is around ~$1.5 million. She will use a combination of withdrawals:

  • They convert her RRSP to a RRIF at 60 and plan modest withdrawals (maybe $40k/yr) to last 30+ years.

  • She will pay herself dividends from the corporation of about $50k/yr to supplement (taxed at dividend rates).

  • Her husband will also withdraw from the spousal RRSP or get dividends from shares he owns (post-65, no TOSI issue).

  • Because she took salary in most working years, she’ll receive CPP at 65 (maybe around $12k/yr) and OAS at 65 ($8k/yr, likely partially clawed back if their combined income is high).

• Tax Difference: By using RRSPs and the corp strategically, Dr. Brown deferred a huge amount of tax from her 40s to her 60s+. All the investment growth in RRSP and TFSA was tax-free, and in the corp it was low-tax. If she had not incorporated and not done RRSP, taking $300k as personal income yearly, she might have paid an extra ~$40k tax each year. Over 15 years, that’s $600k more paid to CRA and $600k less invested. Instead, that money stayed working for her.

• Legacy: If Dr. Brown and spouse both live to, say, 90, they will likely use up most of the RRIF (which is good, as it avoids a big tax bill at death). The corporation might still have significant assets if dividends withdrawn were kept moderate. On second death, their kids can inherit the corporation via a pipeline strategy, paying only around 25% tax on the final value instead of 53%. They also get the life insurance payout (if Dr. Brown followed through on that idea), which could cover that tax cost.

Provincial Angle: Ontario’s high tax rates made the deferral especially valuable. She was careful about the Ontario probate issue: she has dual wills (one covers the corporation shares to avoid the 1.5% probate fee). Also, Ontario’s TOSI rules follow federal – she didn’t attempt to pay her kids (minors) any dividends (would be taxed top-rate under “kiddie tax”). Instead, she used a family trust to pay for their private school via reasonable salaries for modeling in clinic brochures – a minor note that a reasonable wage to a child for actual work is allowed and not subject to TOSI, but this is small potatoes.

Result: Dr. Brown’s approach illustrates a balanced use of RRSP and corporate investing. She benefits from RRSP tax-sheltering and income splitting while still leveraging the corporate low tax rate to invest more. By knowing Ontario’s tax nuances, she avoids pitfalls (passive income grind, probate fees, TOSI) and maximizes after-tax wealth.

Case Study 2: Dr. Arjun Singh – Alberta (Peak Earnings Years)

Profile: Dr. Singh is a 50-year-old anesthesiologist in Calgary. He incorporated his practice 10 years ago. His income is high: around $500,000. His spouse works in their incorporated clinic (earning $60k salary). They have two college-aged children. Alberta’s lower personal tax rates and low probate fees are favorable, but Dr. Singh’s high income puts him in planning territory where passive income rules and maximizing retirement vehicles are critical.

The Numbers & Strategy:

• Dr. Singh estimates that his family needs about $200k/year for living expenses. He aims to leave the rest invested for retirement. Initially, he thought about paying only dividends to avoid CPP, but after consulting his accountant, he decided to pay himself a salary sufficient for RRSP and IPP reasons. In 2025, he takes a salary of $221,000 from the corporation. Why this odd number? Because at $221k, his RRSP room for next year hits the max ($32,490) and it leaves room to set up an Individual Pension Plan. In fact, he had set up an IPP last year when he turned 49. The IPP allows him, at 50, to contribute an additional ~$25,000 beyond his RRSP (the exact figure is actuarially determined) for this year. The corp funds the IPP contribution, giving another deduction. Essentially, Dr. Singh is now sheltering ~$57k/year (RRSP + IPP combined) tax-deferred, far above the normal RRSP limit.

• The remaining ~$279,000 of his practice income stays in the corp (taxed at Alberta’s 11% small biz rate, leaving ~$248k to invest).

• Passive Income Rule: Dr. Singh’s corporation has accumulated about $2 million in investments over the past decade. If this money yields even 3% interest, that’s $60,000 passive income – which exceeds the $50k limit. Indeed, in 2024 he already started losing part of his small business deduction due to passive income. To combat this, he’s taken steps:

  • He purchased a commercial building via the corporation for his clinic (partly as an investment). The rental income from renting offices to a couple of other healthcare providers is passive, but much of it is offset by expenses and depreciation, so net rental income is low for now.

  • He also bought a corporate-owned Whole Life insurance policy last year, putting $50k/year of surplus into it. This removes that money from generating taxable interest and instead it grows in the policy. By age 65, the policy will have a death benefit of ~$1.5M and cash value perhaps $800k (available via loans if needed). Meanwhile, that $50k/year does not count toward the passive investment income test.

  • Even with these strategies, he expects some years his passive income might be, say, $75k. Alberta applies the federal grind: for every $1 over $50k, you lose $5 of the $500k small business limit. At $75k passive, he loses $125k of the small business limit (so only $375k of his active income enjoys the 11% rate, the rest $125k is taxed at 23% general rate). This effectively costs him an extra ~$15k in tax. He considers that manageable, but it’s a flag.

• Withdrawal & Retirement Outlook: Dr. Singh plans to work another 10 years. By 60, his IPP is projected to provide a defined benefit pension of ~$100k/year at 65. His RRSP might be ~$500k by then (but note: once an IPP is set up, additional RRSP room is limited – indeed he rolled some RRSP into the IPP). His corporation could have $4–5 million in assets by 60 (if markets do well). However, he might start winding down the corporation or purging some retained earnings earlier:

  • Starting at 55, once kids are through school, he and his spouse decide to “purify” the corporation by paying out some extra dividends each year to use up their lower tax brackets and recover RDTOH. For example, at 55 he pays himself a $100k eligible dividend (from a portion of earnings taxed at general rate) to trigger a refund of some refundable tax and to begin moving money out at reasonable tax rates.

  • His spouse, now an employee and also a shareholder (allowed in Alberta), has been actively working in the business, so they qualify for a TOSI exclusion (spouse is actively engaged >20h/week). Thus, he can pay her dividends as well without top-rate tax. They start splitting dividends – say $50k to spouse, $50k to him – in their 50s to slowly draw down the surplus.

• At Retirement (65): He will have CPP (max, since he paid salary) around ~$15k, OAS (likely fully clawed back due to high income). His IPP will pay $100k (fully taxable but eligible for pension splitting with spouse). If that and CPP are plenty, he might leave the rest of the corporate investments intact and just let them grow or selectively withdraw for travel or gifts. If he doesn’t need the money, he may even keep the corporation for his heirs.

• Estate Plan: With a large corp, Dr. Singh’s estate plan uses the pipeline strategy. His will leaves the shares to his two children. Upon his death (say at 85), the corporation might have, who knows, $8M of investments (just an illustration). The capital gain on his shares in his final return might be say $7M (if his shares ACB was $1M initially). That triggers roughly $7M * 26% = ~$1.82M tax. His life insurance of $1.5M will help pay that. Now his kids inherit the shares with a stepped-up ACB of ~$8M. They can then withdraw the $8M from the corporation over time as a return of capital (via pipeline) with little to no further tax, or pay themselves capital dividends if CDA exists. Essentially, the $1.82M tax is all that’s paid on $8M of assets – an effective rate of ~23%. If instead that $8M had been in Dr. Singh’s RRSP, the tax would have been ~48% (over $3.8M!). This showcases why Dr. Singh purposely left money in the corp vs an RRSP beyond what he needed – it saved his estate potentially millions in taxes. Alberta’s no-probate advantage also means minimal estate fees on that corporation’s value (just $525).

Provincial Angle: Alberta’s low tax rates meant the initial personal deferral benefit was slightly less than in Ontario, but still significant. The bigger factor for him was the passive income rule (federal) – no provincial difference there except Alberta did adopt the clawback too. One unique Alberta thing: his family members can be shareholders (permitted by provincial law), which allowed him to involve his spouse actively and consider adult children as shareholders after 18 (though with TOSI that didn’t help until they worked in the clinic). In some provinces, only physicians or their spouse can be shareholders, limiting planning.

Result: Dr. Singh’s case highlights how a very high-income doctor can utilize all available tools: salary for RRSP & IPP, corporate investing, spousal involvement for income splitting, life insurance, and strategic use of dividends to manage passive income. The Alberta context helped with lower tax drag and trivial probate, and he tailored his plan as such.

Case Study 3: Dr. Sophia Li – British Columbia (Nearing Retirement)

Profile: Dr. Li is a 65-year-old specialist in Vancouver. She has been incorporated for 20+ years. She’s now winding down practice to half-time and thinking about retirement at 68. B.C.’s tax rates are high at the top end (similar to Ontario’s ~53.5%) and B.C. has probate fees ~1.4%, so she wants to minimize taxes and fees.

Situation: Over her career, Dr. Li paid herself a modest salary (around $100k) and took dividends for the rest. She has an RRSP worth ~$600k. Her corporation has about $2.5 million in an investment portfolio (she didn’t invest in real estate or insurance; mostly stocks, bonds, some GICs). Now she must decide how to fund her retirement:

• She could start withdrawing from her RRSP/RRIF right away or delay until 71. Her husband is 67 and has a small pension. They want to minimize OAS clawback if possible (threshold ~$93k in 2025).

• At 65, Dr. Li is eligible for OAS (~$8,300/yr) and CPP (she contributed some CPP, though not max, since she took smaller salary; her CPP is about $9,000/yr). If she withdraws too much from RRIF or corp, OAS will be clawed back $0.15 per $1 over the threshold.

• Strategy: She decides to do a gradual drawdown:

  • Starting at 65, she draws dividends from her corporation of $60,000/year. Dividends are tax-efficient; at $60k of eligible dividends in B.C., her approximate tax rate is about 13% on that portion (because of dividend credits and her overall income level).

  • She also withdraws ~$30,000 from her RRSP each year from 65 to 71, even though she isn’t forced to yet. This is to utilize her and her husband’s lower tax brackets and to reduce the RRSP before 72 (to avoid very large RRIF minimums later). She splits $15k of the RRIF withdrawal with her husband (pension splitting, since she’s over 65). This keeps each of their incomes in a moderate range.

  • Her total income is thus around $60k dividends + $30k RRIF + $9k CPP + $8k OAS = ~$107k. This will trigger some OAS clawback (income over $93k by ~$14k, so clawback ~$2,100). She’s okay with that – it’s a minor reduction. (If she wanted zero clawback, she could have limited dividends to maybe $45k, but she wanted the extra spending money.)

  • Because her dividends are eligible (from general-rate taxed investments) and some are non-eligible (from small biz taxed ret earnings), she works with her accountant to sequence them in a tax-savvy way. She had some RDTOH balance from interest income; by paying herself a non-eligible dividend, the corp got a tax refund credit, which effectively lowers the net tax on that dividend.

• At 71, she converts the rest of her RRSP to a RRIF. By then, thanks to her early withdrawals, her RRIF is only ~$300k. The mandatory minimum at 72 (~5.28%) will be about $16k, which is easily handled in their tax bracket.

• At 68, she fully retires and even stops the $60k dividends for a couple of years, taking a world travel sabbatical funded by TFSA withdrawals (tax-free) and an inheritance she received (also tax-free). This unintentionally gave her OAS clawback relief for those years, but that wasn’t the main goal.

• By 75, Dr. Li’s corporation still holds $2M (investment grown somewhat, minus what she withdrew). She considers whether to keep it or wind it down. Given her children are financially stable, she and her husband might slowly withdraw more (maybe larger dividends for a new condo purchase, etc.). Alternatively, she could sell the investment portfolio within the corp and pay herself a very large capital dividend (if much of it is accrued gains). For instance, suppose half of that $2M is unrealized gains – if she sells, the corp pays tax on $1M (half gain taxed ~50% with refundables) and the other $1M goes to CDA. She could then pull out $1M tax-free via CDA and $1M as a taxable dividend. This kind of one-time strategy might attract some tax, but it could help simplify her affairs (no more corp) and maybe let her gift money to kids.

• Estate thinking: If she does nothing and keeps the corp until death, her estate (in B.C.) would pay probate on the shares (1.4% of $2M = $28k) plus the double-tax issue. She’s aware of this and leans toward winding up the corporation by age 80. By that time, she expects the RRIF will also be almost drawn. She could then just hold assets personally or in a joint investment account with her kids (so it passes outside will, avoiding probate). She also has a small life insurance policy personally that will go to her kids tax-free.

Provincial Angle: B.C.’s high marginal rates made her appreciate the corporate deferral (she saved ~42% deferral on dollars left in corp). However, B.C. also has a high top rate on eligible dividends (48.9% top), which she tried to avoid by keeping within lower brackets. The probate issue in B.C. is not huge but noticeable; unlike in Alberta, she can’t completely ignore it. She’s using strategies like joint ownership and possibly transferring out of corp to reduce what goes through her will.

Result: Dr. Li’s case shows the decumulation phase. She has both an RRIF and a corporate pot to juggle. By planning withdrawals smartly (and starting RRIF draws before mandatory age), she controls her tax brackets and minimizes OAS clawback impact. Her story underscores the flexibility of having multiple retirement income sources: she could throttle her dividend taps up or down as needed, something not possible if all her money was locked in RRIF. It also highlights that an incorporated physician approaching retirement should proactively decide what to do with the corp (don’t just forget about it – either use it, wind it, or plan succession).

Annual Planning Checklist for Incorporated Doctors

Financial planning isn’t a one-time set-and-forget; it’s an annual exercise, especially when choosing between RRSP or corporate investing. Here’s a structured checklist doctors across Canada can use each year:

1. Determine Cash Needs: Calculate how much cash you need from your corporation for personal living expenses and goals (mortgage, school fees, etc.). This informs how much you should pay out (salary/dividends) vs retain.

2. Optimize Salary vs Dividend Mix: Decide the mix of salary and dividends for the year:

   • Pay enough salary to at least cover CPP (if you value contributing) and to generate desired RRSP room for next year. For many, that means a salary around the YMPE ($69,700) or higher. If you want to maximize RRSP, target the salary needed for the $32,490 room (approximately $180k if no pension adjustment).

   • Consider paying additional salary if you want to contribute to an IPP or if you need more T4 income for T4-based benefits (rare for doctors, but e.g., some EI special benefits if eligible, or for easier mortgage qualification).

   • Otherwise, consider dividends for the rest, especially if you want to avoid higher CPP or if you have a spouse who can receive dividends (and either is active in the business or over 65 to avoid TOSI).

   • Check the Tax Cost/Benefit in your province: e.g., in 2025 most provinces have a slight tax cost to dividends vs salary on small biz income. It’s small, but if it’s a cost, you might lean a bit more to salary; if you were in NB (tax saving on dividends), you’d lean to dividends. Stay aware of integration changes (tax rules shift).

3. Maximize RRSP Contributions: Contribute to your RRSP (and spousal RRSP if applicable) by the deadline (typically March 1 of the following year) to use your contribution room. This is often the first dollar of retirement saving because it’s a dollar-for-dollar deduction. Remember the 18% rule (previous year earned income) – your notice of assessment tells you the limit. For 2025, if you have room and funds, contribute the max $32,490 (unless you’re in an IPP which might limit new RRSP room). If you’re behind, catch up unused room gradually.

4. Maximize TFSA: Every January, ensure you contribute your new TFSA limit ($7,000 in 2025) if you have available cash (either from your salary/dividend or existing savings). Also consider funding family member TFSAs (spouse’s, adult children’s) by gifting – it’s tax-efficient.

5. Plan for Passive Income: If retaining earnings in the corporation:

   • Monitor passive investment income (interest, rents, taxable dividends, realized gains). If approaching $50k, consider actions: invest in more growth-oriented assets (to defer income), use insurance or other shelters, or pay out some dividends to remove capital (invest it personally or in TFSA, etc.). The $50k limit is a cliff for SBD erosion, so staying just under is ideal. If you exceed, project the impact on next year’s small biz limit and factor that into whether you should declare a bonus to yourself to drop corporate taxable income (some do year-end bonuses to ensure active income stays <= adjusted business limit).

   • Check your corporation’s RDTOH balance (Refundable Dividend Tax on Hand). If there is a balance (meaning you’ve paid tax on passive income that’s refundable), plan to pay enough dividends (usually non-eligible) to recover that refund. Otherwise, you’re giving an interest-free loan to CRA. Often accountants will advise paying a special dividend if there’s a significant RDTOH to clear.

   • Keep an eye on investment mix each year: e.g., interest rates rose in recent years – parking corp cash in GICs is safe but yields fully taxable interest. Perhaps consider corporate class funds or other tax-managed solutions to reduce immediate tax.

6. CPP Decision: If taking salary, you’ll pay CPP. Each January, revisit: Do you value the CPP accrual enough for the contributions? If not, you might cap your salary at just below the minimum ($3,500) to avoid CPP, or simply take only dividends. But remember, no CPP could mean needing to save more elsewhere for retirement. If you opt out of CPP early in your career, you can revisit later if your views change or vice versa.

7. Review TOSI and Shareholder Structure: Each year, review if any family members can be paid from the corporation:

   • Are any family members actually working in the practice (and thus can be paid a reasonable salary)? If yes, pay them and get a deduction (and they get RRSP room).

   • Are they shareholders who meet TOSI exceptions (spouse over 65, or any age but significantly involved, or the business qualifies for excluded shares rule, etc.)? If yes, you could pay them dividends within reason. Document that they meet the criteria in case of CRA review.

   • If no exceptions, avoid sprinkling dividends to family, as TOSI will tax it at top rate – no benefit gained.

   • If you have a family trust holding shares, ensure it’s still serving a purpose post-TOSI. (Often, trusts set up pre-2018 are now inert for income-splitting but might still be useful for multiplication of the lifetime capital gains exemption if relevant or for estate flexibility.)

8. Consider Debt vs Invest: If you have personal debts (mortgage, student loans) and also corporate surplus, decide annually: should you pay yourself more to clear personal debt (which is after-tax cost) or keep money in corp to invest? E.g., paying off a mortgage at 3% might be better than leaving money in a GIC at 3% in corp (because that GIC 3% is taxed ~50% inside corp). Often, a good strategy is take enough out to clear high-interest or non-deductible personal debt – effectively an investment in a guaranteed return equal to the interest saved. For doctors with big mortgages, this is a key decision: some aggressively pay it down (using corporate funds via salary/dividend) while others invest and just service the debt. Revisit as interest rates and priorities change.

9. Evaluate Insurance Needs: Each year, update your insurance planning:

   • Do you have sufficient term life and disability insurance personally? Those guard income, not really an investment, but critical.

   • If you are accumulating significant wealth in corp, does a permanent life insurance strategy make sense yet? This might come into play when passive income issues arise or estate goals firm up. Talk to an advisor if your corp is consistently flush with idle cash earning little.

   • Also consider health spending accounts or individual insurance (some provinces allow a Health Spending Account through the corp for tax-free medical reimbursements – annual decision if you want to fund that more).

10. Plan Major Expenditures Tax-Efficiently: If you anticipate a big expense (buying a property, funding a child’s education, a wedding, etc.), plan which pot to draw from:

    • Education funding: Maybe contribute to an RESP for your kids (not directly related to RRSP vs corp, but an RESP has grant money from government and grows tax-free – a no-brainer up to $2.5k/year per child to get max grant).

    • Home purchase: If you or kids need a down payment, decide if you’ll pay yourself extra (and bear the tax) to fund it, or have the corp loan you money (careful: shareholder loans must be repaid or will be taxed as income unless properly structured).

    • Large purchases: Sometimes it’s better to distribute extra dividends in a year of lower income (e.g., a sabbatical year) to pay for something, rather than in a full work year when you’re in top bracket.

11. Stay Current on Tax Changes: Tax rules evolve. For instance, if the government changes dividend tax credits, inclusion rates, or introduces new limits, revisit your plan. (E.g., there were talks of increasing capital gains inclusion to 75% which would affect CDA planning; or changes to small business limits.) Always check federal and provincial budgets for anything affecting professional corporations or retirement accounts.

12. Document and Consult: Keep notes on why you chose a certain strategy each year (especially for things like paying a family member or holding a large cash balance). And regularly consult with a tax advisor or financial planner who understands physician issues – they can help tweak the plan annually (for example, in some years it might be smart to take an extra bonus if corporate tax rates are changing or if you had lower personal income for some reason like a leave).

By following an annual framework like this, incorporated physicians can adapt their strategy over time, ensuring that they consistently capture tax advantages and avoid unpleasant surprises. Financial decisions for an incorporated professional are not static – life events, tax law, and economic conditions all play a role. This checklist keeps you proactive: you’re effectively doing a mini “financial year-end review” and planning for the next year, which is exactly what a professional approach to wealth management requires.

Conclusion

For physicians across Canada, the choice of investing through an RRSP versus retaining earnings in a corporation is nuanced – and the optimal answer often is “do both, in the right balance.” RRSPs (and related plans like IPPs) provide tax-deductible contributions and tax-sheltered growth, making them a cornerstone of retirement planning. Corporations offer lower initial tax on income and flexibility for investing and estate planning, but come with integration and new rules (passive income limits, TOSI) that require careful navigation.

In 2025, with updated tax rates:

• We see that tax deferral is still a big advantage of incorporation nationwide (30–40% deferral on active income). Use that deferral wisely by investing the surplus.

• RRSPs are as powerful as ever with higher limits (now $32.5k) – a high-income doctor should almost always take advantage of this room, even if it means pulling income out of the corp and paying some tax/CPP now, because the long-term benefits (tax-free compounding and lower tax on withdrawals) prevail.

• Differences across provinces (Ontario and B.C. high taxes vs Alberta low taxes, different probate, etc.) can tilt certain strategies: e.g., estate planners in high-probate provinces use dual wills and maybe prefer corporately-held assets for probate avoidance; Alberta doctors might lean more on corp due to minimal estate cost and lower personal rates; Quebec doctors need to consider QPP and unique rules, etc. But the core principles hold from coast to coast.

Ultimately, incorporated physicians should approach this not as “RRSP or Corporation” in isolation, but as an integrated plan. During high-earning years, funnel income through the most tax-efficient channels (salary for RRSP/CPP as needed, dividends for the rest). During retirement, draw from the available sources in a way that minimizes lifetime tax (split income, manage brackets). And always have an eye on the endgame: what happens to any remaining wealth – plan for smooth, tax-efficient transfer via tools like the CDA, pipeline, insurance, etc.

With the knowledge of 2025’s tax landscape and prudent annual planning, doctors can ensure they’re not leaving money on the table. The better approach isn’t one-size-fits-all, but with the information in this report, physicians in any province can make informed decisions tailored to their situation. The result will be a more secure retirement, less tax paid over the long run, and greater peace of mind to focus on what matters – patient care – knowing their financial future is in good health too.

Sources:

• CIBC Private Wealth, “RRSPs and TFSAs: Smart choices for business owners”, Jamie Golombek, March 2025 – provides analysis on corporate vs registered investing for business owners (applicable to physicians).

• CIBC Tax Toolkit 2025 – for combined federal/provincial tax rates (ordinary income, dividends, capital gains) across provinces.

• BMO Private Wealth, “Tax Planning for Physicians – Professional Corporations” (2024) – outlines passive income rules, TOSI, and remuneration strategies specific to physicians.

• PWL Capital (Ben Felix) “A Taxing Decision” (2017) via Loonie Doctor – demonstrated quantitatively that RRSP/TFSA often outperform corporate for long-term after-tax accumulation, barring special circumstances.

• TaxTips.ca & Canada Revenue Agency – 2025 federal and provincial tax brackets, CPP/OAS details, and RRSP limits.

• Investopedia – Capital Dividend Account (CDA) explainer for understanding tax-free dividends from a corporation.

• Real-life financial planning cases adapted from physician financial blogs and advice columns (e.g., Loonie Doctor, Currey Insurance case studies, etc.) to construct illustrative examples.