Introduction

The decision to incorporate is typically made correctly. The execution of the incorporated practice in years one through three is where things go wrong. The following four errors are not rare edge cases — they are the patterns that show up most often when Rotaru CPA first meets a physician who has been incorporated for a few years and is reviewing their position for the first time.

Mistake 1: Not Documenting the Assignment of OHIP Billings to the MPC

As discussed in Article 81, OHIP payments must be channelled to the professional corporation through a documented assignment arrangement. Many physicians set up their MPC, begin billing OHIP in their personal billing number, and never formalise the assignment.

The CRA, on review, may find that OHIP payments are technically personal income — flowing to the MPC only informally. Without a written assignment agreement specifying that the physician provides services through the MPC and that billings are for the account of the MPC, the corporate income characterisation is undocumented.

Fix: Ensure a services agreement between the physician personally and the MPC is prepared and signed, documenting the assignment of the right to receive OHIP billings to the corporation.

Mistake 2: Mixing CMPA and Other Personal Professional Expenses With Corporate Expenses Incorrectly

Many physicians pay CMPA premiums, LSO-equivalent college fees, and professional association dues through their personal bank account rather than the MPC. When these are significant annual amounts — $15,000+ for high-risk specialty CMPA premiums — this is a missed corporate deduction.

Conversely, some physicians pay personal expenses through the MPC without understanding the shareholder benefit implications. The error runs both ways.

Fix: Identify all significant professional expenses that should be running through the MPC, and redirect those payments to the corporate account with proper invoicing and documentation.

Mistake 3: Leaving the Shareholder Loan Account Unmanaged

In the first year or two after incorporation, physicians often draw money from the MPC informally — transferring money from the corporate account to personal use without formally declaring salary or dividends. These informal draws accumulate in the shareholder loan account. By year two or three, the balance may be $80,000–$150,000, and neither the physician nor their bookkeeper has been tracking it carefully.

When the CRA examines the shareholder loan account and finds a large, undocumented balance that has not been repaid within one year of the fiscal year in which it arose, section 15(2) inclusion is assessed. The entire unpaid loan amount is added to personal income in the year it was due — often creating a large unexpected tax assessment.

Fix: Establish a formal salary and dividend declaration process from the first month of operation. Informal draws should not accumulate unchecked in the shareholder loan account. The CPA should review the shareholder loan balance at every year end.

Mistake 4: Not Setting Up a Separate CMPA/Overhead Reserve Within the Corporate Cash Flow

The CMPA premium for a high-risk specialty physician can be paid annually in a single large payment — sometimes $40,000–$50,000. If the MPC's cash management does not anticipate this annual payment, the premium due date can create a cash shortfall that prompts the physician to draw personally to fund it — creating a shareholder loan balance, which creates a CRA issue.

Fix: Set the MPC's bank account to automatically reserve 1/12 of the annual CMPA premium each month. The premium is a known, predictable annual cost — it should be planned for, not absorbed as a surprise.

When to Speak With a CPA

Physicians who have been incorporated for one to three years and have not had a specific compliance review — separate from T2 preparation — are most likely to have one or more of these issues. A review in year two or three, while the issues are still manageable, is far less costly than addressing them after a CRA audit in year six.

Rotaru CPA conducts annual compliance reviews for incorporated physicians. Book a consultation to schedule a review of your MPC's position.