Introduction

A physician whose MPC earns $600,000 annually occupies a meaningfully different planning environment from their colleague at $300,000. The SBD limit ($500,000) is a live constraint. Passive income accumulation may already be affecting the SBD. The marginal rate on salary is at or near the top bracket. And the volume of retained earnings being accumulated each year makes holdco planning and investment strategy more urgent.

The Corporation's Tax Position at $600,000

The first $500,000 of active income qualifies for the small business deduction — corporate tax at approximately 12.2% = $61,000. The amount above $500,000 ($100,000) is taxed at the general corporate rate — approximately 26.5% = $26,500. Total corporate tax: approximately $87,500. After-tax corporate income: approximately $512,500.

Key Planning Issues at This Level

Issue 1 — The SBD limit is binding: The physician cannot keep all $600,000 at the small business rate. The $100,000 above the limit generates eligible retained earnings (taxed at the general rate), which can support eligible dividend payments to shareholders with more favourable personal tax treatment.

Issue 2 — Passive income accumulation is likely eroding the SBD: A physician at $600,000 who has been incorporated for five or more years likely has $1–2 million or more in the investment portfolio inside the MPC. Annual returns of 4–6% on $1.5 million = $60,000–$90,000 of passive income — well above the $50,000 AAII threshold. This may already be reducing the SBD on active income.

The practical consequence: If passive income has reduced the SBD to zero (which occurs at $150,000 of AAII), all $600,000 of active income is taxed at 26.5% — approximately $159,000 in corporate tax, versus approximately $87,500 if the full SBD were available. The difference is over $70,000 in additional annual corporate tax.

Issue 3 — Holdco should already exist: At $600,000 of income with significant retained earnings, the holdco structure — transferring excess retained earnings from the operating MPC to a separate holding company via inter-corporate dividends — becomes the primary strategy for protecting accumulated wealth and managing passive income inside the operating corporation.

The Compensation Decision

At $600,000, salary strategy is governed more by what the physician can usefully do with the salary than by marginal rate optimisation. Every dollar of salary above approximately $250,000 is taxed at 53.53% in Ontario. The RRSP room ceiling ($32,490) is reached at approximately $180,500 of salary. There is no incremental RRSP benefit from drawing more than that.

A common approach at this income level: salary of $180,000–$200,000 (to access full RRSP room and a reasonable CPP base), balance distributed as non-eligible dividends from accumulated retained earnings (with RDTOH tracking), and excess retained earnings moved to holdco annually.

The Holdco Strategy at This Level

The physician at $600,000 should be operating with at least a basic two-entity structure: the operating MPC and a personal holding company. After-tax profits above the physician's annual personal consumption are paid as inter-corporate dividends to the holdco. The holdco invests the capital.

The holdco's passive income is separate from the MPC's passive income. Whether the two corporations are "associated" for SBD purposes depends on the shareholding structure. Proper design at incorporation ensures they are not associated — keeping the holdco's AAII outside the MPC's passive income threshold calculation.

When to Speak With a CPA

At $600,000, the annual planning value is significant — decisions about salary, dividends, holdco transfers, and passive income management can affect corporate and personal tax by $30,000–$80,000 per year. This is not background-level planning. It warrants a dedicated annual conversation before year end.

Rotaru CPA works with high-income incorporated physicians on multi-entity corporate structure and annual compensation planning. Book a consultation to review your full tax position.