Introduction

Setting up a medical professional corporation in Ontario involves regulatory requirements (CPSO approval, share structure restrictions), corporate law (OBCA compliance, minute books), and tax considerations (fiscal year selection, initial compensation structure). The mistakes below are not caught by the registering lawyer or the CPSO — they are tax and financial structure errors that surface later, sometimes years later, when they are significantly more expensive to fix.

Mistake 1: Choosing the Wrong Fiscal Year End

Ontario professional corporations default to a December 31 fiscal year end unless a different year end is chosen at incorporation. Many physicians accept the December 31 default without considering whether a different year end serves them better.

A non-December fiscal year end — March 31, June 30, or September 30 — creates a useful planning window. A bonus accrued at fiscal year end and paid within 180 days can be deducted in the fiscal year but reported as personal income in a different calendar year, creating a legitimate one-year income deferral on the personal side.

A physician who incorporates with a December 31 fiscal year end and later wants to change it must apply to the CRA for approval and manage the short taxation year — a more complex process than simply choosing the right year end at the outset.

Mistake 2: Not Including a Spouse or Adult Child as a Shareholder From the Start

At incorporation, the physician is typically the sole shareholder. If a spouse or adult child is to hold shares in the future — for income-splitting or succession purposes — adding them later requires issuing new shares at fair market value (or a complex reorganisation to avoid the taxable benefit issue discussed in Article 140).

Adding a family member as a shareholder at incorporation — when the corporation has nominal value ($1 in share capital) — is straightforward and inexpensive. Adding them five years later, when the corporation has $500,000 in retained earnings and significant goodwill value, is a materially more complicated and potentially taxable transaction.

The TOSI rules limit the income-splitting benefit of a non-participating spouse's shares after 2018. But a spouse who contributes meaningfully to the practice — administrative work, managing patient communications, billing — may qualify for a TOSI exemption. The share structure should be set up to accommodate future income-splitting possibilities, even if not immediately exercised.

Mistake 3: Not Setting Up the OHIP Assignment Agreement at Incorporation

As discussed in Article 117 and Article 81, the corporation receives OHIP billings through an assignment arrangement — the physician assigns the right to receive OHIP payments to the MPC. Without a written assignment agreement in place from incorporation, the revenue flowing from OHIP is technically personal income to the physician, not corporate income.

Many physicians operate for years — sometimes the entire duration of their incorporation — without a formal written assignment agreement. In most cases, this is not challenged on audit. But where the CRA does review the arrangement, the absence of documentation undermines the corporate income characterisation and can result in a personal income reassessment on the OHIP billings.

The fix at incorporation costs one hour of a lawyer's time. The fix after an audit costs significantly more.

When to Speak With a CPA

Ideally, the CPA is involved in the incorporation process — not just the lawyer. The fiscal year selection, the initial share structure, and the OHIP assignment arrangement are tax decisions that benefit from CPA input at the outset. A lawyer who does not have a tax background may not flag these issues at setup.

Rotaru CPA works with physicians through the MPC setup process and the first years of incorporated practice. Book a consultation to ensure your MPC is structured correctly from the start.