Introduction
Many physicians and dentists who run a clinic — rather than practising solely as a solo practitioner — eventually encounter a structural question that is less commonly discussed: should the clinical practice be separate from the clinic management and operations?
The answer depends on the nature of the practice, the regulatory requirements, and the tax objectives. Understanding the difference between a professional corporation and a clinic or management corporation is the starting point.
The Professional Corporation: What It Does
A medical or dental professional corporation (PC or MPC/DPC) is the entity through which the regulated professional provides their professional services. In Ontario, these corporations must comply with professional body requirements — the CPSO for physicians, the RCDSO for dentists — including restrictions on share ownership and the requirement that the corporation provide professional services.
The professional corporation earns professional income — billings for medical or dental services. It pays the professional a salary or dividends, files a T2, and accumulates retained earnings at the corporate rate.
The Clinic or Management Corporation: A Separate Entity
A clinic or management corporation is a general corporation (not a professional corporation) that provides operational support to the professional practice. Common activities include:
Leasing premises and subleasing to the professional corporation
Employing administrative, reception, and dental or clinical support staff
Owning clinic equipment and leasing it to the professional corporation
Providing management services to the professional corporation
The clinic corporation earns management fees or rent from the professional corporation — amounts that are deductible to the professional corporation (as legitimate business expenses) and income to the clinic corporation. The clinic corporation is not subject to professional body ownership restrictions, which means family members can own shares more freely.
Why Some Practitioners Use Both
The primary reasons practitioners consider a two-entity structure include:
Broader ownership flexibility: The clinic or management corporation can have a different share structure — non-voting shares held by a spouse or family trust — with potentially fewer TOSI complications than the professional corporation (where the nature of "active engagement" for TOSI purposes is more directly tied to professional activity).
Operational and liability separation: The clinic corporation, which employs non-professional staff, owns equipment, and holds lease obligations, carries different liability exposure than the professional corporation. Separating these operations can provide a degree of liability insulation.
Income planning: Management fees paid from the professional corporation to the clinic corporation transfer income from one entity to another. This may create planning opportunities depending on the shareholders and income levels of each entity.
The Arm's Length Requirement for Management Fees
The CRA requires that management fees paid between related corporations be reasonable — reflecting what would be charged in an arm's-length transaction for comparable services. Management fees that are not reasonable — either inflated to strip income from the professional corporation or without genuine services underlying them — can be disallowed as a deduction.
The professional corporation and the clinic corporation must have genuine service arrangements, documented by management services agreements that specify the services provided and the basis for the fee.
Regulatory Constraints
Some provincial regulatory bodies place restrictions on how professional income can be shared with non-professional entities. In Ontario, the CPSO and RCDSO have specific rules about what management arrangements are permissible. Any two-entity structure should be reviewed against these regulatory requirements, not just the tax rules.
When to Speak With a CPA
A two-entity structure adds administrative cost — two T2 returns, two sets of financial statements, inter-corporate management agreements — that must be justified by the operational and tax benefits. For a solo practitioner with modest retained earnings, the complexity may not be warranted. For a practice with multiple professionals, significant non-clinical staff, or complex ownership goals, the structure may make sense.