Memos: Practitioners & Creators
Guides, memos and templates from the partners at Nimble & Cross, on incorporation, banking, tax and fundraising.
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Guides, memos and templates
- [ MEMO ]2026-11-05 · 40.4 KB[ OPEN ]
When incorporating your practice starts to pay off
A profitable practice can earn more than you need to take home. When that happens, incorporation gives you a useful opportunity: pay personal tax on what you draw, and leave the remaining profits in the company at a lower corporate tax rate. That can leave substantially more money available to invest, expand the practice or build reserves. The principal advantage is deferral: money that would otherwise go toward personal tax stays available inside the company until you draw it out. Incorporation can also give you more flexibility over how you pay yourself and access to the lifetime capital gains exemption when you sell.[#] The size of this opportunity depends on your profession, province and financial position. But the starting question is straightforward: does your practice earn money you can afford to leave in it? What the tax difference can mean Consider an incorporated professional whose practice earns $800,000 before paying the owner’s salary. She pays herself $300,000, leaving $500,000 of corporate income. At an illustrative 11% small business tax rate, the company pays $55,000 in tax and retains $445,000. If that same $500,000 were instead taxed personally at an assumed 51% marginal rate, only $245,000 would remain. On the additional $500,000 | Earned personally | Retained in the company Illustrative tax rate | 51% | 11% Tax | $255,000 | $55,000 Amount remaining | $245,000 | $445,000 That leaves an extra $200,000 available inside the company.[#] It can support the practice or be invested.[#] The money is still corporate money. Personal tax generally arises when it is paid to you as a dividend. But until then, the larger retained amount gives you more capital to work with. If you need to withdraw all the practice’s profits each year, that advantage largely disappears. Incorporation becomes more compelling when you can consistently retain a meaningful amount. Who can use a professional corporation? Many regulated professionals can incorporate, including physicians, dentists, chiropractors, pharmacists, architects, engineers, lawyers, accountants and veterinarians. Permission to incorporate—and the conditions attached—depends on provincial or territorial legislation and the profession’s regulator. A professional corporation is not simply an ordinary company with your practice’s name on it. Its ownership, permitted activities and regulatory requirements need to fit the profession. We would establish those requirements before choosing the structure, including who can own shares and whether another company can be part of the arrangement. More control over what you take home In an unincorporated practice, the year’s business profits are generally reported on your personal tax return, whether you spend the money or leave it in the business. A corporation separates the practice’s income from the compensation you receive. You can use salary, dividends or a combination, with different consequences for personal tax and payroll. It can also choose a corporate year end rather than reporting its business income solely on a calendar-year basis. That flexibility lets us plan around what you actually need personally, what the practice should retain and the timing of future payments. A potential $1.275 million tax exemption when you sell If your practice has saleable value, incorporating can create an important opportunity when you eventually sell: qualifying shares can give you access to the lifetime capital gains exemption, potentially sheltering up to $1,275,000 of capital gains in 2026. The exemption may also apply to the deemed disposition of qualifying shares on death. It is not available on the sale of an unincorporated practice.[#] That makes the structure worth planning before a buyer appears. The shares must meet specific tests, and too much investment property inside the company can put eligibility at risk. We would monitor that balance as you accumulate assets, rather than leave it until you are ready to sell. What about paying family members? There are two separate questions: who is allowed to own shares, and how payments to them will be taxed. Professional ownership rules can restrict shares to members of the profession, but some jurisdictions allow particular family members to participate. In Ontario, physicians and dentists can issue non-voting shares to permitted family members, including a spouse, adult children and parents. Shares for minor children must be held through a qualifying trust arrangement. Other professions and provinces have their own rules; this is not a structure every professional can use. Permission to own shares is separate from the tax treatment of dividends. The tax on split income rules can tax family dividends at the highest rate unless an exclusion applies. Paying family members for genuine work is a separate matter. Reasonable wages for services actually provided can be deducted by the corporation and are taxed to the person receiving them. We would distinguish those options rather than treat “income splitting” as an automatic benefit of incorporation. Putting retained profits to work Once profits are retained, they need a purpose. That might be practice expansion, a reserve for future expenses or a long-term investment portfolio. Investment income does not receive the small business rate. What you invest in therefore affects how much tax the company pays each year and how much remains available to compound. Investment income | Corporate tax treatment Interest | Initially taxed at the corporate investment-income rate, often exceeding 50%, depending on the province or territory. Capital gains | With a 50% inclusion rate, tax on the full gain is approximately half the corresponding investment-income rate. Portfolio dividends from taxable Canadian corporations | Generally subject to refundable tax at 38⅓%. Some of the corporate tax on investment income can be recovered when the company pays taxable dividends. We would consider both the initial tax and the eventual distribution, rather than choose investments based on the upfront rate alone. There are also two structural questions to keep in view: Will accumulating investments affect eligibility for the capital gains exemption? Do your profession’s rules permit the investment activities you intend to carry on? For example, Ontario’s professional-corporation rules distinguish the temporary investment of surplus funds from carrying on a separate business. Passive investments such as GICs, stocks, mutual funds and segregated fund contracts may fit within permitted surplus investing, but the type and extent of the activity still need to fit your profession’s rules. That does not mean retained profits must sit idle. It means we should establish what the corporation can hold and how those investments affect both regulatory compliance and a future share sale. Holding investments outside the practice Where professional ownership rules permit, a holding company can own shares of the professional corporation and receive dividends that generally qualify for an intercorporate deduction. Properly structured, this can move retained profits into a separate investment company without triggering personal tax at that point.[#] Where a holding company cannot own the professional corporation, a separate management company may be an option. It can provide genuine administrative or management services, charge appropriate fees and invest its remaining profits. The fees need to reflect the services provided. GST/HST also belongs in the calculation: if the practice cannot recover the tax charged on management services, that becomes an additional cost. What incorporation does not protect Incorporation generally does not protect you from personal liability for your own professional negligence. It may limit exposure to some ordinary business obligations, such as trade debts, leases and borrowing that you have not personally guaranteed. The distinction depends on the applicable law and agreements. Professional liability and ordinary business liability should not be treated as the same thing. Is this right for your practice? We would work through four questions with you: How much can you leave in the company? The recurring surplus matters more than revenue alone. If nearly all profits are needed personally, the deferral may not justify the additional cost. What do your professional rules allow? Ownership, investment activities and any holding or management companies need to fit your profession and jurisdiction. Are you planning to grow, invest or eventually sell? Those objectives influence how the company should be structured and managed. What will it cost to maintain? Incorporation brings setup costs, corporate filings, a separate tax return and compensation reporting. Those costs belong in the comparison. If you practise through a partnership, the small business deduction needs particular attention. Incorporating each partner does not automatically give everyone a separate full limit on partnership income. Where that income must share the available limit, a high-earning partnership can see much of the small business tax advantage reduced. A professional corporation is most useful when it gives you a meaningful amount of capital to retain and a sensible plan for using it. We would put the expected benefit beside the ongoing costs, establish the right structure and help keep it aligned with your practice as it grows. Supporting notes Small business deduction The federal small business limit is generally $500,000 of qualifying active business income, shared among associated corporations. Saskatchewan and Prince Edward Island provide a $600,000 provincial limit; Nova Scotia provides $700,000. The federal and provincial deductions therefore do not necessarily cover the same amount of income. The federal limit is reduced by the larger of these two calculations: Measure | Reduction begins | Federal limit eliminated Adjusted aggregate investment income | Above $50,000 | At $150,000 Taxable capital employed in Canada | Above $10 million | At $50 million The calculations generally look to the relevant preceding-year amounts across the associated group. The federal investment-income reduction is $5 for every $1 above $50,000. Saskatchewan and PEI use a $6 provincial reduction, and Nova Scotia uses $7, reflecting their larger provincial limits. Ontario and New Brunswick do not reduce their provincial limits because of passive investment income. These thresholds do not mean the deduction disappears as soon as a practice becomes sizeable. Subject to the other eligibility rules, a practice with no more than $50,000 of adjusted aggregate investment income and no more than $10 million of taxable capital can retain its full available limit. Capital gains exemption and family payments Access to the lifetime capital gains exemption depends on the applicable exemption limit and qualifying-share tests. Incorporation alone does not establish eligibility. Family share ownership must comply with professional rules. Dividends require a separate review of the tax on split income rules; wages must be reasonable for work actually performed. Scope This memo provides general information. The appropriate structure depends on your practice, province, regulator, ownership and financial circumstances. Tax and legal implementation should be reviewed together before incorporation or a change to an existing structure.
> read_file.sh█ - [ MEMO ]2026-11-03 · 48.7 KB[ OPEN ]
Building personal wealth with profits held in your company
There comes a point when the business has enough money for its own needs (to operate and grow) but much of your personal wealth is still tied up in it. You’ve earned the profits. You’d like some of that success to become personal wealth, but taking a large payment from the business would bring a large tax bill. One simple approach worth examining is to borrow personally to invest, then use salary or bonus payments from your company to cover the interest. The interest payments are generally tax-deductible,[#] allowing you to draw an equivalent amount from your company as salary or a bonus without additional net personal income tax.[#] At the same time, this allows you to put a substantial lump sum to work in your personal investment portfolio from the outset, giving the full amount time to compound and build you significantly more personal wealth over the long term. For an owner with surplus corporate funds, reliable cash flow and a mid-to-long investment horizon, it is a useful (and tax-efficient) way to withdraw retained earnings and put them to work. The company funds the interest. The lender funds the investment. The company does not just transfer a large balance of retained earnings into your personal portfolio tax-free. The arrangement works like this: You take out a personal investment loan. You invest the proceeds as a lump sum in non-registered account or contract.[#] Your company pays you a salary or a bonus equal to the loan interest. You pay the interest and claim the corresponding deduction against your personal income. Putting $250,000 to work Suppose you want to build a $250,000 personal investment portfolio using profits held in your company. At an assumed 50% personal tax rate, you would need to take $500,000 out of the company to have $250,000 left to invest. Instead, you borrow $250,000 personally and invest it in a segregated fund[#] contract held outside an RRSP or TFSA. At a 5% interest rate, an interest-only loan costs $12,500 a year. Your company pays you that amount as salary or a bonus, and you use it to pay the lender. The interest deduction offsets the additional employment income, leaving no additional net personal income tax on that payment.[#] You now have the full $250,000 invested from the outset, with compounding working on the entire amount. Rather than making a large taxable withdrawal upfront, you draw smaller amounts from the company over time to cover the interest. What that could mean over ten years At an assumed 6% annual compound return, here is how the investment could grow while the interest-only loan remains at $250,000: After | Your investment is worth | You keep after repaying the loan, before tax | Total paid to you by your company to cover interest 3 years | $297,754 | $47,754 | $37,500 5 years | $334,556 | $84,556 | $62,500 7 years | $375,908 | $125,908 | $87,500 10 years | $447,712 | $197,712 | $125,000 At the ten-year mark, the $250,000 investment grows to $447,712 . Even after repaying the $250,000 loan and allowing for $37,071 in redemption taxes, you are left with $160,641 in personal investment assets.[#] That is the opportunity: use company-funded interest payments to support a substantial personal investment today, giving it years to grow before the loan is repaid. Is this right for you? If you have accumulated profits in your company and want to build personal investments, this strategy is worth exploring. We would work through three questions with you: Can you comfortably carry the loan? The payments should leave room for the business’s obligations and plans. You should also be able to stay invested through a market downturn without being forced to sell, Is the potential return worth the cost and risk? We would assess the investment and borrowing together, including how the numbers change with lower returns, higher interest costs or increased loan payments. Is the tax structure properly set up? We would review the interest deduction, how the company pays you, and the lending arrangement before you commit, so the structure supports the intended tax result. Together, those answers help us determine how much to invest, how to fund the payments and whether the strategy belongs in your plan. Supporting notes Tax and payment requirements The personal tax offset works when the allowable interest deduction matches the additional salary or bonus paid by your company. The arrangement needs to meet the following requirements: Interest must qualify for deduction under the Income Tax Act. The treatment depends on your circumstances, including how the borrowed money is used. Quebec residents may face different deductibility rules. Your company pays you, and you pay the lender. The salary or bonus should be paid to you rather than directly to the lending institution. Dividends require a separate calculation. They have different tax consequences and cannot replace salary or a bonus with the same assumed result. Your company should not guarantee or secure the personal loan. Doing so may create adverse tax consequences. Payroll withholding must be addressed separately. Where appropriate, Form T1213, “Request to Reduce Tax Deductions at Source,” can be used to request reduced withholding. The expected interest deduction does not automatically change the company’s withholding obligations. Payroll contributions may also apply. Salary or bonus payments can create employee and employer CPP obligations if the applicable annual maximums have not already been reached. These costs should be included when calculating the payments needed to fund the interest. We would review the borrowing, company payments and intended deduction together before you commit. Assumptions behind the investment example The example assumes a $250,000 personal investment in a non-registered segregated fund contract, financed by an interest-only loan. Assumption | Figure Initial loan and investment | $250,000 Annual compound investment return | 6% Annual loan interest rate | 5% Annual taxable portion of the fund return | 25% Personal marginal tax rate | 50% Tax rate on income allocations | 25% The two 25% assumptions describe different things. The first is the portion of the fund return assumed to be taxable each year. The second is the assumed tax rate applied to income allocations. Neither is a general tax rule. The progression table shows investment values before redemption tax. The ten-year after-tax illustration allows for $37,071 in redemption taxes, leaving $160,641 after repayment of the loan. It is an illustrative result, not a personalized tax calculation. The company’s payments to cover interest are shown separately from the investment balance. They are an ongoing cost of the arrangement and must be included when comparing it with other uses of company funds. Investment choices The investment should suit your objectives independently of which lender provides the financing. Its costs, risks and any insurance or estate-planning features need to be considered alongside the borrowing terms. Segregated fund contracts A segregated fund contract combines investment funds with features of an insurance contract. Depending on the contract, these can include income, death and maturity guarantees, potential creditor protection, and estate-planning benefits that may help avoid certain estate fees. These protections have specific terms and conditions. They do not mean the investment cannot fall in value. Creditor protection and estate benefits also depend on the contract and your circumstances. Mutual funds Mutual funds offer another way to build a portfolio, whether you are accumulating wealth or approaching retirement. Commissions, trailing commissions, management fees and other expenses may apply. Mutual funds are not guaranteed, their values fluctuate, and past performance may not be repeated. Review the prospectus before investing. Loan terms and “no margin call” conditions An investment loan may offer interest-only payments, financing for the full investment amount or protection from margin calls caused by market fluctuations. Those features need to be read alongside the lender’s rights to change payments or demand repayment. A margin call requires you to address a shortfall in the investment securing the loan. Loan-to-value compares the outstanding loan with the value of that investment. For reference, the following Manulife Bank terms were described in July 2025 for eligible Manulife mutual fund accounts and segregated fund contracts. The offering included up to 100% financing, interest-only payment options and a one-step application process. These terms have not been confirmed as current. Loan or circumstance | Conditions Loans of $1 million or less | No margin call. However, if loan-to-value exceeds 125%, the bank may, at its discretion, require equal monthly principal payments plus interest, with principal amortized over a maximum of 20 years. Returning to interest-only payments | After three consecutive monthly payments, if loan-to-value has fallen to 100%, the borrower may request a return to the original payment arrangement, subject to bank approval. Loans above $1 million | A margin call is triggered at 85% loan-to-value, which must immediately be reduced to 75%. If the requirement is not met, the bank issues a demand for payment and processes full redemption. The borrower remains responsible for any shortfall. Guaranteed pledged security | The bank states that it will not trigger a margin call where the pledged security is guaranteed. “No margin call” does not necessarily mean unchanged payments. A switch from interest-only to principal-and-interest payments could materially increase the monthly amount you need to fund. The agreement offered to you, rather than a general product description, determines your obligations. Risk and advisory responsibilities Borrowing magnifies losses as well as gains. You must meet the loan and applicable tax obligations and repay the debt in full, regardless of investment performance. This strategy is intended for investors with a long investment horizon and the capacity and risk tolerance to carry that commitment through market fluctuations. Review the loan agreement and investment documents before proceeding. The lender’s approval is separate from investment suitability and tax planning. Manulife Bank acts as lender and loan administrator, not as an investment advisor. The investment dealer and advisor are responsible for assessing suitability and explaining borrowing risks. Tax and legal advice must address your circumstances. Important information This memo provides general information, not an individualized investment, tax, accounting or legal recommendation. Figures are illustrative, not forecasts, guarantees or a complete comparison of alternative strategies. Actual returns, borrowing costs, fees, taxes and interest deductibility will affect the outcome. Product features and lending terms can change. Before proceeding, the arrangement must be reviewed against your circumstances, applicable tax rules, and the investment and lending documents offered to you.
> read_file.sh█ - [ MEMO ]2026-07-14 · 1.3 KB[ CLIENTS ONLY ]
What's the most expensive tax mistake creators make?
Mixed personal and business income is the single biggest reason creators overpay. Here is what agents check first.
> read_file.sh█