Dentist Incorporation Tax Savings Calculator, Ontario
Two decisions, not one. Whether to incorporate, and if you are buying a practice, whether to buy the assets or the shares. Work out the corporate tax, the goodwill and equipment depreciation you can claim, the deductible interest, and the deferral against staying unincorporated.
annual tax deferral
—
—
—
—
What the Practice Earns and What It Is Taxed On
| Item | Basis | Amount |
|---|
Depreciation on What You Bought
| Asset | Class and Rate | First Year | Steady State |
|---|
Asset Purchase Against Share Purchase
| Factor | Buying the Assets | Buying the Shares |
|---|
Incorporated Against Unincorporated
| Step | Basis | Unincorporated | Incorporated |
|---|
Cost of Setting It Up and Keeping It
| Item | Basis | Amount |
|---|
Points That Decide This
What to Do Next
—
Disclaimer: Corporate tax is Ontario at 11.2% on the first $500,000 of active business income and 26.5% above. Goodwill is depreciated in Class 14.1 at 5% on a declining balance and equipment in Class 8 at 20%, both with the half-year rule in the first year. The accelerated investment incentive can increase the first-year claim and is not modelled. Personal tax uses 2026 federal and Ontario brackets with the surtax, layered on the other income entered, with basic personal amounts of $16,500 and $12,950 which are approximate. Dividends are non-eligible with a 15% gross-up. The RCDSO Certificate of Authorization application fee of $750 and renewal of $175 are taken from the College’s published information, with the renewal rising after 3 August. Dental services are generally exempt supplies, so a dental corporation cannot usually claim input tax credits. This page is general information, not tax advice.
Two Decisions, and Most People Only Think About One
Incorporating is a tax and cash flow decision, and it hinges entirely on how much you can leave in the corporation after funding your own life. Buying a practice is a separate decision, and the choice between assets and shares moves far more money than the incorporation itself.
A dentist buying a $1,000,000 practice will spend more time choosing a chair than choosing between an asset and a share purchase, and the second decision is worth tens of thousands of dollars.
What It Costs to Incorporate
| Item | Fee |
|---|---|
| Ontario incorporation, government fee | $300 |
| NUANS name search | $25 |
| Our professional fee | $35 |
| RCDSO Certificate of Authorization, application | $750 |
| RCDSO renewal, per year | $175 |
| Ontario annual return, per year | $50 |
| T2 return and financial statements, per year | $400 |
Total setup is $1,110 and the ongoing cost is $625 a year. The corporation cannot practise until the Certificate of Authorization is issued, so the sequence is incorporate first, apply to RCDSO second, and bill through the corporation only once the certificate arrives.
What Incorporating Actually Saves
Practice income left in the corporation is taxed at 11.2% rather than up to 53.53% personally. That is a deferral of 41.33 cents on every dollar you do not need to live on, and it is the whole case.
The deferral only applies to what you leave behind. A dentist billing $1,200,000 with $700,000 of overhead who needs $180,000 to live on leaves a substantial amount in the corporation and the case is obvious. An associate billing $300,000 who spends all of it defers nothing and should wait.
The Family Share Split No Longer Works
RCDSO permits family members to hold non-voting shares in a dentistry professional corporation. Before 2018 that was frequently worth more than the deferral. The tax on split income ended it.
| Exclusion | Available to a Dental Corporation |
|---|---|
| Excluded shares, 10% of votes and value | No, denied to a services business |
| Working an average of twenty hours a week in the practice | Yes, if genuine |
| Spouse of an owner aged 65 or over | Yes |
| Reasonable return for a passive adult shareholder | Very hard to support |
A dividend to an adult child at university is taxed at 53.53% with no personal credits available. A spouse who genuinely runs the front desk is a different matter, and that should be documented properly with hours and duties recorded.
Asset Purchase or Share Purchase
This is where the real money is. The buyer and the seller want opposite things, and the price should reflect whichever way it goes.
| Factor | Asset Purchase | Share Purchase |
|---|---|---|
| Depreciation on goodwill | Yes, Class 14.1 at 5% | None |
| Depreciation on equipment | Yes, Class 8 at 20% on the new cost | Only the seller’s remaining balance |
| Historic liabilities | Left behind with the seller | You inherit all of them |
| Seller’s capital gains exemption | Not available | Up to $1,275,000 sheltered |
| Who prefers it | The buyer | The seller |
The seller’s exemption is worth more than your depreciation, so the price should move. A seller sheltering $1,275,000 of gain saves far more than a buyer gains from a 5% declining balance write-off on goodwill. If you are asked to buy shares, the price should come down to reflect it. Agreeing to a share purchase at the asset price is the single most expensive mistake in a practice acquisition.
Why Goodwill Depreciation Is Slower Than People Expect
Goodwill sits in Class 14.1 and depreciates at 5% on a declining balance, with the half-year rule in the first year. On $800,000 of goodwill that is $20,000 in year one and $40,000 in year two, falling every year after.
At the small business rate that is a tax saving of about $4,880 in the first year. Real, but modest against a purchase price of a million dollars, and much slower than the equipment write-off at 20%.
| Asset | Class | Rate | On $800,000 of Goodwill |
|---|---|---|---|
| Goodwill | 14.1 | 5% declining | $20,000 in year one |
| Equipment and fit-out | 8 | 20% declining | Applies to the equipment allocation |
That difference is why the allocation between goodwill and equipment in the purchase agreement matters to you and matters in the opposite direction to the seller. It has to be reasonable and both parties have to report it consistently.
The HST Trap on a Practice Sale
Dental services are exempt supplies, which means a dental corporation generally cannot claim input tax credits at all. Every dollar of HST you pay is a real cost, not a recoverable one.
On an asset purchase, goodwill is generally not treated as consideration for a taxable supply, so no HST arises on the largest part of the price. The equipment allocation is taxable, and because you cannot recover it, that HST is money gone.
On a $200,000 equipment allocation that is $26,000 of unrecoverable HST. It is one of the few situations where pushing more of the price into goodwill helps the buyer twice, though the allocation still has to be commercially reasonable and consistent between the parties.
Interest on the Practice Loan
Interest on money borrowed to buy assets used to earn business income is deductible. Where the corporation borrows to buy the practice assets, the interest is deducted against practice income, which is exactly where you want it.
A share purchase is different. If you borrow personally to buy shares, the interest is deductible personally but only against income from those shares, which for most dentists means it sits largely unused. That is another reason the two structures are not interchangeable and should not be priced as though they are.
Practical Sequence for a Practice Purchase
- Decide asset or share before the letter of intent, because it changes the price and both parties need to agree the allocation.
- Incorporate and get the Certificate of Authorization before closing, so the corporation can actually hold the practice.
- Agree the goodwill and equipment split in writing, and make sure the seller reports it the same way.
- Budget the unrecoverable HST on the equipment portion as part of the purchase cost.
- Put the borrowing in the right entity, so the interest is deducted where the income is.
- Set the year end deliberately, usually shortly after closing, to give a manageable first filing.
What This Calculator Does Not Cover
- The accelerated investment incentive, which can increase the first-year depreciation claim
- Orthodontic practices, where part of the supply is zero-rated and limited input tax credits may be available
- Associate agreements and whether you are genuinely independent rather than an employee
- The lifetime capital gains exemption on your own eventual sale, which needs planning years ahead
- Partnership and cost-sharing arrangements between dentists
- Provinces other than Ontario, which have different colleges and different rules
Get the structure right before the letter of intent. Once the deal is agreed as a share purchase at an asset price, nothing can be done about it. Full detail is on our dental accounting service page.
Frequently Asked Questions
Common questions from Ontario dentists.
Related Calculators and Guides
More tools for dentists and incorporated professionals.
Settle the Structure Before the Letter of Intent
Send us the practice financials and the proposed price. We will model the asset and share routes properly, tell you what the allocation should be, incorporate you and prepare the RCDSO application.