Incorporation Update for Ontario Dentists

by John McMillan, LL.B.

In the last issue (DPM, Winter 2005), an overview was given of the 2005 Ontario Budget,1 which announced that dentists (and physicians) would be permitted to issue non-voting shares in their professional corporations to family members, thus opening the door to the possibility of tax savings through income splitting. However, at the time, a number of questions remained unanswered. They have now been clarified.


While there was concern that the proposed budget measures would not be implemented on January 1, 2006 as proposed, Bill 1972 received Royal Assent on December 12, 2005 and the required regulations3 were passed with an effective date of January 1.

The Royal College of Dental Surgeons (“College”) responded quickly to these developments and has revised all application forms to accommodate and facilitate the changes.

Family Members

Until the release of the regulations, it was unclear which relatives would be included in the definition of “family members”. We now know that “family members” shall include the children, spouse and parents of the dentist. For those with unique circumstances (such as conjugal relationships or, in future, possible divorce), independent legal advice is recommended.

Family Trusts

Another unsettled question was whether the use of family trusts would be permitted, which trust could then name (eligible) family members as beneficiaries. The answer is both “yes” and “no”.

Under the regulations, non-voting shares can be owned in one of the following manners:

– Legally and beneficially owned, either directly or indirectly, by a member of the RCDSO.

– Legally and beneficially owned, either directly or indirectly, by a family member of a voting dentist shareholder.

– Legally by one or more individuals, as trustees, in trust for one or more children of the voting dentist shareholder who are minors, as beneficiaries.

The use of trusts are only permitted to hold shares for minor children of the dentist and the trust would then have to distribute the shares when the child or children reach the age of 18 years.

Holding Corporations

While the regulations provide for ownership of non-voting shares “directly or indirectly”, the College is presently maintaining the position that until they receive a clear written directive from the Minister, they will not accept any application that specifies a corporation as owner of non-voting shares, even if such corporation is wholly owned by eligible family members. The aim of the holding corporation strategy is primarily for creditor-proofing and capital gains purposes. In light of this present limitation on ownership structures, other strategies should be explored with the assistance professional advisors.

Already Incorporated?

If you are already incorporated, the College will accept, without charge, a Notice of Change of Shareholders for existing professional corporations. However, you must be certain that your current Articles of Incorporation will accommodate the new (non-voting) shareholders. First, you must confirm that the Articles provide for an appropriate class (or classes) of non-voting shares while having regard to your specific needs and tax planning strategies. Secondly, the Articles may specifically restrict ownership of shares to members of the College. If either of these issues arise, Articles of Amendment would need to be prepared and filed with the Companies Branch before issuing shares to family members and before filing a Notice of Change of Shareholders with the College. Speak to your lawyer.

Other Jurisdictions

If you are practicing in other provincial jurisdictions, the law is varied, not only in terms of whether incorporation is permitted, but also in terms of who may own shares in the corporation. Speak to your legal and accounting advisors.

Is Incorporation for You?

Now that income splitting is a reality for dentists, it may be a good time to consider (or re-consider) the question of incorporation. Your decision to incorporate will depend on your personal, professional, financial, tax and family circumstances, as well as the costs associated with establishing and maintaining your professional corporation. In making this determination, professional advice is essential.

1.”More Reasons to Incorporate”, John McMillan LL.B. and Jeffrey Sum, C.A., Dental Practice Management, Winter 2005, pg 10.

2.An Act to Implement Budget Measures, 2005

3.O.Reg 665/06

John McMillan, LL.B. is a Toronto corporate/commercial lawyer serving dental professionals. He can be reached at 416-364-4771 or