Should You Incorporate Your Therapy Practice?
As a solo therapist in private practice, you may wonder whether it’s time to take your business structure to the next level. Should you stay a sole proprietor, or is it worth incorporating? Your decision can have a long-term impact on how much tax you pay, how much liability protection you have, and how you prepare for the future of your practice.
Why Your Business Structure Matters
Nearly 98.1% of all employer businesses in Canada are small enterprises, and choosing the right structure early can keep you nimble and competitive. More than ever, self-employed Canadians are making the switch: 48.1% now operate through a corporation — more than double the rate in 1976. What’s behind this trend? A combination of tax savings, asset protection, and long-term planning.
Understanding the Two Structures
Sole Proprietorship
- This is the default setup if you haven’t formally incorporated.
- You’re personally liable for debts and obligations.
- Your income is taxed at your personal marginal rate (anywhere from 14% to 33% federally in 2025).
Professional Corporation
- A separate legal entity that can own assets, sign contracts, and file its own taxes.
- Pays just 9% federal tax on the first $500,000 of active income, plus provincial small-business rates of 0–3.2%.
- Provides some liability protection; however, professional negligence is still your responsibility, and malpractice insurance remains essential.
Some Other Benefits of Incorporation
Not all advantages of incorporation will apply to every therapist. Your income level, retirement goals, and risk tolerance will shape whether these benefits are meaningful for your situation.
- Flexible income planning: Choose how and when to pay yourself through salary or dividends to manage your personal tax burden, especially in high-income years.
- Enhanced retirement options: Access to Individual Pension Plans (IPPs), which offer higher contribution limits than RRSPs for incorporated professionals.
- Better use of deductions: Lower corporate tax rates help you keep more of your earnings, making reinvestment into your practice more tax-efficient.
- Custom fiscal year-end: Pick a fiscal year-end that aligns with slower seasons to ease cash flow and make tax planning more manageable.
Quick Decision Checklist if Considering Incorporation
A. Income and Cash Flow
- If your taxable profit is under $100,000 and you need most of it for personal expenses, the tax advantage of incorporating may not outweigh the cost.
- If you earn over $100,000 and can leave some funds in the business for 12 months or more, you may benefit from meaningful tax deferral.
B. Liability and Risk
- Do you run a group practice or rent a commercial space? Incorporation may help protect your personal assets from business-related liabilities.
C. Growth Plans
- Incorporating now can make it easier later to add associates or sell your clinic.
- You may also qualify for the Lifetime Capital Gains Exemption, which can protect up to $1 million in business sale gains.
D. Administration Load
- Corporations come with more paperwork: separate bookkeeping, corporate tax returns, annual filings.
- Cloud-based tools like Xero can help you stay organized without the stress.
E. College or Provincial Rules
- Some regulatory bodies require a special permit to operate as a professional corporation. This can vary widely based on province and type of therapy practitioner, so check with your provincial college before filing.
Staying a Sole Proprietor: What to Do
- Register your business name (if it’s not your legal name).
- Get a CRA business number and open GST/HST and payroll accounts if needed.
- Use a separate business bank account and a cloud ledger like Xero.
- Keep your insurance up to date, especially if you supervise others or rent space.
Choosing to Incorporate: What to Expect
- Schedule a consultation with a CPA who specializes in health professional corporations.
- Conduct a NUANS name search and ensure the name complies with your college’s naming requirements, including “Professional Corporation” if mandated.
- File your articles of incorporation.
- Apply for your professional corporation permit.
- Open corporate accounts for banking, GST/HST, and payroll.
- Work with your accountant to optimize your salary and dividends mix based on your goals.
Real-World Examples
Example 1: Solo Therapist Earning $80,000
With typical deductions (e.g. no home office, minimal admin or overhead costs) and no spouse or dependents, incorporating would likely save less than $2,000 in taxes, and administrative costs could cancel that out. Remaining a sole proprietor is usually more practical.
Example 2: Group Practice Earning $180,000
If you’re managing a lease and have employees/contractors, incorporation would likely save thousands in tax and reduce your personal risk.
When It’s Time to Think About Incorporating
- Your income starts to fluctuate, and those tax instalments start adding up.
- You’re ready to hire multiple associates or sign a commercial lease.
- You want to retain profits to invest in your practice or sell/transition out of your practice.
Helpful Resources and Next Steps
- Your provincial college’s incorporation guide
- A healthcare-focused accountant to help make informed decisions
There are many things to consider when deciding whether or not to incorporate. Book a free 15-minute Tax Therapy session with us so we can talk it through and help determine your next steps.
