As physicians begin to consider retirement, they often inquire about the fate of their corporation and the assets within it upon their retirement. Here is a brief overview of some concepts for consideration.
A corporation is a distinct legal entity from the physician and is owned by its shareholders. The corporation’s articles of incorporation define its existence, the classes of shares (such as A, B, C), voting rights, share values, and the various rights of each shareholder.
Upon retirement, two important considerations arise.
- First, a Medicine Professional Corporation (MPC) is permitted to practice medicine only if one voting shareholder is a member of the College with a valid certificate of registration. Retirement nullifies this condition.
- Second, the Ontario Business Corporations Act mandates the removal of the term ‘professional’ from your corporation’s name, as it ceases to be a professional corporation upon retirement.
Transitioning your Medicine Professional Corporation into a holding corporation post-retirement can offer additional tax planning benefits, including income splitting and access to lower tax rates for you and your spouse.
Regarding your life insurance, if the name of your corporation has changed, it is prudent to update the life insurance policy to reflect the new corporate name as the owner and beneficiary. As for tax consequences associated with a change in the owner and beneficiary of your life insurance, generally, a name change in the corporate name does not trigger any tax implications because there is no transfer of ownership to a new entity; the corporation remains the same despite the name change.
When considering estate matters, it’s common for the shares of a corporation to be transferred tax-free to a surviving spouse or a spousal trust upon the owner’s death. Upon the passing of both the owner and their spouse, the next step involves distributing the corporation’s assets to the children, which may trigger up to three levels of taxation.
It’s crucial to explore tax and insurance planning within the corporation to prepare for the eventual transfer of assets upon your demise. Without proactive planning, as much as 71% of the corporation’s assets could be lost to taxes when both you and your spouse have passed away.
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Elliott Levine, MBA, CFP at Levine Financial Group in Toronto
416-222-1311 I info@levinefinancialgroup.com
The above article is intended as conceptual planning for you to consider with your tax accountant and lawyer and not intended as tax or legal advice.