Physician tax services: MPC T2s, income smoothing, and the no-ITC reality

The MPC T2 is a deferral machine — if profit stays inside

An Ontario Medicine Professional Corporation pays about 12.2% on its first $500,000 of active practice income, against a top personal rate near 53.5%. That spread — roughly forty points of deferral — is the main reason to have the MPC at all, and the T2 is where it is won or lost. We reconcile OHIP remittance advices, third-party billings, and locum income to the corporate books, and file six months after year-end with the balance paid by the three-month deadline most small CCPCs get.

Locum work deserves its own line: those billings arrive in the MPC with no source deductions, so nothing has been prepaid on your behalf all year. Instalments have to do the job a T4 employer would — more on that below. And once retained earnings become a portfolio, the federal small business limit starts shrinking after $50,000 of passive income in a year; Ontario does not mirror that grind, so the two rates can diverge in ways worth planning for.

Exempt services mean the HST you pay stays paid

Physician services are exempt supplies, and the consequence runs one way: you charge no GST/HST, so you claim no input tax credits. The 13% HST on clinic rent, EMR licences, billing agents, medical equipment, and accounting fees is a permanent cost, and the honest response is to budget every overhead line at sticker plus 13%. Most MPCs never register at all — there is no GST/HST return to file, and that is fine.

The exception is the taxable sliver. Work done for a purpose other than patient care — medico-legal reports, examinations for insurers, some chart copies — is taxable. Stay under $30,000 of that revenue over four calendar quarters and small-supplier status holds; a heavy independent-medical-exam practice can cross it, and then the MPC must register and charge HST on that work alone. We watch the split so the first notice you get is from us, not CRA.

Income smoothing: pay yourself for the career you actually have

Physician earnings are lumpy by design — the attending jump after residency, parental leave, a fellowship year, a part-time glide toward retirement. The MPC flattens the curve: retain profit at 12.2% in the big years, then draw dividends in the low years so the personal layer lands at a lower marginal rate. Salary still earns its place, because only salary creates RRSP room and CPP credits, and it is the funding route for an individual pension plan later in a career.

Instalments run on two tracks

The corporation owes instalments once its tax bill passes $3,000 — monthly, or quarterly for small CCPCs with a spotless compliance history. Separately, a dividend-paid physician usually owes personal instalments, triggered when net tax owing tops $3,000 in the current year and either of the two prior years. CRA mails reminders in February and August; we calendar both tracks from the filed returns and resize them mid-year when billings shift, so neither account sits accruing interest in the background.

Family shares, and a light cross-border check

Ontario lets family members hold non-voting MPC shares, but TOSI pushes most dividends paid to them to the top rate. The workable exceptions are a spouse once you turn 65 and a family member genuinely working in the practice around 20 hours a week — we model whether a family dividend actually survives TOSI before anyone relies on it.

Many physicians also carry US history: residency or fellowship years south of the border, a 401(k) or 403(b) left behind, occasional US telehealth or locum income. The Canadian T2 and T1 have to acknowledge that file even when the amounts are small. The full treatment lives on our cross-border tax page for physicians.

Source: CRA — Corporation income tax.