Tax deferral example

Dr. Sharp practices in Quebec. She is earning $300,000 annually from her medical practice and needs approximately $100,000 to maintain her lifestyle. 

• If Dr. Sharp is not incorporated, she will be taxed at the highest marginal rate of 53% on all her earnings of $300,000, regardless of her savings. 

• If Dr. Sharp were incorporated, she would have the ability to differ the payment of income tax on any surplus income she does not need to support her lifestyle ($200,000). 

Instead of being taxed at 53%, that surplus income of $200,000 will be retained inside her corporation, taxed at 17.5% and can even be invested.

By incorporating, Dr. Sharp will have the flexibility to take out that surplus income when it is the most tax efficient and convenient for her (when her income is lower). For example retirement, a sabbatical year or maternity leave.