RSRS has assembled some sound advice from experts in the financial and legal fields geared to you, the physician. The following is an excerpt from RSRS’ new guide: “Getting Ready to Retire: Financial and Estate Considerations for Retiring Canadian Physicians.”
What are the key points to keep in mind when a retiring doctor is incorporated?
If your practice is incorporated, and you hold investments in the corporation, you may choose to keep your corporation after you stop working as a doctor. However, since the income on these investments will not be taxed at a favourable rate, it may make more sense to legally terminate the corporation.
Before the practice is legally terminated, any assets in the corporation should be distributed to shareholders. Depending on the type of investments in the corporation and the amount, the funds can be paid out as regular dividends, capital dividends or perhaps the last year’s salary to the doctor. Or you can choose to do a combination of all three.
After all of the assets have been distributed, you can apply to the Ministry of Finance to legally terminate the corporation.
Individual Pension Plan through Corporation
You can choose to set up an Individual Pension Plan (IPP) for yourself through your corporation so that when you retire, you can have the equivalent of a defined benefit pension plan. You will receive a continuous income stream just like any other company pension. While you are working, you can make contributions as an employee of the corporation based on the T4 income you receive. The company also contributes to the plan and can deduct these contributions, and the amounts that can be contributed are much larger than RRSP maximums.
Two Wills
If you choose not to dissolve your corporation and to keep it instead as a holding company, then you should consider having two wills prepared. The first will would cover all assets of the estate except for the corporation and the second will would only address the corporation’s shares. By doing this, you would avoid paying probate fees on the value of the corporation, since the shareholders and beneficiaries would not ask for the second will to be probated.
It will also make the transfer of ownership much quicker when there is no probate involved.
If a corporation holds a term life insurance policy on the doctor and you decide to dissolve the corporation, the policy should be transferred to the physician before dissolution. There will be no tax consequences as a result of the transfer, since it is a term life policy. You can then decide at the next maturity date whether you still need the coverage.
This information is excerpted from “Getting Ready to Retire: Financial and Estate Considerations for Retiring Canadian Physicians.” A physician contemplating retirement has a myriad of details to tend to, both professionally and personally. Prudent financial, estate and legal planning can make a big difference, both in the short and long terms. If you’d like a printed version of this useful book mailed to you, call RSRS at 1-888-563-3732, Ext. 222 or get the free download now from https://www.recordsolutions.ca/guide. There is no cost associated with obtaining this information.