A professional corporation is a tax-deferral tool. It isn't a liability shield, and it only saves you money on income you can afford to leave in the company. If you're a lawyer in Ontario earning more than you spend, incorporating can defer a meaningful amount of tax. If you spend everything you earn, it mostly buys you accounting bills. Here's how it works, what the Law Society requires, and how to set one up.
What incorporating does and doesn't do for liability
A professional corporation doesn't protect you from your own negligence. Under the Business Corporations Act, incorporating doesn't limit a licensee's personal liability for their own professional acts. If you blow a limitation period, the claim lands on you, corporation or no corporation, and that's why LAWPRO coverage stays mandatory after you incorporate.
It does give you the ordinary commercial protection any corporation gives, against a landlord, a supplier, or a contract dispute that has nothing to do with your legal work. That's useful, but it isn't why you incorporate. You incorporate for the tax.
How the tax deferral works
Money your practice earns and leaves in the corporation is active business income, taxed at the small business rate. In Ontario for 2026 that rate is 12.2% on the first $500,000 through June 30, and 11.2% from July 1 once the province's cut to its small business rate takes effect, which blends to roughly 11.7% across the year. Compare that to a top personal marginal rate of 53.53%. The gap looks enormous.
But it's only a deferral. The moment you pay the money out to yourself as salary or dividends, you pay personal tax, and corporate and personal tax roughly even out by design. What you're buying is time. The years a chunk of income sits inside the company, invested, before you need it personally, are years you've deferred the personal tax bill.
So the math only works if there's income to leave behind. Earn $300,000 and live on $150,000, and the other $150,000 can stay in the company taxed at about 12% instead of close to 50% in your hands. You invest the corporate dollars and draw them out later, ideally in a lower-income year. Earn $150,000 and spend $150,000, and there's nothing to defer.
Where the savings leak
Three things eat into the benefit.
You have to leave money in. This is the whole premise, and it's the one most people overestimate about themselves.
Passive income grinds the rate down. Once the corporation earns more than $50,000 a year in passive investment income, its $500,000 small business limit starts shrinking, and it's gone entirely at $150,000 of passive income. A corporation that turns into a big investment account loses the cheap rate on the practice income.
Income splitting is mostly closed. The old approach was paying dividends to a lower-income spouse or adult kids. Since the 2018 tax-on-split-income rules, those dividends are taxed at the top rate unless a specific exclusion applies, and the cleanest exclusion, for "excluded shares," is unavailable to professional corporations. The CRA names lawyers specifically. Don't incorporate expecting to spread income across your family.
The Ontario rules that are specific to law
A law professional corporation carries conditions a normal company doesn't. The Law Society sets a few that surprise people:
- Only licensees can own shares. Every share, voting and non-voting, has to be held by a licensee of the Law Society of Ontario. The family-member shareholder structure you may have heard a doctor describe exists for health professions, not for law. Your spouse can't be on the share register.
- The name is fixed by formula. It has to include your surname and the words "Professional Corporation," like "Gibbs Law Professional Corporation." No numbered companies.
- The business is restricted to practising law. The articles say so. A law PC can't also run a side business.
- A holding company is allowed, but it doesn't open a back door. A holdco can sit above the professional corporation, but its shares also have to be held by licensees. There's no route to family ownership through it.
How to set one up, in order
- Incorporate under the Business Corporations Act. Run a NUANS name search (about $14 for the official report, more through a service) and file your articles of incorporation with the province. The government filing fee is $300.
- Get a Certificate of Authorization from the Law Society before you practise through the corporation. The application fee is $350 plus HST for 2026, up from $250 the year before. You can't bill clients through the corporation until the certificate is in hand.
- Renew the certificate every year by December 31. The renewal is $200 plus HST for 2026, up from $100.
- Register for HST, and for a CRA payroll account if you'll pay yourself or staff a salary.
- Keep a minute book and file a corporate tax return every year, separate from your personal return.
This is one piece of starting a firm in Ontario, and best sorted out around the same time as the rest of the setup rather than bolting it on later.
What it costs to run, and when it pays off
Running a corporation isn't free. Plan on roughly $2,000 to $4,000 a year for the corporate return, bookkeeping, and minute-book upkeep, on top of your personal return. Your accountant will quote your actual numbers. As a rough rule, incorporating starts to pay when you're consistently earning more than you spend and can leave $50,000 or more in the company each year. Below that, the deferral is too small to beat the cost. Both the fees and rates move, so confirm them before you budget.
Whether you're at that threshold is an accountant question, and a good one to ask before you go solo, not after. It sits alongside the other decisions that come with starting or restructuring a practice, like what the first year costs. None of them has a checklist answer, which is why the lawyers in Inn Laws work them through with peers who incorporated last year and still remember what their accountant told them.