Introduction

Physicians choose their practice structure for a range of reasons — some are employees of a hospital or clinic by choice, others are self-employed or incorporated because their practice model requires it. The tax difference between these structures, at the same gross earnings level, is significant and worth understanding — both for physicians deciding how to practise and for those already incorporated who want to understand what they gain.

The Employed Physician

An employed physician works for a hospital, a group practice, or a health authority. They receive a salary, have source deductions withheld, and file a T1 personal return. The employer pays the employer's share of CPP. The physician's entire gross income is personal income in the year earned — no deferral, no corporate rate.

At $300,000 of employment income in Ontario in 2026, the combined federal and provincial personal tax (excluding surtax) is approximately $120,000. After tax, the physician has approximately $180,000 available.

Deductions available to the employed physician are limited: professional dues (CPSO fees, OMA, CMA), a home office expense if the employer requires it and provides a T2200, and vehicle costs if required for work (with a T2200). No general business expense deduction.

The Incorporated Physician at the Same Gross Earnings

An incorporated physician whose MPC earns $300,000 in net billings (after overhead) has a fundamentally different starting position. The corporation pays corporate tax at approximately 12.2% — approximately $36,600. After-tax corporate income: $263,400.

The physician then draws salary of, say, $100,000 — paying personal tax of approximately $26,000, CPP of approximately $7,735. Net personal income: approximately $66,265. Corporate retention: approximately $150,000+.

Total combined tax (corporate + personal on the $100,000 salary): approximately $70,000. The incorporated physician's combined tax is approximately $50,000 less than the employed physician's $120,000 — and the incorporated physician has $150,000 inside the corporation, compounding at the after-tax corporate rate, available to draw in future years at potentially lower marginal rates.

The Key Differences Summarised

Deferral: The employed physician's entire income is taxed in the year earned. The incorporated physician defers personal tax on the retained corporate income until it is eventually distributed.

Expense deductibility: The incorporated physician can deduct a much wider range of professional expenses through the corporation — CMPA premiums, professional development, home office (with proper structure), vehicle costs. These reduce the corporation's taxable income before the corporate tax is applied.

Income splitting: The employed physician has essentially no income-splitting ability (only spousal RRSP). The incorporated physician has TOSI-limited but still meaningful tools — though less powerful than pre-2018.

CPP cost: The employed physician has CPP costs borne partly by the employer. The incorporated physician who pays salary bears both the employee and employer portions.

Benefits and pension: Many employed physicians receive employer benefits (extended health, life insurance) and access to group RRSP or pension matching programs — valuable benefits not available to the self-incorporated physician, who must fund these individually.

When the Employment Structure Is Appropriate

Physicians who are early in their careers, who have limited practice overhead, or whose total income is under $150,000–$175,000 may find the administrative cost of incorporation not worth the tax deferral benefit — particularly if they need to draw most of the income personally. A hospital-employed family physician earning $200,000 with significant employment benefits and a group pension may be better off than an incorporated colleague at the same income level who needs every dollar personally and is paying $4,000/year in accounting fees.

The threshold at which incorporation clearly outperforms employment rises as the physician's ability to leave money inside the corporation — and not draw it all personally — increases.

When to Speak With a CPA

The employed vs. incorporated comparison is worth modelling at the physician's specific income and personal draw requirements. Rotaru CPA runs this analysis for physicians considering a change in practice structure.

Rotaru CPA models employed vs. incorporated scenarios for physicians considering a change in practice structure. Book a consultation to compare your options.