Introduction

A dentist whose professional corporation earns $500,000 in net annual income — after all practice overhead — is at the SBD limit. Every dollar above this threshold is taxed at the general corporate rate, and passive income may already be eroding the SBD if the practice has been incorporated for several years. This is the income level where the planning conversation shifts from "how much to draw" to "how to restructure."

The Corporate Tax Position at $500,000

On exactly $500,000 of net active income, the dental corporation pays the SBD rate on the full amount — approximately 12.2% = $61,000. After-tax retained corporate income: approximately $439,000.

If, however, the practice has been incorporated for seven or eight years and has accumulated $600,000–$800,000 in retained earnings inside the corporation, annual passive income of $30,000–$40,000 may already be present. At $40,000 of AAII, the SBD is reduced — the first $500,000 of active income is no longer fully eligible. At this income level, the holdco is not optional — it is urgent.

Priority 1: Establish or Fund the Holdco

A dentist at $500,000 who does not yet have a holding company should establish one now. The annual after-tax retained earnings — approximately $250,000–$300,000 after a reasonable salary and corporate tax — should be flowing to the holdco through inter-corporate dividends rather than accumulating in the operating dental corporation.

Each year that passes without the holdco in place adds to the passive income concentration in the operating corporation, increasing the SBD erosion risk.

Priority 2: The Compensation Decision

At $500,000, the salary decision is governed more by the marginal rate analysis than by RRSP considerations — the RRSP limit ($32,490) is reached at approximately $180,500 of salary. Drawing more salary than that generates no incremental RRSP room.

A reasonable compensation structure at this income level:

Salary of $180,000–$200,000: Generates the full RRSP room. Personal marginal rate at $180,000–$200,000 in Ontario is approximately 46.41%–48.19%. RRSP contribution of $32,490 saves approximately $15,000 in personal tax.

Balance distributed as dividends or retained: The remaining $300,000 of after-tax corporate income is either distributed as dividends (personal tax at dividend rates) or retained and transferred to the holdco.

At this income level, retaining rather than distributing is almost always the right approach for a dentist in their accumulation years — the holdco compounds the retained earnings more efficiently than additional personal consumption.

Priority 3: Investment Allocation in the Holdco

Once the holdco is established and receiving annual transfers, the investment allocation inside the holdco should reflect its purpose — long-term wealth accumulation with a 10–20+ year horizon. A growth-oriented equity portfolio inside the holdco generates capital gains (50% inclusion, with the non-taxable portion flowing into the holdco's CDA) rather than interest income (fully taxable at the corporate passive rate).

Priority 4: Life Insurance as a CDA-Building Tool

As discussed in Article 156, a corporate-owned life insurance policy builds the CDA balance upon the insured's death. For a dentist at $500,000 of income with a growing holdco, a life insurance policy owned by the holdco — sized to build a significant CDA balance — converts premiums (paid from corporate after-tax income) into a future tax-free distribution stream for the estate.

When to Speak With a CPA

At $500,000, the planning conversation is not an annual checkbox — it is a multi-year structural review. The holdco setup, the investment allocation, the life insurance strategy, and the compensation structure all interact. A CPA who understands the full picture is the right person to coordinate it.

Rotaru CPA works with dental practice owners at the $500,000 income level on holdco structure, compensation planning, and long-term wealth strategy. Book a consultation to review your full corporate picture.