Introduction
For most of a physician's career, their professional corporation is a wealth accumulation vehicle. Income flows in, tax is deferred, and retained earnings build. The strategy is clear and the mechanics are relatively settled.
What is less often discussed — until it becomes urgent — is how to get the money out in retirement. Winding down a professional corporation, transitioning from active income to retirement distributions, and accessing accumulated corporate wealth efficiently requires planning that should begin well before the retirement date, not in the year it happens.
The Transition From Active Income to Retirement Income
During a physician's working years, the MPC earns active business income — billings, fees, and practice revenue. In retirement, active billings stop. The corporation no longer generates operating income; it holds retained earnings and, typically, a portfolio of investments.
This transition has implications that are often underestimated:
Once active business income stops, the corporation no longer qualifies for the small business deduction on new income. Investment income earned inside the corporation is passive income, taxed at the general corporate rate (approximately 50.17% in Ontario in 2026, with a refundable portion).
The physician, now retired, must draw funds personally from the corporation over time, paying personal tax on dividends or salary. The pace of those distributions, and their form, affects the physician's marginal personal rate for the rest of their life.
The Refundable Dividend Tax on Hand (RDTOH) Mechanism
Investment income earned inside a private corporation is subject to a high corporate tax rate, but a portion is refundable to the corporation when it pays taxable dividends to shareholders. This mechanism — the Refundable Dividend Tax on Hand (RDTOH) — is designed to ensure that passive income is not permanently taxed at both the corporate and personal level.
Managing RDTOH balances — understanding when eligible vs. non-eligible RDTOH is refunded and in what order — is part of the annual corporate tax work for a corporation holding significant investments. A corporation with substantial RDTOH should be distributing dividends strategically to recover refundable tax.
The Capital Dividend Account in Retirement
As the corporate investment portfolio generates capital gains, half of each gain is taxed inside the corporation. The other half — the non-taxable portion — accumulates in the corporation's capital dividend account (CDA). Capital dividends paid from the CDA are received tax-free by the shareholder.
A physician planning retirement distributions should understand the size of their CDA balance and incorporate tax-free capital dividends into the drawdown plan. Allowing a large CDA balance to accumulate without using it is an avoidable tax cost.
The RRSP/RRIF Position
Physicians who paid themselves salary during their working years will have accumulated RRSP room and, by retirement, may have a significant RRSP or RRIF balance. Coordinating corporate distributions with RRSP/RRIF withdrawals is essential to avoid pushing total income into the highest personal tax brackets unnecessarily.
Many retired physicians make the error of drawing down corporate funds rapidly in early retirement while deferring RRIF withdrawals — then facing large mandatory RRIF withdrawals later, at the same time as ongoing corporate distributions. An integrated drawdown plan, developed with both the corporate and personal picture in view, avoids this.
Old Age Security Clawback
Old Age Security (OAS) is subject to a recovery tax (commonly called the clawback) when net income exceeds a certain threshold — in 2026, this threshold is approximately $90,997. For a physician with corporate distributions and RRIF withdrawals in retirement, total income can easily exceed this level.
Planning corporate distributions to stay below or manage the OAS clawback threshold is a consideration that applies specifically to the retirement phase — and requires knowing in advance what income will look like in each year of retirement.
Should the Corporation Be Wound Up?
Some physicians choose to formally wind up their professional corporation in retirement rather than maintain it as a holding vehicle. A corporate wind-up involves distributing all remaining corporate assets to the shareholder, paying applicable taxes, and dissolving the corporation.
The tax consequences of a wind-up depend on the composition of the corporate assets (cash, investments, capital property), the size of the CDA and RDTOH balances, and the shareholder's personal income position. A poorly timed or unplanned wind-up can result in significantly more tax than a structured multi-year drawdown.
When to Speak With a CPA
Retirement planning for an incorporated physician should begin at least five years before the anticipated wind-down of practice — and ideally much earlier. The decisions made in the final working years (compensation level, investment allocation inside the corporation, RRSP contributions) significantly affect the options available in retirement.