The College of Registered Psychotherapists of Ontario (“CRPO”) regulates psychotherapists in Ontario. The CRPO allows its registrants to practice as a professional corporation. Operating as a professional corporation may be beneficial for psychotherapists as it may limit or defer their tax exposure.
Incorporating a Professional Corporation
When incorporating a professional corporation, it is important that the articles of incorporation comply with the Regulated Health Professions Act, 1991, S.O. 1991, c. 18. In Ontario, a Psychotherapy Professional Corporation is considered to a be a health profession corporation and must be an Ontario Corporation. A Canada corporation cannot be used as a Psychotherapy Professional Corporation in Ontario. Moreover, in accordance with subsection 3.2 (2) of the Business Corporations Act, a Psychotherapy Professional Corporation must satisfy all of the following conditions:
- All of the issued and outstanding shares of the corporation shall be legally and beneficially owned, directly or indirectly, by one or more psychotherapist.
- All officers (ie President, Secretary, CEO, CFO) and directors of the corporation shall be shareholders of the corporation.
- The articles of incorporation of a professional corporation shall provide that the corporation may not carry on a business other than the practice of Psychotherapy but this paragraph shall not be construed to prevent the corporation from carrying on activities related to or ancillary to the practice of Psychotherapy , including the investment of surplus funds earned by the corporation.
In order to ensure your Psychotherapy Professional Corporation is properly incorporated and organized, a lawyer should be retained. Pawlina Law can assist you with setting up your Psychotherapy Professional corporation. Failing to properly set up your Psychotherapy Professional Corporation can result in delays in using your professional corporation or having to file costly Articles of Amendment to ensure your corporation complies with the requirements.
Certificate of Authorization for a Psychotherapy Professional Corporation
Once your Psychotherapy Professional corporation is incorporated, it must first obtain a Certificate of Authorization before practicing. A professional corporation cannot register as a licensed member of the CRPO, nor can it be a registered practitioner of psychotherapy. Rather, a registrant may obtain a Certificate of Authorization for a Psychotherapy Professional Corporation which allows it to engage in the practice of the profession. To obtain a Certificate of Authorization, a registrant much complete and submit an application.
Moreover, to be issued a Certificate of Authorization, a professional corporation must comply with O. Reg. 39/02: Certificates of Authorization which requires (among other things):
- The articles of the corporation provide that the corporation cannot carry on a business other than the practice of Psychotherapy and activities related to or ancillary to the practice of Psychotherapy.
- All of the issued and outstanding shares of the corporation are legally and beneficially owned, directly or indirectly, by one or more members of the issuing College of Registered Psychotherapists of Ontario.
- The name of the corporation meets the following standards which are described in subsections (2) to (5) of Section 1 of O. Reg. 39/02. These standard are discussed below.
Naming Your Psychotherapy Professional Corporation
The name of an Ontario Psychotherapy Professional Corporation must meet the following standards which are described in subsections (2) to (5) of Section 1 of O. Reg. 39/02:
The name of the corporation must meet the requirements in section 3.2 of the Business Corporations Act and must not violate the provisions of any other Act, which include:
- The name of the corporation shall include the words “Professional Corporation” or “société professionnelle” and shall comply with the rules respecting the names of professional corporations set out in the regulations and with the rules respecting names set out in the regulations or by-laws made under the Act governing the profession.
- The name cannot be a numbered company.
- The name of the corporation must include the surname of one or more shareholders of the corporation who are CRPO members, as the surname is set out in CRPO’s register, and may also include the shareholder’s given name, one or more of the shareholder’s initials or a combination of his or her given name and initials.
- The name of the corporation must include “Psychotherapy Professional Corporation” of the respective French variation.
- The name of the corporation must not include any information other than the information permitted or required by O. Reg. 39/02. It is common for individuals to want to list a title (i.e. Dr.) or their academic or professional credentials in the name of their professional corporation. However, this is prohibited.
Thus, the following options are available for a Psychotherapist named John Jacob Smith:
- John Smith Psychotherapy Professional Corporation
- John J Smith Psychotherapy Professional Corporation
- J Smith Psychotherapy Professional Corporation
- J. Smith Psychotherapy Professional Corporation
- Smith Psychotherapy Professional Corporation (Albeit, this name could already have been registered and no two corporations in Ontario are permitted to have the same name)
In our opinion, the shortest possible option should be chosen.
Partial Exclusion of Limited Liability
One important difference between a regular Ontario corporation and a Professional Corporation is the partial exclusion of limited liability. With the exception of a few scenarios, due to subsection 3.2 (2) of the Business Corporations Act, a corporation typically insulates shareholders in their personal capacity from corporate liability. However, in a Professional Corporation, shareholders only have limited liability in certain areas. In a Professional Corporation, for the purposes of professional liability, the acts of a professional corporation are deemed to be the acts of the shareholders, employees or agents of the corporation. The liability of a member for a professional liability claim is not affected by the fact that the member is practicing the profession through a Professional Corporation. Thus, a corporation will not protect a Psychotherapist from a negligence claim.
A Psychotherapist is jointly and severally liable with a Professional Corporation for all professional negligence claims made against the Professional Corporation in respect of errors and omissions that occurred while the person was a shareholder of the corporation. Thus, shareholder-professionals remain liable both for their own individual negligence and for the negligence or other breach of other professionals who are employed by the corporation. Conversely, a Professional Corporation can shield a Psychotherapist from other legal claims, such as breach of contract for the Professional Corporation’s commercial lease.
Benefits and Drawbacks of a Psychotherapy Professional Corporation
There are several advantages to providing professional services using a Professional Corporation. The main advantages are the potential tax planning advantages. For example, having a Professional Corporation can provide opportunities for tax deferral, the use of the lifetime capital gains exemption, and flexibility in remuneration. Professional Corporations also provide limited protections from creditors and the ability to pay non-deductible expenses from the Professional Corporation. Setting up a Professional Corporation is most useful for professionals who earn more income than they need, allowing them to keep surplus billings in the Corporation. These surplus billings will likely be taxed at a lower rate when retained in the Corporation and can be reinvested in stocks, bonds, or GICs, allowing the professional to accumulate additional wealth in their Professional Corporation which can be paid out to the Psychotherapist at their direction. Other benefits of incorporation include:
- Ownership is transferable to another person provided that they are a Psychotherapist
- As long as filings are maintained and the corporation is not dissolved, the corporation’s existence is continuous
Typically, it is a Psychotherapist’s accountant or tax planner that advises the Psychotherapist to complete a professional incorporation. Pawlina Law does not provide clients with tax advice. Only a client’s accountant or tax planner is sufficiently familiar with their tax scenarios to advise them on whether pursuing a professional incorporation is tax efficient for them. Pawlina Law has worked with numerous accountants to assist health professionals with setting up their Professional corporation.
The disadvantages of a psychotherapy professional corporation are the additional costs and documentation. Professional Corporations typically result in additional legal and accounting costs for the professional during both the set up and on an annual basis. These costs are further explained, below.
How Much Does a Psychotherapy Professional Corporation Cost?
There are certain costs which are associated with incorporating. These costs can be broken down into legal costs, accounting costs, and regulatory costs in the following manner:
- Legal Costs – There are initial legal costs for incorporation and annual costs that will be incurred for corporate maintenance. Our professional fee to incorporate a Psychotherapy Professional Corporation is $780.00 + HST + Disbursements. Disbursements are expenses that we incur on your behalf, such as an incorporation filing fee. More information about this pricing is available here. At the time of writing this article, the disbursements are estimated to be $450.29 (inclusive of HST). Our services include everything you need to properly set up your Psychotherapy Professional Corporation. Your Psychotherapy Professional Corporation will have annual maintenance requirements. The professional fees to complete this annual maintenance are $300.00+HST per year plus another $100.00+HST if dividends are declared.
- Accounting Costs – There would also be additional yearly accountant fees around $1,500.00 – $2,500.00 per year. However, some psychotherapists could reduce their tax bill by tens of thousands of dollars per year.
- Regulatory Costs – To obtain a Certificate of Authorization, a psychotherapist must pay the College of Registered Psychotherapists of Ontario a fee of $705.12 ($624 + $81.12 HST) or renewal fee of $470.08 ($416 + $54.08 HST). Additionally, a corporate profile report must be obtained. This report can be obtained for $8.00 by the Psychotherapist using the Corporation’s online profile and Ontario’s Online Business Registry.
Each psychotherapy professional corporation is different and will require input from accounting and legal professionals before being created. A well coordinated legal and tax strategy could assist a psychotherapist in achieving substantial tax savings. Registering a psychotherapy professional corporation is complicated, but Pawlina Law can assist you with setting up your Professional Corporation. We are happy to have a courtesy call with Psychotherapists to answer any questions they may have. Please do not hesitate to contact us.