In short: A clinic building usually should not be owned inside a Medical Professional Corporation: it exposes the property to practice liability, can create double tax on a future sale, and can disqualify the MPC's shares from the $1.25 million Lifetime Capital Gains Exemption if non-practice assets grow too large. ZAI Wealth Management explains the common alternative, a separate property company that owns the building and charges the MPC fair-market rent, which is deductible to the MPC and, when the companies are affiliated, active income to the landlord.
Check what your MPC is allowed to do
Provincial colleges limit what a Medical Professional Corporation can do beyond practising medicine. Some restrict holding real estate or other businesses. Confirm the rules in your province before you buy.
The problems with holding property in the MPC
- Liability: the building sits alongside your operating practice and its risks.
- Tax on sale: a gain realized inside the corporation is taxed as investment income, then again when paid out to you, although part of the tax is refundable and half the gain can come out tax-free through the capital dividend account.
- Selling the practice: to claim the lifetime capital gains exemption ($1.25 million) on shares, nearly all of the corporation's assets must be used in the active business. Large non-practice assets can disqualify it.
A common alternative: a separate property company
Many physicians hold the building in a separate company and have the MPC pay fair market rent. Rent is a deductible expense for the practice. When the landlord company is associated with your MPC, that rent is generally treated as active business income for the landlord rather than passive income.
How you fund the down payment depends on your province's share-ownership rules, so plan it with your accountant and lawyer.
Run your own numbers with our Physician Tax Savings Calculator.
For illustration and general information only. Tax rules change and every situation is different, so speak with your advisor and accountant before acting on anything here.
Common questions
Should a physician buy their clinic building inside the medical corporation?
Usually not. Owning the building inside a Medical Professional Corporation exposes it to practice liability, can create double tax on sale, and can cost the physician the $1.25 million Lifetime Capital Gains Exemption on the MPC shares if non-practice assets become too large. The common alternative ZAI Wealth Management uses is a separate property company that owns the building and charges the MPC fair-market rent.