What should dentists consider when a spouse works in the practice or both spouses are dentists?

How should a dental household think about financing before choosing a policy?

Treat financing as a recurring household decision, and consider insurance only after identifying the purchases and obligations you want to fund.

Nelson Nash presented The Infinite Banking Concept® in Becoming Your Own Banker® (2000) as a concept about financing, not simply a way to buy life insurance. His premise was that a family’s need for financing exceeds its need for life insurance protection. A dental household sees why: alongside housing and vehicles, it may face education costs, a practice purchase, equipment replacements and periods when practice expenses arrive before patient payments.

A purchase is financed whether you use credit or cash. With an outside lender, you pay interest. With cash, you give up what that money might otherwise have earned or allowed you to do. Neither observation means debt is always undesirable or that cash should never be used. It means financing deserves an intentional place in the household plan. The policy is the tool; financing is the purpose.

The long-term goal is to build a financing system that can serve more of the family’s ordinary purchases and rely less on commercial lenders. Canadian Wealth Creation Centre Inc., which provides the service and publishes the educational website IBC Financial, calls that goal Infinite Financial Sovereignty®, a registered trademark of Jose Salloum. It is a destination to work toward, not a promised outcome; a policy loan is itself a loan from the insurer, with interest. The practical mindset is to think like a lender toward your own household: identify the purpose of each advance, assess whether it is affordable, set repayment terms and follow them.

A household can share this discipline without pretending that every dollar belongs to one person or entity. A spouse’s wages, a dentist’s professional corporation and a personally owned policy have different owners and different tax consequences. Keeping those boundaries clear matters especially when both spouses practise dentistry, because two practices can mean two corporations, two sets of lenders and two sets of obligations inside one family budget.

Start with a written list of upcoming purchases and existing financing. Separate predictable replacements from real emergencies. Preserve accessible cash for immediate needs; a policy built over years is not a substitute for today’s reserve or a committed source of practice credit. For a closer look at purchases across a dental career, see financing a dental career.

Can I pay my spouse a salary for working in my dental practice?

Yes, if your spouse performs real work and the pay is reasonable for the services actually provided.

A spouse may manage schedules, reconcile accounts, supervise employees, handle purchasing or perform other necessary work. Being married to the dentist does not make those services unpaid, but it does not justify a salary for tasks that were never done. Establish the role as you would for an unrelated employee. Describe the duties, decide who supervises the work and compare the proposed pay with what the practice would reasonably pay someone else for similar responsibilities.

Keep records as the work happens: a job description, schedules or time records, examples of completed tasks, payroll records and evidence of payment. A role may change as a practice grows, so revisit the duties and pay rather than relying indefinitely on an old description. If both spouses are dentists, record clinical and management responsibilities separately where that helps explain their compensation.

The Canada Revenue Agency’s business-expense guidance is written for sole proprietors and partnerships. It says a spouse’s salary is generally deductible when the work is necessary to earn business income and the amount is reasonable. It also says to report a spouse’s salary on a T4 slip. Employers must address the applicable payroll deductions and remittances. A corporation should have its accountant check the employment and deductibility questions in its own circumstances; a dentist operating without a corporation should not assume that drawings and employee wages are interchangeable.

Pay for work is different from a distribution made because someone holds shares. Salary belongs in the payroll records and is taxable to the recipient as employment income. It should be paid because the services warrant it, not because the household wants to move an arbitrary amount of income from one spouse to the other. Good records protect both spouses by making the arrangement understandable years later, including during a tax review, a sale or a separation.

Can a dental corporation pay dividends to my spouse or other family members?

Possibly, but permitted share ownership and the tax on split income rules must be checked before a family dividend is declared.

Dividends are paid on shares, not for putting in a particular shift. First ask whether the spouse or family member can legally hold the proposed shares in that province’s dental professional corporation. Provincial legislation and the dental regulator govern professional corporations, and the answer may differ by share class and by province. Do not copy another dentist’s corporate structure without checking the rules where you practise. The companion page on the professional corporation and retained earnings explains how the corporation itself fits into the plan.

Then ask what the payment means for tax. Section 120.4 of the Income Tax Act contains the tax on split income rules. In words, these rules can tax certain income paid to family members from a related business at the maximum personal tax rate unless an exclusion applies. Whether an exclusion applies depends on facts such as the recipient’s age and involvement in the business, which the accountant must confirm. The exclusion based on owning shares does not apply to shares of a professional corporation. A dividend is not automatically excluded because its recipient is a spouse, works in the office or owns shares. Salary for real work is a different question from whether a dividend qualifies for an exclusion.

There is also a corporate question beyond this year’s tax bill. Adding a shareholder can affect control, future dividends, a sale and what happens if the relationship ends. A family member’s access to corporate income does not itself give that person authority to practise dentistry. Nor does a corporate life insurance policy make an otherwise problematic dividend acceptable.

Before issuing shares or changing compensation, put the facts in one place for the accountant and lawyer: who works in the practice, who contributed money, who guaranteed obligations, who owns each class of shares and who expects to own the practice later. That discussion connects directly to corporate ownership of life insurance, because a decision about who owns a policy cannot be separated from the corporation’s ownership and succession plans.

If both spouses are dentists, should we have one practice or two?

Choose the practice structure for clinical, legal and business reasons first; do not let an insurance illustration make the decision.

Two dentists in one household may work as associates in different practices, own separate clinics or practise together. Sharing a home budget does not mean their patient records, contracts, staff, debts or regulatory obligations are shared. A joint clinic can simplify some operations, but it also calls for decisions about management, compensation and what happens if one dentist stops practising. Separate clinics can preserve distinct control while creating separate expenses and financing needs.

The corporation question is related but not identical. One clinic does not automatically mean one professional corporation, and two dentists do not automatically need two corporations. What is permitted depends on the provincial rules, the dental regulator, share ownership and how the actual work is carried on. In Ontario, for example, the Royal College of Dental Surgeons of Ontario (RCDSO) publishes guidance on authorization and shareholder requirements for health profession corporations; in Quebec, the Ordre des dentistes du Québec (ODQ) regulates the profession. Dentists in Alberta, British Columbia, Manitoba, New Brunswick and elsewhere need advice based on their own jurisdiction. A lawyer familiar with the applicable regulator and an accountant who understands both practices should review the proposed arrangement together.

Use the following questions to compare structures. They are planning prompts, not answers that apply to every household.

Review existing contracts before assuming that a new ownership chart will divide liability neatly. A lender’s guarantee, a lease and a shareholder agreement can matter as much as the corporation named on an application. Map the practices first, then decide what protection and financing capacity each needs. If one practice may be sold before the other, the page on selling the practice shows which questions that sale raises.

Who should own and be insured under a policy for a dentist couple?

Identify the insured person, owner, premium payer and beneficiary for every proposed contract before it is issued.

The insured is the person whose life is covered. The owner controls the contract, subject to its terms and any beneficiary rights. The premium payer provides the money to maintain it. The beneficiary is designated to receive the death benefit. These roles can belong to different people or entities; confusing them can cause a result neither spouse intended.

A policy on each spouse can address different needs. One spouse’s death might leave the household needing income and care for children; the other’s might also leave a practice needing time and money for a transition. Each policy still needs a deliberate owner and beneficiary. If a corporation owns and pays for coverage, its business purpose and beneficiary designation must be reviewed in light of the corporate structure, as the page on personal or corporate ownership of the contract explains. Having a practice pay premiums on a personally owned contract is not a harmless shortcut. Life insurance premiums are generally not deductible simply because a dentist owns a corporation.

A joint policy covers two lives under one contract. Generally, a first-to-die design pays on the first death; a last-to-die design pays after both insured people have died. Those are different timing choices, not substitutes for working out what each survivor would need. Compare them with separate policies rather than assuming a joint contract suits every couple. The owner’s control of a joint contract, its availability for financing and what happens after a relationship change all deserve particular attention.

Ownership and beneficiary choices need the accountant and lawyer before issue, not after an inconvenient event. Changing an existing contract can have tax and legal consequences, and a corporation’s needs may change if one spouse sells shares or leaves the practice. In Quebec, the Civil Code of Québec (art. 2449) generally makes a married or civil union spouse’s designation as beneficiary irrevocable unless it states otherwise. This applies to a designation made other than in a will. The page on the Civil Code and the life insurance contract sets out the rules. That is a reason to settle the intended designation with a Quebec lawyer rather than assuming it can be changed later by filling out a form.

Before any application is signed, write down the answers to a short list of questions:

• Whose life is insured, and what loss would that death create for the household and for each practice?
• Who will own the contract, and who could control it after a separation, a sale or a death?
• Who pays the premiums, from which account, and is that payer the owner?
• Who is the beneficiary, and is that designation revocable or irrevocable?
• Is any policy, or any benefit, assigned or likely to be assigned to an outside lender?

How could participating whole life insurance help us finance purchases?

It may become one source of financing over time, provided premiums, loan interest and repayment remain affordable.

In Canada, the usual insurance tool for this concept is a participating whole life policy from a Canadian insurer. It is life insurance, not an investment. The contract sets out guaranteed cash values, provided the required premiums are paid. It may also receive dividends, but dividends are never guaranteed. Read the contractual figures separately from illustrations that assume future dividends. Cash value takes years to build, and policy costs weigh most heavily in the early years, which is why capitalization comes before use. The household must be able to fund the policy steadily without neglecting accessible reserves, existing debt or the insurance protection it needs now.

When the owner requests a policy loan, the insurer advances money secured by the policy’s cash value. This is not a transfer of household cash from one pocket to another. A policy loan is requested from the insurer, which confirms the amount available under the contract and its rules; an assignee’s consent may be needed. The loan is itself a loan from the insurer, with interest. The owner plans repayments within the contract’s terms. The policy continues to be administered under its own terms while the loan is outstanding.

Illustrative arithmetic only: Suppose a household has identified a $30,000 equipment purchase. It has set aside $8,000 for that purchase and, after reviewing the actual contract, finds that a $22,000 policy loan is available. Those two amounts add to the $30,000 purchase price. If the household chooses to repay the $22,000 of principal over four years, it would plan for $5,500 of principal a year ($22,000 divided by 4) plus the insurer’s interest. This arithmetic does not show that a policy loan is cheaper than outside credit. The household would need to compare actual interest charges, contract values, taxes and the effect of each option on its cash reserve. Decide first who buys the equipment. If the corporation buys it and the policy is owned personally, the loan is personal, and moving the money into the corporation is a separate, documented step.

Unpaid interest may be added to the loan. An outstanding loan reduces what is payable as a death benefit, and a large unpaid balance can contribute to a lapse and possible tax consequences. In Canada, a policy loan is a disposition for tax purposes. Under section 148 of the Income Tax Act, the part above the policy’s adjusted cost basis immediately before the loan is included in income. The guide on when a policy loan becomes taxable explains the calculation. Repaying the policy loan that caused an income inclusion can give a deduction under paragraph 60(s) of the Income Tax Act, within its limits. Growth inside the contract remains sheltered only while it qualifies as an exempt policy under section 306 of the Income Tax Regulations. Ask the insurer for current loan and adjusted cost basis figures, and have the accountant check the consequences before acting.

What should we plan for if we separate, divorce or leave a practice?

Plan for a change in the relationship while both spouses can still agree on how practice interests, policies and debts should be handled.

Clear documents can reduce uncertainty about who owns what, who owes what and which decisions require another person’s consent. Identify personally owned policies, corporate policies, share classes, guarantees, practice loans and the money each spouse contributed. If there is a joint contract or a policy owned by one spouse on the other spouse’s life, ask a lawyer how control would work after a separation.

A household financing plan may have been designed around two incomes and shared repayments. Separation can turn one affordable premium commitment into two competing cash needs. It may also make a practice buyout or sale more urgent than the next equipment replacement. A policy loan remains an obligation to the insurer regardless of what the spouses decide between themselves. Do not assume a separation agreement automatically changes the policy owner, an irrevocable beneficiary or a lender’s guarantee.

Corporate ownership needs its own review. If both spouses own shares, a shareholder agreement can address a departure, valuation and a potential purchase of shares. If one spouse works in the practice but owns no shares, employment arrangements and family property questions remain distinct. The applicable rules vary by province, and professional regulation can limit who may hold or acquire dental corporation shares.

Beneficiary designations also deserve a fresh look after any change, with legal advice before changing them. Quebec’s rules about a married or civil union spouse’s designation require particular care. Under art. 2459 of the Civil Code, a divorce, an annulment or the dissolution of a civil union ends the former spouse’s designation as beneficiary. A separation from bed and board does not by itself, although a court may decide otherwise. The page on what happens to a policy in a divorce covers the general questions. Do not rely on a general statement about divorce to predict the result for a particular policy.

Review the plan at other turning points too: a new corporation, a practice sale, a birth, a disability or retirement. The aim is to know which decisions need to be revisited and who has authority to make them.

What are the drawbacks, and who should not use this approach?

A household without durable surplus, a long funding horizon or a workable repayment habit should not force this strategy into its budget.

Participating whole life insurance has ongoing premiums and significant early costs. If it is surrendered early, the cash received may be less than the premiums paid. The protection may be appropriate while the financing plan is not, or a different form of insurance may meet an immediate protection need more affordably. It cannot solve a shortfall in next month’s practice payroll.

Loans are subject to contract limits, insurer terms and interest charges. Failure to manage an outstanding loan can reduce the death benefit or contribute to a lapse. A loan above the adjusted cost basis can produce taxable income; the sheltered treatment of growth depends on exempt policy status. Corporate ownership can add accounting, legal and administrative work. A household should compare these costs with the outside financing it would otherwise use, not with a fictional cost-free alternative. The page on risks and failure modes sets these out in more detail.

This approach may not suit dentists facing heavy, costly practice debt; households whose cash flow varies too much to maintain premiums; spouses who disagree about control or repayment; or people likely to need the policy’s cash value soon. It may also be inappropriate when accessible emergency savings, disability protection, existing debt or a practice succession agreement needs attention first. Two policies are not automatically preferable to one, and a corporation should not buy a policy merely because it has cash at a particular year end.

An insurer’s contractual obligations depend on that insurer’s ability to meet them. Assuris protects eligible Canadian policyholders within its limits if a member insurer fails, and it calculates that protection after policy loans; it is not a government guarantee.

The author is paid commissions by insurers when a policy is bought. That is another reason to decide on the household’s financing purpose, obtain independent accounting and legal review of the structure, and examine the costs before applying.