Tax Alerts
Incorporation Will Become More Beneficial for Alberta Professionals
Important Update: On February 3, 2010, Albert Bill 53, the Professional Corporations Statutes Amendment Act, 2009, was proclaimed in force. This means that the changes described below apply with an effective date of March 1, 2010.
December 22, 2009
On November 26, 2009, the Professional Corporations Statutes Amendment Act, 2009 (Bill 53) received Royal Assent. Once the Bill is proclaimed, Alberta professionals will have more flexibility when it comes to using professional corporations (PCs). PCs are more restrictive than ordinary corporations, as specific rules apply, such as restrictions on who can hold shares and the professional’s personal liability related to carrying on the professional business. Currently, professionals subject to PC rules for their corporations include physicians, dentists, chiropractors, optometrists, lawyers, chartered accountants, certified general accountants and certified management accountants. Other professionals can generally use an ordinary corporation.
Under the rules that currently apply, only the professional can hold the shares of a PC. This restriction means that members of the professional’s family are not allowed to hold shares, and consequently, could not be paid dividends by the PC or share in capital gains if the PC is sold. The ability to pay dividends to adult family members is a key income splitting tool that is available to professionals in most other provinces. It is also possible to multiply the capital gains exemption where family members hold shares (and if other conditions are met) when the PC is sold.
Under the Bill 53 changes, a PC’s shareholders can now include:
- the professional,
- the professional’s spouse, including a common-law partner,
- a child of the professional, and
- a trust for a minor child, provided that the shares are transferred to the child within 90 days after the child turns 18.
Note that it appears that holding companies and typical family trusts will not be qualified shareholders. Also, only the professional can hold voting shares. Finally, liability associated with carrying on the business will only flow through to voting shareholders.
With these changes, many Alberta professionals will choose to incorporate for the first time while others will want to add family members as shareholders to their existing PCs. In both cases, you’ll need specific advice from your BDO advisor.
For more information on the benefits that a PC can provide, see “The Tax Advantages of Incorporating for Professionals” in issue 2009-03 of the Tax Factor.
