LAWYERS:LAWYERS:

““TO INCORPORATE OR NOT TO TO INCORPORATE OR NOT TO INCORPORATE,INCORPORATE,

THAT IS THE QUESTION”THAT IS THE QUESTION”

PCs - ShareholdersPCs - Shareholders

Limitation on who the shareholders can be

Tax planning opportunities and structures available depend on province and profession at issue

Medical or dental PCs permit non-voting participating shares

Legal PCs? Only lawyers can be shareholders in Ontario

No income splitting ability

PCs – THE PROsPCs – THE PROs

Small Business Deduction

Favourable tax rate for active business income

15.5% tax rate in Ontario for on first $500,000 of income; Income over $500,000 is taxed at 26.5%

Compare to top personal marginal rate of 46.41% on first $500,000 and 49.53% on income above $500,000 (Ontario)

Deferral of Tax to the extent you leave it in the corporation

Remunerations?

Salary or Bonus: Payment is deductible to corporation and included in your hands at your marginal tax rate

Likely subject to withholding tax at source, CPP and EI deductions

Can maximize RRSP contribution

Dividends – tax at dividend rate in your hands

RDTOH recovery

No source deductions for taxes, CPP, EI

Employer Health Tax may be avoided

Capital Gains Exemption Shares of PCs eligible for lifetime CGE of $800,000

But if value in business lies with individual goodwill rather than in PC, may not be useful

PCs – THE CONsPCs – THE CONs

Cost and time commitments to incorporate

Professional fees such as legal and accounting for planning, filing of corporate tax returns, T4s/T5s, etc.

Complexity to administration of professional’s practice

Requirement to maintain the corporation and require more detailed and complete records