LAWYERS: “TO INCORPORATE OR NOT TO INCORPORATE, THAT IS THE QUESTION”

1. LAWYERS: “TO INCORPORATE OR NOT TO INCORPORATE, THAT IS THE QUESTION”

2. PCs - 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 

3. PCs – 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

4. PCs – 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