New PC Legislation - Have You Taken Advantage?

In March 2010 the legislation with respect to the ownership of shares in an Alberta Professional Corporation (“PC”) was amended. As a result, certain individuals e.g. spouses of practicing professionals, and their children, can now own non-voting shares in a PC.

Prior to the amendments, only a practicing professional could be a shareholder of a PC. This prevented income earned by the PC from being distributed to anyone else by way of a dividend. Now however, dividends can be paid to individuals other than the practicing professional, which opens up opportunities for tax savings.

While this is an attractive alternative for many practicing professionals, significant income tax issues can arise. The PC must be correctly reorganized to avoid inadvertent triggering of income to the practicing professional. In addition, there are significant commercial aspects that must be addressed before introducing other individuals as shareholders in the PC.

There are also some rules which allow a family trust to be a non-voting shareholder. However, any shares owned by the trust must be distributed to a beneficiary within 90 days of the beneficiary reaching 18 years old. As a result the value of a trust is severely restricted.

Time is running out if you want to take advantage of these amendments in the 2010 tax year. We encourage you to review the new rules and their applications with a member of our Estate, Trust, and Taxation group. A dividend could be paid to a non-voting shareholder, tax-free, to a maximum of over $35,000, or $70,000 for non-eligible dividends. Can you afford to ignore it?

For additional information please contact one of our Estates, Trusts and Taxation Co-Chairs: