Readers of this blog will know that I am not a fan of discretionary dividend shares (shares issued for $1, or some other nominal amount, that are redeemable for that amount but entitled to unlimited dividends). I harbour these concerns despite that these types of shares appear to be the rule rather than the exception in medical professional corporations. Joan E. Jung and Cynthia M. McIntyre, “Current Issues,” 2013 Ontario Tax Conference, (Toronto: Canadian Tax Foundation, 2013), contains a good discussion of the CRA concerns regarding the shares. The CRA has questioned whether such shares, when they are issued for $1, have been issued for fair market value (has the corporation conferred a benefit where the shares are issued for the nominal amount?). The CRA has also raised the spectre of 69(1)(b), per R v Kieboom, 92 DTC 6382 (FCA), and the possible application of the GAAR.

The authors appear to believe that a freeze under section 51 or 86, coupled with a price adjustment clause (PAC) and followed by the issue of dividend shares, should address the 15(1) and 69(1)(b) concerns. I’m not so optimistic: if the CRA thinks the issue of dividend shares is abusive, will it respect the PAC?

Bill 69, the Tax Fairness for Realtors Act, 2015, received first reading in the Ontario legislative assembly on February 26, 2015. The explanatory note accompanying the Bill reads as follows:

The Bill amends the Real Estate and Business Brokers Act, 2002 to permit a personal real estate corporation to be registered as a broker or salesperson. A personal real estate corporation must be incorporated as a professional corporation under the Business Corporations Act and be authorized only to trade in real estate.

In addition, the Bill amends the Real Estate and Business Brokers Act, 2002 to permit a brokerage to pay commission or other remuneration to a personal real estate corporation of an individual broker or salesperson that it employs.

Postscript: The Bill, it appears, was introduced by a Conservative MPP.

The application and renewal process for certificates of status for the professional corporations (PCs) of doctors and dentists was rather labyrinthine. The College of Physicians and Surgeons recently announced that the process for doctors has been simplified. In an email it sent to subscribers to its corporate mailing list, the College summarized the changes as follows. Continue reading →

Assume that Ms X, a lawyer in Ontario, wishes to incorporate a professional corporation (PC). Unlike her doctor and dentist clients, she can’t permit her husband to subscribe for shares in the capital of the PC because only members of the legal profession are permitted to own shares of a legal PC. Perhaps she can income split anyway, however, if she incorporates a corporation, her husband subscribes for some of its shares and then gifts the shares to Ms X. Ms X can then apply for a certificate of authorization for the PC. (It seems she will need to amend the articles of the corporation after her husband obtains and then gifts his shares but before she applies for the certificate because the Law Society will require the articles to include a clause prohibiting shareholders who are not lawyers.) Under ITA subsection 74.1(1), dividends paid on the gifted shares will be attributed to the husband.

The CRA, however, believes that the anti-avoidance rule in subsection 74.5(11) might apply so that attribution won’t occur. See TI 2014-0519661E5 (March 24, 2014) summarized in Robert Lee, “Subsection 74.5(11) and Professional Corporation Shares” (July 2014) 14:3 Tax for the Owner-Manager.