Many professionals who are members of a partnership have set up
a structure where their partnership interest is owned by one
professional corporation ("PC") and they and likely
family members own another PC which provides services to the
partnership PC (the "2 PC Structure"). The 2 PC Structure
was put in place because it allows access to a full small business
deduction, thereby increasing his or her tax deferral
Unfortunately, the 2016 Federal Budget indicated that the
Income Tax Act will be changed such that for fiscal years
starting after March 22, 2016, income earned by a corporation from
services directly or indirectly to a partnership where the
corporation's shareholder has a direct or indirect interest in
the partnership is no longer eligible for the small business
This effectively restricts the deferral advantage of the 2 PC
Structure. While it is our understanding that some professional
bodies are lobbying against these proposed changes, we have not
heard anything to date which suggests that the government does not
still plan to implement them.
In many cases, on January 1, 2017, it will no longer be worth the
administrative costs associated with having 2 PCs. However, for
others, there will be other family and estate planning reasons to
keep two corporations. One of our tax lawyers or another tax
professional can help you decide what structure will work best for
Preparing to amalgamate 2 PCs can take substantial time.
Documents need to be prepared, signed and filed with corporate
registry before the amalgamation date (January 1, 2017), and any
amalgamations of a PC must be approved by the professional's
regulatory body. If other family members are shareholders of one of
the PCs at that time, the fair market value of the two PCs must
also be determined. As a result, those with 2 PC Structures in
place should determine whether they want to amalgamate sooner
rather than later and should ideally start the review process by
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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