Provisions in the Regulated Health Professions Act (the "RHPA") and the Ontario Business Corporations Act (the "OBCA"), permit regulated health professionals in Ontario to incorporate for the purpose of practising a health profession. In order for a health profession corporation to incorporate under the OBCA and be issued a Certificate of Authorization under the RHPA, all of the issued and outstanding shares in a health profession corporation must be legally and beneficially owned, directly or indirectly, by regulated health professionals of the same profession.[1] This means, for example, a physiotherapist can create a health profession corporation, however all of the shares (voting and non-voting) in the health profession corporation must be owned, directly or indirectly by that physiotherapist individually or with other physiotherapists. There is an exception to this rule for physicians and dentists. In the case of health profession corporations formed by physicians and dentists, non-voting shares may be held by the physician or dentist's spouse, parent, children or a trustee on behalf of minor children.[2] Bill 4, a private member's bill put forward by Progressive Conservative MPP John O'Toole, seeks to expand that exception to all regulated health professionals.[3]
Bill 4 proposes to amend the RHPA by adding a section[4] that would permit a health profession corporation to hold a Certificate of Authorization issued by a health profession college if: (1) each issued and outstanding voting share of the corporation is legally and beneficially owned, directly or indirectly, by a member of the college, and (2) each issued and outstanding non-voting share of the corporation is:
- legally and beneficially owned, directly or indirectly by a member of the college;
- legally and beneficially owned, directly or indirectly by a family member of a voting member shareholder;[5] or
- owned legally by one or more individuals, as trustees, in trust for one or more children of a voting member shareholder who are minors, as beneficiaries.
Bill 4, if passed, would similarly amend the OBCA by adding a Section 3.2.1 that sets out the same ownership conditions.
The proposed Section 3.2.1 also sets out other conditions for all health profession corporations that mirror the conditions already contained in Section 3.2 of the OBCA with consequential modifications that take into account the new shareholder ownership rights granted under the amendment.[6]
Consequently, if the amendments in Bill 4 are enacted it would mean that all regulated health professionals in Ontario would be permitted the same share ownership exemptions currently enjoyed by dentists and physicians. Specifically, although all of the voting shares of a health profession corporation would be required to be owned by a regulated health professional, the non-voting shares could be held by their spouses, parents, children or trustees of their minor children.
The arrangement is advantageous to health professionals as it allows them to distribute profits of their practice directly to shareholding family members sometimes in a more tax effective manner than would be the case if the health professional received all such profits and then distributed them to family members.
Historically, private members' bills in Ontario have had limited success of being enacted into law. However, this bill which has already passed first reading, may have a reasonable chance of success given it only seeks changes to legislation that would give all regulated health professionals the same rights with respect to incorporation and income splitting as the legislation has given to physicians and dentists since 2006.
[1] The OBCA at section 3.2(2).
[2] O. Reg 665/05 as sections 2 and 3.
[3] Certified General Accountants, Chartered Accountants, Lawyers, Social Workers and Veterinarians are also permitted to form professional corporations under the OBCA. The proposed amendments in Bill 4 do not apply to those professions.
[4] Section 34.2(2)
[5] "family member" is defined as spouse, child or parent.
[6] These conditions include such things as certain requirements for the name of the corporation (3.2.1(3) paragraphs 4 and 5), voting agreements (3.2.1(4)) and unanimous shareholder agreements (3.2.1(7) and (8)).
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