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 opportunities.

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 deduction.

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 you.

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 early fall.

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.