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postponement or deferment of fax

 

dental supplies wholesale and sold them
retail to her husband and to other
dentists in the area. Prior to the forma-
tion of the company she had some
business experience and had taken some
management courses. The Tax Appeal
Board felt that all the signs indicated a
genuine corporate enterprise begun
primarily for the management of the
dentist’s practice and not in order to
overcome any particular facet of the
Income Tax Act.

Thus the professional will be entitled
to employ his wife as long as she is
qualified to perform the duties for
which she is employed.

Another advantage with incorpora-
tion is that a portion of the income
which would otherwise have been taxed
at individual rates is diverted into the
corporation to be taxed there at the
lower rate. However, this for the most
part means “fly now, pay later” since
the advantages do not generally mean
permanent savings but rather postpone-
ment or deferment of tax.

The top marginal rate of tax applic-
» able to individual taxpayers in Canada
now exceeds 60% and is reached at the
$60,000 income level. On the other
hand, companies are subject to a rate
approximating 50% thus providing a
10% differential in tax rates. There are
also other tax saving possibilities that
might result to the individual from
incorporation, since certain companies
qualify for an approximate 25% tax rate
on up to $50,000 of their business
income. To qualify there are restric-
tions, not the least of which is the
requirement that such business income
be of an ‘“‘active” variety (the term is
not defined in the legislation but the tax
collectors have offered their thoughts in
published guidelines). Another restric-
tion is that once the company has
accumulated $400,000 in active busi-
ness income the low rate goes.

In addition to salary and other bene-
fits the directors of the corporation may
decide to create a benevolent retirement
plan for you. They may also pay all
your expenses and carry large amounts
of key-man insurance on your life.

There are other advantages, each of
which, depending on the circumstances,
can be equally important. The corpora-
tion offers a vehicle whereby an indi-
vidual may limit and control his lia-
bility. Segregation of activities in a

50 VANCOUVER CALENDAR MAGAZINE

company may lead to increased effici-
encies and a far more effective operation.
The corporation itself can also play an
important role in a businessman’s estate
plan.

Another thing. Since the income
earned by the corporation accrues to
the corporation’s shareholders, the pro-
fessional can benefit indirectly by hav-
ing members of his family become
shareholders. If the members of his

family subscribe for the shares with’

their own money, any dividends which
the corporation might pay would be
taxable to them at their lower marginal
rates of tax. (This of course assumes
that the members of his family are
earning less than he is.) i

The following illustrations give a few
situations which we should try to avoid
as they would be frowned upon as
tax-saving devices.

 

INCORPORATION MAY NOT BE VALID
IF BARRED BY THE PROFESSION ~

The company must not be inconsistent
with the basic regulations of the profession.

 

 

AHEM

ABOUT
MY GALL BLADDER

 

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a doctor transferred all his real and
[\ reson property to a company
fw which he incorporated. He was the
controlling shareholder and all the in-
come earned by him and his assistant
were credited to the corporation. As a
shareholder-employee of the company
he contracted with the company for a
fixed salary, which was the amount he
reported as income. The Minister of
National Revenue treated the total fees
credited to the company as the doctor’s
personal income. This decision was
based primarily on the fact that a
corporation cannot practice medicine in
Canada in accordance with the Medical
Act.

The practice of medicine in Canada,
said the Tax Appeal Board in another
case, “only may be carried on by a

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“Sef WON-BATIENT
=| OPERATIONS
INC.

 

natural person involving a personal
responsibility to the patient and to the
governing body of the profession. A
physician is precluded in fact and in law
and as a matter of public policy from
practising the profession of medicine as
the agent of a corporation.’ This case
was appealed, but the courts offered
greater detail to the principle of oppos-
ing an incorporation that is not
sanctioned by the medical. profession.
As they said, “the corporate name was
not displayed on the medical clinic
premises, it was not listed -in the
telephone directory nor was the Com-
pany entered in The British Columbia
Medical Register maintained by The
College of Physicians and Surgeons of
British Columbia in accordance with the
Medical Act, 1960. The Company could

 

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