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.
