Friends, we are pleased to announce that Erikson Law Firm has received its certificate of authorization from the Law Society of Upper Canada (“LSUC”) and is now a professional corporation.
In the Income Tax Act (“ITA”), a professional corporation (“PC”) is defined to mean a corporation that carries on the professional practice of an accountant, dentist, lawyer medical doctor, veterinarian or chiropractor. By section 3.1 of the Business Corporations Act (“BCA”), a professional corporation is defined as a corporation incorporated or continued under the BCA that holds a valid certificate of authorization or other authorizing document issued under an enactment governing a profession.
The primary benefits of using a professional corporation are income tax driven:
- Lower corporate income tax rates
- Income tax deferral
- Lower personal income taxes through income splitting
- Tax free sale of shares
- Ability to use tax effective strategies only available to corporations.
Lawyers who carry on their practice in Ontario personally pay income tax at a rate in excess of 46%. By incorporating a PC to carry on the legal practice, a lawyer can achieve significant tax advantages by way of paying tax at a much lower corporate tax rate (16% rather than 46.4%) and income splitting by paying dividends (which themselves are taxed at a lower rate).
The basic premise is to retain surplus within the corporation when it would otherwise be taxed at a high personal rate, invest it and grow capital.
Instead of giving surplus to the government, our goal is to invest it in new technologies, business development and create jobs.
In the past, deciding on a law firm business structure was a fairly straightforward task with limited options. You could practice on your own as a sole practitioner, you could share resources and costs with other lawyers through an association, or you could establish a general partnership with one, two, or more lawyers. By having gained greater attention and acceptance by Canadian lawyers and law societies in recent years, professional corporations have become viable options for new and existing firms.
When it comes to choosing your lawyer, choose the future, not the past. Choose Erikson Law Firm Professional Corporation!