$750,000 capital gains exemption An individual shareholder may be able to use his or her personal capital gains exemption upon disposition of shares of the chiro-practic PC. Before selling shares, their eligibility for the capital gains exemption will need to be determined. However, share sales can be difficult from a practical perspective, because purchasers typically prefer to acquire assets of the corporation. The after-tax funds of the PC can be used for investment pur-poses (e.g., equities, bonds, real estate, life insurance) to build the wealth of the professional. Those funds invested in permanent life insurance can generally be paid out on a tax-free basis by the PC to its shareholder(s), subsequent to the receipt of the life insurance proceeds, as a capital dividend. Capital dividends are not consid-ered to be a taxable amount for the recipient. Income splitting Legislation in all provinces precludes non-professionals from be-coming shareholders (i.e., family members, holding companies and family trusts) of a chiropractic PC. This legislative issue gener-ally precludes the possibility of splitting dividend income from the PC with family members. However, there are advanced structuring techniques that may be implemented to facilitate dividend income splitting with family members via the use of a holding company and/or a family trust. Splitting dividend income with family members can reduce the overall tax burden for the family. In order for this to work the recipients must generally be the spouse or majority aged children of the shareholder and be in lower tax brackets. As noted above, since non-professional shareholders are precluded from owning shares of a chiropractic PC, planning will be required in order to achieve dividend income splitting with respect to the chiropractor’s family members. Family members may also be employees of the PC and receive reasonable salaries for services that they provide. An employees’ profit-sharing plan trust might also be considered as a way to split income with those family members. Asset protection Although non-professional shareholders are precluded from hold-ing shares of a chiropractic PC, there are planning arrangements that may allow the professional the ability to protect some non-business assets. Transferring excess capital to a holding company should protect these assets of the PC from business risks associated with the operation of the chiropractic practice. Remuneration flexibility Having a PC gives the chiropractor the choice of receiving re-muneration as salary or as dividends. Several factors should be considered in determining the appropriate mix. For example, the professional may choose to receive sufficient compensation as salary to ensure that the maximum annual contribution to a Reg-istered Retirement Savings Plan (RRSP) and Canada Pension Plan (CPP), or Quebec Pension Plan (QPP), can be made. As well, a corporation may allow a professional to increase his or her personal retirement savings by making tax-deductible payments to an individual pension plan or retirement compensa-tion arrangement. www.canadianchiropractor.ca SUMMARY The legislation permitting chiropractors to incorporate has remained relatively unchanged since its introduction. Non-professional shareholders are precluded from owning shares of a chiropractic PC. However, there are planning arrangements that may be implemented to facilitate income splitting and asset protection of a chiropractic PC. Advanced structuring and the existing legislation allow chiro-practors to take advantage of benefits – tax and otherwise – like those available to other self-employed individuals who can operate their businesses through a corporation. For a chiropractor, the low corporate tax rate, retirement plan-ning strategies, remuneration flexibility, potential income splitting and asset protection, and the opportunity to potentially utilize the capital gains exemption are all attractive benefits of incor-porating. However, the appropriateness of the incorporation should be evaluated based on the specific situation of each individual professional. • HOMECOMING 11 20 June 3 – 4 at CMCC Connecting Friends & Memories Join us for a full weekend of events including: President's BBQ, Anniversary Luncheon, Governors' Club Breakfast & Grand Reception. Celebrating anniversaries in 2011 are Class of ’51, ’56, ’61, ’66, ’71, ’76, ’81, ’86, ’91, ‘96, ‘01, ‘06, and ‘10. Continuing Education: The McKenzie Method and Thompson Chiropractic Technique All chiropractors are welcome! CMCC Bloor Campus 1945-68 More information: www.cmcc.ca/Homecoming [email protected] or Vanessa Wong at 416 482 2340 ext. 200 Silver Sponsor: Ontario Chiropractic Association Bronze Sponsors: Chirosuite, Footmaxx, Foot Levelers, Pulstar Media Sponsor: Canadian Chiropractor Magazine CANAdiAN CHiROpRACTOR | MAY 2011 • 19
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