Can my spouse be a shareholder of my MPC in Ontario?

Yes. Business Corporations Act (Ontario) s. 3.2(4) permits an Ontario Medical Professional Corporation to issue non-voting shares to the physician’s spouse, child (of any age), or a trust for a minor child. Voting shares must be held by the physician. This is the structural basis for family-share income splitting via non-eligible dividends, subject to TOSI.

Structure. Articles of incorporation define at least two share classes: Class A voting common (held by the physician) and Class B non-voting family shares (spouse, child). Both classes participate in dividends and residual property on wind-up, but only Class A votes at shareholder meetings.

TOSI (Tax on Split Income under ITA s. 120.4) since 2018 largely neutralized the historical tax benefit of dividending to spouse and adult children unless an exception applies. Exceptions include: dividends to a spouse where the physician-shareholder has attained age 65 before the year (the spousal-retirement exclusion in s. 120.4(1) ‘excluded amount’ paragraph (c) turns on the owner’s age, not the recipient’s); dividends from an excluded business, where the recipient is 18 or older and is actively engaged at an average of at least 20 hours per week either in the year or in any five prior years; and dividends from excluded shares, which require the recipient to be 25 or older and to hold 10% or more of both the votes and the value – an exception that is not available to a professional corporation such as an MPC.

Example: an Ontario physician (age 60) with an MPC pays a $50,000 non-eligible dividend to his 65-year-old spouse who does not work in the practice. TOSI applies. The spousal-retirement exclusion in s. 120.4(1) ‘excluded amount’ paragraph (c) turns on the age of the physician-shareholder, not the spouse – because the physician is 60, the dividend is taxed at the top marginal rate (53.53% in Ontario), not at the spouse’s rate. The same dividend becomes TOSI-free only once the physician has attained age 65 before the year.

Non-voting family shares also help with LCGE multiplication – each family shareholder can potentially claim their own $1,275,000 LCGE on the MPC’s eventual sale, subject to the 24-month tests.

Note: Dental PCs mirror the same rules (OBCA s. 3.2 for dentists). Legal, accounting, engineering PCs generally cannot issue non-voting family shares – check the specific regulator rule.

Source: cpso.on.ca — MPC share ownership

— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA

Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.