Bill 53 Professional Corporations Statutes Amendment Act
Ms Blakeman:
Thank you very much, Mr. Speaker. I’m pleased to be able to rise and speak to Bill 53 in second reading, that being the Professional Corporations Statutes Amendment Act, 2009. I listened fairly carefully to the sponsor of the bill and his outline of what he was expecting this amendment act to produce, but I’ve heard from a couple of people who are raising some concerns about where the bill fails to address something or it goes too far and where it doesn’t go far enough.
I’ll admit that I don’t always agree with these comments because, let’s face it, part of what’s being anticipated here is that in allowing family members to fall under the professional corporation that the professional sets up to support their business, there are choices that are then made available to those concerned that are essentially about making use of different tax rates.
Ultimately, what we end up looking at here is a way for people who are doing pretty well to be able to take advantage of lower tax rates or to avoid paying taxes at all. In my mind that’s always called “forgone revenue” because other than for the legislation in front of us, we would have been collecting a certain amount of tax.
It’s a tool that government can use. There are always incentives and disincentives, and for public policy the incentives and disincentives that are most readily available to government are taxation schemes. My question in these situations is always: what do we get for the forgone revenue? You make a decision that you are going to accept less tax or no tax because you’re trying to encourage people to do something or not do something. So I say: all right, if we’re going to be accepting less tax into the coffers, into the general revenue of Alberta, and have less money available to pay for health or environmental protection or culture, what are we getting for it? What behaviour are we trying to change? What are we trying to achieve here? That is what I’m missing out of the explanation from the member, and I think it’s something that we need to consider when we look at schemes like this.
Aside from this, it’d be a great idea for people that are professionals – accountants, lawyers, dentists – who can set up a professional corporation and then decide to put these shares amongst their family members. What do we as a society gain from that? Or is the purpose to enable these individuals to pay a lesser rate of tax or to share their good fortune with their family members or those they choose? How do we as a society benefit from that?
So a couple questions here. My understanding is that part of the incentive behind this was to bring Alberta into line in the TILMA agreement with B.C. around how they handle their professional corporations. What we have right now is that you can’t have a professional corporation in B.C. and transfer it straight through into Alberta. You’d actually have to shut it down in B.C., move to Alberta, start it over in Alberta.
So if my understanding is correct and part of this is to make a transition according to the TILMA agreement that the government has signed, to make that transition straight across so you don’t have to do that, then this bill did not accomplish that because it doesn’t put in place what we need for those companies to operate in both provinces or to move from province to province. This is specific to the professional corporations.
Obviously, standard corporations are able to do that between B.C. and Alberta and vice versa, but we’re talking about professional corporations in this particular instance. So it doesn’t comply with TILMA. Why? Why did you do this and bring it before this Assembly when it doesn’t comply with TILMA if that’s what we were trying to do here? A first question.
Two, the classes of people that are allowed to be involved with these nonvoting shares, some point out to me, are unnecessarily restrictive. On some of these I agree, and on some of them I don’t. If we stay with the status quo of what we have, we have a situation where people involved in professional corporations are required to essentially take their excess cash out periodically by way of what I’m told is called a butterfly transaction and then put it back in again. If you have a holding company, which could be created, but this bill does not create those holding companies, you wouldn’t be required to do that.
It’s pointed out to me by people involved in professional corporations that, you know, it’s not cheap to be able to sort of do this butterfly transaction every three to five years as is currently required. So why couldn’t they make use of a holding company? It’s very common in other places for small businesses but is not anticipated in this legislation.
There is limited use of family trusts. It appears that you can only have a family trust that has minor children as beneficiaries. That does ignore the sandwich generation. It does ignore having the possibility of having parents as a nonvoting shareholder. Again, that gives you the opportunity to choose what tax rate you’d be using, and of course someone that was a senior would be operating under a lower tax rate, so it is opening up that possibility.
Maybe you intended to do that; maybe you didn’t. But it does not allow for and recognize that sandwich generation. I’m a sandwich generation. A lot of my friends are currently caring for their aged parents, and they’re still looking after their kids who are in school or in university. This act doesn’t let them do anything except for minor children. The point was also made to me – and I’m not sure what to make of this – that adult children perhaps should not have access to their parents’ business and that you could have a family trust holding shares instead of the adult child directly, so you could prevent a situation where you had an adult child having influence on a corporation.
The second point that’s made around that – and this one, frankly, is one that I flat out disagree with, but the point is well made – is that if you have an adult child who’s involved in that family trust and they are married and get divorced, then that parent’s professional corporation has to find a way to compensate the departing spouse, for which I would say: “Yes. That’s entirely appropriate. That’s why we have a Matrimonial Property Act.” But perhaps others would argue the other, which is that they don’t want to be able to have those ex-spouses having access to the professional corporation’s assets.
This also ignores the fact that there are adult children who are disabled and can’t hold property in their own name because it would affect their AISH benefits, but having it in a family trust would allow that disabled child, whether adult or not, to benefit from being a member of that professional corporation and perhaps gain some assistance that they wouldn’t be eligible for otherwise.
The last point that was made to me was that it ignores others in the family that may be in need of assistance from time to time. For example, an adult sibling or an aunt and uncle who may be in need of some additional help from which the professional corporation could gain a tax advantage by giving them that assistance could take advantage themselves of a lower tax rate if they were dealing with someone who was, for example, dependent for an extended period of time, a disabled person for example. That is not available under this bill either.
So a number of points have been raised about things that were – I’m not sure – either deliberately or inadvertently left out of the act. Some of the points, as I said, I agree with, and some I most definitively do not agree with. I don’t think that using a family trust to get out of having to compensate an ex-spouse is what we intended when we wrote legislation like that.
But I can understand that if you were a parent who was a lawyer or a physician who had set up a professional corporation and you’d given a nonvoting share to your adult child whose family now breaks up, yes, you would be in a position where you would be expected, out of that professional corporation, because your adult child has a nonvoting share, their spouse is entitled to some of that money, and maybe that’s not what you intended when you worked so hard all those years.
Those kinds of things need to be taken into consideration, and maybe that was considered by the sponsor of the bill and that option was deliberately not made available as a result of that. I don’t know, but I am interested in hearing it.
I understand the concept behind what is in Bill 53. I’m not sure if there was any kind of consultation in the wider public. I had people contacting me looking for an opportunity to speak to a committee or to a public hearing on this bill, and they couldn’t find one. At that point I had to tell them: no; it’s already in debate, so you’re not going to find one now. But I incorporated some of their comments into the ones that I’ve raised tonight, so they’re on the record.
In the end I’m undecided about whether to support this bill in principle or not because I’m curious as to why certain things have been left out and other things have been put in. According to what I heard the sponsor say they wanted to do, I think they fall short in doing it in this bill, and I’m wondering why.
But I also never heard the sponsoring member say anything about TILMA, yet clearly that is – I mean, definitely people in the sector understand that that’s what’s behind this bill, an expectation that it is going to, you know, mesh the two provinces together under that agreement. So why wasn’t that mentioned?
I’m struggling to support something when I still have so many unanswered questions. Given the composition of the House I’m sure the bill will pass second reading, and my one little vote is not going to stop that, but I’m still interested in getting the answers to those questions. I look forward to Committee of the Whole and to getting some answers back from the sponsoring member at that time. We can proceed from there.
Thank you for the opportunity to put those concerns on the record. I appreciate it.
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