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UBC Theses and Dissertations

The taxation of professional income in Canada 1971

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THE TAXATION OF PROFESSIONAL INCOME IN CANADA by PETER D. WATTS -B.Comm., University of B r i t i s h Columbia, 1967 L.-LB., University of B r i t i s h Columbia, 1968 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Faculty of Commerce and Business Administration We accept t h i s thesis as' conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA September, 19 71 In present ing th i s thes i s in p a r t i a l f u l f i lmen t of the requirements fo r an advanced degree at the Un ivers i ty of B r i t i s h Columbia, I agree that the L ibrary sha l l make i t f r ee l y ava i l ab le for reference and study. I f u r ther agree that permission for extens ive copying of th i s thes i s f o r s cho la r l y purposes may be granted by the Head of my Department or by h i s representat ives . It is understood that copying or pub l i ca t i on o f th i s thes i s f o r f i nanc i a l gain sha l l not be allowed without my wr i t ten permiss ion. Department of C&^rrwrU^i'<^~ g<^<^ ^ u ^ ^ a o ' (^ypj^ri^^^ The Un iver s i t y o f B r i t i s h Columbia Vancouver 8, Canada Date 7 / ? 7 / THE TAXATION OF PROFESSIONAL INCOME IN CANADA Taxpayers i n the Canadian professions have expressed t h e i r opinions, i n d i v i d u a l l y , and through t h e i r professional association-; , that they are u n f a i r l y taxed under present taxation l e g i s l a t i o n . While they are able to deduct the expenses incurred to earn t h e i r professional income, they would l i k e to be placed on an equal tax basis with merchants and other taxpayers i n the service industries who are able to incorporate and take advantage of certain tax concessions available to corporate taxpayers. The B r i t i s h Columbia government enacted the Profe- ss i o n a l Corporations Act i n 127 0 which gave the option of incorporation to a l l taxpayers who previously, due to either law, t r a d i t i o n , or t h e i r professional code of ethics were unable to incorporate. Confusion arose as to whether the Department of National" Revenue would recognize professional corporations and the B r i t i s h Columbia Act was subsequently suspended. The Canadian taxation system has been int e n s i v e l y investigated i n recent years and extensive amendments have been proposed by the government. To achieve equity Canadian professionals should be subject to the same tax burden as other Canadian businesses. Professional incorporation should not be permitted due to the e t h i c a l problems i t would r a i s e . Instead profe- ssionals should be given the option under the Income Tax Act of having t h e i r income taxed at corporate rates and i n addition being able to take advantage of the-other tax planning mechanisms presently available to corporations. Equity w i l l thus be established between taxpayers i n the professions and other Canadian businesses. 1 1 X TABLE OF- CONTENTS THE TAXATION OF PROFESSIONAL INCOME IN CANADA Page INTRODUCTION 1 A. PURPOSE OF THE THESIS 1 B. WHAT IS A PROFESSIONAL? 2 C. WHAT CONSTITUTES "PROFESSIONAL INCOME"? * 4 II. THE CURRENT APPROACH TO THE TAXATION OF PROFESSIONAL INCOME IN CANADA A. USE OF THE CASH BASTS OF ACCOUNTING 8 ( i ) Income Averaging 8 ( i i ) Deferral of Tax 10 B. EFFORTS TO INCORPORATE THE PROFE- SSIONAL PRACTICE 14 C. ALLOWABLE EXPENSES IN CALCULATING THE PROFESSIONAL'S TAXABLE INCOME 18 D. USE OF THE MANAGEMENT COMPANY 20 E. EVALUATION OF THE CURRENT APPROACH TO THE TAXATION OF PROFESSIONAL INCOME IN CAMADA 22 III . AN ALTERNATIVE APPROACH TO THE TAXATION OF PROFESSIONAL INCOME - PROFESSIONAL 'INCORPORATION - 2 3 THE ETHICAL OOESTION OF PROFESSIONAL INCORPORATION? 24 B. PROFESSIONAL CORPORATIONS IN THE UNITED STATES C. PROFESSIONAL INCORPORATION IN CANADA " 29 D. PROFESSIONAL INCORPORATION IN . BRITISH COLUMBIA - THE PROFESSIONAL CORPORATIONS ACT SBC 19 70 C.37 32 E. INCORPORATION PROCEDURES UNDER THE • PROFESSIONAL CORPORATIONS ACT ' 38 F. POTENTIAL TAX ADVANTAGES THROUGH PROFESSIONAL INCORPORATION HI 1. A v a i l a b i l i t y to the Sole P r a c t i t i o n e r 41 2. Business and Fi n a n c i a l F l e x i b i l i t y 41 3. Pension Plan Benefits 4 3 4. One Time Tax Saving i n Year of 43 Incorporation 5. Lower Average Rate of Tax 44 6. Deferred P r o f i t Sharing Plan 45 7. Dividend Tax Credit 45 8. Stock Dividend from Tax Paid Undistributed Income 45 9. Group Term L i f e Insurance Policy 46 10. Loans to O f f i c e r s 46 11. Unpaid Remuneration 47 12. Death Benefit 47 13.. R e t i r i n g Allowances 48 14. Goodwill 48 15. Employment of Spouse 49 G. POTENTIAL TAX PROBLEMS OF THE PROFE- SSIONAL CORPORATION 50 1. Deemed Associated Status 50 2. The Corporation Must Carry on the Practice 51 IV. . RECOMMENDATIONS V. CONCLUSIONS BIBLIOGRAPHY APPENDICIS . EXHIBITS ACKNOWLEDGEMENT The writer i s gratef u l for the suggestions received from Professors Fields and Hamilton and for the information concerning current taxation practice received from Messrs. Barbeau and Salley. Production of t h i s thesis was assisted greatly by the techn i c a l assistance of Mrs. Jacqolynne Black. THE TAXATION OF PROFESSIONAL INCOME' IN CANADA I. INTRODUCTION . A. PURPOSE OF THE THESIS This thesis w i l l analyze the taxation of profe- ssi o n a l income i n Canada. This subject i s of current interes due to three recent developments in the Canadian taxation system. The f i r s t of these developments occurred on November 7, 1969 when the Honourable E. J. Benson, Minister of Finance presented a government white paper on tax reform to the Canadian House of Commons. The second development was the enactment of the Professional Corporations Act^by the B r i t i s h Columbia l e g i s l a t i v e which permitted B r i t i s h Columbia profe- ssionals to incorporate and p o t e n t i a l l y , to have a portion of t h e i r professional income taxed at corporate rates. The t h i r d development, s t i l l pending at t h i s time, i s the l i b e r a l government's taxation b i l l which i s expected to be introduced 2 into the House of Commons on Friday, June 18, 19 71. This proposed l e g i s l a t i o n i s reported to contain extensive r e v i - sions of e x i s t i n g Canadian tax l e g i s l a t i o n . Comments on the government tax b i l l , i n so f a r as i t applies to any of the material included i n t h i s t h e s i s , are contained i n Appendix A. In l i g h t of the f i r s t two developments and the and the pending 19 71 Income Tax B i l l i t i s relevant to analyze the present a p p l i c a t i o n of Canadian tax laws to professional income and to consider the p r i n c i p l e alternative which i s to permit professionals to be taxed as a corporation. The purpose of the thesis i s to attempt to answer three questions: 1. Do professional taxpayers receive equitable tax treatment under e x i s t i n g Canadian l e g i s l a t i o n ? 2. What would be the e f f e c t of profe- ss i o n a l incorporation on the incidence of tax on professional income? 3. In l i g h t of the e x i s t i n g taxation of professional income i n Canada and taking into consideration the a l t e r n - ative of professionalwcorporation what, i f any, changes should be made in Canada's present approach to the taxa- t i o n of professional income? Before proceeding to consider the f i r s t question, the terms professional and professional income as used in t h i s thesis should be defined. B. WHAT IS A PROFESSIONAL? , 3 While the Income Tax Act refers to "professions" , 4 "professional membership dues" and "professional status" i t does not provide a d e f i n i t i o n for the term "profession" or "professional". The B r i t i s h Columbia Professional Corpora- tions Act defines a p r o f e s s i o n a l , when used as a noun, as a g person lawfully e n t i t l e d to carry on a professional service and the act contains the following d e f i n i t i o n of a professional service: "professional service" means any type of personal service to the public ( i ) that requires, as a condition precedent to carrying on the service, a licence or other statutory authoriza- t i o n ; and ( i i ) that, before the coming into force of t h i s Act, by reason of law,' t r a d i t i o n , or professional code.of e t h i c s , was not performed by a corporation, including without l i m i t i n g the general- i t y of the foregoing, service by accredited public accountants, c e r t - i f i e d general accountants, chartered accountants, i n d u s t r i a l accountants, agrologists, a r c h i t e c t s , b a r r i s t e r s and s o l i c i t o r s , barbers, chiropractors, dental surgeons, dental technicians, d e n t i s t s , f o r e s t e r s , hairdressers, massage p r a c t i t i o n e r s , music teachers, notaries p u b l i c , osteopaths, physicians and surgeons, p r a c t i c a l nurses, registered nurses, registered p s y c h i a t r i c nurses, naturopathic physicians, chartered physiotherapists, registered physio- therapists , p o d i a t r i s t s , and veterinar- ians. T r a d i t i o n a l l y the term "professions" has referred . to the clergy, physicians and lawyers. This l i m i t e d d e f i n i t i o n has been expanded over time to include accountants, a r c h i t e c t s , engineers and now the d e f i n i t i o n i n the Professional Corpora- tions Act broadens the d e f i n i t i o n to include everyone who requires a l i c e n c e , or other statutory authorization, to carry on t h e i r service. For the purpose of t h i s thesis the expanded d e f i n i t i o n of professional contained i n the Professional Corporations Act w i l l be used. Two l i m i t a t i o n s should be pointed out; the f i r s t i s that many of the occupations coming under the ambit of The Professional Corporations Act do not normally generate s u f f i c i e n t income to warrant great concern for the amount of income tax paid; and the number of professionals with whom we are concerned i s further l i m i t e d in that a l l professionals who receive remuneration from an o f f i c e or employment are i n a s u b s t a n t i a l l y d i f f e r e n t tax s i t u a t i o n from those receiving professional income. Having narrowed our study to those professionals, who receive substantial amounts of professional income the next step i s to determine which income receipts constitute professional income for income tax purposes. C. WHAT CONSTITUTES "PROFESSIONAL INCOME"? The Income Tax Act makes a fundamental d i s t i n c t i o n between business income and income from an o f f i c e or employ- ment. An income tax l i a b i l i t y Is imposed on the income of a l l taxpayers. The income of a taxpayer for a taxation year for the purpose of t h i s Part i s h i s income for the year from a l l sources inside or outside Canada and, without r e s t r i c t i n g the generality of the foregoing, includes income for the year from a l l : (a) businesses (b) property, and g • (c) offices" and employments. Business includes a profession, c a l l i n g trade, manufacture or undertaking of any kind whatsoever and includes an adventure or concern i n the nature of trade but does not include an o f f i c e or employment. Employment means the po s i t i o n of an i n d i v i d u a l i n the service of some other person (including Her Majesty or a foreign state or sovereign) and servant or employee . . 10 means a person holding such a p o s i t i o n . Office means the po s i t i o n of an i n d i v i d u a l e n t i t l i n g him to a fixed or ascertainable stipend or remunera- t i o n and includes a j u d i c i a l o f f i c e , the o f f i c e of a Minister of the Crown, the o f f i c e of a member of the Senate or House of Commons of Canada, a member of a l e g i s l a t i v e assembly, senator or member of a l e g i s l a t i v e or execute council and any other o f f i c e , the incumbent of which i s elected by popular vote or i s elected or appointed i n a representative capacity and also includes the po s i t i o n of a corporation di r e c t o r ; and o f f i c e r means a person holding such an o f f i c e . Nothwithstanding these d e f i n i t i o n s of business, o f f i c e and employment various taxpayers have contested rulings i n thi s 12 area and one such case sets out four c h a r a c t e r i s t i c s o f a contract of employment: (1) the master has the power to - 6 - sel e c t the servant. (2) payment i s i n the form of wages or other remuneration of a s i m i l a r type. (3) the master has the r i g h t to control the method of doing the work. (1) the master has a r i g h t to suspend or dismiss. If a professional i s able to demonstrate to the Department of National Revenue. or the courts, that t h e i r •income i s derived from a business rather than an o f f i c e or employment he i s in a preferred tax pos i t i o n since he may 13 deduct the expenses incurred to earn that business income subject to certain l i m i t a t i o n s provided i n the Income Tax A c t . 1 " A recent case i l l u s t r a t i n g a taxpayers e f f o r t s tc esta b l i s h that his income was derived from a contract f o r services rather than a contract of service concerned an 15 administrative o f f i c i a l at McMaster University who marked correspondence papers at home i n conjunction with the Society of I n d u s t r i a l Accountants' correspondence course offered through the University. The appellants agreement with McMaster University provided that he would receive a fee for each lesson that he marked plus necessary postage. Because the appellant marked the papers on his own time, and at his own home, the arrangement was found to be a contract for services and he was able to deduct the expenses properly incurred to earn the income. The Tax Appeal Board did how- ever f i n d that the appellant was attempting to deduct an unreasonable amount as the expenses claimed approximated the earnings derived from the marking p o s i t i o n . The Minister of National Revenue has appealed t h i s decision to the Federal 16 Court of Canada. The appeal i s pending at t h i s time. Professionally q u a l i f i e d persons who receive income from an .office or employment may not deduct expenses they have incurred to earn that income. Professional income i s r e s t r i c t e d to income derived from a business and t h i s thesis w i l l not consider the incidence of income tax on income derived by a pr o f e s s i o n a l l y q u a l i f i e d person from an o f f i c e or employment. An associate lawyer who receives a salary from a law firm or an associate doctor who receives a salary from a medical c l i n i c or partnership of other doctors are both receiving Income from an o f f i c e or employ- ment rather than income from a business. I I . THE CURRENT APPROACH TO THE TAXATION OF PROFESSIONAL INCOME IN CANADA Canadia^n professionals normally pay income tax as indiv i d u a l s at progressive rates ranging from 11% to 80% on t h e i r net income , net income being calculated by deter- mining t h e i r aggregate professional income and then subtrac- ti n g the costs of earning that income as permitted by the Income Tax Act. In comparing the tax po s i t i o n of the professional to that of other Canadian taxpayers, p a r t i c u l a r attention must be given to the professional's use of the cash basis of accounting, to various professional's e f f o r t s to have a part, or a l l , of t h e i r income taxed at corporate, rather than personal tax ra t e s , to the use of professional management companies, and f i n a l l y to the question of what deductions are permitted i n c a l c u l a t i n g the net income from a professional's p r a c t i c e . A. USE OF THE CASH BASIS OF ACCOUNTING Under present Canadian income tax law a profe- s s i o n a l may, at his option, calculate his taxable income on a cash basis of accounting i n order that income and expenses are recognized only upon the receipt and disbursement of 17 cash. This i s i n contrast to the accrual basis of accounting which recognizes expenses when incurred and income when earned notwithstanding that the actual cash may be received or disbursed in another accounting period. Use of the cash basis of accounting could provide a tax saving to a professional by eith e r allowing him to average his income over a number of years to reduce his- average income tax rate or by allowing him to defer his income and therefore his income tax l i a b i l i t y to a future year and thus r e a l i z e a benefit due to the time value of money. (1) Income Averaging Many professionals experience fluctuations in t h e i r income from year to year. Architects and Engineers are p a r t i c u l a r l y susceptable to c y c l i c a l variations i n the construction industry. Lawyers and accountants experience a reduction i n income during a period of economic stagnation due both to fewer c l i e n t s and a d i f f i c u l t y i n c o l l e c t i n g t h e i r professional fees and disbursements. Doctors have a more stable income flow due to the wide use o f medical care, or insurance plans. I f no e f f o r t i s made to smooth these i r r e g u l a r income flows the professional w i l l f i n d that i n years of unusually high income the income over and above his average income w i l l be taxed at a higher rate than i f that income had been received i n a lean year. The amount of t h i s excess tax w i l l depend on the severity of the fluctuations and w i l l have the e f f e c t of r a i s i n g the professional's average income tax rate. The cash basis of accounting may be used to l i m i t the income fluctuations and thus reduce the average rate of income tax. Assume that a professional person had a January 31 f i n a n c i a l year end and that i n the period from February 1 to December 1 of the current f i n a n c i a l year he had experienced an unusually heavy income which he f e l t would not be repeated in the. following f i n a n c i a l year. The taxpayer would then cease rendering accounts to his c l i e n t s or he could commun- icate to his c l i e n t s that there was no need to pay outstanding accounts before February 1 or i f he had received monies from his c l i e n t i n the form of a re t a i n e r which was deposited i n his trust account, he could wait u n t i l the f i r s t day of his next f i n a n c i a l year to transfer the funds from his t r u s t account into his general account at which time they 18 would be recognized as income. The ne$t e f f e c t i s to decrease the income i n a prosperous year and increase i t i n ' a lower income year. I f the professional was experiencing a lean year and was expecting a prosperous year the procedure would be reversed. Clearly the success of t h i s procedure depends to a large extend on the professional's a b i l i t y to, forecast his future flow of income. If an error i s made, i t i s preferable that' the error tends to s h i f t a dditional income to the succeeding year due to the p o t e n t i a l d e f e r r a l of tax. (2) Deferral of Tax The r e s u l t of applying the cash basis of account- ing i s that professional income i s not subject to income tax u n t i l a c t ually received. Again assuming a January 31 f i s c a l year end for the pr o f e s s i o n a l , i f he does not receive payment from his c l i e n t u n t i l February 1 or the monies to s a t i s f y an account are not transferred to his general account u n t i l February 1 thatincome i s taxable i n the f i n a n c i a l year commencing February 1. In t h i s way the professional has the use of the cash for v i r t u a l l y the whole year with the exception of amounts remitted for his quarterly tax installments or i n s a t i s f a c t i o n of his previous year's tax l i a b i l i t y . A s i m i l a r procedure can be followed with expenses i n that the l a t t e r part of the professional's f i s c a l year i s the preferrable time to make cash outlays. The government's white paper on tax reform (196 9) also recognized the po t e n t i a l advantages available to a professional who used the cash basis of accounting. , , The government believes that the tax postponement permitted by t h i s concession has given professionals an unwarranted advantage by comparison to the rest of Canadians, and i t therefore proposes that professionals.^ be required to use the accrual basis. The white paper then- outlined a method of t r a n s i t i o n from the cash basis to the accrual basis and concluded with the observation: This amount would of course be in addition to the amount of t h e i r income computed on the accrual basis and would mean that they would be taxed on the greater of a cash basis income or an accrual basis income u n t i l they catch up to other Canadian Businessmen. This would suggest that i t i s government po l i c y to tax professionals on a basis s i m i l a r to other Canadian Businessmen. However, i t must be remembered that a business man has the option of incorporating to obtain certain tax advantages which are not presently available to a professional. I t i s also i n t e r e s t i n g to note that Section 85F.of the Income Tax Act permits farmers to use the cash basis f o r accounting and the government apparently does not propose to remove th i s concession probably because of the delayed grain sale payments to farmers. While mandatory use of the accrual basis of accounting would not greatly e f f e c t medical professionals, many lawyers w i l l , at least during the t r a n s i t i o n period, pay s i g n i f i c a n t l y more income tax. This would be p a r t i c u l a r l y noticeable i n the case of young lawyers who had recently formed t h e i r own partnership and were having d i f f i c u l t y e s t a b l i s h i n g a cash flow to sustain t h e i r o f f i c e . The Department of National Revenue has the best of both worlds i n that while the accrual basis i s used to calculate the taxpayers l i a b i l i t y , the actual tax when calculat e d , i s payable on a cash basis. I t i s i n t e r e s t i n g to note that the report on the government white paper on tax reform prepared by the Senate Committee on Banking Trade and Commerce f l a t l y r e j e c t s the proposal that professional's income be calculated on an 20 accrual basis and a s i m i l a r report prepared by the Common's Standing Committee on Finance, Trade, and Economic A f f a i r s recommended that the accrual basis of accounting should be adopted for receivables but not f o r inventory and. work in 21 progress. Neither the government white paper nor the subsequent Senate and Commons reports took up the suggestion contained i n the Carter Commission Report that farmers and professionals --whose incomes stayed under the $10 ,000 l e v e l would continue to use the cash basis of accounting but would be required to convert to the accrual basis of accounting once t h e i r income 2 2 • ' . exceeded that amount. It could be presumed that t h i s proposal was f e l t to be impracticable by the government. It may be concluded that use of the cash basis of accounting offers a p a r t i c u l a r tax advantage to lawyers. In support of t h i s conclusion i t i s i n t e r e s t i n g to note that 23 both the Law Society of B r i t i s h Columbia and the Department of National Revenue have recently c i r c u l a t e d material concerning lawyers 1 t r u s t accounts and disbursements. The Law Society i s concerned that lawyers adhere to the Societies rules In connection with accounting f o r t r u s t monies and also with the i n t e r e s t i n g question as to whether the Department of National Revenue i s e n t i t l e d to audit a lawyer's . . 25 tru s t account. Under the present Income Tax Act provision i t would appear that the tr u s t account records of a lawyer 26 would be subject to audit but i n a recent case the court held that the Income Tax Act provision was not s u f f i c i e n t to destroy the common law p r i v i l e g e attaching to tr u s t records as these records are not maintained primarily for accounting purposes or to s a t i s f y the requirements of the Income Tax Act. While unable to determine that lawyers t r u s t - accounts are being used to reduce income tax payable the Department of National Revenue has recently c i r c u l a t e d an 27 Interpretation B u l l e t i n . which states that once funds may be l e g a l l y withdrawn from the trust account i n s a t i s f a c t i o n of an account they are income at that time notwithstanding that the lawyer does not i n fact withdraw the funds. It i s l i k e l y that the Income Tax Act w i l l be amended to c l a r i f y the r i g h t of the Department of National Revenue to audit a t r u s t account. B. EFFORTS TO INCORPORATE THE PROFESSIONAL PRACTICE I f a professional were able to organize his practice in such a way that he would be taxed as a corporation he would have a p o t e n t i a l tax shelter due to the low rate of corporate tax on the f i r s t $35,000 of taxable corporate . 2 8 income. One reason why a professional i s unable to incorp- orate, i s that, with the exception of the Engineering Profession Act, most professional statutes contain a r e s t r i c t i o n on professional incorporation. Even i f p r o v i n c i a l l e g i s l a t i o n were to be amended to permit professional incorporation the Department of National Revenue might take the p o s i t i o n that the services are s t i l l being rendered by the i n d i v i d u a l professional and that he, rather than the corporation, should be taxed. Various Canadian professionals have attempted to - incorporate t h e i r practices to achieve corporate taxation status but have met with l i t t l e success. The Income Tax Act d e f i n i t i o n of corporation i s l i m i t e d to an a r t i f i c i a l e n t i t y deriving i t s status from the Federal Corporations Act or one of the p r o v i n c i a l incorporation statutes. The Income Tax Act provides that" a corporation includes an incorporated company and a corporation incorporated i n Canada includes a corporation incorporated i n any part of Canada before or 29 a f t e r i t becomes part of Canada. One of the leading cases concerning a professional's persistent e f f o r t s , t o incorporate his practice involved a medical doctor, Dr. Laverne C. Kindree, p r a c t i c i n g i n 30 Squamish, B r i t i s h Columbia. Dr. Kindree and his wife, who was a registered nurse, established a medical practice in Squamish and then incorporated-a corporation named Squamish Holdings Limited under the B r i t i s h Columbia Companies Act. Some of the objects of Squamish Holdings Limited were as follows: (a) To purchase or otherwise acquire and hold, or otherwise deal i n , r e a l and personal property and r i g h t s , and in p a r t i c u l a r land, b u i l d i n g s , medical and h o s p i t a l equipment and supplies , f u r n i t u r e , supplies of a l l kinds, hot e l s , motels, t r a i l e r courts and equipment fo r the same. (b) To enter into contracts or arrangements with any person, firm or - I n - corporation or agency for the f u r n i s h - ing and supply of medical and s u r g i c a l aid and treatment of a l l kinds in c l u d - ding h o s p i t a l care, house care, drugs, medicines, medical apparatus. (e) To employ duly registered physi- cians , surgeons and nurses as required in order to carry out any contracts entered into by the company. Dr. Kindree then went to great lengths to demon- strate that Squamish Holdings Limited was carrying on the practice of medicine including his entering into an employ- •, ment contract with the corporation, rendering his accounts i n the name of the corporation, causing the corporation to enter into an agreement to provide medical services for a l o c a l mine, having his wife and another doctor hired by the corporation, s e l l i n g a l l his medical equipment to the corpora- ti o n and causing the corporation to buy the building in which the medical c l i n i c was located. Notwithstanding t h i s elaborate procedure the Exchequer Court referred to the provision i n the B r i t i s h Columbia Medical Act which prohibits persons not registered under the Act from p r a c t i c i n g 31 medicine. The Medical Act does not provide that a person s h a l l include a corporation. The Court concluded: In my view there i s no doubt whatsoever that the practice of medicine can only be car r i e d on by a natural person involving a personal r e s p o n s i b i l i t y to the patient and to the governing body of the pi'ofession, such conclusion being obvious from the general tenor of the Medical Act and the code of ethics of the medical profession to which the appellant subscribed. In so f a r as clause (b) of the objects of the Company purports to authorize the Company to conduct the practice of medicine i t must be inef f e c t i v e . ^ 2 As well as preventing the Doctor from a v a i l i n g himself of the low rate of corporate tax he was unable to deduct the salary paid to his wife for her services as a. 33 registered nurse. One can appreciate the f r u s t r a t i o n experienced by Dr. Kindree i n f a i l i n g to r e c t i f y what he obviously f e l t was inequitable taxation and perhaps explains 34 his further appeals to the Tax- Appeal Board at which time he appealed assessments r e l a t i n g to the years 1963, 1964 and 1965. Again the assessments arose from Dr. Kindree's unsuccessful attempts to have his Squamish medical c l i n i c recognized as a corporation for taxation purposes. The judgment, i n part, read: The appellant i s nothing i f not p e r s i s t - ent - a qual i t y that one only can admire - as appeals by him, of the same nature, r e l a t i n g to the years 1957, 1958, 1959, 1960, 1961 and 1962 have already been heard and decided i n favour of the Minister.^5 The appeal of the assessments for these years were rejected for the same reasons as the e a r l i e r ones. In contrast to the f u t i l e e f f o r t s of Dr. Kindree and other professionals to gain corporate taxation status, many engineers have organized t h e i r practice i n corporate form and have been taxed as corporations. The Engineering Profession Act' i n B r i t i s h Columbia and s i m i l a r l e g i s l a t i o n i n Alberta and Ontario permits a corporation to carry on an engineering p r a c t i c e . Provided that the practice i s organized so that the corporation and not the i n d i v i d u a l i s carrying on the p r a c t i c e , the corpora- t i o n may f i l e a corporate tax return and the i n d i v i d u a l engineer i s only taxed on the salary, dividends or directors 36 fees received from the corporation. Due to the engineer's success i n at t a i n i n g corporate tax status and the e x i s t i n g case law i t may be concluded .that the f a i l u r e of other professional groups to achieve corporate tax status r e s u l t s from the f a i l u r e of t h e i r professional statutes to make any provision f o r the practice of t h e i r profession by a corporation or in some cases the outright p r o h i b i t i o n against such p r a c t i c e . D. ALLOWABLE EXPENSES IN CALCULATING THE PROFESSIONAL'S TAXABLE INCOME Professionals are permitted to deduct the expenses incurred to earn t h e i r professional income i n c a l c u l a t i n g t h e i r taxable income. The type and amount of expenses that may be deducted i s important i n determining the professional's u l t i m a t e ' l i a b i l i t y for income tax. The Income Tax Act contains a general p r o h i b i t i o n against deducting any expense except to the extent that i t was made or incurred by the taxpayer f o r the purpose of gaining or producing income from property or a business of 37 the taxpayer. Assuming that an expense was for the purpose of earning income i t i s subject to the further r e s t r i c t i o n that i t must be reasonable i n the circumstances. While there are a myriad of cases concerning the inte r p r e t a t i o n of Sections 12(1)(a) and 12(2) of the Income Tax Act i t i s hard to determine any rules of general a p p l i c a - t i o n . I t would be safe to predict that a s o l i c i t o r i n private practice might deduct a car allowance of up to seventy-five dollars per month, his home telephone b i l l , a club membership charge and the monthly account r e s u l t i n g from his use of that club, without having to substantiate the expenses. There are cer t a i n questionable practices such as charging a bottle of l i q u o r on a club account, having the firm purchase seasons t i c k e t s f o r hockey or f o o t b a l l games for personal use, or putting a l l one's personal mail through the firm mailing machine. These practices border on tax evasion, are impossible to measure, and w i l l not be considered further i n t h i s t h e s i s . I t would also be possible for a sole practioner or small firm that received a cash payment for t h e i r services to pocket the funds and possibly f a i l to declare such receipts for income tax'purposes. 'How- ever, without having to resort to these extremes, i t i s f a i r to conclude that a taxpayer receiving professional income i s able to deduct c e r t a i n expenses from his income and not include certain emoluments i n his taxable income and that s i m i l a r advantages would not be available to a taxpayer receiving income from an o f f i c e or employment. D. USE OF A MANAGEMENT COMPANY A pr o f e s s i o n a l , or professional partnership, may incorporate a li m i t e d company which would own a l l the assets required i n the p r a c t i c e , employ a l l the professional and c l e r i c a l employees of the partnership and perhaps purchase and c o l l e c t the accounts receivable from the professional or partnership. The shares i n t h i s management company would be owned by the professional or professionals. There are several advantages i n est a b l i s h i n g a management company. F i r s t by segregating a l l the operating expenses into a separate e n t i t y i t permits the c a l c u l a t i o n of the t o t a l overhead of the partnership thereby f a c i l i t a t i n g an analysis of income and the f i n a l d i v i s i o n of net income between partners. The management company would have a separate set of books and separate bank account and would i n ef f e c t s e l l i t s services to the professional p r a c t i c e . Second there i s a po t e n t i a l tax advantage in e s t a b l i s h i n g such a management company. If the management company generates taxable income, the marginal rate of tax 39 on the f i r s t $35,000 of such taxable income w i l l be 21%. The marginal rate of tax of the professional w i l l probably be s i g n i f i c a n t l y higher than the low rate of corporate tax. While the incorporation of a management company presents a p o t e n t i a l tax saving the Department of National Revenue has refused to allow unreasonably large payments to a management company i n c a l c u l a t i n g a professional's income tax l i a b i l i t y . In one case involving a prominent Vancouver lawyer, a fee of $9,500 was paid by the p r a c t i t i o n e r to the management 40 company which administered his law o f f i c e . As the p r a c t i t i o n e r i n fact c a r r i e d out the administrative services personally and received no salary from the management company, the expenses claimed by the taxpayer was disallowed as, i n the Court's opinion i t s sole purpose was to a r t i f i c i a l l y reduce the tax payable on the appellant's professional income. The Department of National Revenue now examines the amount paid by the professional to the management company in r e l a t i o n to the services received and compares those charges with charges p r e v a i l i n g i n the area f o r o f f i c e accommodation, s e c r e t a r i a l and accounting services, equipment r e n t a l s , etc. to determine whether the payments to the management company represent an e f f o r t by the i n d i v i d u a l tax- payer to divert part of his professional income through a corporate e n t i t y to take advantage of the low rate of corporate tax. E. EVALUATION OF THE CURRENT APPROACH TO THE TAXATION OF PROFESSIONAL INCOME IN CANADA' While most professionals have been unable to incorporate t h e i r p r a c t i c e s , some measure of tax r e l i e f has been obtained by organizing the professional practice to include a management company, 'using the cash basis of accounting to defer or average income and by claiming a l l allowable expenses as a deduction from gross professional income. The measures become less e f f e c t i v e i n reducing the burden of income tax as the professional's annual income r i s e s to forty or f i f t y thousand d o l l a r s . Other procedures may be investigated such as the purchase of r e n t a l r e a l estate which, through a combination of c a p i t a l cost allowances and mortage i n t e r e s t , may produce a net loss which may be o f f s e t against the professional's other income thereby reducing his income tax l i a b i l i t y , at least temporarily. It must be concluded however, that a Canadian > lawyer or doctor who receives a high income i s at a tax disadvantage i n comparison to a professional engineer who i s permitted to incorporate his p r a c t i c e . The lawyer or doctor faces a s i m i l a r disadvantage in comparison' to other Canadian businesses which may be c a r r i e d on in the corporate form. I t must be recognized that professionals have -a greater l a t i t u d e than taxpayers receiving income from an o f f i c e or employment in the amount and type of expenses that they may deduct from t h e i r professional income. Should a l l professionals be permitted to incorporate or should some other tax r e l i e f be provided for t h i s class of taxpayer? I I I . AN ALTERNATIVE APPROACH TO THE TAXATION OF PROFESSIONAL INCOME - THE PROFESSIONAL.CORPORATION Having,reviewed the taxation of professional income under e x i s t i n g statutory provisions and the procedures. presently available to professionals to minimize t h e i r income tax l i a b i l i t y , the concept of professional incorporation, which presents the main alt e r n a t i v e approach to the e x i s t i n g tax treatment of professional income, w i l l be considered. Most American states now permit professionals to incorporate and to be taxed as corporations and, while the B r i t i s h Columbia government had subsequent misgivings, at one time, they too f e l t that professionals should be 41 permitted to incorporate. To properly assess t h i s alternative approach to the taxation of professional income, attention must be given to the e t h i c a l problems associated with professional incorporation, professional incorporation in other j u r i s d i c - t i o n s , the approach of the Department of National Revenue to the taxation of professional corporations, the circumstances surrounding the B r i t i s h Columbia Professional Corporations Act, incorporation procedures that must be followed, and f i n a l l y , the p o t e n t i a l income tax advantages r e s u l t i n g from incorporation of the professional p r a c t i c e . • A. THE ETHICAL QUESTION OF PROFESSIONAL INCORPORATION Incorporation presents cer t a i n e t h i c a l problems for the professional. To obtain the tax benefits of professional incorporation, i t must be demonstrated that the corporation employs the professional, renders the account, and performs the professional service. This procedure i s contrary to the t r a d i t i o n a l concept of profe- . ssionalism, which i s based on -a f i d u c i a r y and c o n f i d e n t i a l re l a t i o n s h i p between the professional and his c l i e n t or patient. Item 3(10) i n the Canons of Legal Ethics which provide general guidelines for s o l i c i t o r s conduct states : S4(10) He should avoid controversies with c l i e n t s regarding compensation so f a r as i s compatible with self-respect 'and with the r i g h t to receive reasonable recompense for services. He should always bear i n mind that the profession i s a branch of the administration of j u s t i c e and not a mere money-getting trade.42 . , Does the lawyer employed by a professional corporation face a c o n f l i c t of in t e r e s t between his ^employer and his c l i e n t when i t comes to questions concern- ing the number of hours required by a p a r t i c u l a r matter compared with the professional fee i t would produce for the "corporation? One of the c h a r a c t e r i s t i c s of a profession Is that i t s members d i s c i p l i n e themselves. This d i s c i p l i n a r y function includes the power to inquire into the conduct of one of t h e i r members and disbar, s t r i k e o f f the r o l l s or take s i m i l a r appropriate measures to prevent that person from continuing the professional p r a c t i c e . Any l e g i s l a t i o n permitting the incorporation of professional corporations jnust also provide that such e n t i t i e s are i n some way made subject to the d i s c i p l i n a r y powers of the profession's governing body. - It has s i m i l a r l y been argued that any professional incorporation l e g i s l a t i o n should include a p r o h i b i t i o n against the sale of the shares of the professional corporation to a 4 3 person not l e g a l l y q u a l i f i e d to practice that profession, and also a provision that the l i a b i l i t y of the professional "corporation be unlimited. While any l i m i t a t i o n of l i a b i l i t y f o r a professional would provide a safeguard against negligence actions, i t would v i o l a t e one of the basis tenants of professionalism; that the professional remain personally responsible to his c l i e n t . It has been argued that profe- ssionals should be permitted to l i m i t t h e i r l i a b i l i t y to liii some degree. Damage awards in professional-negligence actions are often substantial and may exceed the p o l i c y l i m i t s of available l i a b i l i t y insurance. For example, a s o l i c i t o r p r a c t i c i n g i n B r i t i s h Columbia must carry two hundred thousand -dollars of .public l i a b i l i t y insurance arranged through a Law Society sponsored group insurance scheme. It i s often d i f f i c u l t to obtain excess coverage. While i t i s disturbing to consider that f i n a n c i a l ruin may r e s u l t from the error of a partner or employee i t i s perhaps a necessary r e s p o n s i b i l i t y associated with professional p r a c t i c e . Many professionals recognize that such a statute would provide more equitable taxation of t h e i r professional income including corporate tax rates, the p o s s i b i l i t y of tax and estate planning, p r o f i t sharing and pension plans, and, to gain these advantages professionals might e l e c t to forego l i m i t e d l i a b i l i t y . In the a l t e r n a t i v e a system of bonding s i m i l a r 45 to that provided by the Real Estate Act would provide a continuing safeguard f o r the public i n t e r e s t while permitting professionals to place a c e i l i n g on t h e i r p o t e n t i a l l i a b i l i t y . B. PROFESSIONAL CORPORATIONS IN THE UNITED STATES Professional incorporation i s presently permitted in. forty-two of the American states and, a f t e r a series of l e g a l skermishes, the Internal Revenue Service i s now rec- ognizing the Professional Corporations, or Professional Service Corporations as they are more commonly known in that j u r i s d i c - t i o n , f o r taxation purposes. Professionals i n the United States were in a preferred position vis a vis corporate tax status due to the expanded d e f i n i t i o n of corporation i n the Internal Revenue Code. A corporation i s defined to include associations j o i n t stock companies, insurance companies and certain types of trusts as well as a r t i f i c i a l e n t i t i e s to which the Canadian 47 d e f i n i t i o n of corporation i s l i m i t e d . Taking advantage of t h i s broad d e f i n i t i o n of corporation in the Internal Revenue Code, professional partnerships attempted to gain corporate tax status and i n the leading case of Morrissey v. Commissioner the Court decided that to f a l l - w i t h i n the d e f i n i t i o n of corporation an organization must possess: (1) associates (2) the objective of carrying on business and d i v i d i n g p r o f i t s ( 3 ) continuity of l i f e (4) c e n t r a l i z e d management (5) limited l i a b i l i t y f o r the debts of the organization and (6) free t r a n s f e r a b i l i t y of interests in the organization. Following the Morrissey case many professional persons attempted to organize t h e i r practice so as to conform to these c h a r a c t e r i s t i c s . The Internal Revenue Service moved in 1969 to prevent professional partnerships from f i l i n g corporation tax returns by passing regulations under Section 7701 of the Internal Revenue Code providing that in order for a partnership to be recognized as coming within the d e f i n i t i o n of corporation f o r tax purposes i t must have associates and the objective of carrying on business and div i d i n g p r o f i t s and at least three of the other four c h a r a c t e r i s t i c s set out 49 i n the Morrissey decision. From 1959 to 1962 approximately twenty state l e g i s l a t u r e s enacted statutes permitting either professional incorporation or permitting professionals to organize t h e i r practice to conform to the treasury regulations. In an e f f o r t to n u l l i f y the state l e g i s l a t i o n , the Internal 50 Revenue Service subsequently announced further regulations which removed any p o s s i b i l i t y of corporate tax status to professional associations or corporations. / These l a t t e r regulations were vigorously opposed , by various professionals and the decisions In r e s u l t i n g l i t i g a t i o n struck down the treasury regulations due to t h e i r . ' 5 1 contravention of Section 7701 of the Internal Revenue Code. Given the court pronouncements concerning Section 7701 of the Internal Revenue Code and the state l e g i s l a t i o n providing for professional incorporation, corporate tax status i s now available to most American professionals providing t h e i r practice i s organized in the appropriate manner. . C. PROFESSIONAL INCORPORATION IN CANADA Pr i o r to the enactment of l e g i s l a t i o n by the Province of B r i t i s h Columbia which s p e c i f i c a l l y permitted a l l professionals to incorporate t h e i r practices there were both d i r e c t and i n d i r e c t factors keeping corporate tax status from Canadian professionals. In the case of most professions r e s t r i c t i o n s on incorporation appear i n ei t h e r the s p e c i f i c statutes e s t a b l i s h ing the profession or i n the rules set down by the profession' governing body. For example S.75 of the Medical Act RSBC 1969 C.239 provides that: S.75 Without f i r s t obtaining the written consent of the executive committee, (a) no member of the College s h a l l carry on the practice of medicine or surgery except i n his own proper name; and . (b) no association of two or more members of the College s h a l l carry on the practice of medicine or surgery except i n the proper names of one or more of the members of such association. This section c l e a r l y p r o h i b i t s the practice of medicine by a corporation except with the express approval of the Executive Committee of the College of Physicians and Surgeons. The Legal Professions Act RSBC 1969 Chapter 214 also includes a p r o h i b i t i o n against professional incorporation: S.72 No corporation and no person other than a member of the Society i n good standing s h a l l , subject to the I n f e r i o r Courts Practitioners Act., engage in the practice of law, except that (a) a person may act on his own behalf in a proceeding to which he i s a party; (b) as permitted by the I n f e r i o r Courts P r a c t i t i o n e r s Act; (c) students-at-law and a r t i c l e d clerks duly enrolled as such may appear in Chambers or before a master, referee, r e g i s t r a r , or examiner to the extent permitted by the practice in that behalf; (d) upon such terms as the Benchers may prescribe, a b a r r i s t e r of another Province, which affords the l i k e p r i v i l e g e to ba r r i s t e r s of thi s Province, may,, in spec i a l circumstances and with respect to a p a r t i c u l a r cause or matter, be permitted to appear as counsel i n the Courts of t h i s Province, notwithstanding that he i s not a member of and has not paid any fee to the.Society. One exception i s the Engineering Profession Act which permits the incorporation of an engineering practice by v i r t u e of the following provision: S.3(6) Nothing in thi s Act s h a l l be so construed as to prevent a corporation which has on i t s active s t a f f professional engineers who d i r e c t l y supervise and assume f u l l r e s p o n s i b i l i t y for a l l work or service undertaken by such corporation of the kind described in the d e f i n i t i o n of "practice of professional engineering" in Section 2 from undertaking such work or service and recovering proper fees and remuneration therefor.52 incorporated and presumably f i l e corporate tax returns. As i s evident by the previous discussion of the numerous unsuccessful appeals by Dr. Kindree, attempts by Canadian Professionals, other than engineers, to incorporate t h e i r practices and to f i l e corporate tax returns have been unsuccessful. The Department of National Revenue assesses the professional taxpayer as an i n d i v i d u a l rather than as a corporation on the r a t i o n a l that the professional services are being provided by an i n d i v i d u a l and not by a corporation. The Tax Appeal Board and the Exchequer Court have i n most instances upheld the Department of National Revenue's assess- ments of professionals on an i n d i v i d u a l basis. The reasons for judgment have pointed to the prohibitions against incorpora- t i o n contained i n P r o v i n c i a l professional statutes. Other reasons for refusing to recognize the corporations for tax purposes were that the corporate names of the alleged corporate p r a c t i t i o n e r were not displayed outside the professional's o f f i c e or shown in the telephone directory and accounts were rendered i n the professional's name rather ; 5 3 than i n the corporation's name. In other words the•Tax Appeal Board feels that the procedure amounts to an assignment by the professional to a corporation of his professional income a f t e r i t has been earned. In view of the present statute and case law i t i s f a i r to conclude that with the exception of an engineer, professionals can not carry on t h e i r practice in corporate form. D. PROFESSIONAL INCORPORATION IN BRITISH COLUMBIA - THE PROFESSIONAL CORPORATIONS ACT SBC 1970 C.37 On A p r i l 1, 19 70 the B r i t i s h Columbia Legislature gave t h i r d and f i n a l reading to the Professional Corporations A c t . ^ As w i l l become apparent i t was suitable that f i n a l reading was given to t h i s b i l l - on A p r i l 1, better known as " A p r i l Fool's Day". B r i t i s h Columbia was the f i r s t Canadian province to enact l e g i s l a t i o n permitting the incorporation of a professional practice and also the f i r s t to suspend such l e g i s l a t i o n . A chronological review of the events following the enactment of the Professional Corporations Act i n A p r i l 19 70 i s worthy of note. This Act was conceived and brought into law i n a period following the t a b l i n g of the White Paper on Tax Reform i n the Canadian House of Commons. Present and contemplated government spending programs obviously w i l l require the r a i s i n g of additional tax revenues. Clearly l e g i s l a t i o n permitting professionals to incorporate would have s i g n i f i c a n t revenue implications, although the Department of National Revenue has not estimated the loss of tax revenue which would r e s u l t from corporate tax status for Professionals. It i s reasonable to assume that i f one province permitted professional incorporation the remaining provinces would l i k e l y enact s i m i l a r l e g i s l a t i o n to avoid the migration of t h e i r professionals to a newly established p r o v i n c i a l tax haven. I t has been reported that the Government of the Province of Alberta was planning the introduction of s i m i l a r l e g i s l a t i o n i n i t s 1971 session and that the Government of the Province of Ontario was also contemplating professional 55 incorporation l e g i s l a t i o n . In view of the p o t e n t i a l revenue implications of professional incorporation l e g i s l a t i o n , c r e d i b i l i t y i s given to the speculation by various newspapers that the Minister of National Revenue, The Honourable Edgar Benson prevailed upon members of the B r i t i s h Columbia Govern- 56 ment to eliminate t h i s possible tax advantage to professionals. While, i t i s not apparent whether i t was in d i r e c t response to representations made by the Federal Government, i t i s c l e a r that on December 10, 1970 Order-in-Council 4147 was passed pursuant to S.29 of the Income Tax Act SBS 1962 Chapter 27; which Order-in-Council provided as follows: That, pursuant to Section 29 of the Income Tax Act, 196 2, a corporation incorporated under the Professional Corporations Act s h a l l be deemed not to be a corporation, as defined in the Income Tax Act, 1962. While the obvious intention of Order-in-Council 4147 i s to remove any p o t e n t i a l tax advantage to professionals by deeming professional corporations to be i n d i v i d u a l s , i t s v a l i d i t y Is open to question due to i t s purported amendment 57 of the B r i t i s h Columbia Income Tax Act which amendment could, - 34 - > 5 8 i n the opinion of some observers, only be valid.li/ made by the p r o v i n c i a l l e g i s l a t u r e . Even i f v a l i d , i t could be argued that due to the a l l o c a t i o n of l e g i s l a t i v e powers under the B r i t i s h North America Act the 0rder-in-C6uncil could only a f f e c t that portion of income tax which, while c o l l e c t e d by the Federal Government i s payable to the Provinces under the Dominion-Provincial Tax Sharing Agreement. It i s submitted that any changes i n taxation under the Federal Income Tax Act requires federal l e g i s l a t i o n . Even before the passage of the P r o v i n c i a l Order-in- Council deeming the professional corporations to be individuals there were doubts as to whether the Department of National Revenue would recognize Professional Corporations f o r income tax purposes. One supervisor i n the Vancouver D i s t r i c t O f f i c e of the Department of National Revenue indicated that the Professional Corporations would be recognized! as corpora- • • 5 9 tions by his department. A request for information as to the status of a professional corporation brought the response shown in Exhibit A from the Penticton D i s t r i c t Tax- Office of the Department of National Revenue. Clearly t h e i r opinion hinges on the manner in which the professional corporation was organized and carried on business. Once the professional corporations were deemed to be i n d i v i d u a l s for purposes of the B r i t i s h Columbia Income Tax Act t h e i r tax status took on a new uncertainty- p a r t i c u l a r l y due to the lack of any d e f i n i t e r u l i n g from the Department of National Revenue. Resulting from t h i s uncertainty was the i n t e r e s t i n g theory that the e f f e c t of the p r o v i n c i a l Order-in- Council would be to decrease the corporate income tax payable by a professional corporation. . At present, a corporation pays a tax under the P r o v i n c i a l Income Tax Act equal to 10% 60 of i t s income earned i n B r i t i s h Columbia. An i n d i v i d u a l resident i n B r i t i s h Columbia at the end of the taxation year pays a tax under the P r o v i n c i a l Income Tax Act equal to 28% 61 of the basic tax payable under the Federal Income Tax Act. This method would be used to calculate the p r o v i n c i a l tax payable by a B r i t i s h Columbia professional corporation since i t i s deemed to be an i n d i v i d u a l . The Federal basic tax payable by a corporation i s 18% of i t s f i r s t $35a000 of taxable income plus 47% of the balance of i t s taxable, income and t h i s method would be used to calculate the basic tax of a professional corporation i f i t were i n f a c t recognized as a corporation for taxation purposes by the Department of National Revenue. Applying the P r o v i n c i a l Income Tax Act to the federal method of c a l c u l a t i n g the basic tax would mean that a B r i t i s h Columbia professional corporation would pay to the Province of B r i t i s h Columbia approximately 5% of i t s f i r s t $35,000 of taxable income and 13% of the balance. The a p p l i c a t i o n of the 5% and 13% rates of corporate, income tax rather than the straight 10% rate would have resulted in a tax saving for every professional corporation whose income did not exceed approximately $91,000 per year. 10, 1970 was ambiguous, i t was cl e a r that the B r i t i s h Columbia Government and perhaps the Federal Government intended to remove any tax advantages expected from professional incorporation; As the B r i t i s h Columbia government offered to refund the incorporation fees to any professional who had incorporated and who was prepared to li q u i d a t e his professional corporation and return the C e r t i f i c a t e of Incorporation to 6 2 the Registrar of Companies f o r ca n c e l l a t i o n , i t was clear that the P r o v i n c i a l Government had su b s t a n t i a l l y altered i t s po l i c y i n regards to corporate tax status f o r professionals. i ' . • It was therefore not unexpected that the annual* government omnibus b i l l , provided, among other things, that the Professional Corporations Act should be suspended u n t i l July 1, 1972 or u n t i l re-enacted before that time by cabinet 6 3 order-in-council or by the l e g i s l a t u r e . While the Professional Corporations Act was law for less than twelve months most of the professional corporations incorporated under the Act were'incorporated between July 31, 1970 and December 11, 1970, the day follow- ing the Order-in-Council deeming such corporations to be individu a l s f o r purposes of the B r i t i s h Columbia Income Tax Act. There were many well known B r i t i s h Columbia professionals who incorporated and judging from the c a p i t a l i z a t i o n s of these corporations the professional's l e g a l and accounting advisors had conceived many tax and estate planning schemes. A summary of a l l incorporations under the Professional Corporations Act i s included i n ̂ Appendix B of t h i s thesis and p a r t i c u l a r attention i s drawn to incorporation number s i x t y - f i v e which has a c a p i t a l i z a t i o n of approximately one m i l l i o n d o l l a r s and various other incorporations with large or unusual c a p i t a l i z a t i o n s . Why did only 240 professionals incorporate when there were so many e l i g i b l e under the terms.of the Act. One l i k e l y explanation f o r t h i s seeming reluctance i s that many professionals f e l t that any tax advantages would be short- l i v e d due to the pending revi s i o n s to the Canadian taxation system which had already been outlined in the white paper on tax reform, tabled i n the federal parliament some three months before the. Professional Corporations Act was introduced into the B r i t i s h Columbia L e g i s l a t i v e . The federal white paper proposed, i n part, that the low rate of corporate tax be eliminated, and that the personal and corporate taxes be integrated. The proposal to gross up dividends and give cre d i t f o r corporate taxes w i l l mean that the e f f e c t i v e rate of corporate tax paid by the corporation w i l l be the marginal rate paid by i t s shareholder. If thi s proposal was to be implemented no incentive would remain to r e t a i n earnings i n the corporacion for investment. In fact i t would be wise to d i s t r i b u t e a l l earnings within two and one h a l f years from the end of the corporation's taxation year so that the shareholder' might be given c r e d i t f o r the corporation tax paid. -Again the a b o l i t i o n of the low rate of corporate tax was only a proposal, and i f implemented, i t would take e f f e c t over a f i v e year period and some discussion ensued concerning other forms of incentives f o r small businesses. However i t i s l o g i c a l to assume that many profe- ssionals adopted a sk e p t i c a l attitude pending c l a r i f i c a t i o n of federal tax p o l i c i e s and no doubt these same persons f e l t vindicated when the Professional Corporations Act was suspended. While the B r i t i s h Columbia Professional Corporations Act i s not presently available to professionals who wish to • incorporate, i t does provide a useful example to analyze the po t e n t i a l tax advantages to be gained by a professional through incorporation. It must be remembered that t h i s statute i s temporarily suspended and could be r e i n s t i t u t e d at any time by Order-in-Council. Procedures to incorporate under the B r i t i s h Columbia Professional Corporations Act w i l l now be reviewed followed by a detailed summary of the po t e n t i a l tax benefits r e s u l t - ing from professional incorporation. E. INCORPORATION PROCEDURES UNDER THE PROFESSIONAL CORPORA- TIONS ACT To incorporate a professional p r a c t i c e , the profe- s s i o n a l association of which the professional i s a member unust sanction the incorporation. Each profession in B r i t i s h Columbia handled t h i s matter i n a d i f f e r e n t way. For example the Law Society of B r i t i s h Columbia would, on request, advise the P r o v i n c i a l Registrar of Companies that an applicant f o r incorporation i s a member in good standing of the Society. "The College of Physicians S Surgeons of B r i t i s h Columbia •.required that a physician applying f o r incorporation complete an information form, a copy of which i s shown as Exhibit B. The I n s t i t u t e of Chartered Accountants required i t s members to confirm that they would continue to be bound by, and the corporation would be bound by, the regulatory j u r i s d i c t i o n of the I n s t i t u t e of Chartered Accountants. Once the necessary consent has been obtained a c o n s t i t u t i o n , by-laws, notice of registered o f f i c e , and a l i s t of the persons appointed by the subscribers to act as f i r s t directors of the corporation must be prepared and sent to the Registrar of Companies i n V i c t o r i a . The writer incorporated under the Professional Corporations Act and the c o n s t i t u t i o n , by-laws and other incorporating documents are attached as Appendix C. The form of con s t i t u t i o n i s set out in Schedule A to the Professional Corporations Act which also provides that the objects of the corporation must be li m i t e d to the practice of the p a r t i c u l a r profession i n respect of which i t was incorporated. "Limited" or "Ltd." 64 . -may not appear a f t e r the name of the corporation. While the Professional Corporations Act provides that Table "A" of the Companies Act s h a l l be used as the b a s i s ' f o r the 65 by-laws of the professional corporation there are several provisions not included i n Table "A" that should be contained i n the professional corporations by-laws. The by-laws should ;permit the .corporation .to pass a resolution, by having one -director give his written consent. Members of the Board of Directors must be l i m i t e d to members of the p a r t i c u l a r 66 6 7 profession, there must be no j o i n t shareholdings, proxies can only be given to other members of the professional 6 8 corporation concerned, and a l l share c e r t i f i c a t e s issued by the professional corporation must bear the following notation "The shares represented by t h i s C e r t i f i c a t e s h a l l not be transferred to a person who does not practice the profession 6 9 i n respect of which t h i s Corporation i s incorporated." and 70 f i n a l l y the corporation i s not l i m i t e d to f i f t y members. _A-professional corporation i s no more d i f f i c u l t to incorporate than any other l i m i t e d company and the fees paid to the Registrar of Companies are the same as f o r a normal incorporation. Once the government announced the suspension of the Professional Corporations Act i t restated i t s p o l i c y of returning the incorporation fees to persons who wished to surrender the c e r t i f i c a t e of incorporation. The d i r e c t o r of the corporation was required to swear a declaration that the corporation was not carrying on business and had no l i a b i l i t i e s . The writer followed t h i s procedure and had his incorporation fees refunded. These documents are also included i n Appendix C. F. POTENTIAL TAX ADVANTAGES THROUGH PROFESSIONAL INCORPORATION 1. A v a i l a b i l i t y to the Sole P r a c t i t i o n e r In B r i t i s h Columbia a minimum of two members are required to incorporate a private corporation while f i v e members are required i n the case of a public corporation. In order to avoid "shot gun" professional partnerships the Professional Corporations Act provides for corporations consisting of only one member who w i l l be the sole d i r e c t o r , 72 o f f i c e r and shareholder. This would c l e a r l y be a way to avoid long and tedius directors meetings. For the f i r s t time we have a t r u l y one-man corporation with a l l the associated tax advantages. 2. Business and Fi n a n c i a l F l e x i b i l i t y While at f i r s t appearance a professional corporation i s l imited in i t s a c t i v i t i e s to the practice of the p a r t i c u l a r 73 profession for which i t was incorporated, the Act also - 42 - provides that a professional corporation may invest i t s funds i n r e a l estate, mortgages, stocks, bonds, or any other type of investment, or own, lease, s e l l , dispose of, or otherwise deal i n r e a l or personal property f o r the purpose 74 of carrying on the business of the corporation. The professional corporation could own a building containing the professional o f f i c e and could lease automobiles to be used by i t s employees and i t could perhaps be successfully argued that the corporation's cash reserves could be invested i n r e n t a l r e a l estate which due to i n t e r e s t payments and c a p i t a l cost allowance may produce a net loss which could be o f f s e t against the corporations professional income. Any dividends received by a professional corporation from another tax 75 paying Canadian corporation w i l l not be subject to tax. I t i s thought by many advisors to be advantageous for accounting reasons to maintain the accounts of the profe- ssional corporation separate from the professional's personal accounts. It i s no longer acceptable i n t h i s day and age of medicare payments, annual audits, and high professional income for a professional not to maintain proper accounting procedures and controls. It i s also more convenient to only be involved i n valuing and t r a n s f e r r i n g the shares of the professional corporation on the death of the professional rather than having to transfer each of his assets i n d i v i d u a l l y . 3. Pension Plan Benefits A professional who incorporates lasder* the Profe- s s i o n a l Corporations Act could take advantage of substantial pension plan benefits that would not be avaiQLable i n the same manner to his brother professional who i s a member of a partnership or i s a sole proprietor. I f the; professional -corporation contributes to a q u a l i f i e d pension plan on the professional's behalf i t may deduct the contribution from i t s taxable income up to a l i m i t of $1,500. The professional i s taxed on those funds when a c t u a l l y received :iirom the pension fund r e s u l t i n g i n a d e f e r r a l of tax and probab-ly a lower rate of tax applied to the. funds. The Department: «a>f l a t i o n a l Revenue i s apparently refusing to accept f o r r e g i s t r a t i o n pension plans that are primarily f o r the b e n e f i t of-share- 7 6 holder employees. I f t h i s i s the case i t would c u r t a i l t h i s advantage of professional incorporation. 4. One Time Tax Saving i n Year of Incorporation As with any corporation, a professional corporation 77 i s able to select i t s f i r s t year end. I f the f i s c a l period of the corporation commenced July 1 and the professional was employed by the corporation on that date his taxable income f o r that calendar year during which his employment commenced could be controlled by the amount of salary tdfea corporation paid him i n the period from July 1 to December 31. By pay- 'ing a nominal salary for the balance of the calendar year the income earned by the professional i n the f i r s t s i x months of the year of incorporation would be subject to a lower marginal rate of tax. 5. Lower Average Rate of Tax The income tax rate structure applying to individuals i s progressive, ranging from 11% on the f i r s t $1,000 of taxable 7 8 income up to 80% on a l l income over $400,000 . Corporations are subject to a s p l i t rate of income tax, being taxed at a rate of 18% on t h e i r income up to $35,000 and at a rate of 47% on a l l of t h e i r income i n excess of $35,000. While i t can be quickly calculated that a married i n d i v i d u a l with two children aged twelve and fourteen would experience a marginal rate of tax in excess of 21% once his income exceeded $7,000 thi s • does not mean that he would obtain an immediate tax benefit by incorporating. One must compare the i n d i v i d u a l s average rate of tax with the low corporate rate of tax and the 21% rate can only be used as a comparison i f no income i s paid out to the i n d i v i d u a l as salary or dividends. If.most of the corporation's income i s to be paid through to the i n d i v i d u a l there i s very l i t t l e advantage in incorporation vis a vis the low rate of tax due to the double taxation feature. 6. Deferred P r o f i t Sharing Plan The professional corporation may deduct up to $1,500 from i t s taxable income i n conjunction with monies paid to a trustee of a deferred p r o f i t sharing plan established for i t s employees. It i s not known whether the Department of National Revenue i s discouraging such plans, established for the exclusive benefit of shareholder employees but t h i s may be t h e i r p r a c t i c e . Any deduction claimed by the corporation for contributions to the deferred p r o f i t sharing plan must be reduced by amounts contributed to an employee's pension plan. 7. Dividend Tax Credit When the corporation pays dividends to i t s share- holders they may reduce t h e i r tax otherwise payable by 20% of the dividend received. This i s intended to o f f s e t the double taxation of these funds and, f o r a professional corporation with a s i g n i f i c a n t amount of retained earnings whose only shareholder r e t i r e s , i t means that these retained earnings may be paid out to the shareholder over a number of years and a t t r a c t l i t t l e i f any tax due to the 20% dividend tax c r e d i t . 8. Stock Dividend from Tax Paid Undistributed Income Under the provisions of Section 105 of the Income Tax Act the Professional Corporation could d i s t r i b u t e one ha l f of i t s income each year i n dividends and, i n a subsequent taxation year, could el e c t to pay a 15% tax on an amount equal to the dividends previously paid thereby creating tax paid undistributed income from which a stock dividend comprised of redeemable preference shares could be paid. When these shares are redeemed, the redemption price would be paid free of tax to the shareholders. This procedure i s c l e a r l y '^attractive to shareholders subject to a high marginal rate of tax. 9. Group Term L i f e Insurance Policy The corporation may deduct the cost of premiums f o r a group term l i f e insurance p o l i c y not exceeding A 7 9 $25,000 fo r the benefit of i t s employees. Providing that the p o l i c y conforms to the requirements of the Income Tax 8 0 Act i t would not give r i s e to a taxable benefit i n the 81 hands of i t s employees. 10. Loans to Of f i c e r s Section 8(2) of the Income Tax Act permits the corporation to borrow monies and deduct the in t e r e s t from i t s taxable income and then to lend the monies in t e r e s t free to i t s officer-shareholder to a s s i s t him i n the purchase of a home or automobile. Some reasonable repayment provision must be agreed upon between the corporation and i t s o f f i c e r . The loans described i n Section 8(2) of the Income Tax Act are an exception to the normal rule that such loans w i l l give r i s e to a deemed dividend i n the- hands of a shareholder. A general medical p r a c t i t i o n e r could use t h i s provision to finance the purchase of an automobile. Other professionals may have d i f f i c u l t y demonstrating that an automobile was used excl u s i v e l y i n the performance of the duties of his o f f i c e or employment A record - should be maintained by the professional .so that i f c a l l e d upon he can show what propor- t i o n of the time the car was used in connection with his employment. There i s no requirement that any part of the home be used i n conjunction with the employment. 11. Unpaid Remuneration A professional corporation operating on an accrual basis of accounting could accrue i t s employees salary for up to three years. This would permit the corporation to deduct the salary i n the year i t i s earned but the employee w i l l defer his tax l i a b i l i t y f o r up to three years as the salary 82 i s not taxable u n t i l a c t u a l l y paid. 12. Death Benefit There may be an agreement between the professional and the corporation that upon his death a death benefit w i l l <be payable to his widow. A portion of t h i s payment equal to the lesser of ,$10 ,000 , or one year's salary, i s a tax deductible expense for the corporation and i s not subject 8 3 to personal tax i n the hands of the widow. ,13. Retiring Allowances -In recognition of a professional's long service .to a corporation he may be paid a r e t i r i n g allowance which i s deductible by the corporation i n c a l c u l a t i n g i t s taxable income. The allowance w i l l be taxed i n the employee's hands i n the year that i t i s paid. There i s no s p e c i f i c provision fo r the deduction of r e t i r i n g allowances in the Income Tax , 84 . . Act but i n one author's opinion as long as such payments are reasonable they may be deducted. 14. Goodwill , When the corporation i s i n i t i a l l y organized the professional w i l l transfer his assets including the building where he carries on his p r a c t i c e , his equipment, accounts receivable and work in progress and a l l his o f f i c e records such as patients records, c l i e n t s f i l e s or previously prepared plans. These l a t t e r assets are p a r t i c u l a r l y valuable because they are the physical evidence of the goodwill that the professional has b u i l t up during the course of his p r a c t i c e . This goodwill can presumably be paid for by the corporation i n the form of preferred shares or a promissory note which can be redeemed or repaid at a l a t e r date. The e f f e c t i s that funds may be d i s t r i b u t e d by the corporation to the professional without his incurring any tax l i a b i l i t y . Presumably the Department of National Revenue would challenge an unreasonable valuation on the professional's goodwill and :in cases of doubt the proposed goodwill valuation should be ^referred to the Department of National Revenue f o r t h e i r approval. 15. Employment of Spouse It i s not uncommon, p a r t i c u l a r l y in the case of medical p r a c t i t i o n e r s , that the professional's wife w i l l be a c t i v e l y employed i n the practice as nurse, r e c e p t i o n i s t , bookkeeper or stenographer. Even in situations where the wife i s a bona fide employee i n a professional practice the professional husband i s unable to deduct the wife's salary. I f the professional's s i s t e r was employed to do p r e c i s e l y the same work her salary would be deductible by the profe- ss i o n a l brother. It was the application of t h i s provision of the Income Tax Act which produced a harsh r e s u l t i n Laverne C. Kindree v. MNR. While S.2K2) of the Income Tax Act was c l e a r l y enacted to prevent income s p l i t t i n g r e s u l t i n g from a taxpayer paying a salary to a spouse who does l i t t l e or nothing in return, i t s blanket p r o h i b i t i o n also prevents -the deduction of salary paid by the professional to a spouse in return for bona fide services. By having the corporation employ' the professional and spouse no such problem arises as both s a l a r i e s are a deductible expense f o r the corporation and the sa l a r i e s are taxable i n the employee's hands. G. TAX PROBLEMS WITH THE PROFESSIONAL CORPORATION 1. Deemed Associated Statutes I t may be advisable f o r each professional i n a partnership to incorporate separately and to continue the professional association as a partnership of professional corporations. This procedure should d e f i n i t e l y be followed where the professionals are presently sharing o f f i c e space and some services but are otherwise carrying on separate practices. Even under,these circumstances i t i s possible that the Minister of National Revenue may argue that one of the main reasons for having two professional corporations i s to take advantage of the low rate of corporate tax on the f i r s t 85 $35,000 of taxable income of each corporation and therefore the two or more corporations should be deemed to be associated with each other which would r e s t r i c t the two or more corpora- tions to claiming the low rate of corporate tax'on a maximum 86 of $35,000 of income. To avoid associated status the profe- ssionals should maintain separate books, not pool t h e i r income, maintain separate ownership of t h e i r equipment and use separate d i s t i n c t i v e stationery. 2. The Corporation Must Carry on the Practice I t i s important that no one have the. impression that simply by r e g i s t e r i n g certain documents with the Reg- i s t r a r of Companies i n V i c t o r i a that next year's income tax b i l l w i l l be halved. On the contrary the actual incorporation i s only the f i r s t step. It i s then necessary to prepare an employment contract between the professional and the corpora- t i o n , s e l l the professional's t o t a l present undertaking to the corporation, and obtain stationery so that a l l b i l l i n g and correspondence may be i n the corporation's name. The corporation's name should be prominently displayed outside the professional o f f i c e , i t should be l i s t e d i n the telephone directory and the bank accounts should be kept i n the corpora- tion's name. The professional must remember that he i s • s t r i c t l y i n the pos i t i o n of an employee and must keep his personal f i n a n c i a l transactions quite separate from those of the corporation. IV. RECOMMENDATIONS Having now reviewed the current tax treatment of professional income i n Canada, several features of our income tax system which u n f a i r l y discriminates against the professional have been i d e n t i f i e d . Enacting the Professional Corporations Act was an attempt to a l l e v i a t e these tax i n e q u i t i e s , but posed d e f i n i t e e t h i c a l problems and more s i g n i f i c a n t l y tended to be l a b e l l e d %as a tax "plum" for 'professionals thus r a i s i n g hew problems of equity i n r e l a t i o n to other classes of taxpayers. As a general recommendation, professional incorporation should not be permitted, but certai n changes to our tax system should be effected to reconcile the d i s p a r i t y between the tax treatment of profe- ssi o n a l and other business income. The f i r s t recommendation i s that Section 21(2) of the Income Tax Act which reads: Where a person has received remunera- t i o n as an employee -of his spouse, the amount thereof s h a l l not be deducted in computing the spouse 1s income and s h a l l not be included i n computing, the employee's income should be amended by the addition of the words: ...except when such remuneration was received by the spouse for bona fide services rendered to the spouse paying such remuneration. This amendment would prevent a r e p e t i t i o n of the • problem faced by the Squamish Doctor who was unable to deduct the salary he paid to his wife f o r her services to his profe- ssi o n a l practice as a registered nurse. The second recommendation i s that a l l taxpayers should have the option of either claiming expenses incurred on post secondary education as a deduction from t h e i r taxable income in the year that they are incurred or c a p i t a l i z i n g them to be deducted from future income. Taxpayers i n the professions c o r r e c t l y argue that t h e i r earning years are compressed and due to our progressive tax rates t h e i r profe- ssi o n a l income i s taxed at a higher average rate of tax. The t h i r d recommendation i s that an option be provided i n the Income Tax Act whereby professionals could be taxed at corporate, rates. In other 1 words t h e i r profe- ssi o n a l income would be deemed to have been the income of a f i c t i t i o u s corporation and then taxed at corporate rates. In addition t h i s f i c t i t i o u s corporation could conduct i t s e l f as a regular corporation in regard to making loans to the p r o f e s s i o n a l , e s t a b l i s h i n g pension plans, and a l l other mechanisms presently available to corporate taxpayers. The professional would, in addition, f i l e a personal tax return, declaring salary and dividends received from the f i c t i t i o u s corporation. The al t e r n a t i v e to amending the Income Tax Act i n t h i s manner i s to enact l e g i s l a t i o n i n each province permitting professional incorporation. This is.undesirable as i t would' be d i f f i c u l t to achieve uniform l e g i s l a t i o n i n a l l provinces, i t may create f r i c t i o n with other classes of taxpayers and i t raises e t h i c a l problems. It i s not desirable that a corporation remove your appendix or draft your w i l l . The patient-doctor, lawyer-client and other professional r e l a t i o n s h i p s are v i t a l i n our society and should be preserved. The more important question i s why should profe- s s i o n a l income be taxed as corporate income, and what about the professional who receives income from an o f f i c e or employment? There has always been a fundamental d i s t i n c t i o n i n our Income Tax Act between business income and income derived from an o f f i c e or employment. Tax concessions have been granted i n the case of business income to encourage the establishment of Canadian business, to permit small business to compete with larger businesses , and to provide a means whereby small business may accumulate c a p i t a l to acquire operating assets. The establishment of a professional practice requires an outlay of c a p i t a l f o r l i b r a r y , instruments, o f f i c e furnishings and a continuing fund of working c a p i t a l i s needed to provide for accounts receivable, s a l a r i e s of associates and employees and numerous other day to day expenses. Engineers are allowed to incorporate, as are plumbers, pharmacists, management consultants, gardeners, and most other occupational groups. Professionals face the same problems as other business enterprises and.should receive s i m i l a r tax treatment. The e f f e c t of t h i s proposal i s shown i n Exhibit C which outlines the p o t e n t i a l tax saving r e s u l t i n g to a professional who i s taxed at corporate rates. The tax saving i s largely dependent on what proportion of the corpora- tion's income i s d i s t r i b u t e d to the professional. There i s c l e a r l y an incentive to r e t a i n monies i n the corporation and these funds would presumably be u t i l i z e d in the p r a c t i c e . Professionals receiving income from an o f f i c e or employment are not generally required to invest t h e i r own funds i n income producing assets, nor do they generally face the same f i n a n c i a l r i s k and can not j u s t i f y s i m i l a r tax treatment. The fourth'recommendation i s that professionals be permitted to use the cash basis of accounting but that measures be taken to prevent them from using a r t i f i c i a l cash handling procedures to avoid or postpone income tax. V. CONCLUSION . The .question of the taxation of professional income i s a question of equity. Is i t f a i r to allow a pharmacist to incorporate but not a doctor, a private investigator but not a lawyer? It must also be remembered that most professions have the power to control'entry into t h e i r profession and to set t h e i r fee scaleJ To promote equity and r a t i o n a l i z e our tax system professional income must be treated the same as a l l other business income. I f necessary another branch of government might investigate the regulation of professional fees. As long as professionals do not achieve equitable tax treatment and continue to have the d i s c r e t i o n to set t h e i r own fees they w i l l attempt to maintain a s a t i s f a c t o r y a f t e r tax income. This can only rebound* to the disadvantage of the general public i n the form of higher professional fees. P e r i o d i c a l s : ' Cader, A.L. and A.S. Weinrib "Tax Inequities of.the Profe- ssional P r a c t i t i o n e r in Ontario" University of Toronto Faculty Law Review, v o l . 2 3 p.64 Information B u l l e t i n Number 46 (Lawyers Trust Accounts and Disbursements) Department of National Revenue September 3 , 1969 Information C i r c u l a r '71-18 (Disposition of Appeals) Depart- ment of National Revenue July 30, 1971 The Law Society of B r i t i s h Columbia Newsletter Number IS June 3 0 , 19 71 L i t t l e , L.M. "Professional Corporations" The Crown Commentator, v o l . 2 No. 5, November, 1970 Maclntyre., J.M. "Kinderalla and the Professional Corporation" The Advocate, vol,29 Part 3 , A p r i l - May 1971, p.118 "Professional Corporations Act", Canadian Bar Association B r i t i s h Columbia Branch Newsletter No. 10, December, 13 7 0 Proposals for Tax Reform, a government white paper on tax reform submitted to the House of Commons by the Honourable E.J. Benson, Minister of Finance, 1969 Rodney, M.C., "Professional Corporations" Alberta Law Review Vol. 7 No. 2 1969 • „ • Smeltzer, G.G. "An examination of the Professional Corporations Act i n Light of The White Paper on Tax Reform" University of B r i t i s h Columbia Law Review, Vol. 5 No. 2, December, 19 70 "'Tax Haven' for the Professions? New Headache for Revenue Men" U.S. News and World Report, v o l . 67 No. 1, July 7, 1969 Books: Analysis of the White Paper on Tax Reform, CCH Canadian Limited December 1, 19 69 - Eighteenth Report of the Standing Committee on Finance, Trade and Economic Affairs"Respecting the White Paper on Tax Reform, Ottawa: Queen's P r i n t e r , October, 1970 Gilmour, Arthur W. Income Tax Handbook, Toronto: Richard De Boo Limited, I97T La Brie, F.E. The P r i n c i p l e s of Canadian Income Taxation, Montreal: CCH Canadian Limited, 196 5 The National Finances, An analysis of the revenues and expenditures of the Government of Canada 19 70 - 71 Canadian Tax Foundation Toronto O'Brien, Martin L. e d i t o r Canadian Income Tax Law and Practice, Toronto, Butterworths, 19 71 Report of the Royal Commission on Taxation Volume 4 (1966) The Standing Senate Committee on Banking, Trade and Commerce Report on The White Paper Proposals for Tax Reform, Ottawa, The Queen's P r i n t e r , September, 19 70 Statutes: Income Tax Act RSC 195 2 C.14 8 Legal Professions Act RSBC 1960 Chapter 214 Medical Act RSBC 1960 Chapter 239 Old Age Security Act RSC 1952 Chapter 200 Professional Corporations Act SBC 1970 Chapter 37 Real Estate Act SBC 19 5 8 Chapter 47 Cases: «• Fainstein v. MNR 52 DTC 102 Frank H. E l l i o t t ' v. Minister of National Revenue 71 DTC 107 Helman et a l v. Minister of National Revenue 1970 CTC 586 Thomas Lamb v. Minister of National Revenue (196 3) DTC 97 5 Isaac Shulman v. MNR 61 DTC 1213 Kindree v. MNR 64 DTC 5 24 8 Laver-ic C. Kindree v. MNR 1964 DTC 5248 , 70-DTC 1054 Newspaper A r t i c l e s : "Gov't moves to suspend tax w i n d f a l l enactment" Vancouver Sun, March 27, 1971 p.8 Asper, I.H. "B.C. scores a dubious f i r s t " Vancouver Sun, December 14, 1971 p.27 Matheson, David "Incorporating to escape tax status as employee i s n ' t easy"" The F i n a n c i a l Post, May 15, 19 71 p. 19 The Province, June 3, 1971 Young, Alex "Tax edict attacked as unjust" The Province, December 18, 1970 p.27 APPENDICIS A. The 1971 Income Tax L e g i s l a t i o n B. Incorporations under the Professional Corporations Act SBC 1970 c.37 C. Professional corporation - Incorporating Documents and Surrender of C e r t i f i c a t e of Incorporation ( APPENDIX A The federal government's tax reform measures were presented to the Canadian Parliament by the Honourable Edgar J. Benson, Minister of Finanpe, on Friday, June 18, 1971. While to a considerable extent the proposals contained i n the previous government white paper have been implemented there are a number of departures that are s i g n i f i c a n t i n r e l a t i o n to the taxation of professional income. The proposal to integrate the income of a corpora- . t i o n with that of i t s shareholders has been dropped. Dividends paid to a shareholder w i l l -^fc be e n t i t l e d to a 33-1/3% tax c r e d i t , but the tax c r e d i t w i l l be added to the dividend and included in taxable income. A Canadian controlled private corporation w i l l be taxed at.25% on the f i r s t $50,000 of business income. This low rate of tax w i l l cease to apply and a corporation has accumulated taxable income of $400,000. The accumulation i s calculated by adding each year's taxable income a f t e r the implementation of the new Act and by deducting four-thirds of taxable dividends paid to shareholders. The new b i l l requires taxpayers i n the professions to report income and expenses on an accrual basis f o r f i s c a l years ending a f t e r December 31, 1971., Work in progress w i l l not be brought into income except at the option of the tax- payer. Accounts presently outstanding, which under the present tax l e g i s l a t i o n have not yet been included i n income, w i l l be brought into income over a number of years so as to avoid an unnecessary tax burden in the f i r s t year. What i s the e f f e c t of the proposed tax l e g i s l a t i o n on the recommendations contained i n t h i s thesis? F i r s t the accrual basis of accounting required under the proposed Income Tax Act i s i n fact a quasi-accrual method and.will not create undue hardship. Second, and more s i g n i f i c a n t l y the proposed b i l l w i l l maintain the d i s t i n c t i o n between i n d i v i d u a l and corporate taxation and w i l l therefore perpetuate the inequity between the taxation of professional and other business income unless professionals are permitted corporate tax status. The low rate of tax has been raised to 25% but w i l l s t i l l be lower than the average rate of tax experienced by many professionals-. The c e i l i n g of $400 ,000 on the accumulated low rate of tax w i l l s t i l l permit professionals to become established i n t h e i r practice which i s the purpose of the low corporate rate of tax. APPENDIX B Incorporations Under the Professional Corporations Act S.B.C.1970 C37 No. Incorporation Date Name Profession C apit a l i z a t i o n 1 July 31/70 Dr., 7. Baker Physician 2 July 31/70 Dr. R.JJ* Wiggins Physician 3 Aug. 4/70 Dr. J.D.Stenstroia Physician 4 Aug. 7/70 Dr. A. Herstein Physician 5 Aug. 12/70 Dr. H.D.MacWilliam Physician 6 * 7 Aug. 13/70 Gordon 0. Hunter Dentist 8 Aug. 13/70 Wm. S. Parteous Dentist 9 Aug. 13/70 Robert M. Mann Dentist 10 Aug. 13/70 Dr. W.M. Kendrick Physician 11 Aug. 13/70 Dr. G.E. Cox 12. Aug. 17/70 Drs. H.C. and L. Zeldowicz 13. Aug. 19/70 Joseph Gris Physician Physician Dentist 14. Aug. 19/70 Dr. A.M. Krisraan Physician $10,000 - 101,000 shares & $1.00 PV 200 Class A Common 49,800 Class B Non-voting A l l NPV-max.S.P.$1.00 810,000-10,000 shares @ $1„00 PV $10,000-10,000 shares @ SI.00 PV $49?000-49?000 shares @ $1.00 PV 1,000 common shares max. S.P. $1«00 $10,000 - 100 common 9,900 non-cumulative non-voting Preferred redeemable shares-PV $1*00 $10,000 - 10,000 shares PV $1.00 10,000 shares max. S.P. $1.00 $49,000-49,000 preferred shares PV $1.00 1,000 common shares max. S.P. $1.00 $30,000-3,000 redeemable preferred shares PV $10. 10,000 shares max.SP $1.' 10,000 shares max. SP $1.00 $10,000-10,000 shares @ $1.00 PV 1.0,000 shares NPV Max. SP $1.00 ^Incorporation Documents Withdrawn Incorporation ; No. Date Name Profession C ap" i t a l i z a t i on 15 Aug. 19/70 Dr. S.H. Prackson Physician 10,000 shares NPV •max. SP $1.00 16 Aug. 19/70 Dr. Nathan Batt Physician 10,000 shares max. SP . $1.00 17 Aug. 24/70 Dr. J.H.K. Kim Physician $10,000 - 10,000 @ $1.00 PV 18 Aug..25/70 Dr. Bernard Costello " 10,000 NPV max. SP $1. 19 Aug. 25/70 Dr. Gordon G. Lott Surgeon 200 Glass A common max. SP $1.00 49-800 Glass B non- voting NPV 20 Aug. 25/70 Dr. M.W. kosenfeld Physician 10,000 shares NPV max. SP $1.00 21 Aug. 26/70 W. Co Weinstein Dentist $15,000-200 common PV . $1.00 14,800 preferred . redeemable 22 Aug. 26/70 Dr. L*• Matrick Physician $10,000 NPV shares max. SP $1.00 25 Aug. 27/70 Dr. R. Outerbridge Physician 10,000 NPV shares max. SP $1.00 24 Aug. 27/70 Dr. B. J. Gaerber Physician 10,000 shares max. SP $1.00 25 Aug. 28/70 Dr. L i o n e l Tenby Physician 10,000 shares max. SP " - ' $1.00 26 Aug. 28/70 J . S. Oraib Dentist 10,000'shares max. SP $1.00 27 Aug. 28/70 Tyrus R. Cobb Chartered 10,000 shares NPV Accountant max. SP $1.00 28 Aug. 28/70 Henry E. Thiessen Dentist $10,000-10,000 shares @ $1.00 29. Aug. 31/70 J . D. Routtenberg Chartered 10,000 NPV max. SP $1.00 Accountant 30 Aug. 31/70 D. N. Sakahaski Dentist $10,000-10,000 @ $1.00 PV 31 Aug. 31/70 Dr. Kwok Wei Yue Physician $10,000-10,000 shares PV $1.00 32 Sep. 1/70 Dr. R. T. Hosie Physician $9,900-9,900'shares PV $1.00. 100 ordinary max. SP $1.00 33 Sept. 1/70 Dr. M. I. MacKay Physician 34 Sept. 1/70 Dr. J . 0. Donald Physician 35 Sept. 1/70 Dr. H. S. Ford Physician 36 Sept. 1/70 Dr.C. Schom A 1 42 43 44 45 Physician 37 Septr 1/70 Dr. A. I. Munro Physician 38 Sept. 2/70 Dr. W. Chambers Dentist 3 9 * 40 Sept. 2/70 R. G. Morrow Sept. 2/70 R. R. Jansen Sept. 2/70 Dr. J . M.V/ong Cert. Gen. Accountant t: is ii Physician Sept. 4/70 Dr. Ernst Printon Medicine Sept. 4/70 T.R.K. Erdman Sept. 4/70 John M. Work Chartered Accountant Dentist 46 Sept. 4/70 S . J . Ladyman Chartered Accountant 47 Sept. 4/70 Dr. L. C. Kindree Physician 48 Sept. 8/70 I. Van Messel Chartered Accountant 49 Sept. 14/70 Dr. P. J. Jurcic Physician 50 Sept. 8/70 Dr. GLC. MacKinnon " 51 Sept. 8/70 Dr. P. Pransblow Dentist •Incorporation Documents Withdrawn $ 9 , 9 0 0 - 9 , 9 0 0 shares PV $ 1 . 0 0 . 100 ordinary max. 3P $1 9,900'pref. shares PV SI.0 0 . 100 ordinary max. SP $ 1 . 0 0 $ 9 , 9 0 0 - 9 , 9 0 0 preferred shares © $ 1 . 0 0 . 100 ordinary NPV max. SP $1 10,000-PV $ 1 . 0 0 $ 9 , 0 0 0 - 9 , 0 0 0 preferred shares PV $ 1 . 0 0 1 , 0 0 0 common shares - max. SP $ 1 . 0 0 1 0 , 0 0 0 shares max. SP $ 1 . 0 0 $10,000-10,000 @ $1.00 $I0,000-PV $1.00 $9,000-9,000 preferred PV $1.00. 1000 common max. S? $1. 10,000 NPV max. $1.00 $10,000-10,000 PV $1. 10,000 shares max. PV $1.00 $10,000-10,000 PV $1. $49,000-49,000 preferred shares PV $1.00 1000 common max. P $1.00 10,000 max. SP $1.00 $10,000-10,000 PV $1. $10,000-10,000 PV $1. . $10,000-100 common shares.9,900 pref. $1. No. Incorporation Date Name • Profession Cap i t a l i zat ion 52 Sept. 8/70 J. N. Kasedkin Dentist $10,000-10,000 <W .'$1.00 PV 55 Sept. 9/70 Dr» H. V. Hughes Physician $49,000-49,000 redeem-able preferred shares PV $1.00 1,000 common shares NPV max. $1.00 54 Sept. 9/70 M. J. Oody Cert. Gen. Accountant $10,000-10,000 shares <S> $1.00 PV 55 Sept. 11/70 Marsh, Martin, Marsh & Co. Chartered Accountants 9,999 NPV max. P $1.00 56 Sept. 11/70 Dr. E.R. Englebrecht Physician $10,000-10,000 PV $1. 57 Sept. 14/70 Hugh T. Rae Accountant 9,000 preferred NPV 1*000 common max. SP $1.00 58 Sept. 15/70 Dr. M. J . Waterman Dentist 10,000 shares NPV max. $1,00 59 Sept. 15/70 Dr. M. Tepowsky Physician 9,000 preferred NPV .l s000 common max. or ax.Ou 60 Sept. 15/70 Dr. Morton Dodek Physician 10,000 NPV max. SP $1. 61 Sept. 17/70 Dr. John Praser Physician $10,000-10,000 @ $1.00 62 Sept. 17/70 Dr. J.H. Keough Physician $10,000-10,000 @ $1.00 63 Sept. 17/70 to- Pierre R. Dow Dentist $10,000-10,000 @ $1.00 64 Sept. 17/70 Dr. K. K. Ja i n Physician $10,000-10,000 PV $1. 65 Sept. 18/70 Dr. I. H.Williams Physician $999,995-999,995 pref. shares PV $1.00 5 common NPV-max. SP $1.00 66 Sept. 18/70 John W. Papman Dentist 9,000 preferred shares max. SP $1.00 1,000 common" shares 67 Sept c 18/70 Dr. W. R. Morton Physician $10,000-10,000 PV $1. 68 Sept. 22/70 Dr. H. R. Carter Physician 50,000 shares-200 comm< 49,800 preferred NPV Max. S.P. $1.00 69 Sept c 22/70 Michael Balanko Dentist $10,000-10,000 PV $1. No, 70 79 80 81 82 83 84 Sept, 22/70 Dr. R. N. Grant Physician 71 Sspx. 22/70 Dr. R.O. Anderson Physician 72 Sept-, 23/70 Dr. K. E. L e s l i e Dentist 73 S^1?*., 24/70 Dr. S. H. Hsu Physician 74 Sept. 24/70 Dr. H.K. Middleton Dentist 75 Sept.. 24/70 V/. P. Catalano Dentist 76 Sept., 24/70 Dr. C. R. Campin Physician 77 Sept-, 25/70 Dr. W. P. Baldwin B i y s i c i a n 78 Sept. 25/70 Dr. LYG Priesen Physician Sept. 25/70 Dr. C. H. F e l i x Physician Sept.. 28/70 Para River Med. Services Septi\'28/70 Dr. A. D. daman Physician Sept;- 29/7U Dr. J . K. Browne Physician Septa'. 29/70 Dr. D. 3owers Physician Sept. 29/70 Dr. W.D.McDougall Dentist 50,000 shares - 200 •common, 49*800 pref. NPV max. SP $1.00 5Q000 shares - 200 common, 49?800 pref. NPV max. SP $1.00 $49,800-49,800 pref. shares @ $1.00 PV 200 common NPV max. SP $1.00 $49,000-49,000 pref. shares PV $1.00 1000 common NPV $1. $49,800-49,800 pref. shares PV $1.00 200 common NPV max. SP $1.00 $10,000-10,000 shares PV $1.00 $49,800-49,800 pref. shares PV $1.00 200 common NPV max. SP $1.00 $9,000-9,000 non- cumulative redeemable pref. shares PV $1.00 1,000 common $1.00 max. $9,000-9,000 non- cumulative redeemable preferred shares PV $1. 1,000 common $1.00 max. $10,000-100 common 9,900 preferred shares Medicine 10,000 NPV max. $1.00 10,000 NPV max. $1.00 $10,000-10,000 NPV ' max. $1.00 10,000 NPV max. $1.00 $49,000 pref. PV $1.00 1000 common NPV MAX.SI. No, Date Name Profession C a p i t a l i z a t i o n 85 Sept. 29/70 C. W. Wright Ar c h i t e c t 10,000 NPV max. $1.00 86 Sept. 29/70 Dr. J. D. Hough Physician $50,000-1000 common shares PV $1.00 4yo0 .preference PV $10 87 Sept c 29/70 Dr. J. L. S t o l l e r Physician 10,000 NPV max, SP $1. 88 Sept. 29/70 Gi l b e r t Eng Architect 10,000 NPV max. SP $1. 89 Sept. 29/70 Dr. D. M. Shorting Physician $9,900-9,900 pref, @ $1.00 PV 100 ordinary NPV 90 Sept* 29/70 Terence Webb Dentist $49,000-49?000 redeem- 91 92 95 95 96 97 98 99 100 Sept. 30/70 Max. Tenenbien & Co. Sept. 30/70 T. S. oourt Sept. 30/70 Dr. A. B. Mulhollana a/->->-> + ~xr\ /nr\ T T> i.'V.ir C e r t i f i e d Gen. Acc. ,1 II it Physician Dentist Sept. 30/70 Pred Thornton Ar c h i t e c t Hollingsworth Sept. 30/70 Gero Medical Medicine Services Oct. 1/70 Dr. L.K. Williams " & Associates Oct. 6/70 J. H. Bridges Dentist Oct. 6/70 Oct. 6/70 M. Vyas, M.D. Physician. J. Rosenblatt, M.D. Dr. Helson Chew Physician 101 Oct. 7/70 Dr.R.P. Stanley Physician able pref. shares PV $1.00. 1000 NPV common @ $1.00 $10,000-10,000 shares © $1.00 $10,000-10,000 @ $1.00 10,000 NPV max.SP$1.00 $10,000-10,000 @ PV $1.00 10,000 NPV $1.00 10,000 shares NPV max. $1.00 10,000 NPV max.$1.00 $10,000-10,000 shares PV $1.00 10,000 NPV $1.00 $9,000-9,000 non- cumulative redeemable preferred shares PV $1.00 1000 common NPV max. $1.00 $20,000-2,000 redeem, pref. PV $10. 1000 common NPV max. $1.00 Incorporation No. Date Name. Profession C a p i t a l i z a t i o n 102 Oct. 7/70 Dr. E. C. Prevost Physician $9t900-9,900 pref. PV $1.00. 100 ordinar NPV $1.00 103 Oct. 7/70 Dr. W.O. McCauley Physician $20,000-2,000 redeem, pref. shares PV $1.00 1000 common NPV $1.00 104 Oct. 7/70 Dr. N."B. H i r t Physician 10,000 NPV max. SP $1. 105 Oct. 7/70 Dr.. OCL. Gloster Physician $20,000-2,000 redeem. pref. PV $10.00 1,000 NPV common $1.00 106 Oct. 8/70 Dr. W. B. Sipko Dentist $10,000-10,000 @ $1* 107 Oct. 8/70 W. A. Dyck Dentist $10,000-9,000 non-cumulative redeem, pref. $10.00 1000 NPV common $1.00 108 Oct. 8/70 Richard Muscot Dentist $10,000-10,000 PV $1. 109 Oct. 13/70 J.B. Roseborough Dentist $49,800-49,800 pref. @ $1.00 200 common NPH $1.00 110 Oct. 14/70 Dr. W. G. Nic h l Physician $10,000-10,000 @ $1.00 111 Oct. 15/70 0. B. Franklin Dentist $10,000-10,000 © $1.00 112 Oct. 16/70 Dr. J . Dukelow Physician $10,000-10,000 © $1.00 113 Oct. 19/70 G. A. Freeze Dentist 10,000 shares © $1.00 114 Oct. 19/70 Dr. E.N. Hughes Physician $49,800-49,800 pref. PV $1.0.0 200 common NPV max.$l.i 115- Oct. 19/70 H. G. Ac qua Cert. Gen. Acc. $10,000-10,000 @ $1.00 116 Oct. 19/70 Sandman Med. Services Physician $10,000-10,000 @ $1.00 117 Oct. 19/70 Dr. J. Graham Physician/ $49,000-49,000 nref. PV $1.00 1000 common NPV $1.00 118 Oct. 20/70 Dr. Paul Bratty Physician $10,000-10,000 @ $1.00 119 Oct. 21/70 Zolton Martonffy Architects Architect 1000 shares NPV max. $10.00 120 Oct.. 22/70 Dr.W. B i l l i n g - Meyer Physician S9,900-9,900 pref. shares PV $1.00 100 ordinary NPV max.$l No. Incorporation Date Name Profession C a p i t a l i z a t i o n 121 Oct. 22/70 Dr. R. Colledge Physician #15,000-1,000 common .14,000 redeemable preference PV $1.00 122 Oct. 23/70 Dr. Arthur D. Moody " $10,000-10,000 PV $1. 123 Oct. 23/70 Dr. TCM. Mackenzie " $10,000-10,000 © $1.00 124 Oct. 26/70 Dr. P. Kumar Das " $30,000-3,000 redeem, pref. PV $10.00 10,000 common NPV $1. 125 Oct. 26/70 Dr. J.D. Warren " $30,000-3,000 redeem, pref. PV $10.00 10,000 common max„$l. 126 Oct. 26/70 C.B.K. Van Norman & Associates A r c h i t e c t 10,000 NPV @ $1.00 127 Oct. 27/70 K. K. Nishiguchi Dentist $10,000-10,000 common PV $1.00 128 Oct. 27/70 Dr. G. Singh Physician $10,000-10,000 © $1. 129 Oct. 27/70 Pine'Med. Serv. Physicians $10,000-10,000 © $1. 130 Oct. 28/70 Dr. H.J. Shuster Dentist $24,000-24,000 pref.' PV $1.00 1000 common NPV max.$l. 131 Oct. 28/70 Dr. Amir Soltan Physician 10,000 common NPV $1.00 132 Oct. 28/70 Dr. B. E. Cragg Physician $9,900-9,900 pref. shares PV $1.00 100 common NPV $1.00 133 Oct. 29/70 James Cameron Dentist $10,000-10,000 common shares 9000 preferred PV $10. 134 Oct. 29/70 Dr. D. A. Brown Physician 10,000 NPV max. SP $1. 135 Oct. 29/70 Dr. C. P. Holden Physician $50,000-200 common 49,800 pref. A l l PV $1. 136 Oct. 29/70 C o l l i n s & C o l l i n s A r c hitects 10,000 NPV max. S? $1. 137 Oct. 30/70 I. W. Busch " Dentist 10,000 NPV max. S? $1. 138 Oct. 30/70 A. Van Hoek Dentist $20,000-2000 redeem. pref. @ $10.00 1000 common NPV $1.00 139 Oct. 30/70 Dr. J. B. Woodward Physician. $9000-9,000 pref. Class A PV $1. 100 common NPV max. &U00 No. Date Name Profession C a p i t a l i z a t i o n 140 Oct. 30/70 Ross Mathewson Dentist .$10,000-10,000 @ $1. 141 , Oct. 30/70. R.W.0. Hackemann Dentist 200 Class A common 49,800 Class B non- voting NPV max, $1. 142 Oct. 30/70 Dr. Peter A l l e n Physician $49,000-49,000 redeem- able preferred shares PV $1.00 1000 common NPV max. $1.00 143 Oct. 30/70 Dr. T. M. Edworthy " $10,000-10,000 @ $1.00 PV 144 Nov. 2/70 B. B. Berezon Dentist $30,000-3,000 redeem- able pref. PV $1.00 10,000 common NPV $1. 145 Nov o 2/70 Edward Kito Dentist $49»000-49,000 prefo @ $1.00 1000 common NPV max. SP $1.00 146 Nov. 2/70 Dr. T,.E. Greene Physician $10,000-10,000 shares @ $1.00 -»-t / i<iOv • 2/70 Phy s i e i a n $10,000-10,000 Q $1.00 148 Nov. 2/70 P. P. Tofin A r c h i t e c t 10,000 NPV max $1.00 149 Nov. 4/70 Dr. Danny Strub Physician $10,000-10,000,$1.00 PV 150 Nov. 4/70 Dr. N. GelpJ.ce Physician $10,000-10,000 @ PV $1.00 151 Nov. 5/70 P. G. Baker Dentist 10,000 NPV-$1.00 max. 152 Nov. 5/70 Dr. A. N. Gerein Physician $10,000-10,000, $1.00 P-V 153 Nov. 6/70 B. B. Gorbould Lawyer $10,000-10,000 <& $1. 154 Nov. 6/70 D. W. Carmichael Lawyer $10,000-10,000 @ $1. 155 Nov. 6/70 D.D.G. Milne Lawy er $10,000-10,000 @ $1. 156 Nov. 6/70 P.W. Barry & Co. Lav/ye r $10,000-10,000 @ $1. 157 Nov. 6/70 R. J . Hughes Lawyer 50,000 shares 49,900 Class A non~ voting p a r t i c i p a t i n g common5 100 Class B voting non-particip- ating NPV max. SP $1. 158 Nov. 6/70 Michael Kaburda Dentist 159 Nov. 6/70 Michael G. Ol i v e r Lawyer 160 Nov. 6/70 Dr. A. G. Gray Physician 161 Nov, 6/70 162 -Nov. 9/7O 163 Nov. 9/70 164 Nov. 9/70 Dr. P.C.W. Ho Physician Dr. P. S. Moore Dentist D r. H. G. Cooper Physician Dr. L.D. S u l l i v a n " 165 Nov. 9/70 D. R. Williams Lawyer 166 Nov. 9/70 John C. Davie Lawyer 167 Nov, 10/70 Rogers, Majgr Lawyers & Co. 168 Nov. 10/70 Mac Ivor & Co. Lav/yers 169 Nov. 12/70 Dr. E. J. Chan Physician 170 Nov. 16/70 Dr. S.Y. Ekaireb Medicine 171 Nov. 16/70 Dr. K. Tawashy Physician $9,000-9,000 non- cumulative redeem, pref. shares PV $1.00 50,000 shares-49,900 Class A non-voting p a r t i c i p a t i n g common; 100 Class B voting non- p a r t i c i p a t i n g max. $1. $30,000-5,000 77° redeem- able non-cumulative pref. shares PV $10.00 lOO common NPV $10,000-10,000 @ $1.00 $10,000-10,000 @ $1.00 10,000 NPV @ $lo00 $9,000-9,000 non-cumul- ative redeemable pref. shares PV $1.00. 1000 common NPV $1.00 $20,000-2000 redeemable pref. PV $10.00 1000 common NPV $1.00 $20,000-2,000 redeem- able pref. PV $10.00 1000 common NPV $100-100 5$ non-cumul- ative voting preferred shares PV $1.00; 1650 each of Classes A, B, C, D, E, P. A l l non- voting, a l l NPV max. SP $1.00 $20,000-1,000 ordinary shares; 19,000 cumul- ative redeemable &fo pref. shares a l l PV $1. 100 common, 9,900 non- cumulative, non-partic- i p a t i o n Sc/o redeemable pref. shares NPV 10,000 @ $1.00 max. 10,000 & $1.00 max. No., Incorporation Date Name Profession C a p i t a l i z a t i o n 172 Nov. 16/70 Dr, G. Westgate Physician $3.0,000-10,000 @ $1. 173 Nov. 17/70 Dr. P. Robson Physician $10,000-1,000 @ $10. 174 Nov. 18/70 Dr. A. C. McGonigle 11 $50,000-49,800 pref. redeem. Class A, 200 common Class B shares PV $1.00 175 Nov. 18/70 Dr. I . S. Chipperi'ield Physician $10,000-10,000 @ $1. 176 Nov. 18/70 D..K. Waterfall Dentist $20,000-2,000 redeem- able pref. PV $10.00 1000 common NPV 177 Nov. 18/70 J. M. Wilson Chartered Accountant $20,000-2000 redeem, pref. PV $10.00 1000 common NPV 178 Nov. 18/70 D.L. A t c h i s i n Chartered Accountant $20,000-2000 redeem, pref. PV $10.00 1000 common NPV 179 Nov. 19/70 J. K. Phelp Dentist $20,000-2000 redeem, pref. shares PV $10. 180* '.. 181 Nov. 23/70 182 Nov. 28/70 183 Nov. 23/70 184 Nov. 24/70 185 Nov. 24/70 186 Nov. 25/70 187 Nov. 25/70 188 Nov. 25/70 Dr. W. K. Wankling Physician Dr. R.B. Ferguson 11 G. P. Gutman Chartered ~ Accountant A. D. Robinson Dentist Physician 1000 common NPV 10,000 NPV max. $1.00 10,000 NPV max. $1.00 $10,000-10,000 @ $1.00 $20,000-2000 redeem, pref. shares PV $10. 1000 common NPV $10,000-10,000 shares PV $1.00 $9,000-9,000 pref. redeem. PV $1.00 1000 common NPV $1.00 $9,900-9000 pref. PV $1.00.; 100 or din. NPV $10,000-10,000 @ $1.00 •Incorporation Documents Withdrawn No. Date Name Profession C a p i t a l i z a t i o n 189 Nov. 25/70 Dr. G. W. Burgess Physician $5,000-5000 common @ •$1.00; 5000 pref. shares @ $1.00 NPV 19C : ilov. 26/70 W., A. Dawson Chartered Accountant- 10,000 shares NPV $1.00 191 Nov. 26/70 N. D. Knott, MD Physician $10,000-10,000 @ $1.00 192 Nov. 26/70 G. D. Robertson Physician $10,000-5000 Class A Common; 5000 Class B Common, PV $1.00 193 Nov. 26/70 Drs. H.S. & .M r L. M i l l e r Physicians $10,000-10,000 @ $1.00 194 TSDV. 27/70 Dr. A. D. McKenzie • Physician 10,000 shares NPV $1.00 each 195 . Nov. 27/70 R. J . M i l l e r Dentist 10,000 NPV max. $1.00 196 Nov. 30/70 W. G. Donovan Dentist 99,000 non-voting redeem, pref. shares 1000 common NPV $1.00 197 Nov. 30/70 Dr. D. French Physician $10,000-10,000 @ s$i.oo 198 Nov. 30/70 G.D. Gottschling Dentist $10,000-10,000 @ $1.00 199 Nov. 30/70 Dr. V, W. Pepper Physician $10,000-10,000 © $1.00 200 Dec. 1/70 Dr. D. 3. Tee Physician $10,000-100 PV $100.00 201 Dec. 2/70 Dr. J . Tercester Physician 10,000 shares max. SP $1.00 202 X'ec. 2/70 Dr. P. E. McNair Physician 10,000 NPV max. SP $1. 203 JDec. 7/70 Dr. M. R. Turton Physician $10,000-10^000 shares PV $1.00 204 Dec. 4/70 Dr. G. H. Thompson " $30,000-1000 common, 29,000 pref. PV $1.00 205 Dec. 4/70 Mayallo Med. Services Physicians $10,000-10,000 shares PV $1.00 206 ,vJ3&o. 4/70 Dr. T. P. Wilkie Physician 10,000 shares PV $1.00 207 Dec. 7/70 Dr. R. A. Ewert Physician. $10,000-10,000 PV $1. 208 .Ue'c. 7/70 Jenel Medical Services Physicians 10 common shares, 25,000 pref. redeem., non- cumulative,' non-voting NPV max. SP $1.00 Incorporation N o D a t e Name Profession C ap i t a l i za t ion 209* 210 Dec * 9/70 Dr. W. D. Sutherland Phys. $9,000-9,000 non- cumulative redeem, pref..PV $1.00 211 Dec. 9/70 Dr. M.J.Rc L e i t c h Dentist $10,000-100 common 9,900 pref., non- cumulative redeemable PV $1.00 212 Dec, 10/70 Dr. P. J. Banks Physician 50,000-200 common, 49,800 pref., NPV max. SP $1.00 213 Dec. 10/70 Dr. S. E. Evans Physician $10,000-10,000 @ $10 214 * • Dec. 10/70 Dr. R. E. Gosling 11 215 Dec o 10/70 Dr. K. A. Tilu c h Physician $10,000-10,000 PV $1. 216 Dec . 11/70 Victor Harris Accountant $10,000-10,000 PV $1, 217 Dec, 11/70 James Brown Chartered Accountant 10,000 common NVP max. SP $1.00 C.J.O JU«C O 11/70 S. Buksa Xiij OJ.ui.cul q-T A A A A "1 A A A A rrt <»T 219 Dec. 11/70 Dr. P. J . Carson Physician $10,000-10,000 common PV $1.00 220 Dec. 11/70 Dr. M. J. Smart Physician $10,000-10,000 shares PV $1.00 221 Dec. 11/70 Dr. G. W. Teve l l Physician $10,000-10,000 shares @ $1.00 222 Dec. 16/70 Peter P u l l e r A r c h i t e c t 1,000 NPV max. SP $1.00 223 Dec. 22/70 H. B. Hancock Chartered Accountant $20,000-2000 redeem, pref. PV $10.00; 1000 NPV common max. SP $1.00 224 Dec. 31/70 H.B . Gharibians Physiotherapist $10,000-10,000 common PV $1.00 225 Jan. 6/71 L. T. Salloum Lawyer 10,000 max. SP $1.00 226 Jan. 6/71 J. C. Do ale Lawyer $10,000-10,000 shares •DTr <n A A •Incorporation Documents Withdrawn 227 Jan. 6/71 P. N. Thorsteinsson Lawyer 228 Jan. 6/71 W.J.A. M i t c h e l l Lawyer 229 Peb. 3/71 T. A. Lib e r t y Physio- therapist 230 Peb. 5/71 W. R. Ramage 231 Peb. 24/71 Peter Watts 232 Mar. 3/71 233 Mar 3/71 234 Mar. 11/71 N. Mi Goldman M. Go Kemp Dr. C.. G. Stephenson 235* 236 Mar. 19/71 Dr. K. Berry C e r t i f i e d General Accountant Lawyer Lawyer Lawyer Physician Physician $10,000-10,000 shares PV $1.00 $10,000-10,000 PV $1.00; $9,900-99 non-voting redeem, pref. shares PV $100.00; 100 common NPV max. SP $1.00 $10,000-10,000 shares PV $1.00 $9,000-9,000 non- cumulative redeem. Pref. PV $1.00; 1000 common NPV max. SP $1. 10,000 NPV max. SP $1. 10,000 NPV max. SP $1. $30,000-3000 redeem, pref. PV $10.00 10,000 common max. SP $1.00 10,000 NPV shares max. SP $1.00 ^Incorporation Documents Withdrawn A l l information obtained from B r i t i s h Columbia Gazette APPENDIX c :\B AND REGISTERED j • • . CERTIFIED A TRUE COPY • " p ,4. H. HALL J ^l£iij_UXJ-Ul. iTGJSTttAtf O/* C O M P A N I E S « f > A \ ! ' T ' 7 r n ! T ' n T ; ' x ' 1 . • • • . • » • . . . i . . . . . . . . . . . . . . . . . . Registrar of Comp."i;)c.i for (lie Province ot B r i t i s h Columbia 1 s t . The name o f the p r o f e s s i o n a l c o r p o r a t i o n i s "PETER WATTS, A PROFESSIONAL CORPORATION". 2nd. The r e g i s t e r e d o f f i c e o f t h e p r o f e s s i o n a l c o r p - o r a t i o n w i l l be s i t u a t e , i n t h e C i t y o f Vancouver, P r o v i n c e of B r i t i s h C o l u m b i a , 3 r d . The o b j e c t s f o r which t h e p r o f e s s i o n a l c o r p o r a - t i o n i s e s t a b l i s h e d i s t o p r a c t i s e t h e p r o f e s s i o n o f B a r r i s t e r and S o l i c i t o r . . . Mth. None o f t h e powers a u t h o r i z e d by S e c t i o n 2 2 o f the Companies A c t i d ' h e r e b y e x c l u d e d , e x c e p t " t o t h e e x t e n t t h a t any o f th o s e powers a r e i n c o n s i s t e n t w i t h t h e p r o v i s i o n s of t h e P r o f e s s i o n a l C o r p o r a t i o n s A c t . 5 t h . The a u t h o r i z e d ' c a p i t a l o f t h e p r o f e s s i o n a l c o r p o r a t i o n i s Nine Thousand D o l l a r s ($9,000.00) d i v i d e d i n t o Nine Thousand (9 ,000) n o n - c u m u l a t i v e , redeemable P).">ef erence s h a r e s w i t h a nom i n a l o r p a r v a l u e o f $1.0 0 each and such P r e f e r e n c e s h a r e s s h a l l have a t t a c h e d t h e r e t o t he s p e c i a l r i g h t s and r e s t r i c t i o n s s e t f o r t h i n t h e By-Laws. 6 t h . " The P r o f e s s i o n a l C o r p o r a t i o n i s a l s o a u t h o r i z e d t o i s s u e One Thousand (1,000) Common s h a r e s w i t h o u t n o m i n a l o r . p a r v a l u e , and t h e c a p i t a l of t h e P r o f e s s i o n a l C o r p o r a t i o n s h a l l w i t h r e s p e c t t o t h o s e s h a r e s be a t l e a s t e q u a l t o the ag g r e g a t e amount p a i d t o the P r o f e s s i o n a l C o r p o r a t i o n on o r f o r such o f t h o s e s h a r e s as a r e i s s u e d , t o g e t h e r w i t h such amounts as may from t i m e t o time bo added by o r d i n a r y . r e s o l u - t i o n t o such c a p i t a l arid t h e maximum p r i c e o r c o n s i d e r a t i o n CERTIFIED A TRUE COPY ILED-AND" REGISTERS j FEB 24 1971 f " P R 0 F E S S I 0 M L CORPORATIONS ACT" M I s I Kegisirar of Companies A, H. HALM* I ior A« Province of British Columbia ^zmrtzAR or COMPANY* of PETER WATTS» A PROFESSIONAL CORPORATION PRELIMINARY . 1. . I n these r e g u l a t i o n s , unless the context otherwise r e q u i r e s , expressions, defined i n the "Companies Act" or i n the " P r o f e s s i o n a l Corporations .Act" , or any statutory modifi- cation thereof i n force at the date at which these regulations become binding on the Company, s h a l l have the meanings so de- f i n e d ; and words importing the s i n g u l a r s h a l l include the p l u r a l , and vice versa, and words importing the masculine gender s h a l l include females, and words importing persons s h a l l include bodies corporate. 2. Table "A" of the "Companies Act" s h a l l not apply to the Company. SHARES . 3. ( a ) E x c e p t as p r o v i d e d i n t h e " P r o f e s s i o n a l C o r p o r a - t i o n s A c t " , no s h a r e s o f t h e Company, n o r any l e g a l n o r equit- a b l e i n a er - : : s t t luTon.n, may be i s s u e d , t r a n s f e r r e d o r t r a i n s - . m i t t e d t o or' h e l d by any p e r s o n o t h e r i.h.an a p e r s o n l a w f u l l y e n t i t l e d t o p r a c t i s e t h e p r o f e s s i o n i n r e s p e c t o f w h i c h t h e Company i s i n c o r p o r a t e d . •* (b) Subject to the provisions of the "Professional Corporations Act", the shares s h a l l be under the c o n t r o l of the d i r e c t o r s who may a l l o t or otherwise .dispose of the same at such times and to such persons and i n such manner.and upon such terms as they think proper and i n p a r t i c u l a r , without l i m i t i n g the gen e r a l i t y of the foregoing, the d i r e c t o r s may a l l o t shares to d i r e c t o r s , o f f i c e r s , or employees at such price or prices an'd upon such terms as the di r e c t o r s may determine. (c) Subject to the provisions of the "Professional Corporations Act", the d i r e c t o r s may grant opitons to purchase shares to any person f o r such consideration and f o r such p r i c e or p r i c e s and upon such terms as the d i r e c t o r s may determine. (d) Any shares having a nominal or par value may be issued at the nominal value thereof as f u l l y or as p a r t l y paid shares 'as the consideration or part consideration f o r any property acquired by, or work done f o r , or o b l i g a t i o n undertaken f o r the Company, or at such premium as the d i r e c t o r s may think f i t . 4. Every member s h a l l , without payment, be e n t i t l e d to a c e r t i f i c a t e under the common seal of the Company containing the statements required by the "Companies Act" and the "Professional Corporations Act" provided that no share s h a l l be held by or r e g i s t e r e d i n the name of more than one person. 5. I f a share c e r t i f i c a t e , i s defaced, l o s t or destroyed, i t may be renewed on payment of such fee ( i f any) and on such terms ( i f any.) as to evidence and indemnity as the d i r e c t o r s think f i t . 6. The r i g h t to t r a n s f e r shares i s r e s t r i c t e d as provided by the By-laws. DEBENTURES 1, Debentures, debenture stock, bonds, or other s e c u r i t i e s may be made assignable free from any eq u i t i e s between the Company and the person"to whom the same may be issued. Any debentures, debenture stock, bonds, or other s e c u r i t i e s may be issued at a discount, premium or otherwise, and with any s p e c i a l p r i v i l e g e s as to redemption, surrender, drawings, allotment of -.shares, attending and voting at general meetings of the Company, -appointment of d i r e c t o r s or otherwise, subject to the provisions of the "Pro f e s s i o n a l Corporations -Act". • CALLS ON SHARES 8. •:• (a) The d i r e c t o r s may, from time to time, make such c a l l s -as they think f i t upon the members i n respect of a l l moneys unpaid on the shares held by them r e s p e c t i v e l y , and not by the conditions of allotment thereof made payable at fi x e d times, and each member s h a l l pay the amount of every c a l l so made on him to the persons, and at the times and places appointed by the d i r e c t o r s and upon such terms as the d i r e c t o r s may determine. A c a l l may be made payable by instalments. (b) A c a l l s h a l l be deemed to have been made at the time when the r e s o l u t i o n of the d i r e c t o r s authorizing such c a l l was passed. FORFEITURE OF SHARES 9. I f a member f a i l s to pay any c a l l or instalment of a c a l l on or before the. day appointed for*-the payment thereof, the d i r e c t o r s may, at any time thereafter during such time as any part of such c a l l or instalment remains unpaid, serve a notice -on him r e q u i r i n g payment of so much of the c a l l or instalment as i s unpaid, together with any interest--which may have accrued and a l l expenses that may have been incurred by the Company by reason of such non-payment. 10. Such notice s h a l l name a f u r t h e r day (not e a r l i e r -"than the e x p i r a t i o n of fourteen days from the date of the notice) -on or before -which the payment required by the notice i s to •be .made, and s h a l l state that i n the event of non-payment at or ^before the time appointed the shares i n respect of which the - c a l l was made, or instalment was-due, w i l l be l i a b l e to be " f o r f e i t e d . -11.. . I f the requirements of any such notice as aforesaid •are not complied with, any share i n respect of which the notice has been given may at any time t h e r e a f t e r , before the payment required by the notice has been made, be f o r f e i t e d by a reso- l u t i o n of the d i r e c t o r s to that e f f e c t . Such f o r f e i t u r e s h a l l include a l l dividends declared In respect of the f o r f e i t e d shares and not a c t u a l l y paid before the f o r f e i t u r e . 12. A f o r f e i t e d share may be sold or otherwise disposed of on such terms and i n such manner as the d i r e c t o r s think f i t , and at any time before a sale or d i s p o s t i o n the f o r f e i t u r e may be cancelled on such terms as the d i r e c t o r s think f i t , subject to the provisions of the "Professional Corporations Act". .13. A person whose shares have been f o r f e i t e d s h a l l cease to be a member in respect of .the f o r f e i t e d shares. l ' l . Any member1 whose shares have been f o r f e i t e d s h a l l , notwithstanding, be l i a b l e to pay,.and s h a l l forthwith pay to the Company a l l c a l l s , instalments, i n t e r e s t and expenses owing upon or i n respect of such shares at the time of the f o r f e i t u r e , together-.with i n t e r e s t thereon, from the time of f o r f e i t u r e u n t i l payment of ten per cent (10i>) per annum, and the d i r e c t o r s cinay enforce the payment thereof i f they think f i t , but s h a l l be -under no o b l i g a t i o n to do so. 15. A statutory d e c l a r a t i o n i n w r i t i n g that the declara<nt i s a d i r e c t o r of the Company, and that a share i n the Company has been duly f o r f e i t e d on a date stated i n the d e c l a r a t i o n , ;shall be conclusive evidence of the facts therein stated as .^against a l l persons claiming to be e n t i t l e d to the share, and .that d e c l a r a t i o n , and the r e c e i p t of the Company f o r the con- s i d e r a t i o n ( i f any) given f o r -the share on the sale or dispos- i t i o n thereof, s h a l l constitute, a good t i t l e to the share, and •the person to whom the share i s sold or disposed of s h a l l be r e g i s t e r e d as the holder of the share and s h a l l not be bound to .see to the a p p l i c a t i o n of the purchase-money ( i f any), nor s h a l l h i s t i t l e to the share be affected by any i r r e g u l a r i t y or i n v a l i d i t y i n the proceedings i n reference to the f o r f e i t u r e , s a l e , or disp o s a l of the share. TRANSFER AND TRANSMISSION OF SHARES 16. The instrument of t r a n s f e r of any share i n the Company s h a l l be executed by the t r a n s f e r o r , and the t r a n s f e r o r s h a l l be deemed to remain the holder of such share u n t i l the name of the transferee i s entered i n the r e g i s t e r i n respect thereof.' In the case of a t r a n s f e r of a share not f u l l y paid-up, the t r a n s f e r s h a l l contain an acceptance by the transferee of the share and be executed by the transferee. 17. Subject to such r e s t r i c t i o n s of these By-laws as may be a p p l i c a b l e , the instrument of t r a n s f e r of any share in the Company s h a l l be in such usual or common form as the d i r e c t o r s s h a l l approve. 18. The d i r e c t o r s may, i n t h e i r absolute d i s c r e t i o n , T - i •*•> o -4- -v-» A T -l -v-» — i *-% * ». -4-vi —> T-I ^ /-»>~» /—\ •{*" »-» V* —> v i r i T""\ n ) •< ,n "1 "1 Y"V "f" V\ iO U C - ^ J . x i i L x v^ -^ j -o c \— x U . J i j y u x U i U i . x O J L j i i u i Cxi i L * O J I U X J . J i v U J J ^ obliged to d i s c l o s e the reasons the r e f o r . ..19. ;The d i r e c t o r s may decline to recognize any instrument iOf t r a n s f e r unless:- ;(a) A fee not exceeding $1.00 i s paid to the •Company i n respect thereof; and (b) -The instrument of tr a n s f e r i s accompanied -by the c e r t i f i c a t e of shares to -which i t r e l a t e s , and such other evidence as the ^directors may reasonably require "to show the r i g h t of the tr a n s f e r o r to make the t r a n s f e r . * •• •• 20. The executors or administrators of a.deceased holder of a share s h a l l be the only persons recognized by the Company as having t i t l e to the share. 21. Any person becoming e n t i t l e d to a share i n consequence of the death of a member s h a l l , upon such evidence being produced as may from time to time be required by the d i r e c t o r s , have the r i g h t to make such t r a n s f e r of the share as the 'deceased could have made; but the d i r e c t o r s s h a l l have the same r i g h t to decline or suspend r e g i s t r a t i o n as they would have had i n the case of a t r a n s f e r of the share by the deceased person before his death. 22. A person becoming e n t i t l e d to a share by reason of the death of the holder s h a l l be e n t i t l e d to the same dividends .and other advantages to which he would, be e n t i t l e d i f he were • the registered holder of the share, except that he s h a l l not, before, being registered as a member i n respect of the share, ~ G be e n t i t l e d i n respect of i t to exercise any r i g h t conferred by membership i n r e l a t i o n to meetings of the Company/ 23. (a) The person proposing to t r a n s f e r any shares (here- i n a f t e r c a l l e d the "Proposing Transferor") (which expression s h a l l include the l e g a l personal representative of a deceased shareholder) s h a l l give notice i n w r i t i n g (hereinafter c a l l e d the "Transfer Notice") to the Company that he desires to tran s f e r . t h e same. Such t r a n s f e r notice s h a l l s p e cify the p r i c e and the terms of payment upon which he i s prepared to tr a n s f e r the shares and s h a l l c o n s t i t u t e the Company his agent for the sale of the shares to any member of the Company at the p r i c e and upon the terms of payment so s p e c i f i e d . The Transfer Notice s h a l l also state whether or not the Proposing Transferor has had an o f f e r to purchase the shares or any of them from, or proposes to s e l l the shares or any of them to any person (here i n a f t e r c a l l e d the "Prospective Purchaser"). and, i f so, the name and address of such person s h a l l be s p e c i f i e d i n the Transfer Notice. The Transfer Notice s h a l l not be revocable except with the sanction of the d i r e c t o r s . (b) The Company s h a l l , within fourteen days from the r e c e i p t of the Transfer Notice, i n the f i r s t place, o f f e r the share or shares r e f e r r e d to i n the Transfer Notice to the members other than the Proposing Transferor as nearly as may be i n proportion to the e x i s t i n g shares held by them respect- i v e l y and the o f f e r s h a l l l i m i t the time to t h i r t y days within which the same i f not accepted w i l l be deemed to be declined and s h a l l n o t i f y the members that any member who desires to purchase any number of shares i n excess of his proportion should i n his • r e p l y , state how many excess shares he desires to have and i f a l l the members do not claim t h e i r proportions or claim less than t h e i r proportions the unclaimed shares s h a l l be used .for s a t i s f y i n g the claims i n excess i n proportion to the •number of shares held. (c) I f the Company s h a l l within the space of f o r t y - f o u r days a f t e r being served with such n o t i c e , f i n d a member or members w i l l i n g to purchase the share or shares (hereinafter -called the "Purchasing Member or Members"), the Company s h a l l -give notice thereof to the Proposing Transferor who s h a l l be bound upon payment of the purchase p r i c e to t r a n s f e r the shares -to the Purchasing Member or Members. Provided that the o f f e r -'shall be deemed to be declined and the Proposing Transferor .shall not be bound to t r a n s f e r any shares unless the Purchasing "Member or Members agree to purchase a l l of the shares offered. Cd) I f the Proposing Transferor a f t e r having become bound --to t r a n s f e r -all-of the shares -offered as aforesaid makes default i n t r a n s f e r r i n g the shares, or any of them, the Company may ^receive the purchase money and ;shall thereupon cause the name of the Purchasing Member or Members to be entered i n the r e g i s t e r -as the holder of the share or shares and s h a l l hold the purchase money i n t r u s t f o r the Proposing Transferor. The r e c e i p t of the Company f o r the purchase money s h a l l be a good discharge to the Purchasing Member or Members and a f t e r h is name has been entered i n the r e g i s t e r i n purported exercise of the aforesaid power the v a l i d i t y of the proceedings•shall not be questioned by any person. (e) I f the Company s h a l l not, within the space of f o r t y - four days a f t e r being served with the Transfer Notice, f i n d a member or members w i l l i n g to purchase a l l of the shares offered and give notice i n manner af o r e s a i d , the Proposing Transferor s h a l l at any time within s i x t y days thereafter be at l i b e r t y to s e l l and t r a n s f e r such of the shares as s h a l l not have been t r a n s f e r r e d • t o the Purchasing Member or Members, to the Prospective Purchaser ( i f any) named i n the t r a n s f e r notice or i f no such Prospective Purchaser i s named i n the Transfer .Notice, to .any person and at any pri c e not less than or terms le s s favourable than the p r i c e and terms at which the •said shares were offered In the Transfer Notice, provided .always that any such Prospective Purchaser or person, s h a l l be a person or Pro f e s s i o n a l Corporation l a w f u l l y e n t i t l e d t o p r a c t i s e the profession i n respect of which the Company i s -incorporated. ( f ) Notwithstanding the provisions of By-law 2 3 -aforesaid, upon the c a n c e l l a t i o n or suspension of authority -to p r a c t i s e of a member of the Company, the remaining members of the Company s h a l l , within six months of such c a n c e l l a t i o n :or suspension, purchase the members' shares as nearly as may be In proportion to the shares held by them r e s p e c t i v e l y and s h a l l pay to the former member the f a i r market value of his .shares as at the date of such suspension or c a n c e l l a t i o n . In the. event that a suspended or cancelled member does not agree with the value f i x e d by the remaining members f o r the purchase of h i s shares, the matter may be submitted by ei t h e r party to a r b i t r a t i o n to determine the value of the cancelled _.or suspended members' shares, and the provisions of the A r b i t r a t i o n Act s h a l l apply. In the event of such c a n c e l l a t i o n or suspension where the company has only one member, the Company s h a l l immediately cease to carry on the pr o f e s s i o n a l services, i n respect of which i t was incorporated unless and u n t i l the shares of the Company are purchased by a person l a w f u l l y e n t i t l e d to p r a c t i s e the profession formerly practised by •the company. (g) Nothing in. t h i s By-law s h a l l r e s t r i c t the r i g h t of the d i r e c t o r s under By-law 18 and IS hereof to decline to r e g i s t e r or to,suspend r e g i s t r a t i o n of any t r a n s f e r of -shares. • ; ' ALTERATION"OF CAPITAL AND SHARES .24. The d i r e c t o r s may, with the sanction of an ordinary -resolution, increase the authorized c a p i t a l by such sum, to be divided i n t o shares of such amount, as the r e s o l u t i o n s h a l l p r e s c r i b e , .or, i f the Company i s • authorized- to issue shares ^without nominal or par value, the number of such shares. • 2 5 . The new shares s h a l l be subject to the same provisions swith'reference to the payment of c a l l s , t r a n s f e r , transmission, f o r f e i t u r e , and otherwise as the e x i s t i n g shares i n the Company. 26. "whenever the c a p i t a l of the Company by reason of the .issue of preference shares or otherwise, i s divided into, c lasses of shares, a l l or any of the r i g h t s and p r i v i l e g e s attached to each class may be modified by agreement between the Company and any person purporting to contract on behalf of that c l a s s , and such agreement s h a l l be binding on'the whole of the shareholders of that class" provided such agreement i s r a t i f i e d i n wri t i n g by the holders of at l e a s t three-fourths of the issued shares of that c l a s s , or i s confirmed by a s p e c i a l r e s o l u t i o n passed at a separate general meeting of the holders of shares of that c l a s s , and a l l the provisions r e l a t i n g to general meetings s h a l l , mutatis mutandis, apply to e v e r y such meeting, but so that the quorum,thereof s h a l l be members holding, or representing by proxy, three-fourths of the nominal amount of the issued' shares of that c l a s s . . 27, Pursuant to the provisions of the "Professional Corporations Act", the.Company may o f f e r to purchase a l l or . any of i t s issued and outstanding shares from such members as the d i r e c t o r s may determine and the p r i c e paid f o r any such .shares s h a l l be agreed upon between.the d i r e c t o r s and the offeree.. ' . '. .. t GENERAL MEETINGS .. .28. The f i r s t annual general meeting s h a l l be held w i t h i n eighteen months from the date of incorporation, and •thereafter an annual general meeting s h a l l be held once i n .-every calendar year at such time (not being more than f i f t e e n months a f t e r the holding of the l a s t preceding annual general -meeting) and place as may be prescribed by the d i r e c t o r s , or, i n d e f a u l t , at such time i n the month following that i n -which the anniversary of the Company's incorporation occurs, and at such place as the d i r e c t o r s s h a l l appoint. In default of the meeting being so held, the meeting s h a l l be held i n the month next f o l l o w i n g , and may be convened by any member i n the same manner as nearly as possible as that i n which -meetings are to be convened by the d i r e c t o r s . 29. The annual general meetings s h a l l be c a l l e d ordinary general meetings; a l l other general meetings s h a l l be c a l l e d extraordinary general meetings. 30. The d i r e c t o r s may, whenever they think f i t , convene an extraordinary general meeting, and an extraordinary general meeting s h a l l so be convened on such r e q u i s i t i o n , or, i n d e f a u l t , may be convened by such r e q u i s i t i o n i s t s , as provided by the "Companies Act", I f at any time there are not within - 11 ~ 1 the Province s u f f i c i e n t d i r e c t o r s capable of acting to form a quorum, any d i r e c t o r or any member of the Company may convene :an extraordinary general meeting i n the same manner as nearly ,as ..possible as that i n which meetings may'be convened by the d i r e c t o r s . 31. Not l e s s than fourteen days' notice of a general meeting at which a s p e c i a l r e s o l u t i o n i s to be proposed, ^and not less than seven days' notice of any other general ^meeting (exclusive of the day on which the notice i s given), ^ s p e c i f y i n g the place, the day, and the hour of meeting, and, '••in-case of s p e c i a l business, the general nature of that business, s h a l l be given i n manner he r e i n a f t e r mentioned, or ..in such other manner ( i f any) as may be prescribed by ordinary r e s o l u t i o n , whether previous notice thereof has been given or >not, to such persons as are, under the regulations of the 'Company, e n t i t l e d to receive such notices from the Company; but-the non-receipt of the notice by any member s h a l l not i n v a l i d a t e the proceedings at any general meeting PROVIDED HOWEVER, that i n the event of a Company having only one ( 1 ) member, no notice aforesaid s h a l l be required. 3 2 . At any general meeting, i f a l l the members of the Company are present, the said members may waive the necessity of the g i v i n g of any previous notice of such meeting, and an entry i n the minute book of such waiver s h a l l be s u f f i c i e n t evidence of the due convening-of the meeting. ,-33. ATI-business s h a l l be .deemed s p e c i a l that i s •transacted at an extraordinary meeting and a l l that i s transacted at an ordinary meeting, with'the exception of -sanctioning a dividend, the consideration of the f i n a n c i a l -statements presented by the d i r e c t o r s , and the ordinary report o f the d i r e c t o r s and audit o r s , the e l e c t i o n of d i r e c t o r s and the appointment of and f i x i n g -of the remuneration of the -auditors. v . • "34. . No business s h a l l be transacted at any general meeting unless a quorum of members i s present at the time when the ^meeting proceeds to business; persons not being less than one (1) i n number and holding or representing by proxy a majority , of the issued shares s h a l l c o n s t i t u t e a quorum. 35. I f with i n h a l f an hour from the time appointed for the meeting a quorum i s not present, the meeting, i f convened upon the r e q u i s i t i o n of members, s h a l l be d i s s o l v e d ; i n any other case i t s h a l l stand adjourned to the same day i n the next week, at the same time and place, and, i f at the adjourned meeting a quorum i s not present within h a l f an hour from the time appointed f o r the meeting, the members present s h a l l be a quorum. « 36. The president, or, i n h i s absence, the v i c e - president ( i f any) of the Company s h a l l preside as Chairman at every general meeting of the Company. 37. I f there i s no president or vice-president,,or i f at any meeting e i t h e r the president or vice-president i s mot present within f i f t e e n minutes a f t e r the time appointed -^for holding the meeting or i s unw i l l i n g to act as chairman, •the members present and e n t i t l e d to vote s h a l l choose some one -•of t h e i r number to be chairman. ^ * .38. The Chairman, may.with the consent of any meeting •at which a quorum i s present (and s h a l l i f so direc t e d by the meeting) adjourn the meeting from time to time and from place "to place, but no business s h a l l be transacted at.any adjourned --^meeting other than the business l e f t unfinished at the meeting :from which the adjournment took place. When a meeting i s adjourned f o r twenty-one days or more, notice of the adjourned -meeting s h a l l be given as i n the case of an o r i g i n a l meeting. Save as a f o r e s a i d , i t s h a l l not be necessary to give notice of an adjournment or of the business to be transacted at an adjourned meeting. 39. At any general meeting a r e s o l u t i o n put to the vote of the meeting s h a l l be decided by a vote i n accordance with the provis i o n s of the "Companies Act" and, where the vote i s by show of hands, a d e c l a r a t i o n by the chairman that a r e s o l u t i o n has, on a show of hands, been c a r r i e d , or c a r r i e d unanimously, or by a p a r t i c u l a r majority, or l o s t , and an entry thereof i n the book of the proceedings of the Company s h a l l be conclusive evidence of the f a c t , without proof of the number of pro- p o r t i o n of the votes•recorded i n favour of, or against, that r e s o l u t i o n . • . •40. A p o l l demanded on the e l e c t i o n of a chairman, or ?on a question of adjournment, s h a l l be taken forthwith. 41. -Subject to By-law 40 hereof i f a vote i s by p o l l i t .shall be taken forthwith, or on a r e s o l u t i o n , passed by a majority of those present i n person, or by proxy f o r a member, ^entitled to vote, within seven days and i n such manner as .the chairman d i r e c t s , and the r e s u l t of the p o l l s h a l l be •deemed to be the'Resolution of the meeting at which the p o l l .was demanded. VOTES OF MEMBERS 42. Subject to the provisions of the Con s t i t u t i o n and of these By-laws applicable to any shares issued under conditions l i m i t i n g or excluding the r i g h t of holders thereof to -vote at general meetings, upon a show of hands every member present i n person, or by proxy, -and holding at lea s t one share at that time carrying the r i g h t to vote, s h a l l have one vote. On a p o l l every member present i n person, or by proxy, and holding at l e a s t one share at that time carrying a . r i g h t to vote s h a l l have one vote f o r each such share held by him. 43. order lias A member of unsound mind, or i n respect of been made by any Court having j u r i s d i c t i o n whom an in lunacy, may v o t e , . i f otherwise e n t i t l e d , whether on a show of hands -or on a p o l l , by his committee, or other person i n the nature -of a committee appointed by that Court, and any such committee -or other person may, on a p o l l , vote by proxy. *44. No member s h a l l be e n t i t l e d to vote at any general -meeting unless a l l c a l l s presently payable by him i n respect o f shares i n the Company have been paid. -45. (a) In the case of an i n d i v i d u a l member, votes vmay be given e i t h e r personally or by proxy, (b) In the case of a corporate member which i s . a P r o f e s s i o n a l Corporation, votes may be •given e i t h e r by proxy or by i t s representative, •duly appointed by r e s o l u t i o n of i t s Board •of D i r e c t o r s , who s h a l l be e n t i t l e d to act i n a l l respects, and be considered f o r a l l purposes as a member holding the shares at that time held by his corporate appointor subject to the provisions of the "Professional Corporations Act". 46. The instrument appointing a proxy s h a l l be i n wri t i n g under the hand of the appointor or of his attorney duly author- i z e d i n w r i t i n g , or, i f the appointor i s a Pr o f e s s i o n a l Corporation,, e i t h e r under the common seal or under the hand of an o f f i c e r or attorney so authorized. Only persons who are members may' act as a proxy i f duly appointed i n the manner af o r e s a i d . 47. • (a) The instrument appointing a proxy and the power of attorney or other authority ( i f any) • under which i t i s signed, or a n o t a r i a l l y c e r t i f i e d copy of that power or authority s h a l l be deposited at the r e g i s t e r e d o f f i c e of the Company not les s than f o r t y - e i g h t hours before the time f o r holding the meeting at which the person named i n the instrument pro- poses to vote, or s h a l l be deposited with the chairman of the meeting any time p r i o r to the commencement of the meeting, and i n default •the instrument of proxy s h a l l not be treated as v a l i d . (b) A vote given i n accordance with the terms of an instrument of proxy s h a l l be v a l i d notwith- standing the previous death of the p r i n c i p a l , or revocation of the proxy, or t r a n s f e r of the share i n respect of which the vote i s given, provided no inti m a t i o n i n w r i t i n g of the death, revocation or t r a n s f e r s h a l l have been received at the o f f i c e of the Company or by the chairman of the meeting before the vote i s given. 48. An instrument appointing a proxy may be i n the following form, or i n any other form which the d i r e c t o r s s h a l l approve :- I . . , of i n the Province of being a member of , hereby appoint , of being a member of , or him f a i l i n g • of being a member of , as my proxy to vote f o r me and on my behalf at the (ordinary or extra-ordinary as the case may be) general meeting of the Company to be held on the day of , and at any adjournment, thereof. Signed t h i s day of Witness: "OFFICERS MS. , A l l o f f i c e r s of the Company s h a l l be persons e n t i t l e d t o p r a c t i s e the profession i n respect of which the Company i s incorporated. 50. In the event the Company has only one member, that -member may be a l l or any of the o f f i c e r s of the Company. DIRECTORS 51. The number and names of the f i r s t d i r e c t o r s may be determined i n w r i t i n g by a majority of'the subscribers of the C o n s t i t u t i o n , and, u n t i l so determined, the subscribers of the Con s t i t u t i o n .shall for a l l purposes be deemed to be the d i r e c t o r s of the Company. 52. The remuneration of the d i r e c t o r s s h a l l to time be determined by ordinary r e s o l u t i o n , whe previous notice thereof has been given' or not. from time ther 53. No d i r e c t o r s h a l l be required to hold a share i n the Company as q u a l i f i c a t i o n for h i s o f f i c e , PROVIDED HOWEVER,- ti.at a l l Directors s h a l l be persons e n t i t l e d to pr a c t i s e the profession i n respect of which the Company i s incorporated. • , • •' ' POWERS AND DUTIES OF DIRECTORS 54. The business and a f f a i r s of the Company s h a l l be under the c o n t r o l and- d i r e c t i o n of a Board of not le s s than one d i r e c t o r who may pay a l l expenses incurred i n get t i n g up and r e g i s t e r i n g the Company, and may exercise a l l such powers of the Company as are not, by the "Companies Act" or the "Pro f e s s i o n a l Corporations Act", or any statutory modification thereof f o r the time being i n force, or by these By-laws, required to be exercised by the Company i n general meeting, subject nevertheless to any regula t i o n of these By-laws, to the provisions of the said Act, and to such r e g u l a t i o n s , being not inco n s i s t e n t with the aforesaid regulations or p r o v i s i o n s , as may be prescribed by ordinary r e s o l u t i o n , whether previous notice thereof has been'given or not; but no reg u l a t i o n made by ordinary r e s o l u t i o n s h a l l i n v a l i d a t e any p r i o r act of the d i r e c t o r s that would have been v a l i d i f that regulation,had not been made. 55. The d i r e c t o r s s h a l l duly comply with the provisions of the "Companies Act", and the "Professional Corporations Act", or any statutory modification thereof f o r the time being i n force, and i n p a r t i c u l a r with the provisions i n regard to the r e g i s t r a t i o n - of mortgages, and to keeping r e g i s t e r s of Directors and members, and to f i l i n g with the . Registrar of Companies an annual report and copies of s p e c i a l and other r e s o l u t i o n s , returns of allotments of shares, and of any change i n the registered o f f i c e or of : d i r e c t o r s . S6. "The d i r e c t o r s s h a l l .cause minutes to be made i n ibooks provided f o r the purpose:- (a) Of a l l appointments of o f f i c e r s made by the d i r e c t o r s ; ;(b) Of the names of the d i r e c t o r s present at each -meeting of the d i r e c t o r s and of any committee of ,«the d i r e c t o r s ; (c) -Of - a l l r e s o l u t i o n s -and proceedings at a l l meetings of the Company, and of the d i r e c t o r s , and of "• ' -committees of d i r e c t o r s . SEAL 57. The d i r e c t o r s s h a l l provide f o r the safe custody of Jthe. common seal of the Company which s h a l l not be a f f i x e d to any instrument except i n the presence of:- (a) the President or Secretary, or (b) such other o f f i c e r or o f f i c e r s or d i r e c t o r or d i r e c t o r s of.the Company as may be prescribed from time to time by r e s o l u t i o n of the Board of D i r e c t o r s . 58. For the transaction of business without the Province, the Company may have an o f f i c i a l seal for use i n any other Province, State or Country subject to the provisions of Section 13 of the "Companies Act". 59. The o f f i c e of d i r e c t o r s h a l l ipso facto be vacated i f the 'director: - (a) by notice i n w r i t i n g to the Company resigns h i s o f f i c e ; or . (b) i s found l u n a t i c or becomes of unsound mind; •or (c) becomes bankrupt: or •' .(d) ceases to be a d i r e c t o r by v i r t u e of Section 108 of the "Companies Act". . (e) ceases to be l a w f u l l y e n t i t l e d to p r a c t i s e the -profession i n respect of which the Company was - incorporated. • 'Provided, however, that no d i r e c t o r s h a l l vacate h i s o f f i c e :by reason of h i s being a member of -any company which has -entered i n t o contracts with or done any work f o r the Company of which he i s a d i r e c t o r . 60. In the event a sole D i r e c t o r ceases to be a — - d i r e c t o r by v i r t u e of By-law 59 (b) or Cc) or d i e s , the personal representative of such sole d i r e c t o r s h a l l have the r i g h t to appoint a successor d i r e c t o r (subject to the "Professional Corporations Act") who s h a l l be bound by the provisions of the By-laws, DIRECTORS, ELECTION, CHANGE, ETC. -61. iSubject to By-law number 53 at each annual general meeting of the. Company a l l of the d i r e c t o r s s h a l l ^ r e t i r e from o f f i c e , and the Company ' s h a l l -elect d i r e c t o r s to f i l l the. o f f i c e s vacated. A r e t i r i n g d i r e c t o r i s e l i g i b l e f o r r e - e l e c t i o n . • . ' •62. J f at any meeting at which an e l e c t i o n of d i r e c t o r s nought to take place the places of the vacating d i r e c t o r s -are not f i l l e d up, the meeting s h a l l stand adjourned t i l l -*the same day i n the next week, at the same time and place, ;and i f at the adjourned meeting the places of the vacating 'directors are not f i l l e d up, the vacating d i r e c t o r s , or rsuch of them as have not had t h e i r .place's f i l l e d up, s h a l l :be deemed to have been re - e l e c t e d at the adjourned meeting. 63. The Company may from time to time increase or -reduce the number of d i r e c t o r s by ordinary r e s o l u t i o n , whether -previous notice thereof has been given or not. 64. Subject to By-law 53 any casual vacancy occurring i n the Board of Directors may be f i l l e d up by the d i r e c t o r s . 65. Subject to By-law 53 the d i r e c t o r s have power at any time, and from time to time, to appoint a person as an a d d i t i o n a l d i r e c t o r . . - 66. • Subject to-By-lav; 53 the Company may by s p e c i a l r e s o l u t i o n remove-any d i r e c t o r before the ex p i r a t i o n of --.his period of .office, and may by an ordinary resolution, appoint another person i n his stead. •PROCEEDINGS OF DIRECTORS * ,67. -The d i r e c t o r s may meet together f o r the, dispatch of business, adjourn and otherwise regulate t h e i r meetings, as they think f i t Q u e s t i o n s a r i s i n g at any meeting s h a l l - be decided by a majority of votes'. i n case of an e q u a l i t y of votes the chairman s h a l l not have a second or casting vote and he s h a l l declare the motion defeated.- A d i r e c t o r •may, and the secretary on the r e q u i s i t i o n of a d i r e c t o r s h a l l , ,at any time summon a meeting of the d i r e c t o r s . 68. The quorum necessary f o r the tran s a c t i o n of the .business of the d i r e c t o r s s h a l l be one ( 1 ) d i r e c t o r or ^alternate d i r e c t o r personally .present, but such quorum may -be changed at any time by a r e s o l u t i o n of the d i r e c t o r s . 69. The continuing d i r e c t o r s may act notwithstanding any vacancy i n t h e i r body, but, i f and so long as t h e i r number i s reduced below the number f i x e d by or pursuant .to the By-laws of the Company as the necessary quorum of d i r e c t o r s , the continuing d i r e c t o r s or- d i r e c t o r may act f o r the purpose of inc r e a s i n g the number, of d i r e c t o r s to that number, or of summoning a general meeting of the company, but f o r no other purpose. 70. The president ( i f any) of the Company and i n h i s absence the vice-president ( i f any) s h a l l be the chairman of the Board of D i r e c t o r s ; and i f there i s no president or v i c e - president, the d i r e c t o r s may e l e c t a chairman of t h e i r meetings and determine the period f o r which he i s to hold o f f i c e . I f no such chairman i s el e c t e d , or i f at any meeting the president, v i c e - p r e s i d e n t , or chairman i s not present within f i f t e e n minutes a f t e r the time appointed f o r holding the same, the d i r e c t o r s present may choose, one of t h e i r number to be chairman of the meeting. 71. A l l acts done by any meeting of the d i r e c t o r s or by any person ..acting as a d i r e c t o r , s h a l l , notwithstanding that i t be afterwards discovered that there was some defect ..in the appointment of any such d i r e c t o r s or persons acting as ...aforesaid, or that they or any of them were d i s q u a l i f i e d , be ,as v a l i d as i f every such person had been duly appointed and was q u a l i f i e d to be a d i r e c t o r . . ^ 72. Any d i r e c t o r of the Company who may be resi d e n t .-^either temporarily or permanently out of the Province may f i l e with the Secretary of the Company a written waiver of not i c e of any meeting of the d i r e c t o r s being sent to him -.and may at any time withdraw such waiver, and u n t i l such .waiver s h a l l be withdrawn, no notice of meetings of d i r e c t o r s ^ h a l l be sent to such d i r e c t o r , and any and a l l meetings of -the d i r e c t o r s of the Company, notice of which s h a l l not have been given to such director', s h a l l , (providing a quorum of the d i r e c t o r s be present) be v a l i d and binding upon the Company. 73. A d i r e c t o r whose.permanent place of residence i s outside of the Province of B r i t i s h Colubmia, or who i s about to leave, or i s temporarily outside of the Province, or who i s i l l , of which fa c t or f a c t s he alone s h a l l determine, may appoint as an alternat e d i r e c t o r during t h i s absence or residence outside of B r i t i s h Columbia, or i l l n e s s , any person who i s a person e n t i t l e d to p r a c t i s e the profession i n respect of which the Company i s incorporated and such appointment s h a l l have e f f e c t u n t i l revoked and such appointee - 2*1 - 76. No d i r e c t o r , or other o f f i c e r of the Company, s h a l l be l i a b l e f o r acts, r e c e i p t s , neglects or defaults of any • other d i r e c t o r or o f f i c e r , or f o r j o i n i n g i n any receipt- or other act f o r conformity or f o r loss of damage a r i s i n g from bankruptcy, insolvency or t o r t i o u s act of any person v.Tith whom any monies, s e c u r i t i e s or e f f e c t s s h a l l be deposited, or f o r loss or-damage or happening to the Company through the i n s u f f i c i e n c y or de f i c i e n c y of any s e c u r i t y i n or upon which any of the monies of the Company s h a l l be invested, or f o r any loss occasioned by any error or over- s i g h t on h i s pa r t , or f o r any l o s s , damage or misfortune whatsoever which s h a l l happen i n the execution of the duties of h i s o f f i c e or i n r e l a t i o n thereto unless the same happen through h i s own dishonesty. 77. Any d i r e c t o r e i t h e r i n d i v i d u a l l y or as a member of a. partnership, or as shareholder or d i r e c t o r of a company or corporation may, notwithstanding any r u l e of law or equity to the contrary, be appointed to any o f f i c e under the d i r e c t o r s with or without remuneration, or contract with the Company e i t h e r as vendor, purchaser, or otherwise, or act as agent f o r the Company; or be i n t e r e s t e d i n any operation, undertaking or business undertaken or a s s i s t e d by the Company, or i n which the Company i s i n t e r e s t e d , and no such contract or •arrangement s h a l l be voided, nor s h a l l any d i r e c t o r so con- t r a c t i n g or being so int e r e s t e d be l i a b l e to account to the Company f o r any p r o f i t r e a l i z e d by any such contract or arrangement by reason of such d i r e c t o r holding that o f f i c e , or of the f i d u c i a r y r e l a t i o n thereby established, provided that the nature and extent of h i s i n t e r e s t must be disclo s e d by him at the meeting of the di r e c t o r s at which the contract, arrangement or undertaking i s determined, i f t h i s i n t e r e s t then e x i s t s , or i n any other case, at the f i r s t meeting of the d i r e c t o r s a f t e r the a c q u i s i t i o n of h i s i n t e r e s t ; and any d i r e c t o r s h a l l as a d i r e c t o r be e n t i t l e d to vote i n respect of - any such contract or arrangement i n which he i s intere s t e d as a f o r e s a i d , but t h i s proviso may at any time or times be suspended or r e s t r i c t e d to any extent by a general meeting. 78. The d i r e c t o r s may from time to time at t h e i r d i s c r e t i o n , and f o r the purposes of the Company, borrow, r a i s e or secure the repayment of such sum or sums i n .such .manner and upon such terms and conditions i n a l l respects as they think f i t , and, i n p a r t i c u l a r , by the issue of bonds, perpetual or redeemable debentures or debenture stock, or any mortgage, charge, or other s e c u r i t y on the undertaking of the whole or any part of the property of the Company Cboth present and future) i n c l u d i n g i t s uncalled c a p i t a l f o r the time being. . DIVIDENDS AND RESERVE 79. The Company i n general meeting may declare a dividend to be paid to the members according to t h e i r r i g h t s and i n t e r e s t s i n the p r o f i t s and may f i x the time f o r payment. No l a r g e r dividend s h a l l be declared than i s recommended by the d i r e c t o r s but the Company i n general meeting may declare a smaller dividend. 80. The d i r e c t o r s may, from time to time, pay to the members such interim dividends as i n t h e i r judgment the p o s i t i o n of the Company j u s t i f i e s , and i n paying dividends,' inter i m or otherwise, may give e f f e c t to any preference or p r i o r i t y or other agreement attached to any share, on the issue thereof. 01. No dividends s h a l l be paid otherwise than out of the p r o f i t s , : except as may be otherwise provided by the "Companies Act". 82. (a) Any general meeting d e c l a r i n g a dividend may resolve that such dividend.be paid wholly or i n part by the d i s t r i - bution of s p e c i f i c assets and i n p a r t i c u l a r of paid-up shares, bonds, debentures,, or debenture stock of any other company, or i n any one or more of such ways, and the d i r e c t o r s s h a l l give e f f e c t to such r e s o l u t i o n ; and where any d i f f i c u l t y a r i s e s i n regard to the d i s t r i b u t i o n , th-° d i r e c t o r s may s e t t l e the same as they think expedient; and may f i x the value f o r d i s t r i b u t i o n of such s p e c i f i c assets, or any part thereof, and may determine that cash payments s h a l l be made to any members upon the footi n g of the value so f i x e d i n order to adjust the r i g h t s of a l l p a r t i e s , and may vest any such cash, or s p e c i f i c assets i n trustees upon such t r u s t s f o r the persons e n t i t l e d as may seem expedient to the d i r e c t o r s . Cb) Notwithstanding anything i n these By-laws contained the d i r e c t o r s may from time to time c a p i t a l i z e any tax-paid undistributed income on hand of the Company and may from time to time issue any unissued shares or s e c u r i t i e s of the Company as,a stock dividend representing such tax- paid undistributed income on hand or any part thereof. Cc) Any surplus monies a r i s i n g from the r e a l i z a t i o n of any c a p i t a l assets of the Company, or any investments representing the same, or any other undistributed p r o f i t s of the Company not subject to charge f o r income tax, may be d i s t r i b u t e d among the members on the footi n g that they receive the same as c a p i t a l . 83. . Subject to the ri g h t s of persons, i f any, e n t i t l e d to shares with s p e c i a l r i g h t s as to dividend, a l l dividends s h a l l be declared and paid according to the amounts paid or credited as paid on the share's i n respect whereof the - 20 « dividend i s paid, but no amount paid or credited as paid on a share i n advance of c a l l s s h a l l be treated f o r the purposes of t h i s r e g u l a t i o n as paid on the share. A l l dividends s h a l l be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any por t i o n or portions of.the period i n respect of which the dividend i s paid. In the case of shares with-^ out nominal or par value, a l l dividends s h a l l be declared and paid according to the number of shares held. I f any share i s issued on terms providing that i t s h a l l rank f o r dividend as from a p a r t i c u l a r date, such share s h a l l rank f o r dividend accordingly. 84. The d i r e c t o r s may, before recommending any dividend set aside out of the p r o f i t s of the Company such sums as they think proper as a reserve or reserves, which s h a l l , at the d i s c r e t i o n of the d i r e c t o r s , be applicable f o r meeting con- ti n g e n c i e s , or f o r equalizing dividends, or f o r any other purpose to which the p r o f i t s of the Company may be properly , applied, and pending such a p p l i c a t i o n may, at the l i k e d i s c r e t i o n , e i t h e r be employed i n the business of the Company or be invested i n such investments (other than shares of the Company) as the d i r e c t o r s may from time to time think f i t 85. The d i r e c t o r s may r e t a i n any dividends on which the Company has a l i e n and may apply the same i n and towards the s a t i s f a c t i o n of the debts, l i a b i l i t i e s , or engagements i n respect of which such l i e n e x i s t s . 86. A t r a n s f e r of shares s h a l l not pass the r i g h t to any dividend declared thereon before the r e g i s t r a t i o n of the t r a n s f e r . 87. Notice of the d e l c a r a t i o n of. a dividend, whether, int e r i m or otherwise, s h a l l be given to each member e n t i t l e d to share t h e r e i n i n the manner h e r e i n a f t e r mentioned. ACCOUNTS 88. The d i r e c t o r s s h a l l cause true accounts to be kept of a l l the r e c e i p t s , c r e d i t s , payments, stock-in-trade, property, assets and l i a b i l i t i e s of the Company, and of a l l other matters necessary f o r showing the true state and condition of the Company, and the accounts s h a l l be kept i n such books and i n such manner as the d i r e c t o r s think f i t , and to the s a t i s f a c t i o n of the auditors and s h a l l at a l l .times be open to the inspection of the d i r e c t o r s . * 89. The books of account s h a l l be kept at the r e g i s - tered o f f i c e of the Company, or at such other place as the d i r e c t o r s think f i t . 90. The d i r e c t o r s s h a l l from time to time (subject to the provisions of the "Companies Act") determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of .the Company or any of them s h a l l be open to the i n s p e c t i o n of members not being directors', and no member (not being- a d i r e c t o r ) s h a l l have any r i g h t of inspecting any account or book or document of the Company except as conferred by .law or authorized by the d i r e c t o r s or by ordinary r e s o l u t i o n , whether previous notice thereof has been given or not, and no member (not being a d i r e c t o r ) s h a l l be e n t i t l e d to require or receive any information concerning the business, trading or customers of the Company, or any trade secret or secret process of or used by the Company. AUDIT 91.. . Auditors s h a l l .be appointed as provided i n the "Companies Act" , and theii'' duties s h a l l be c a r r i e d out or regulated i n accordance with and as required by the said Act and the Income Tax Act, or any statutory modifications thereof f o r the time being i n force. 92. A balance sheet s h a l l be made out i n every calendar year and l a i d before the.annual general meeting of the Company, made up to a date not more than.four months before such annual general meeting. The balance sheet s h a l l be c e r t i f i e d by the Company's auditor or auditors, whose report thereon s h a l l be embodied i n or accompany the same. The d i r e c t o r s may, and on demand of the members s h a l l , report as to the state of the Company's a f f a i r s and the amount which they recommend to be paid by way of dividend, and the amount ( i f any) which they propose to carry to a reserve fund. • NOTICES ' 93. (a) Any notice under the Company's By-laws may be given to a member e i t h e r personally or by sending i t by mail, postage prepaid to such member at h i s address r e g i s - tered with the-Company, or ' ( i f he has no r e g i s t e r e d address) then to the address ( i f . any) supplied by him to the Company f o r the givi n g of notices to him, or to his l a s t known address. (b) Where a notice i s sent by post, service of the notice s h a l l be deemed to be eff e c t e d by addressing, pre- paying, and posting a l e t t e r containing the n o t i c e , and to "have been e f f e c t e d on the day following the date of posting, and i n proving such service i t s h a l l be s u f f i c i e n t to prove . that the envelope or wrapper containing the notice was properly addressed and put inf o the post o f f i c e . (c) Where a given number of days' notice or"a notice "extending over any other period i s . required to be given, the day of service s h a l l unless i t i s otherwise provided, be counted i n such number of days or other period. (d) Any notice or document sent by post to, or l e f t at the r e g i s t e r e d address of, any member, i n pursuance of these presents, s h a l l , notwithstanding such member be then deceased, and i^hether or not the company have notice of h i s decease, be deemed to have been duly served i n respect of any r e g i s t e r e d shares, u n t i l some other person be r e g i s t e r e d i n h i s stead as the holder thereof, and such service s h a l l .for...all ..purposes of these .presents be deemed a s u f f i c i e n t •service of such notice or document on h i s personal repre- s e n t a t i v e . 94. On demand of any person e n t i t l e d to receive notice of general meetings, a copy of the balance sheet and report s h a l l , not less than seven (.7) days before the meeting (unless some other time"be prescribed by the Company i n ' general meeting, or by the d i r e c t o r s ) , be sent to such person i n the manner i n which notices are to be given, hereunder. 95. A notice may be given by the Company to the' persons e n t i t l e d to a share i n consequence of the death of a member by sending i t through the post i n a prepaid l e t t e r addressed . to them by name, or by the t i t l e of representatives of the deceased, or by .any l i k e d e s c r i p t i o n , at the address ( i f any) i n the Province of B r i t i s h Columbia supplied f o r the pur pose by the persons claiming to be so e n t i t l e d . 9G. Notice of every general meeting .shall be given i n some manner hereinbefore'authorized to:- (a) Every member of the Company except those members who (having no r e g i s t e r e d address within the Province of B r i t i s h Columbia) have not supplied to the Company an address wi t h i n or without the said Province f o r the- g i v i n g of notices to them or who are not e n t i t l e d to such notice by v i r t u e of these By-laws, and also to (b) Every person e n t i t l e d to a share i n consequence . of the death of a member, who, but f o r h i s death . would be e n t i t l e d to receive notice of the meeting. No other person s h a l l be e n t i t l e d to receive notices of general meetings. . . ^ 'MISCELLANEOUS - SIGNATURE - BONUS - INDEMNITY 97. The signature to any notice or document given or issued by the Company may be stamped, printed or mechanically reproduced. 98. The Company may give to any person employed by the Company, e i t h e r i n additi o n to or i n l i e u of wages or s a l a r y , a commission or bonus on the p r o f i t s of any p a r t i c u l a r business or t r a n s a c t i o n or. on the gross turnover or sales of the Company's business, or a share i n the general p r o f i t s of the Company and such commission, bonus, or share of p r o f i t s s h a l l be treated as part of the business expense of the Company. 99. Subject to the provisions of the "Companies Act", every d i r e c t o r , manager, or other o f f i c e r of the Company or any person (whether an o f f i c e r of the Company or not) employed by the Company may be indemnified out of the funds of the Company against a l l l i a b i l i t y incurred by him as d i r e c t o r , manager, o f f i c e r or auditor i n defending any proceedings, whether c i v i l or c r i m i n a l , i n which judgment i s given i n h i s favour or i n which he i s acquitte or i n which judgment and costs may be given against him or i n connection with any a p p l i c a t i o n under the "Companies Act" or the "Professional Corporations Act", i n which r e l i i s granted to him by the Court. • TOO. I f "the Company shall-be -wound up, whether volun- t a r i l y or otherwise, the l i q u i d a t o r or l i q u i d a t o r s may, with the sanction of a s p e c i a l r e s o l u t i o n , divide among the members i n specie or i n kind any part of the assets of the Company and may, with the l i k e sanction vest any part of the assets of the Company i n Trustees upon such t r u s t s f o r the benefit of the members or any of them the l i q u i d a t o r or l i q u i d a t o r s with the l i k e sanction s h a l l think f i t . COMMISSIONS ALLOWABLE ON SHARES, DEBENTURES, ETC. 101. The Company may'at any time pay, a commission to any person f o r subscribing or agreeing 'to subscribe (whether absolutely or c o n d i t i o n a l l y ) f o r any shares, debentures or debenture stock of the Company, or procuring or agreeing to procure subscriptions (whether absolute or cond i t i o n a l ) f o r any shares, debentures or debenture stock of'the Company, but so that i f the commission i n respect o shares s h a l l be paid or payable out of c a p i t a l the statute - 3't ~ ••conditions and requirements s h a l l not exceed n i n e t y - f i v e per cent ( 9 5 % ) on the sheares, debentures or debenture stock i n each case subscribed or to be subscribed. The commission may be paid or s a t i s f i e d i n cash or i n shares, debentures or debenture stock of the Company. 10 2. The following r i g h t s and r e s t r i c t i o n s s h a l l attach to the Preference shares: (a) The holders of the preference shares s h a l l i n each year i n the d i s c r e t i o n of the d i r e c t o r s , be e n t i t l e d , out of any or a l l p r o f i t s or sur- plus a v a i l a b l e f o r dividends, to non-cumulative • '•• . dividends at the rate of 7% per annum on the •amount paid up on the preference shares; the holders of the preference shares s h a l l not be e n t i t l e d to any dividend other than or i n excess of the non-cumulative dividend at the rate of 7% per annum hereinbefore provided f o r . ,.(b) In the event of .liqu i d a t i o n , d i s s o l u t i o n , or winding up of the Company, whether voluntary or involuntary, the holders of the preference shares s h a l l be e n t i t l e d to receive, before any d i s t r i b u t i o n of any part of the assets of the Company among the holders of common shares, an amount equal to 100% of the amount paid thereon and any dividends declared therecn and unpaid and no more.. (c) Subject to the r i g h t of the holders of preference shares to vote at a meeting the holders of such shares the holders of of such preference shares s h a l l not be e n t i t l e d to receive notice of or to attend or to vote a t any general meeting of the Company i n respect of t h e i r holdings of preference shares (d) The said preference shares, or any part thereof, s h a l l be redeemable at any time a t the option of the d i r e c t o r s of the Company without the consent of the holders thereof by payment to the holders thereof of the par value of the said preference shares together w i t h - a l l dividends declared thereon and unpaid. I f less than the whole amount of the outstanding preference shares s h a l l be so redeemed the shares to be re- deemed s h a l l be selected by l o t (or other- wise) i n such manner as the Board of Directors may determine. FORM 13 (Section 175) COMPANIES ACT ' "PETER V7ATTS, A PROFESSIONAL CORPORATION" At a meeting of Directors of Peter Watts, A Professional Corporation, duly convened and held at 4584 West 13th Avenue, Vancouver, B r i t i s h Columbia, on the 5th day of J u l y , 1971, the following r e s o l u t i o n was duly passed: "That the Company cease to carry on business, surrender i t s C e r t i f i c a t e of Incorporation and request that the Registrar of Companies s t r i k e i t o f f the Register." CERTIFIED a true copy t h i s 5th day of Ju l y , 1971. PRESIDENT EXHIBITS Letter from Department of National Revenue re: Tax Status of Professional Corporations Questionnaire Required by College of Physicians and Surgeons Tax.Saving With a Professional Corporation. COLLEGE Or PHYSICIANS £ SURGEONS OF BRITISH COLUMBIA Questionnaire required to 75 of the Medical Act (as P r o f e s s i o n a l Corporations be completed with respect to Section amended) and Sections 3 and 'I of the Act. S e c t i o n 75 o f the Medical Act of B r i t i s h Columbia provides t h a t no member o r group of members of the College can ca r r y on t h e p r a c t i c e of medicine i n a corporate name without the written c o n s e n t of the Executive Committee of the College. The f u l l C o u n c i l of the College can give such consent. Section 3(2) (b) o f - t h e P r o f e s s i o n a l Corporations' Act, 1970 , r e q u i r e s that a ph y s i c i a n or a group of physicians seeking to incorporate a p r o f e s s i o n a l corporation must f i l e with the R e g i s t r a r of Companies a c e r t i f i c a t e of the College that each of the i n c o r p c r a t c r s i s e n t i t l e d to carry on the p r a c t i c e of medicine i n B r i t i s h Columbia and approving the name of the proposed c o r p o r a t i o n . Section 3(8) o f t h e P r o f e s s i o n a l Corporations Act s t i p u l a t e s , i n e f f e c t that a copy of a r e s o l u t i o n of the Council of t h e College must be f i l e d w i t h t h e R e g i s t r a r of Companies a u t h o r i z i n g members of the College t o incorporate under the P r o f e s s i o n a l Corporations Act. This has been done. Section 4 ('t) of the P r o f e s s i o n a l Corporations A c t provides as f o l l o w s : " A l l members, d i r e c t o r s and o f f i c e r s of a co r p o r a t i o n s h a l l be persons e n t i t l e d to p r a c t i c e the pr o f e s s i o n s i n respect of which the corporation i s incorporated." S e c t i o n 9(3) Provides: "A c o r p o r a t i o n s h a l l not carry on p r o f e s s i o n a l s e r v i c e s e x c e p t by means of members, d i r e c t o r s , o f f i c e r s , employees, o r agents of the co r p o r a t i o n l a w f u l l y e n t i t l e d to p r a c t i s e t h e p r o f e s s i o n i n respect of which i t i s incorporated, but may employ c l e r k s , s e c r e t a r i e s , bookkeepers, t e c h n i c i a n s , and other a s s i s t a n t s to perform s e r v i c e s that are not usually and o r d i n a r i l y considered by custom or p r a c t i c e to be p r o f e s s i o n a l s e r v i c e s . " I n a n t i c i p a t i o n of the Co l l e g e , through i t s R e g i s t r a r , r e c e i v i n g i n q u i r i e s with respect t,o p r o f e s s i o n a l corporations, the Executive Committee has d i r e c t e d the R e g i s t r a r to submit t h i s questionnaire f o r completion and return to the Re g i s t r a r i n a l l cases where an a p p l i c a t i o n for i n c o r p o r a t i o n is going to be made to the R e g i s t r a r o f Companies. As each request f o r consent and approval by the College must be processed i n d i v i d u a l l y by the Executive Committee or the C o u n c i l , member of the College must not am t h a t consent and approval can be s p e e d i l y given or given as thattcr of course i n every case. The C o l l e g e has been i n s t r u c t e d by the R e g i s t r a r of Companies that he w i l l not accept the word "Lim i t e d " or "Ltd i n an a p p l i c a t i o n f o r i n c o r p o r a t i o n .under the P r o f e s s i o n a l C a t i o n s Act, since* i n f a c t l i a b i l i t y i s not l i m i t e d under t h i Act. Turthermore, he intends to r e q u i r e i n l i e u of "Ltd " th YJords .^'Professional C o r p o r a t i o n " i n the name - i . e . "Dr. A. Smith and As s o c i a t e s ,̂  P r o f e s s i o n a l Corporation." Please complete the f o l l o w i n g information and have each of the proposed s u b s c r i b e r s ( i n c o r p o r a t o r s ) s i g n at the foot t h e r e o f : 1. . • Proposed name of c o r p o r a t i o n : 2. Address where p r a c t i c e of corporation' w i l l be c a r r i e d o:. 3. F u l l names of a l l members of the College who w i l l be eub s c r i b e r s to the Memorandum of Inc o r p o r a t i o n : * l . F u l l names o f o t h e r p h y s i c i a n s who w i l l be employed by t h e c o r p o r a t i o n ( b u t n o t s h a r e h o l d e r s i n c o r p o r a t i o n ) '. I n c o r p o r a t i o n comes i n t o e f f e c t : l a i.t £nt<!"julo<1 t h a t a l l p e r s o n s named I n Item 3. above bo d i r e c t o r s o f t h e p r o p o s e d c o r p o r a t i o n ? I f n o t , l i s t f u l l names o f i n t e n d e d d i r e c t o r s : L i s t f u l l names o f t h e members.who w i l l be o f f i c e r s o f t h e c o r p o r a t i o n when i t i s fo r m e d and t h e o f f i c e e a c h w i l l h o l d . ( P r e s i d e n t , V i c e - P r e s i d e n t , S e c r e t a r y , T r e a s u r e r , e t c . ) .DATED a t V a n c o u v e r t h i s ' , „ • day o f _ _ _ _ 19 7Q SIGHED by t h e f o l l o w i n g members o f t h e C o l l e g e o f P h y s i c i a n s £ S u r g e o n s o f B r i t i s h C o l u m b i a , who a r e t h e p e r s o n s who p r o p o s e t o i n c o r p o r a t e t h e p r o f e s s i o n a l c o r p o r a t i o n r e f e r r e d t o a b o v e . Dr. Dr. Dr. • Dr. FOR REQUIRED CERTIFICATE ENCLOSE I'EE OF 510.00. EXHIBIT C TAX SAVING WITH A PROFESSIONAL CORPORATION No $10,000 $20,000 $35,000 Retention Retention Retention Retention PRIOR TO INCORPORATION Met Income Prior to Incorporation P e r s o n a l Exemptions T a x a b l e Income Prior to Incorporation $30,000.00 $45,000.00 $60,000..00 $80,000.00 2.700.00 2,700.00 2.700.00 2,700.00 $27,300.00 $42,300.00 $57,300.00 $77,300.00 Tix Thereon: Basic O.A.S. and S.D. Surtax TotaI Tax PayabIe AFTER INCORPORATION Professional Corporation Net Income Less: Salary Taxable Income Tax Thereon Available for Dividends and Retent i on $ 9,720.00 $17,335.00 $25,585.00 $37,450.00 360.00 360.00 360.00. 360.00 285.00 515.00 760.00 1,115.00 $10,365.00 $18,210.00 $26,705.00 $38,925.00 $30,000.00 $45,000.00 $60,000.00 $80,000.00 12,000.00 12.000.00 25,000.00 45,000.00 $18,000.00 $33,000.00 $35,000.00 $35,000.00 $ 3,880.00 $ 7,110.00 $ 7,540.00 $ 7,540.00 $14,120.00 $25,890.00 $27,460.00 $27,460.00 Diividend Declared (a) $14,120.00 $18,045.00 $11,770.00 INDIVIDUAL Sa lary $12,000.00 $12,000.00 $25,000.00 $45,000.00 Dividend 14, 120.00 18,045.00' 11 ,770.00 — Tota1 1ncome . $26,120.00 $30,045.00 $36,770.00 $45,000.00 Personal Exemptions 2,700.00 2,700.00 2,700.00 2,700.00 Taxable Income $23,420.00 $27,345.00 $34,070.00 $42,300.00 Tax Thereon: Basic $ 7,589.00 $ 9,742.50 $13, 105.00 $17,335.00 Less: Dividend Tax Credit 2,824.00 3 . 6 0 9 . 0 0 2.354.00 — $ 4,765.00 $ 6,133.50 $10,751.00 $ 17 ,335.00 O.A.S. and S.D. • 360.00 360.00 360.00 360.00 Surtax • 135.00 180.00 315.00 515.00 Total Tax by Individual $5,260.00 $6,673.50 $11,426.00 $18,210.00 TOTAL TAX B Y CORPORATION AND INDIVIDUAL 1. S.B.C. 1970 c.37 2. The Province, June 3, 1971 p.1 3. Income Tax Act RSC 1952 c.148 S.85FC1) 4. Ibid S.ll(lO)Ca) 5. SBC 1970 c.37 6.. Ibid S.2(d) 7. Ibid S.2(c) . 8. Income Tax Act S.3 9. Ibid S.139 ( l ) ( e ) 10. Ibid S.139 (l)(m) .11. Ibid S.139(1) (a b) 12. Fainstein v. MNR 52 DTC 102 14. Ibid S.12 15. Frank H. E l l i o t t v. Minister of National Revenue 71 DTC 10 7 : : 1 16. Information C i r c u l a r 71-18, July 30, 1971 "Disposition of Appeals" Department of National Revenue p.3 17. .Income Tax Act S.85F 18. Information B u l l e t i n Number 46 "Lavzyer's Trust Accounts and Disbursements" Department of National Revenue September 3 , 1969 19. Proposals for Tax Reform, a Government White Paper, presented by the Honourable E.J. Benson, 1969 p.63 20. The Standing Senate Committee on Banking Trade and Commerce "Report on The White Paper Proposals f o r Tax Reform" September 1970 p.73 21. The Eighteenth Report of The Standing Committee on ...... Finance, Trade and Economic A f f a i r s Respecting the . ' White Paper on Tax Reform October, 19 70 p.79 22. Report of the Royal Commission on Taxation Volume 4 1966 p.250 23. ' The Law Society of B r i t i s h Columbia Newsletter Number 16 June 30, 1971 24. The Department of National Revenue, Interpretation B u l l e t i n IT-21 "Lawyers Trust Accounts and Disbursements" August 4, 19 71. 25. Income Tax Act S.126 A ( l ) ( e ) 26. Helman et a l v. Minister of National Revenue 1970 CTC 586 27. Interpretation B u l l e t i n IT-21 28. Income Tax Act S.39 29. Ibid S.139 ( i ) ( h ) 30. Kindree v. MNR 64 DTC 5248 31. Medical Act RSBC 1960 c.239 S.71 32. Kindree v. MNR p.5251 33. Income Tax Act S.2K2) 34. Laverne C l i f f o r d Kindree v. Minister of National Revenue 70 DTC 1054 35. Ibid p.1054 36. Thomas Lamb v. Minister of National Revenue (1963) DTC 975 37. Income Tax Act S.12 ( l ) ( a ) 38. Ibid S.12 (2) 39. Income Tax Act S.39 Old Age Security Act RSC 1952 c.200 S.22 TBT 40. Isaac Shulman v. MNR 61 DTC 1213 41. Professional Corporations Act SBC 1970 c.37 42. Canons of Legal E t h i c s , The Law Society of B r i t i s h Columbia, (Vancouver, 1956) p.9 44. M.C. Rodney "Professional Corporations" Alberta Law Review, vol.7 No. 2 1969 p.205 45. Real Estate Act SBC 1958 c.47 reg.301 46. "Tax Haven" for the Professions? New Headache f o r Revenue Men vol.67, No. 1 (July 7, 1969) U.S. News and World Report, 70 47. Internal Revenue Code of 1954 S.7701 48. (1935) .296 U.S.344 U9. Treasury Regulation 301-7701 (1960) • 50. Treasury Regulation 301-7701-2(h) 51. Empey v. U.S. (1967) 272 F.Supp. 851 (D.COLO.) a f f d . "'(1969) 406 F.2d. 157 (10th Cir.) Kurzner v. U.S. (1969 ) '413 F.2d 97 (5th Cir.) O'Neill v. U.S. (1969) 410 F.2d 888 (6th Cir.) 52. Engineering Profession Act RSBC 1960 c.128 S.3(6) 53. No. 594 v. MNR 59 DTC and Laverne C. Kindree v. MNR J_yo4 DTC 5248 , 70 DTC 1054 54. SBC 1970 c.37 55. L.M. L i t t l e "Professional Corporations", The Crown Commentator, vol.2 No. 5 (November, 197 0), 2 56. I.H. Asper "B.C. Scores a Dubious F i r s t " , The Vancouver Sun, December 14, 1970 p.27 - 57. SBC 1962 c.27 . 58. "Gov't moves to suspend tax w i n d f a l l enactment", The Vancouver Sun, March 27, 19 71 p.10 59. Mr. William Breen, personal interview 60. Income Tax Act SBC 1962 c.27 S.5(l) 61. Ibid S.4(3) 62. Alex Young "Tax edict attached as unjust", The Province, December 18, 1970 p.27 63. "Gov't moves to suspend tax wi n d f a l l enactment", The Vancouver Sun, March 27, 1971 p.10 65. Ibid S. 7 66. Ibid S.4(4) 67. Ibid S.4(5) 60. Ibid 5.4(3) 69. Ibid S.5 70. Ibid S.19 - 71. Companies Act RSBC 1960 c.67 S.19 72. Professional Corporations Act^S.3 73. Ibid S.16U) 74. Ibid S.16(2) 75. Income Tax Act S.28C1) 76. Smeltzer, G.G. "An Examination of the Professional Corporations''Act In Light of the White Paper on Tax Reform" University of B r i t i s h Columbia Law Review, vol.5 Mo. 2 (December, 1970) p.344 77. Income Tax Act S.139(l)(r) S.139(2) 78. Ibid S.32(l) 79. Income Tax Act S.6(l)(d b) 80. Ibid S.5(l)(a). ~ 81. Ibid S.139(l)(s b) 82. Ibid S.18(l) 83. Ibid S.139(l)(j) 84. A.W. Gilmour, Income Tax Handbook, Richard De Boo Limited, Toronto p.95 85. Income Tax Act S.138(A)(2) 86. Ibid S.39(3)

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