Anyone here ever dealt with creating a holding corporation for a dental corporation? From what I gather only a dentist can own voting shares or a dental prof corp. Can these shares be held in a holding corp, which in turn can hold the shares of the opco (Prof dental corp)?
Thank you.
As long as they are not common voting shares, yes. Usually they get issued some kind of pref shares. Mostly to facilitate dividend flow.
Thanks, Nezzer. The plan was to do a S85 rollover of shares at cost (Owned by the dentist) and have holdco own the shares of the opco and transfer the cash over to holdco via dividends to generate passive income. So you are saying holdco can own the preferred shares of the opco and the dentist can keep his common voting shares of opco? I engaged two different CPAs and got conflicting answers. However, one lawyer I engaged said this can be done.
AFAIK, yes. I’ve seen that many times in prof corps here in SK. But, of course, it is governed by the provincial dental association to which the dentist belongs, so if you want a definitive answer, ask them. There may be additional rules that I’m not aware of.
I wouldn’t recommend rolling over the practitioners only class of shares at this time. You should save that for a crystallization and just have holdco subscribe to a new class of non-voting shares.
Just don’t try to be fancy with it. If you’re using the holdco specifically for passive activities or purification, no problem. However, surplus strips are heavily scrutinized now, stay away.
Make sure when you setup the holdco that you have an adequate sequence of share classes and provisions (section 51 & 85 considerations) to allow for future tax planning.
So this is what I got from the ADA&C.
Does it mean a Holdco can not own non-voting shares in the Holdco since the holding company does not fulfill any of the above criteria?
Well, this doesn’t make sense, does it? It says all non-voting shareholders also have to be voting shareholders. How is that possible?
It does sound like that, yes. Might be specific to that province? I know of several prof corps here in Sask that have issued pref shares to a Holdco. Maybe if you detail how the Holdco shares will be issued (i.e. only to the regulated member and spouse/children), and ask the ADA&C for permission…?
@jhd.hemeon It might mean that a voting shareholder might own non-voting shares.
You might want that if the common shares are just voting shares with no dividend rights?
But from this clip we don’t know if non-voting shares are allowed to have dividend rights.
how does TOSI affect this all?
I read that as they must either BE also a voting shareholder OR directly related to a voting shareholder
I imagine TOSI applies as usual, but that’s not what @Taxtin is asking about.
Free info, don’t look a gift horse in the mouth…
Ah. Sorry. Didn’t realize your question was rhetorical.
I agree - both @Taxtin and his client should be considering TOSI, but that’s not going to affect them until they start issuing dividends, and even then there are many exceptions which could apply.
I am waiting to hear from the governing body. They havn’t responded yet. TOSI is not a concern right now as we might be able to delay the payment of dividends until we can get the age exemption.
Thanks everyone for the responses. I will post an update once I have one.
@Taxtin - Re: Holdco + Operating Professional Co.
“Anyone here ever dealt with creating a holding corporation for a dental corporation? From what I gather only a dentist can own voting shares or a dental prof corp. Can these shares be held in a holding corp, which in turn can hold the shares of the opco (Prof dental corp)?”
Underlying concepts:
Holdco’s usually own land, building, lease, etc.
Holdco’s sometimes own furniture, equipment, trademarks, which is rented or leased to Professional Operating Co’s or to multiple locations of a single Professional Operating Co’s.
Holdco’s sometimes offer contracted administrative and/or technical services to the Professional Operating Co or Co’s.
TBD / verified with references
Please check with these regulating bodies to determine the answers to following question per each regulatory body. Ask for clarification and references especially if there are conflicting or nuanced replies.
Q: Can a professional dentist own shares in their Professional Operating Co through their Holdco, or, only individually according to the laws, by-laws, administrative policies, or other references,
Provincial Corporation
Provincial Professional Association
CPA
CRA
Please let us know what you discovered.
The reason I brought up TOSI is that it can have a major impact on decisions like this, as the OP has also mentioned that they considered the impact, and dividends at this time is not a deciding factor. Did have a similar case with a medical doctor where we did a reorg before TOSI, and really had to change plans after TOSI came in…
This thread is going off topic.
I quote myself from earlier… holdco should have a non-voting class. Primary shareholder of opco should be the practitioner owning 100% of the votes unless with a partner shareholder (usually a spouse in some cases who is also a practitioner). I worked for a firm a couple years back that only dealt specifically with doctors and dentists.
At this point in time, I’m not sure exactly why you would want to connect a holdco other than for crystallization or estate freezing. We used to use them specially for surplus stripping, but that is a no go nowadays.
When and why Holco’s make sense.
1. One Holco. Multiple Operating Co’s.
Operating co’s have differing jurisdictions and/ or shareholders.
IE One or a group of professionals own buildings, equipment, trademarks, perform services, etc.
Operating co’s have one or more professionals, non-professionals, admin, sometimes different locations, and tax jurisdictions. Mutliple businesses.
CARSON LAW
2 - Statement of facts
Reasons for Holdco and summary statement of facts matter. Each case must be viewed in whole and over time. Family owned. Multiple individuals. Pending divorce. Multi-generational. etc.
3 - Why Holdco?
CIBC - Hold the Holdco! Is a holding company right for you. October 2024. Jaimie Golombek and Debbie Pearl-Weinberg
4 - TOSI
Shajani CPA - Mastering TOSI: Unlocking Tax Savings for Your Family-Owned Business
5 - TOSI - Arms length and other rules
MOODY’s TAX
Simplified TOSI Flowchart
