Professional Corporations for Lawyers: Tax Benefits and Drawbacks for Legal Practices — CPA Firm Near You, Montreal

Introduction

Lawyers in Quebec have the option to operate as professional corporations, offering potential tax deferral, income planning, and legal protection advantages. But professional corporations also come with strict rules from the Barreau du Québec, CRA, and Revenu Québec. Many lawyers incorporate without understanding the full implications — resulting in missed savings or unnecessary administrative burdens. This guide explains when lawyers should consider a professional corporation, the tax benefits and limitations, and how a CPA firm near you in Montreal can ensure full compliance.

Legal and Regulatory Framework

Under Quebec’s Professional Code and the Income Tax Act, lawyers may create a société par actions (professional corporation) if they:
• Are members in good standing with the Barreau du Québec
• Use an approved corporate name
• Maintain required professional liability coverage
• Ensure all voting shareholders are licensed lawyers

Once incorporated, the professional corporation becomes a separate legal and tax entity. Key tax elements include:
• Access to the small business deduction, lowering the corporate tax rate
• Ability to pay the lawyer via salary, dividends, or a combination
• GST/QST obligations remain unchanged
• Deductibility of corporate expenses such as rent, staff, equipment, software, and marketing
• Corporate retained earnings may be reinvested at lower tax rates

Corporate governance rules require annual resolutions, minute books, financial statements, and corporate filings.

Key Court Decisions

Courts have ruled that:
• Lawyers cannot treat a professional corporation as a vehicle for personal expenses
• Improper income splitting with non-active family members is not permitted
• Failure to follow corporate formalities can result in CRA challenging deductions or the corporation’s structure
• Legal services billed but not paid may generate Work-in-Progress (WIP) issues, depending on firm type

Judges emphasize that incorporation must reflect genuine business operations, not solely tax avoidance.

Why CRA and Revenu Québec Target Professional Corporations

Professional corporations face audits because lawyers often:
• Use corporate funds for personal spending
• Over-deduct home office or vehicle costs
• Mismanage shareholder loans
• Incorrectly structure salary vs dividend payments
• Fail to maintain proper minute books
• Underreport GST/QST on legal fees
• Miscalculate WIP or contingent fee revenues

Auditors compare law firm trust accounts, corporate filings, bank deposits, and billing records.

Mackisen Strategy

At Mackisen CPA Montreal, we help lawyers determine whether incorporation offers real benefits and structure their corporation correctly. We:
• Analyze income levels to determine tax deferral opportunities
• Build optimized salary/dividend compensation plans
• Set up corporate bookkeeping and trust-account compliance
• Track GST/QST and prepare accurate remittances
• Maintain corporate minute books and annual filings
• Ensure compliance with Barreau du Québec rules
• Prepare financial statements and corporate tax returns
• Resolve shareholder loan, WIP, and contingency-fee issues

Real Client Experience

A Montreal litigator incorporated but drew personal expenses through the corporation. CRA reassessed for shareholder benefits. We reconstructed expense categories, corrected shareholder-loan balances, and implemented a compliant compensation structure. Another lawyer incorporated but kept WIP off the books; we fixed recognition issues and prevented an audit from escalating.

Common Questions

Should all lawyers incorporate?

No. Incorporation is most beneficial when income exceeds personal spending needs and long-term tax deferral becomes possible.

Can lawyers income split with family members?

Generally no — strict rules limit income splitting unless family members work in the practice.

Do professional corporations protect personal assets?

They offer legal separation but professional liability remains personal.

What expenses can a legal corporation deduct?

Rent, staff, software, insurance, research tools, marketing, and equipment, if business-related.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps lawyers structure professional corporations that reduce taxes, strengthen compliance, and improve long-term planning. Whether running a solo practice or managing a growing legal team, our expert team ensures precision, transparency, and audit protection.