Private Business Planning Post-Recent Announcements by Nathan Wright, LL.B., MTAX, TEP
Get insights on key considerations for private businesses in light of recent announcements regarding dividend sprinkling and income to capital gains conversion. Understand the implications for beneficiaries over 18 and the inter-vivos pipeline strategy under the existing rules. Contact Nathan Wright for tailored legal advice.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
Planning for Private Businesses What s Left After Recent Announcements? Nathan Wright, LL.B., MTAX, TEP Founding Principal Ph: (416) 203-8338 E-mail: nwright@spectrumlawyers.ca DRAFT- FOR DISCUSSION PURPOSES ONLY SUBJECT TO SOLICITOR CLIENT PRIVILEGE
Disclaimer This document is for general information purposes only and does not represent legal or tax advice. Please take caution that the concepts presented in this document are very complex and fact specific. Professional advice should be sought before any implementation is undertaken. DRAFT- FOR DISCUSSION PURPOSES ONLY SUBJECT TO SOLICITOR CLIENT PRIVILEGE 2
1. Dividend Sprinkling in 2017 Beneficiaries > 18 Mr. X Allocate Trust Freeze Common Dividend OPCO - - - New TOSI rules would be effective January 1, 2018. Maximize dividends paid in 2017 to eligible shareholders or beneficiaries. Revised draft legislation meant to be delivered in Fall of 2017 DRAFT- FOR DISCUSSION PURPOSES ONLY SUBJECT TO SOLICITOR CLIENT PRIVILEGE 3
2. Dividend Sprinkling in 2018 Beneficiaries > 18 and meaningful contribution based on: 1) Labour 2) Capital 3) Financial Risks 4) Past contributions in respect of above Allocate Trust Mr. X Freeze Common Dividend OPCO - If a beneficiary or shareholder meaningfully contributes to the business then reasonable dividends, can be paid. Generally, an argument may be able to be made that a spouse should be entitled to dividends based on their meaningful contribution (either directly to the business or indirectly through the family home). Spouses will often have to guarantee loans made to businesses (for example where a spouse owns a house and the house is being mortgaged to finance the business) and are therefore at risk. Dividends may be able to be paid on this basis as well. Dividends may also be able to be paid to children over 18 who meaningfully contribute However TBD if part-time efforts are meant to be ignored for ages 18-24. - - - - DRAFT- FOR DISCUSSION PURPOSES ONLY SUBJECT TO SOLICITOR CLIENT PRIVILEGE 4
3. Converting Income to Capital Gains Planning under the Existing Rules Inter-Vivos Pipeline Strategy The initial July 18th, 2017 draft legislations targeted what is referred to as a pipeline, which is used as part of a strategy for converting dividend income into capital gains. Mr. A Repay note Mr. A Sell at FMV Create capital gain to increase ACB HOLDCO Dividend/share redemption OPCO OPCO - Finance announced that it will not move forward with proposals related to converting income into capital gains. Presumably this means that they will not move forward with amendments to 84.1 or new 246.1. Finance will study this further over the next year. Mr. A deliberately triggers gain on Opco shares using s.85 (referred to as an internal 85), where Mr. A can elect the amount of proceeds and determine the amount of capital gain. Mr. A does not claim capital gains exemption to offset capital gain. Mr. A sells Opco shares to Holdco in exchange for promissory note. Opco pays dividends to Holdco or shares are redeemed. Holdco uses funds to repay promissory note to Mr. A over time (2-5 years). Opco remains a separate and distinct entity for at least one year. Opco continues to carry on business in the same manner. - - - - - - - 5
4. Post-Mortem Pipeline Mr. A (deceased) Estate Estate Capital gain taxed at 26% Repay note ACB = FMV Disposition OPCO OPCO HOLDCO - Assumes that Finance will not move forward with proposed amendments to 84.1 and will not introduce new 246.1. The Estate of Mr. A sells Opco to Holdco in exchange for a promissory note. Opco is not wound up or amalgamated for at least one year. Promissory note is repaid over time (2 to 5 years). OPCO Amalgamate - - - 6
5. Estate Planning 101 Beneficiaries Mr. X Trust Freeze Common BENEFICIARY CO. OPCO - - - - - - Defer tax on future accrued gain to next generation. Probate savings if Primary/Secondary Wills are implemented. Asset Protection. Purification for capital gains exemption. Flexible structure. May still be possible to dividend sprinkle based on meaningful contribution. DRAFT- FOR DISCUSSION PURPOSES ONLY SUBJECT TO SOLICITOR CLIENT PRIVILEGE 7
