Non-Arm’s Length Transfers

Under Canadian tax law, special rules often apply to transfers of money and property between family and friends. The classification of whether a transaction is at “arm’s length” is an essential concept in the federal Income Tax Act (the “Act”). In many instances, a non-arm’s length transaction can give rise to tax consequences that do not correspond to its economic …

Shareholder Benefits and Shareholder Loans

Many Canadians operate their business through a corporation. Even though the finances of small business corporations are directly linked to the finances of their owner-managers, it’s important to remember that corporate funds are not personal funds and should not be treated as such. Treating your corporation like a personal bank account can lead to adverse tax consequences. Under the Canadian …

When is it Safe to Pay a Dividend?

The calculation of safe income has recently become important for business owners and their advisors in determining how to pay inter-corporate dividends. Generally, inter-company dividends can be paid tax-free in most privately owned businesses, provided that Subsection 55(2) does not apply to the dividend. If Subsection 55(2) does apply, the tax-free dividend is recharacterized as a taxable capital gain. Subsection …

Estate Freeze

When an individual passes away, there is a deemed disposition at fair market value (FMV) of all capital property owned by the individual on the date of death, including any shares of private corporations that the individual may own. There is an exception to this deemed FMV disposition for any property that passes to an individual’s spouse or common-law partner. …

Family Trusts 101 – Benefits and Traps

A trust can be an important vehicle in helping many Canadians achieve their estate planning goals. Through the use of a trust, Canadians can protect and continue to control/manage their assets as well as minimize and defer income tax liabilities through common planning techniques such as estate freezes, prescribed rate loans, and other income splitting strategies. However, trusts must be well …

Amalgamations

An amalgamation occurs when two or more corporations merge and form a new corporation. From a legal and commercial perspective, an amalgamation has the advantage of being a relatively straightforward transaction in that if the requisite conditions are met, the assets and liabilities of the predecessor corporations automatically become the assets and liabilities of the amalgamated corporation on the effective …