Don’t Assume When Assuming Liabilities

The assumption of a vendor’s liability by a purchaser may constitute part of the sale price and, therefore, part of the vendor’s proceeds of disposition.  The tax consequences to the vendor and the purchaser will vary depending on whether a liability is embedded or separable from the property acquired.  The types and amounts of liabilities ought to be identified at …

Update on the July 18th Tax Proposals

On July 18, 2017, Finance Minister Morneau announced changes to the Canadian tax system.  The announced changes were marketed at being aimed at improving fairness in the tax system.  The announcement targeted the following:   Income (dividend) sprinkling and multiplying the lifetime capital gains exemption (LCGE); Converting dividend income into capital gains (known as “surplus stripping); and Passive investment income …

Valuing an Interest in a Discretionary Trust

  A trust is not a legal entity or person.  A trust does not hold title to property and cannot hold title to property.  The trustee(s) hold legal title for the benefit of the trust’s beneficiaries.[1]  Traditional trust law principles hold that a beneficiary of a discretionary trust does not have a property interest in the trust.  Such a beneficiary …

Condo Flippers Beware

With the real estate markets in Toronto and Vancouver growing robustly with prices reaching historical highs, speculators have pounced on the opportunity to realize quick returns on buying and selling condos and other real estate.  The Canada Revenue Agency (“CRA”) has taken notice of this activity and is aggressively looking into whether these sales are being reported and, if they are, whether they are being …

Personal Services Businesses

A corporation has many benefits as a vehicle for Canadians who carry on small businesses. In addition to the benefits of limited liability protection, Canadian small business corporations are granted a variety of tax advantages under the Income Tax Act (the “Act”). These corporations enjoy a tax rate of appox. 15% on active income from business (compared to the top …

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 …

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 …

What Can be Done Before Your Trust Turns 21?

What is the 21-year rule?   Family trusts created during someone’s lifetime are deemed to dispose of their property every 21 years. Although the trust is deemed to have disposed of property for tax purposes, an actual disposition typically does not occur. This 21-year deemed disposition occurs at fair market value (FMV) and results in the realization of any inherent …