Estate planning is critical to effectively preserve wealth and pass it on to the next generation. We think out of the box. Where engaged to develop an estate plan, we:
- prepare a summary of the client’s major assets and liabilities, and evaluate the tax consequences involved in passing those assets to the next generation;
- Understand the family dynamic;
- review the client’s Will and determine the family’s personal wishes with respect to succession of assets;
- determine whether there is a role for insurance;
- develop an estate plan, which may involve an estate freeze, a gifting program, a family trust, and/or new Wills;
- implement the estate plan, and coordinate any required legal and valuation work;
- recommend revisions to Wills to enhance the effectiveness of the tax planning and lighten the tax burden on the estate and heirs;
- make sure all aspects of the plan are coordinated; and
- assist in family meetings to explain the overall estate plan.
Using software we have developed, we can model the estate plan and monitor it year by year, adjusting it for changing financial circumstances, changing family, financial, and personal objectives and changes in tax laws.
Business Succession Planning
Many entrepreneurs who have built successful companies are concerned about business succession as they get older. They often want to see the family business passed to the next generation, but believe this cannot be done without paying significant capital gains tax. We can reduce the tax with advance planning.
We assist with business succession planning by
- meeting with the client to determine the facts and circumstances, reviewing the personal tax position of the owners and the circumstances surrounding the company, and estimating the company’s worth;
- obtaining a valuation of the business;
- developing a plan for transferring the family business to the next generation (which may involve an estate freeze, the use of trusts, and, where appropriate, working with life insurance professionals) or positioning the business for sale in a tax efficient manner; and
- working closely with legal counsel to implement the plan and assist in any tax filings that may be required.
Once the plan is in place, we can monitor it year by year and adjust the plan for changing circumstances, personal objectives, and changing tax laws.
Sale of a Business
Tax considerations are very important in selling a business, to maximize the after-tax return to the owner. We anticipate the various ways of selling a business to determine the most tax-effective options for our clients. We :
- analyze the current corporate and family structure to develop planning recommendations;
- design the transactions required to put the tax planning in place;
- liaise with legal and other counsel;
- assist by reviewing the legal documentation;
- assist in negotiating the terms of the sale, with particular emphasis on the tax issues involved; and
- complete all necessary tax filings and elections.
We work closely with legal counsel and business valuators where required. Sometimes, we can minimize tax by incorporating certain international strategies. We can also suggest certain creative approaches, such as earnouts, employee-funded purchases, share-for-share exchanges, and sale/leaseback transactions.
Purchase of a Business
Before purchasing a business, a tax evaluation is always required. Questions such as whether to purchase assets or shares, and how to structure financing typically arise.
A due diligence review of past tax filings may be a prudent step. We can provide this review and summarize our findings quickly and efficiently in a report.
Canada does not allow for consolidated income tax returns, so tax planning is often necessary to match the profits from businesses with losses from other sources or interest expense on loans taken out to buy the business. We can advise on this planning and help to implement it after the purchase.
We work closely with legal counsel to coordinate the tax planning with the required legal documentation.
We can also structure creative strategies, where warranted, including earnouts, sale and leaseback transactions, share-for-share exchanges, spin-offs, and management buyouts.
Employee Share Ownership Programs
For many years we have assisted with designing and implementing employee share ownership programs (ESOPs). These range from granting a small share position to a key executive to the complete buyout of a company by its employees.
We can assist with designing the ESOP and arrange for valuation reports where required. We will also recommend legal counsel who are experienced in this field.
We provide employees with unbiased and objective tax advice concerning their investment in the company, as well as tax-planning suggestions and individual counselling. We also prepare a tax commentary to accompany a share offering, a summary in simple terms, and answers to the most common questions.
Where applicable, we can assist with establishing a self-directed RRSP program for ownership of company stock, and issue an opinion with respect to qualification of the stock for RRSP ownership.
We design and implement executive compensation programs. This entails advising on the optimal forms of compensation, taxable and non-taxable benefits, tax-effective retirement plans, stock option programs, and insurance and disability plans.
We have written extensively on stock options and share ownership programs, and can assist with tax-reporting issues.
We have also designed and implemented carried interest arrangements, where executives participate directly in certain businesses. Using these plans, executives can obtain capital gains tax treatment (taxed at half rates) instead of regular salary or bonuses. We often include family trusts within these plans to maximize the benefits of income splitting. Sometimes the capital gains exemption can be used within the plan to obtain tax-free capital gains.
We have a variety of techniques for setting up income-splitting arrangements using trusts. These include structures where investment income and capital gains are realized by family members who have little or no income, and multiplying access to the capital gains exemption.
A trust can have a variety of other uses such as asset protection, maintaining control over assets, income splitting, multiple capital gains exemptions and estate planning.
There are many reasons companies or corporate groups may need to be reorganized:
- to amalgamate or combine companies in order to use the profits of one company against the losses of another;
- to create holding companies for creditor-proofing reasons;
- to divide the assets of a corporation among the shareholders (referred to as a butterfly reorganization);
- to incorporate a business, so that it may be carried on in corporate form;
- to carry out an estate freeze in the most effective manner;
- to simplify a group of companies or eliminate inactive companies that are no longer useful; or
- to change the nature of a corporation’s income (from investment income to active income or vice versa).
We can advise on whether a corporate reorganization is required, the benefits, and the disadvantages, of such reorganization. We can implement the corporate reorganization, and work with legal counsel to execute the plan. We will also prepare the required tax-reporting forms, and produce a reporting letter summarizing the reorganization. For all of this work, we provide a precise cost estimate.
Shareholder Remuneration Strategies
Recent changes to corporate tax rates have changed the rules of thumb followed for decades on how to remunerate owner-managers. The ability to defer tax by leaving funds in a corporation, rather than take a bonus or a dividend is very enticing. Yet, this must be balanced against the cash needs of the family and other matters (such as making an RRSP contribution).
An overall evaluation of how to remunerate an owner-manager and family is complex and multi-dimensional. We take a broad approach, looking at multiple factors such as corporate and personal tax rates, bonuses v. dividends, AMT, income splitting, RRSP contributions, the capital gains exemption, etc.
Corporate Tax Checkups
From time to time, it is useful to take a fresh look at a corporate structure to determine whether every available tax-planning opportunity has been employed. This exercise is worthwhile every few years because circumstances and laws change, yielding new opportunities or unexpected drawbacks.
When approaching this kind of engagement, we
- meet with representatives of the corporation, or the corporation’s accountants, to review the group’s overall structure, financial statements, and tax returns;
- prepare a short report summarizing our tax-planning ideas;
- where warranted, prepare a detailed implementation memo to put our tax-planning ideas into effect; and
- monitor the structure for opportunities created by changes in tax laws or other circumstances.
Tax audits happen often.
Before a tax auditor knocks at your door, why not have a friendly party go through the audit process to prepare you? We can pinpoint your areas of exposure and prepare you for the types of questions you will likely be asked in the audit. In addition, by diagnosing problem areas in advance, we can sometimes correct mistakes and thus leave far less on the table for the tax auditor to find.
Real Estate Taxation
We have particularly strong expertise in real estate taxation having served as Editors of Taxation of Real Estate in Canada for many years. As a result, we have many real estate clients in all aspects of the real estate industry both here and abroad.
We are frequently consulted on tax planning matters for real estate companies and their shareholders and are pleased to undertake a review of the corporate structure of a real estate group, as well as its tax planning strategies. We also provide opinions on whether a sale of real estate will result in a capital gain or business income.
We have also been involved extensively in the syndication of real estate in both Canada and the United States, and in advising on how real estate should be purchased, financed, and sold.
We have many years of experience in designing and implementing international structures for e-commerce businesses of all types.
We understand e-commerce technology and have spoken and written extensively on the tax issues involved.
We can advise existing businesses as well as new ventures on the feasibility of setting up international structures and exactly how to do so. Through our extensive international network, we can assist with implementing the international structure.