ADVANCED TAX PLANNING STRATEGIES

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ADVANCED TAX PLANNING STRATEGIES
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TRUSTS AND CORPORATE STRUCTURE

• CORPORATE SITUATIONS

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STRUCTURE

• 1 99
• 100

OPCO
FAMILY TRUST WITH ALL FAMILY MEMBERS AS
BENEFICIARIES
HOLD CO
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ADVANTAGES

• INCOME SPLITTING
• - SPOUSE/CHILDREN OVER 18/PARENTS/CHILDREN UNDER
  18?
• MULTIPLICATION OF CGE
• - SALE OR DEATH
• ASSET PROTECTION
• - HARD/OP ASSETS
• - CASH IMMEDIATE AND ONGOING
• - LIFE INSURANCE PROCEEDS
• - REDUCTION IN PROBATE AND PROFESSIONAL FEES
  WITHOUT LOSS OF CONTROL
• BUSINESS OWNERS RETIREMENT PLAN
• - UL OVERFUNDED/LEVERAGE
• CONTROL OF DISPOSITION OF SHARES FOR TAX
  PURPOSES ON DEATH
• SUCCESSION PLANNING
• - TAX/CONTROL/PROTECTION

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• -

OPCO (0)
FAMILY TRUST DIVIDEND INCOME SPLIT 35,000.00/YR C
GE MULITPLIED (750,000.00 X ?)
HOLD CO UL
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SALE OF BUSINESS

• DAVE
• FAMILY Wife, two kids (ages 19 14)
• CCPC - 2,500,001.00

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EXAMPLE INCOME SPLITTING

• DAVE FAMILY Wife, two kids (ages 19 14)
• - CCPC annual income (personal)
  200,000.00
• Dave Dave/Wife/19 year old

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SITUATION IDENTIFICATION/CLIENT PROFILE

• CLIENT
• - HAS A CORPORATION
• - A FAMILY
• - WIDE VARIATION IN TAX BRACKETS/LIABILITIES
  WITHIN FAMILY
• - CLIENT OR CLIENT CORPORATION HAS A
  SIGNIFICANT ANNUAL INCOME
• - CLIENT HAS A LARGE ANNUAL TAX LIABILITY
  (INCOME/CAPITAL GAINS)
• - WANTS TO BRING CHILD INTO BUSINESS POSSIBLE
  SUCCESSION OR TAKEOVER
• - IS TALKING ABOUT SELLING BUSINESS
• - IS INVESTING THROUGH CORPORATION
• - IS RETIRING, OR TALKING ABOUT IT

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• INTER VIVOS TRUSTS
• ADVANCED TAX PLANNING

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TRUST BASICS

• SETTLOR TRUSTEE
• TRUSTEE Legal
• TRUSTEE Ownership
• BENEFICIARIES
• (benefits and use)

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TRUST PRINCIPLES

• CONTROL
• PROTECTION
• TAX PLANNING/TAX REDUCTION
• FLEXIBILITY separate benefit control
• - tax deferred roll in/roll out in some
  cases
• UNIQUE PROPERTY HOLDING/OWNERSHIP SITUATIONS
• LIMITATIONS

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ADVANTAGES/LIMITATIONS

• ADVANTAGES LIMITATIONS
• CONTROL -TRANSFER TO TRUST MAY BE - TRUSTEES
  (OFTEN PARENTS) A DISPOSITION
• ASSET PROTECTION - 21 YEAR TRUST RULE
• - CREDITORS/SPOUSES
• TAX REDUCTION
• - INCOME SPLITTING
• - CGE MULITPLICATIONS
• - TAX DEFERRAL
• ADVANCE ESTATE PLANNING
• - SUPPLEMENTS WILL/EPA
• - AVOIDS PROBATE TAXES
• - REDUCES PROFESSIONAL FEES

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KIDDIE TAX - S.120.4 ITA

• PERSON UNDER 18 YEARS RECEIVING A DIVIDEND FROM
  CCPC
• SOLUTIONS
• - NOT APPLICABLE TO
• - SALARIES TO CHILDREN
• - MONEY LENT AT PRESCRIBED RATE
• - INVEST IN SHARES WITH DIVIDEND
  PAYMENTS
• - INVENT IN INTEREST BEARING TERM DEPOSIT
  MATURING WHEN CHILD IS 18
• - FIXED INCOME TRUST FOR MINORS
• - DEBT/INTEREST PAYMENTS FROM FAMILY
• - SECONDARY INCOME

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TRANSFER OF PROPERTY TO AN INTER VIVOS TRUST

• EXISTING
• X
• Investment Portfolio
• (FMV 500.000)
• REORGANIZATION
• X
• FMV Child 1 and 2
• Disposition (1)
• Y
• (1) Consideration 500,000 promissory note at 4

TRUST
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FIXED INCOME TRUST FOR MINORS

• S.104(18) FACTORS
• - RESIDENT
• - BENEFICIARY YOUNGER THAN 21 YEARS
• - INCOME RIGHT VESTS (NON-DISCRETIONARY)
• - ENTITLEMENT OF BENEFICIARY BY 40 ONLY
  CONDITION
• PLANNING
• - INTEREST FREE LOAN TO CAPITAL BENEFICIARIES
• - TRUST INTEREST BY SEPARATE DISCRETIONARY TRUSTS

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Secondary Income
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OWNERSHIP OF FAMILY ASSETS BY AN INTER VIVOS TRUST

• COMMON FAMILY ASSET IS COTTAGE
• - USED BY VARIOUS FAMILY MEMBERS
• Parents
• CONSIDER ACQUIRE COTTAGE BY TRUST
• - FUNDED BY OPCO DIVIDENDS
• - PARENTS SHOULD NOT BE BENEFICIARIES OF TRUST
• - SPECIFIED BENEFICIARY
• - PRINCIPAL RESIDENCE
• - S.107(2.01) TRUST TO BENEFICIARY
• - PRINCIPAL RESIDENCE PLANNING

TRUST (1)
OPCO
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TRUST PLANNING FOR NON-SBC SCENARIOS

• CONSIDERATION ACQUISITION OF NON-ACTIVE
  BUSINESS ASSET BY A CORPORATION
• - NOT A SBC
• S.74.4(4) TRUST
• - NO DIVIDEND ENTITLEMENT WHILE A DESIGNATED
  PERSON
• EXAMPLE
• Designated Persons
• Real Property
• Financed by mortgage guaranteed by X

TRUST
OPCO
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PERSONAL SERVICES TRUST

• EXISTING
• X
• Employer/Employee
• REORGANIZATION
• SERVICE
• AGREEMENT X
  Y
• Child 1 and 2
• 1. Employment Agreement with the Trust

PUBCO
PUBCO
TRUST
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SITUATION INDENTIFICATION/CLIENT PROFILE

• SITUATION IDENTIFICATION
• - FAMILY SITUATION/FAMILY CONCERN OR ISSUE
  (BLACK SHEEP/DISABLED CHILD/UNDESIRABLE SPOUSE)
• - CLIENT HAS SIGNIFICANT ANNUAL INCOME
• - CLIENT HAS LARGE ANNUAL TAX LIABILITY
  (INCOME/CAPITAL GAINS)
• - CLIENT HAS FAMILY BUSINESS
• - CLIENT HAS BUSINESS WITH NON ACTIVE BUSINESS
  ASSET (EG REAL ESTATE)
• - WIDE VARIATION IN TAX BRACKETS/LIABILITIES
• - CLIENT HAS UNIQUE PROPERTY HOLDING/OWNERSHIP
  SITUATION
• - CLIENT HAS SPOUSE AND CHILDREN BUT IN NOT
  ENGAGED IN INCOME SPLITTING
• - CLIENT HAS AN ESTATE TAX ISSUE PENDING

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21-YEAR RULE

• GENERAL
• PREVENTS INDEFINITE DEFERRAL OF TAX PROPERTY
  HELD WITHIN A TRUST
• - GENERALLY APPLIES TO CAPITAL PROPERTY
• AND LAND INVENTORY
• BE WARY OF IT
• - S.107(2) PLANNING TOOL
• GENERALLY ARISES IN ONE OF TWO SITUATIONS
• - TESTAMENTARY SPOUSE TRUST
• - ESTATE FREEZE
• IMPORTANT EXCEPTIONS
• - SPOUSE TRUST
• - ALTER EGO TRUST
• - JOINT SPOUSAL/COMMON-LAW PARTNER TRUST
• - TESTAMENTARY SPOUSE TRUST

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PLANNING CONSIDERATIONS

• PERSONAL TRUST S.107(2) ROLL-OUT
• - ELIMINATES 21-YEAR RULE ISSUE
• - BUT NOW THE ASSETS ARE IN THE HANDS OF A
  BENEFICIARY
• ALTERNATIVES TO S.107(2)
• - S.107(2.001)
• - S.107(2.002)
• ABOVE CAUSE S.107(2.1) TO APPLY
• - DISTRIBUTION GREATER OF FMV AND COST
• - CONSIDER IF TRUST HAS TAX SHIELD

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TRUST SETTLEMENT CONSIDERATIONS

• BE VERY CAREFUL
• - S.75(2) IS ONEROUS
• - PROPERTY NEVER REVERT TO SETTLOR
• - WATCH OTHER ATTRIBUTION ALSO
• SETTLOR LINEAR RELATIVE TO BENEFICIARIES
• KEY MATTERS TO NOTE
• - SETTLOR CAN BE TRUSTEE
• - SETTLOR SHOULD NOT BE BENEFICIARY
• - TRUST SHOULD BE IRREVOCABLE AND NO VARIATION
• - SETTLOR PAY COSTS TO ESTABLISH TRUST