ADVANCED TAX PLANNING STRATEGIES

TRUSTS AND CORPORATE STRUCTURE

CORPORATE SITUATIONS

STRUCTURE

1% 99%

100%

OPCO

HOLDCO

FAMILY TRUST WITH ALL FAMILY MEMBERS

AS BENEFICIARIES

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

-

OPCO(0)

HOLDCO

$$$ UL

FAMILY TRUSTDIVIDEND INCOME SPLIT

$35,000.00/YRCGE MULITPLIED

($750,000.00 X ?)

SALE OF BUSINESS

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

DAVE DAVE/WIFE/CHILD19/CHILD14

FMV $2,500,001.00 $2,500,001.00

ACB $1.00 $1.00

CG $2,500,000.00 $2,500,000.00

CGE $750,000.00 3,000,000.00 (750,000.00 X 4)

NET $1,750,000.00 $0.00

TAXABLE PORTION $875,000.00 $0.00

TAX (40%) $350,000.00 $0.00

DIFFERENCE $350,000.00

EXAMPLE – INCOME SPLITTING

DAVE – FAMILY – Wife, two kids (ages 19 & 14) - CCPC – annual income (personal) $200,000.00

Dave Dave/Wife/19 year old

INCOME Dave$200,000.00

Dave$130,000.00

$35,000.00Dividend

$35,000.00Dividend

TAX RATE 39.5% 39.5% 0% 0%

TAX PAYABLE

$79,000.00 $51,350.00

0 0

NET $121,000.00 $78,650.00

$35,000.00

$35,000.00

TOTAL HOUSEHOLD INCOME

$121,000.00 $148,000.00

DIFFERENCE $27,650.00

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

INTER VIVOS TRUSTS

ADVANCED TAX PLANNING

TRUST BASICS

SETTLOR TRUSTEE

TRUSTEE LegalTRUSTEE

Ownership

BENEFICIARIES

(benefits and use)

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

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

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

TRANSFER OF PROPERTY TO AN INTER VIVOS TRUST

EXISTING:

X

Investment Portfolio(FMV $500.000)

REORGANIZATION:

XFMV Child 1 and

2Disposition (1)

Y

(1) Consideration $500,000 promissory note at 4%

TRUST

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

Secondary Income

$200,000.00 capital

$20,000.00 Growth (attributed to parent)

($8,000.00) Tax

$12,000.00 In minor’s hands – future growth taxed in minor’s hands at lower rates

$200,000.00 capital

$20,000.00 Growth (attributed to parent)

($8,000.00) Tax paid by parent from own funds leave

$20,000.00 Full in minor’s hands – future growth

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

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 PropertyFinanced by mortgage guaranteed by X

OPCOTRUST

PERSONAL SERVICES TRUST

EXISTING:

XEmployer/Employee

REORGANIZATION:

SERVICE AGREEMENT X

Y

Child 1 and 2

1. Employment Agreement with the Trust

PUBCO

PUBCOTRUST

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

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

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

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