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WELCOME
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Effective Estate and Tax Planning Strategies ndash Navigating the Next Normal
Recordinghttpsmillerthomsonwebexcommillerthomsonldrp hpRCID=b6a686a69f074e99b651cde00abaa535
June 25 2020
2
Sarah Langille Host Waterloo Office
5195933328
Bio
slangillemillerthomsoncom
3
Please note all information provided during this session is not intended to constitute legal advice instead all information content and materials available are for general informational purposes only
4
Todayrsquos Panelists
Facilitating Business Succession During Recessionary Times
Wendi Crowe - wcrowemillerthomsoncom
Ray Adlington - radlingtonmillerthomsoncom
Split That Income Even In A TOSI World
Stephen Sweeney - ssweeneymillerthomsoncom
Cathie Brayley - cbrayleymillerthomsoncom
June 25 2020 5
-
Facilitating Business Succession During Recessionary Times
Wendi Crowe and Ray Adlington
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Effective Estate and Tax Planning Strategies ndash Navigating the Next Normal
Recordinghttpsmillerthomsonwebexcommillerthomsonldrp hpRCID=b6a686a69f074e99b651cde00abaa535
June 25 2020
2
Sarah Langille Host Waterloo Office
5195933328
Bio
slangillemillerthomsoncom
3
Please note all information provided during this session is not intended to constitute legal advice instead all information content and materials available are for general informational purposes only
4
Todayrsquos Panelists
Facilitating Business Succession During Recessionary Times
Wendi Crowe - wcrowemillerthomsoncom
Ray Adlington - radlingtonmillerthomsoncom
Split That Income Even In A TOSI World
Stephen Sweeney - ssweeneymillerthomsoncom
Cathie Brayley - cbrayleymillerthomsoncom
June 25 2020 5
-
Facilitating Business Succession During Recessionary Times
Wendi Crowe and Ray Adlington
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Sarah Langille Host Waterloo Office
5195933328
Bio
slangillemillerthomsoncom
3
Please note all information provided during this session is not intended to constitute legal advice instead all information content and materials available are for general informational purposes only
4
Todayrsquos Panelists
Facilitating Business Succession During Recessionary Times
Wendi Crowe - wcrowemillerthomsoncom
Ray Adlington - radlingtonmillerthomsoncom
Split That Income Even In A TOSI World
Stephen Sweeney - ssweeneymillerthomsoncom
Cathie Brayley - cbrayleymillerthomsoncom
June 25 2020 5
-
Facilitating Business Succession During Recessionary Times
Wendi Crowe and Ray Adlington
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Please note all information provided during this session is not intended to constitute legal advice instead all information content and materials available are for general informational purposes only
4
Todayrsquos Panelists
Facilitating Business Succession During Recessionary Times
Wendi Crowe - wcrowemillerthomsoncom
Ray Adlington - radlingtonmillerthomsoncom
Split That Income Even In A TOSI World
Stephen Sweeney - ssweeneymillerthomsoncom
Cathie Brayley - cbrayleymillerthomsoncom
June 25 2020 5
-
Facilitating Business Succession During Recessionary Times
Wendi Crowe and Ray Adlington
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Todayrsquos Panelists
Facilitating Business Succession During Recessionary Times
Wendi Crowe - wcrowemillerthomsoncom
Ray Adlington - radlingtonmillerthomsoncom
Split That Income Even In A TOSI World
Stephen Sweeney - ssweeneymillerthomsoncom
Cathie Brayley - cbrayleymillerthomsoncom
June 25 2020 5
-
Facilitating Business Succession During Recessionary Times
Wendi Crowe and Ray Adlington
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
-
Facilitating Business Succession During Recessionary Times
Wendi Crowe and Ray Adlington
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Facilitating Business Succession In 2020 bull Estate Freeze Case Study
bull Techniques
bull Estate Freeze Issues
bull Estate Refreeze
bull Debt Restructuring
bull Loss Acquisitions and Utilizations
bull Dividing The Spoils
June 25 2020 7
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Santarsquos Toys Incorporated
SANTArsquoS TOYS amp GAMES
bull Santa ordinarily resides in Canada
bull Santarsquos Toys amp Games is global manufacturer and distributer of childrenrsquos playthings
bull Bulk of sales in Q4
bull Deemed an essential service in all jurisdictions
bull Santarsquos reflective social distancing time has led him to want to include loyal elves into ownership
bull Even those on a shelf
June 25 2020 8
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Santarsquos Toys Incorporated ndash Frozen
SANTArsquoS TOYS amp GAMES INC
Preferred
Common Common
bull Growth in value benefits elves
bull Caps Santarsquos life insurance needs
bull Align interests of key employees
bull Without giving away existing value
bull Transition business to next generation
bull Signals continuity to suppliers customers
bull Creates natural buyer for Santa
June 25 2020 9
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Estate Freeze Techniques Technique Tax Deferral Non-Share
Consideration Reporting
Inter Vivos Gift None Yes Disposition (gainloss)
Share Capital Reorganization Automatic Yes Disposition
Share Exchange Automatic No None
Individual Transfer to Corporation Full or Partial Yes Election
Corporation Transfer to Corporation Full or Partial Yes Election
Amalgamation Automatic No Disposition
Stock Dividend Yes No T5
Transfer to Partnership Full or Partial Yes Election
June 25 2020 10
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Estate Freeze Issues To Consider
bull Contractual Covenants bull Minority Shareholder Rights
bull Share Terms Control bull US Citizenship
bull Marital Property bull Valuation
bull Asset Protection bull Unanimous Shareholdersrsquo Agreement
June 25 2020 11
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Estate Refreeze ndash Claus Holdings Ltd bull At time of estate freeze portfolio value =
$2000000 = Class A preferred value
bull Current portfolio value = $1500000
bull Expected to double to $3000000 by 2030
bull Expected future tax saving after ten years = $222500
Claus
Family Trust
bull Present value (5 discount) = $136600 Class Abull Refreeze NOW by exchanging Class A Preferred preferred for Class B preferred
bull Expected future tax saving after ten years =
CLAUS HOLDINGS LTD
Common
$333750
bull Present value (5 discount) = $204900
June 25 2000 12
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Debt Restructuring bull Where debt settled for less than principal amount the ldquoforgiven amountrdquo
reduces tax attributes or is included in income
bull Strategies
bull Extended amortization versus discounted payment
bull Interest rate relief
bull No debt parking where specified cost to holder is gt 80 of principal amount
bull Debt split
bull Transfers of forgiven amount to eligible transferees
bull Use of less valuable tax attributes
bull Issue distress preferred shares
June 25 2020 13
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Loss Utilizations and Acquisitions bull Carry back up to 3 years or forward up to 20
years (non-capital) or indefinitely (capital)
bull Use in related corporations
SANTArsquoS TOYS amp GAMES
TOYS R US
bull Preferred share debt loop
bull Transfer income producing property to loss corporation on rollover basis
bull Losses ldquopurchasedrdquo subject to streaming bull That business must be carried on for profit
or with REOP
bull Limited to income from that business or substantially similar business
June 25 2020 14
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Dividing The Spoils bull Break-up Santarsquos Toys amp Games
bull North Pole Lands Inc Rudolphrsquos Sleigh Inc Santarsquos Gifts Inc and Claus Holdings Ltd
bull Related party butterfly
bull Active business income
bull Reduced value of each
bull Facilitates succession Land Holdings Operating Company Equipment Company
Family Trust
Investment Company
ldquobankerrdquo
Shares
Beneficiary
Principal
Preferred Shares
- voting
- redeemable for FMV
of companies when the
reorganization is done
Common Shares
Notes
PPSA Security
Notes
Collateral Mortgage
Notes
PPSA Security
June 25 2020 15
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Conclusion bull Business succession is planned process especially in recessionary times
bull Establish personal goals
bull Identify the successors
bull Consider the methods and tax implications
bull Determine the value
bull Set up successor for (cash flow) success
bull Sensitivity analysis for economic downturn
bull Share the plan
bull Revisit the plan
bull Donrsquot procrastinate bull Like Ray did by preparing slides two days before the webinar
June 25 2020 16
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Wendi Crowe Edmonton Office
7804299764
Bio
wcrowemillerthomsoncom
17
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Ray Adlington London Office
5199313545
Bio
radlingtonmillerthomsoncom
18
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
-
Split That Income Even In A TOSI World
Stephen Sweeney and Catherine Brayley
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
What We Hope to Accomplish bull Income splitting and why consider it now
bull Strategies to split income derived from an investment portfolio
bull Consider where source is private company shares that carries on a business
bull Take-aways
June 25 2020 20
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Marge and Homer Are Residents of BC
Income Marge Homer Tax Saving
100000 100000 22590
100000 50000 50000 7791 x 2 7008
250000 250000 90843
250000 125000 125000 32371 x 2 26101
bull Take away moving some of Margersquos income to Homer will save taxes for the family
June 25 2020 21
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Some Options for Income Splitting bull Employment income provided the
amount of income is reasonable
bull Pension
bull Transfers of investments at Fair Market Value
bull Loans for Value
bull Exceptions to the Tax on Split Income (ldquoTOSIrdquo) Rules
TECHNICAL RULES = POTENTIAL TRAP
TOSI Double tax
IndirectConferral of Benefit
FMV transfers
Attribution rules spouse minor children trust corporate
June 25 2020 22
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Why Consider It Now bull Tax rates are going up (likely)
bull Market conditions investment returns improving (hopefully)
bull Interest rates are at historic lows
bull Prescribed rate 1 starting July 1st (down from 2)
June 25 2020 23
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Prescribed Rate Loan bull Marge a resident of Ontario
bull $1000000 of investible assets
bull Return per year = $50000
bull Tax = $26765
bull Bart Lisa and Maggie have no income
bull Income up to $15714 will be subject to $0 tax
bull Marge lends $1000000 to family trust for Bart Lisa and Maggie
bull Interest is 1 for lifetime of loan
Marge Each of Bart Lisa Maggie
Interest $10000
bull Used for private schooling summer camps sports equipment their share of family vacations etc
Tax $5353
Distribution $13333
Tax 0
Tax Saving Each Year = $21412
Tax Saving Over 10 Years = $214120
June 25 2020 24
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Splitting Investment Income Marge bull Margersquos Options
100 common shares cost $100 FMV $1000000 bull Gift of 50 of shares to Homer
bull Sale of 50 of shares to Homer
bull Freeze and issue of common shares to Homer
Cash Publicly Traded Securities
June 25 2020 25
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Gift of Shares to Homer NOT A GOOD IDEA Marge
bull Disposition of shares for fair market 100 common shares cost $100 FMV $1000000 value tax of $246029 (though there
could be a rollover)
bull Future dividends will be subject to tax in Margersquos hands under the so-called attribution rules
Cash Publicly Traded Securities
June 25 2020 26
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Sale of 50 of Shares to Homer Homer Marge
Common Shares Common Shares ACB $500 000 ACB $50 FMV $500000 FMV $500000
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull To ensure dividends taxed in Homerrsquos hands he must pay fair market value for the shares
bull Option Prescribed rate loan
bull 1 starting July 1st
bull Rate applies for the lifetime of the loan
bull Must pay interest no later than January 30 of the following year failing which attribution rules will apply
bull Interest is a deductible expense to Homer included in Margersquos income
bull Homer could use after-tax dividends to pay down the loan
June 25 2020 27
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Freeze of DrsquoOh Investment Inc Shares Homer
Common Shares
Marge
Preferred Shares ACB = $100 FMV $1000000 Common Shares
DrsquoOh Investments Inc
Cash Publicly Traded Securities
bull Exchange of shares using rollover 85 86 of the ITA
bull Preferred Shares must have a value of $1000000
bull Marge must receive a dividend each year on the preferred shares otherwise corporate attribution rules will apply
bull Deem interest on the value of the preferred shares based on the prescribed rate in effect at the time
bull Difference prescribe rate loans where the interest is fixed to the time of the note
bull Dividends then split between Marge and Homer
June 25 2020 28
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Other Options bull Consider similar strategies involving childrengrandchildren
bull But
bull Loss of asset and ability to generate income in future
bull If shareholder consider entitlement to information
bull Protecting asset from claims of childrenrsquos spouses and creditors bull If child non-resident of Canada may be other considerations
bull Possible solution Family Trust
bull Control of asset
bull But
bull 21-year rule
bull Compliance costs
June 25 2020 29
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Splitting Income from Pretzel Vending Inc bull Consider employment income BUT amount
paid to Homer must be reasonable
bull Income splitting strategies the same as for Marge
portfolio investments
bull Possible to multiply the lifetime capital gains exemption
Pretzel Vending bull Ensure that the conditions are met Inc
bull Must pay attention to TOSI
bull Related Business
bull Split Income
bull Excluded Amounts
June 25 2020 30
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Refinance Existing 2 Prescribed Rate Loans
bull Must be new loan made on or after July 1
bull May require sale of investments to generate cash to repay the loans
bull Consider tax cost of selling investment against savings arising from lower prescribed rate loan
June 25 2020 31
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Take-Aways bull Income splitting possible
bull Rules complex
bull Traps for the unwary
bull We are here to help
June 25 2020 32
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Cathie Brayley Vancouver Office
6046431212
Bio
cbrayleymillerthomsoncom
33
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
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M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Stephen Sweeney Kitchener-Waterloo Office
5195932390
Bio
ssweeneymillerthomsoncom
34
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Questions Contact Us
Wendi Crowe - wcrowemillerthomsoncom Ray Adlington - radlingtonmillerthomsoncom
Stephen Sweeney - ssweeneymillerthomsoncom Cathie Brayley - cbrayleymillerthomsoncom
35
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Upcoming Webinar
Thursday July 9 2020
bull Have You Heard What The Judges Did Now to Alter Testator Intent
bull Trustees Know Your Responsibilities During Volatile Market Conditions
wwwmillerthomsoncomennews-and-eventsmt-seminars 36
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
Private Client Services Newsletter
Stay Informed
Wealth Matters
37
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
-
M I L L E R T H O M S O N C O M
copy 2016 Miller Thomson LLP All Rights Reserved All Intellectual Property Rights including copyright in this
presentation are owned by Miller Thomson LLP This presentation may be reproduced and distributed in its
entirety provided no alterations are made to the form or content Any other form of reproduction or distribution
requires the prior written consent of Miller Thomson LLP which may be requested from the presenter(s)
This presentation is provided as an information service and is a summary of current legal issues This
information is not meant as legal opinion and viewers are cautioned not to act on information provided in this
publication without seeking specific legal advice with respect to their unique circumstances
VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENE R WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTREacuteAL
