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ADVANCED TAX PLANNING STRATEGIES - PowerPoint PPT Presentation


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ADVANCED TAX PLANNING STRATEGIES. TRUSTS AND CORPORATE STRUCTURE. CORPORATE SITUATIONS. STRUCTURE. 1% 99% 100%. OPCO. FAMILY TRUST WITH ALL FAMILY MEMBERS AS BENEFICIARIES. HOLD CO. ADVANTAGES. *INCOME SPLITTING - SPOUSE/CHILDREN OVER 18/PARENTS/CHILDREN UNDER 18?

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trusts and corporate structure
TRUSTS AND CORPORATE STRUCTURE

CORPORATE SITUATIONS

structure
STRUCTURE

1% 99%

100%

OPCO

FAMILY TRUST WITH

ALL FAMILY MEMBERS

AS BENEFICIARIES

HOLD

CO

advantages
ADVANTAGES

*INCOME SPLITTING

- SPOUSE/CHILDREN OVER 18/PARENTS/CHILDREN UNDER 18?

*MULTIPLICATION OF CGE

- SALE OR DEATH

*ASSET PROTECTION

- HARD/OP ASSETS

- CASH: IMMEDIATE AND ONGOING

- LIFE INSURANCE PROCEEDS

- REDUCTION IN PROBATE AND PROFESSIONAL FEES WITHOUT LOSS OF CONTROL

*BUSINESS OWNERS RETIREMENT PLAN

- UL OVERFUNDED/LEVERAGE

*CONTROL OF DISPOSITION OF SHARES FOR TAX PURPOSES ON DEATH

*SUCCESSION PLANNING

- TAX/CONTROL/PROTECTION

slide5
-

OPCO

(0)

FAMILY TRUST

DIVIDEND INCOME SPLIT

$35,000.00/YR

CGE MULITPLIED

($750,000.00 X ?)

HOLD

CO

$$$ UL

sale of business
SALE OF BUSINESS

DAVE

  • FAMILY – Wife, two kids (ages 19 & 14)
  • CCPC - $2,500,001.00
example income splitting
EXAMPLE – INCOME SPLITTING

DAVE – FAMILY – Wife, two kids (ages 19 & 14)

- CCPC – annual income (personal) $200,000.00

Dave Dave/Wife/19 year old

situation identification client profile
SITUATION IDENTIFICATION/CLIENT PROFILE
  • CLIENT

- HAS A CORPORATION

- A FAMILY

- WIDE VARIATION IN TAX BRACKETS/LIABILITIES WITHIN FAMILY

- CLIENT OR CLIENT CORPORATION HAS A SIGNIFICANT ANNUAL INCOME

- CLIENT HAS A LARGE ANNUAL TAX LIABILITY (INCOME/CAPITAL GAINS)

- WANTS TO BRING CHILD INTO BUSINESS – POSSIBLE SUCCESSION OR TAKEOVER

- IS TALKING ABOUT SELLING BUSINESS

- IS INVESTING THROUGH CORPORATION

- IS RETIRING, OR TALKING ABOUT IT

slide9
INTER VIVOS TRUSTS

ADVANCED TAX PLANNING

trust basics
TRUST BASICS

SETTLOR TRUSTEE

TRUSTEE Legal

TRUSTEE Ownership

BENEFICIARIES

(benefits and use)

trust principles
TRUST PRINCIPLES
  • CONTROL
  • PROTECTION
  • TAX PLANNING/TAX REDUCTION
  • FLEXIBILITY – separate benefit & control

- tax deferred roll in/roll out in some cases

  • UNIQUE PROPERTY HOLDING/OWNERSHIP SITUATIONS
  • LIMITATIONS
advantages limitations
ADVANTAGES/LIMITATIONS

*ADVANTAGES*LIMITATIONS

  • CONTROL -TRANSFER TO TRUST MAY BE - TRUSTEES (OFTEN PARENTS) A DISPOSITION
  • ASSET PROTECTION - 21 YEAR TRUST RULE

- CREDITORS/SPOUSES

  • TAX REDUCTION

- INCOME SPLITTING

- CGE MULITPLICATIONS

- TAX DEFERRAL

  • ADVANCE ESTATE PLANNING

- SUPPLEMENTS WILL/EPA

- AVOIDS PROBATE TAXES

- REDUCES PROFESSIONAL FEES

kiddie tax s 120 4 ita
KIDDIE TAX - S.120.4 ITA
  • PERSON UNDER 18 YEARS RECEIVING A DIVIDEND FROM CCPC
  • SOLUTIONS:

- NOT APPLICABLE TO

- SALARIES TO CHILDREN

- MONEY LENT AT PRESCRIBED RATE

- INVEST IN SHARES WITH DIVIDEND PAYMENTS

- INVENT IN INTEREST BEARING TERM DEPOSIT MATURING WHEN CHILD IS 18

- FIXED INCOME TRUST FOR MINORS

- DEBT/INTEREST PAYMENTS FROM FAMILY

- SECONDARY INCOME

transfer of property to an inter vivos trust
TRANSFER OF PROPERTY TO AN INTER VIVOS TRUST

EXISTING:

X

Investment Portfolio

(FMV $500.000)

REORGANIZATION:

X

FMV Child 1 and 2

Disposition (1)

Y

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

TRUST

fixed income trust for minors
FIXED INCOME TRUST FOR MINORS

* S.104(18) FACTORS

- RESIDENT

- BENEFICIARY YOUNGER THAN 21 YEARS

- INCOME RIGHT VESTS (NON-DISCRETIONARY)

- ENTITLEMENT OF BENEFICIARY BY 40 ONLY CONDITION

* PLANNING

- INTEREST FREE LOAN TO CAPITAL BENEFICIARIES

- TRUST INTEREST BY SEPARATE DISCRETIONARY TRUSTS

ownership of family assets by an inter vivos trust
OWNERSHIP OF FAMILY ASSETS BY AN INTER VIVOS TRUST

* COMMON FAMILY ASSET IS COTTAGE

- USED BY VARIOUS FAMILY MEMBERS

Parents

* CONSIDER ACQUIRE COTTAGE BY TRUST

- FUNDED BY OPCO DIVIDENDS

- PARENTS SHOULD NOT BE BENEFICIARIES OF TRUST

- SPECIFIED BENEFICIARY

- PRINCIPAL RESIDENCE

- S.107(2.01) TRUST TO BENEFICIARY

- PRINCIPAL RESIDENCE PLANNING

TRUST

(1)

OPCO

trust planning for non sbc scenarios
TRUST PLANNING FOR NON-SBC SCENARIOS

* CONSIDERATION ACQUISITION OF NON-ACTIVE BUSINESS ASSET BY A CORPORATION

- NOT A “SBC”

* S.74.4(4) TRUST

- NO DIVIDEND ENTITLEMENT WHILE A “DESIGNATED PERSON”

EXAMPLE:

Designated Persons

Real Property

Financed by mortgage guaranteed by X

TRUST

OPCO

personal services trust
PERSONAL SERVICES TRUST

EXISTING:

X

Employer/Employee

REORGANIZATION:

SERVICE

AGREEMENT X Y

Child 1 and 2

1. Employment Agreement with the Trust

PUBCO

PUBCO

TRUST

situation indentification client profile
SITUATION INDENTIFICATION/CLIENT PROFILE
  • SITUATION IDENTIFICATION

- FAMILY SITUATION/FAMILY CONCERN OR ISSUE (BLACK SHEEP/DISABLED CHILD/UNDESIRABLE SPOUSE)

- CLIENT HAS SIGNIFICANT ANNUAL INCOME

- CLIENT HAS LARGE ANNUAL TAX LIABILITY (INCOME/CAPITAL GAINS)

- CLIENT HAS FAMILY BUSINESS

- CLIENT HAS BUSINESS WITH NON ACTIVE BUSINESS ASSET (EG: REAL ESTATE)

- WIDE VARIATION IN TAX BRACKETS/LIABILITIES

- CLIENT HAS UNIQUE PROPERTY HOLDING/OWNERSHIP SITUATION

- CLIENT HAS SPOUSE AND CHILDREN BUT IN NOT ENGAGED IN INCOME SPLITTING

- CLIENT HAS AN ESTATE TAX ISSUE PENDING

21 year rule
21-YEAR RULE

GENERAL

* PREVENTS INDEFINITE DEFERRAL OF TAX PROPERTY HELD WITHIN A TRUST

- GENERALLY APPLIES TO CAPITAL PROPERTY

AND LAND INVENTORY

* BE WARY OF IT

- S.107(2) PLANNING TOOL

* GENERALLY ARISES IN ONE OF TWO SITUATIONS

- TESTAMENTARY SPOUSE TRUST

- ESTATE FREEZE

* IMPORTANT EXCEPTIONS

- SPOUSE TRUST

- ALTER EGO TRUST

- JOINT SPOUSAL/COMMON-LAW PARTNER TRUST

- TESTAMENTARY SPOUSE TRUST

planning considerations
PLANNING CONSIDERATIONS

* PERSONAL TRUST S.107(2) ROLL-OUT

- ELIMINATES 21-YEAR RULE ISSUE

- BUT NOW THE ASSETS ARE IN THE HANDS OF A BENEFICIARY

* ALTERNATIVES TO S.107(2)

- S.107(2.001)

- S.107(2.002)

* ABOVE CAUSE S.107(2.1) TO APPLY

- DISTRIBUTION GREATER OF FMV AND COST

- CONSIDER IF TRUST HAS TAX SHIELD

trust settlement considerations
TRUST SETTLEMENT CONSIDERATIONS

* BE VERY CAREFUL

- S.75(2) IS ONEROUS

- PROPERTY NEVER REVERT TO SETTLOR

- WATCH OTHER ATTRIBUTION ALSO

* SETTLOR LINEAR RELATIVE TO BENEFICIARIES

* KEY MATTERS TO NOTE

- SETTLOR CAN BE TRUSTEE

- SETTLOR SHOULD NOT BE BENEFICIARY

- TRUST SHOULD BE IRREVOCABLE AND NO VARIATION

- SETTLOR PAY COSTS TO ESTABLISH TRUST