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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 l.jpg
TRUSTS AND CORPORATE STRUCTURE

CORPORATE SITUATIONS


Structure l.jpg
STRUCTURE

1% 99%

100%

OPCO

FAMILY TRUST WITH

ALL FAMILY MEMBERS

AS BENEFICIARIES

HOLD

CO


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ADVANTAGES

*INCOME SPLITTING

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

*MULTIPLICATION OF CGE

- SALE OR DEATH

*ASSET PROTECTION

- HARD/OP ASSETS

- CASH: IMMEDIATE AND ONGOING

- LIFE INSURANCE PROCEEDS

- REDUCTION IN PROBATE AND PROFESSIONAL FEES WITHOUT LOSS OF CONTROL

*BUSINESS OWNERS RETIREMENT PLAN

- UL OVERFUNDED/LEVERAGE

*CONTROL OF DISPOSITION OF SHARES FOR TAX PURPOSES ON DEATH

*SUCCESSION PLANNING

- TAX/CONTROL/PROTECTION


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-

OPCO

(0)

FAMILY TRUST

DIVIDEND INCOME SPLIT

$35,000.00/YR

CGE MULITPLIED

($750,000.00 X ?)

HOLD

CO

$$$ UL


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SALE OF BUSINESS

DAVE

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

  • CCPC - $2,500,001.00


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EXAMPLE – INCOME SPLITTING

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

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

Dave Dave/Wife/19 year old


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SITUATION IDENTIFICATION/CLIENT PROFILE

  • CLIENT

    - HAS A CORPORATION

    - A FAMILY

    - WIDE VARIATION IN TAX BRACKETS/LIABILITIES WITHIN FAMILY

    - CLIENT OR CLIENT CORPORATION HAS A SIGNIFICANT ANNUAL INCOME

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

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

    - IS TALKING ABOUT SELLING BUSINESS

    - IS INVESTING THROUGH CORPORATION

    - IS RETIRING, OR TALKING ABOUT IT


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INTER VIVOS TRUSTS

ADVANCED TAX PLANNING


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TRUST BASICS

SETTLOR TRUSTEE

TRUSTEE Legal

TRUSTEE Ownership

BENEFICIARIES

(benefits and use)


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TRUST PRINCIPLES

  • CONTROL

  • PROTECTION

  • TAX PLANNING/TAX REDUCTION

  • FLEXIBILITY – separate benefit & control

    - tax deferred roll in/roll out in some cases

  • UNIQUE PROPERTY HOLDING/OWNERSHIP SITUATIONS

  • LIMITATIONS


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ADVANTAGES/LIMITATIONS

*ADVANTAGES*LIMITATIONS

  • CONTROL -TRANSFER TO TRUST MAY BE - TRUSTEES (OFTEN PARENTS) A DISPOSITION

  • ASSET PROTECTION - 21 YEAR TRUST RULE

    - CREDITORS/SPOUSES

  • TAX REDUCTION

    - INCOME SPLITTING

    - CGE MULITPLICATIONS

    - TAX DEFERRAL

  • ADVANCE ESTATE PLANNING

    - SUPPLEMENTS WILL/EPA

    - AVOIDS PROBATE TAXES

    - REDUCES PROFESSIONAL FEES


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KIDDIE TAX - S.120.4 ITA

  • PERSON UNDER 18 YEARS RECEIVING A DIVIDEND FROM CCPC

  • SOLUTIONS:

    - NOT APPLICABLE TO

    - SALARIES TO CHILDREN

    - MONEY LENT AT PRESCRIBED RATE

    - INVEST IN SHARES WITH DIVIDEND PAYMENTS

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

    - FIXED INCOME TRUST FOR MINORS

    - DEBT/INTEREST PAYMENTS FROM FAMILY

    - SECONDARY INCOME


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TRANSFER OF PROPERTY TO AN INTER VIVOS TRUST

EXISTING:

X

Investment Portfolio

(FMV $500.000)

REORGANIZATION:

X

FMV Child 1 and 2

Disposition (1)

Y

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

TRUST


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FIXED INCOME TRUST FOR MINORS

* S.104(18) FACTORS

- RESIDENT

- BENEFICIARY YOUNGER THAN 21 YEARS

- INCOME RIGHT VESTS (NON-DISCRETIONARY)

- ENTITLEMENT OF BENEFICIARY BY 40 ONLY CONDITION

* PLANNING

- INTEREST FREE LOAN TO CAPITAL BENEFICIARIES

- TRUST INTEREST BY SEPARATE DISCRETIONARY TRUSTS



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OWNERSHIP OF FAMILY ASSETS BY AN INTER VIVOS TRUST

* COMMON FAMILY ASSET IS COTTAGE

- USED BY VARIOUS FAMILY MEMBERS

Parents

* CONSIDER ACQUIRE COTTAGE BY TRUST

- FUNDED BY OPCO DIVIDENDS

- PARENTS SHOULD NOT BE BENEFICIARIES OF TRUST

- SPECIFIED BENEFICIARY

- PRINCIPAL RESIDENCE

- S.107(2.01) TRUST TO BENEFICIARY

- PRINCIPAL RESIDENCE PLANNING

TRUST

(1)

OPCO


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TRUST PLANNING FOR NON-SBC SCENARIOS

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

- NOT A “SBC”

* S.74.4(4) TRUST

- NO DIVIDEND ENTITLEMENT WHILE A “DESIGNATED PERSON”

EXAMPLE:

Designated Persons

Real Property

Financed by mortgage guaranteed by X

TRUST

OPCO


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PERSONAL SERVICES TRUST

EXISTING:

X

Employer/Employee

REORGANIZATION:

SERVICE

AGREEMENT X Y

Child 1 and 2

1. Employment Agreement with the Trust

PUBCO

PUBCO

TRUST


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SITUATION INDENTIFICATION/CLIENT PROFILE

  • SITUATION IDENTIFICATION

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

    - CLIENT HAS SIGNIFICANT ANNUAL INCOME

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

    - CLIENT HAS FAMILY BUSINESS

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

    - WIDE VARIATION IN TAX BRACKETS/LIABILITIES

    - CLIENT HAS UNIQUE PROPERTY HOLDING/OWNERSHIP SITUATION

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

    - CLIENT HAS AN ESTATE TAX ISSUE PENDING


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21-YEAR RULE

GENERAL

* PREVENTS INDEFINITE DEFERRAL OF TAX PROPERTY HELD WITHIN A TRUST

- GENERALLY APPLIES TO CAPITAL PROPERTY

AND LAND INVENTORY

* BE WARY OF IT

- S.107(2) PLANNING TOOL

* GENERALLY ARISES IN ONE OF TWO SITUATIONS

- TESTAMENTARY SPOUSE TRUST

- ESTATE FREEZE

* IMPORTANT EXCEPTIONS

- SPOUSE TRUST

- ALTER EGO TRUST

- JOINT SPOUSAL/COMMON-LAW PARTNER TRUST

- TESTAMENTARY SPOUSE TRUST


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PLANNING CONSIDERATIONS

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

- ELIMINATES 21-YEAR RULE ISSUE

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

* ALTERNATIVES TO S.107(2)

- S.107(2.001)

- S.107(2.002)

* ABOVE CAUSE S.107(2.1) TO APPLY

- DISTRIBUTION GREATER OF FMV AND COST

- CONSIDER IF TRUST HAS TAX SHIELD


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TRUST SETTLEMENT CONSIDERATIONS

* BE VERY CAREFUL

- S.75(2) IS ONEROUS

- PROPERTY NEVER REVERT TO SETTLOR

- WATCH OTHER ATTRIBUTION ALSO

* SETTLOR LINEAR RELATIVE TO BENEFICIARIES

* KEY MATTERS TO NOTE

- SETTLOR CAN BE TRUSTEE

- SETTLOR SHOULD NOT BE BENEFICIARY

- TRUST SHOULD BE IRREVOCABLE AND NO VARIATION

- SETTLOR PAY COSTS TO ESTABLISH TRUST


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