Whether you plan on starting a new business or have been running your business for years, our lawyers can help you optimize your corporate structure, minimize your legal liability, protect your assets and increase your tax savings.
Meditax Consulting undertakes corporate restructuring in four steps:
An informal first meeting to gather basic facts;
An analysis of your current or desired corporate structure;
Implementation of our recommendations.
PURCHASE AND SALE OF A BUSINESS
The following are examples of tax planning strategies that are useful in purchase and sale transactions.
BUSINESS LOAN INTEREST DEDUCTIONS
The Income Tax Act allows for interest paid on a business loan to be tax deductible. Our lawyers will advise you to ensure that you take advantage of the maximum tax deduction for interest paid on your loans.
In addition, if the interest on your loan cannot be deducted, our lawyers will provide you with advice and methods to render it deductible.
CAPITAL GAINS EXEMPTION
How to benefit from the exemption
The Income Tax Act provides for a tax exemption on capital gains up to $800,000 (in 2014). To be eligible, a taxpayer must fulfill two criteria:
The taxpayer must sell shares of a corporation; and
The corporation must be considered a “small business corporation” according to the meaning set out in the Income Tax Act.
Our lawyers can help determine whether your business meets the legal requirements to benefit from the exemption or to make the necessary changes to qualify
Multiplying the exemption
If your business’ corporate structure includes a family trust, you may be able to access the capital gains exemption of the beneficiaries of your trust, including minor children.
For more information on family trusts, we invite you to consult our section on Income Splitting.
SALE OF SHARES VS. SALE OF ASSETS
Sellers usually prefer to sell shares of their business in order to take advantage of the capital gains exemption. Buyers, on the other hand generally prefer to purchase a business’s assets. Proceeding this way minimizes the buyer’s exposure to liabilities and obligations of the business that arose before the sale and to be able to take advantage of tax deductions on depreciable assets.
Inherits the “history” (liabilities and obligations) of the corporation;
Cannot amortize the cost of shares;
Shares are not subject to sales tax.
Can generate capital gains;
May take advantage of the $800,000 capital gains exemption;
No sales tax on the sale of shares.
Does not inherit the history of the corporation;
Can amortize the cost of depreciable assets;
Assets are subject to sales tax.
May generate capital gains or business income;
May not take advantage of the $800,000 capital gains exemption;
Sales tax applies on the sale of assets.
Transferring a business to one’s children or including a key employee in business management requires careful tax planning. Simply selling issued shares or issuing new shares in the corporation may entail disastrous tax implications, such as:
Rendering it impossible for the seller to take advantage of the capital gains exemption;
Rendering it impossible for the purchaser of the shares to take advantage of the business loan interest deduction on funds borrowed to purchase the shares;
Intensified scrutiny by taxation authorities on transactions between family members (non-arm’s length transactions) to assure that the shares are sold at their fair market value;
Deemed year end for the corporation when a majority of the shares are acquired (which may have negative effects on the availability of accumulated losses).
Our lawyers will support you in setting up a tax strategy allowing you to transfer your business to your children or include a key employee in the business management structure all the while reducing your tax burden by avoiding confrontation with taxation authorities.