Business Tax and Structures

Question 1

What can’t create losses

Answer 1

cca, home office expenses

Question 2

Once you opt into gst

Answer 2

you’re stuck with it

Question 3

Business vs hobby

Answer 3

reasonable expectation of profit, marketing, a business plan, appropriate training

Question 4

pr exemption

Answer 4

can only designate one home per year but can use +1 rule.

Question 5

Change of use from rental to pr

Answer 5

have to pay recapture and capital gain if cca was ever claimed. if cca wasn’t claimed, can defer capital gain until property is disposed of. if changing from pr to rental, can do so for 4 years but cant claim cca or designate another home as pr.

Question 6

Partnership liability

Answer 6

not liable for personal obligations of partners but are liable for their business activities of partners

Question 7

corporations as partnerships

Answer 7

corps will be liable for a ‘slip and fall’ although there will likely be liability insurance. liability will extend to corps but not the shareholder of those corps.

Question 8

section 97

Answer 8

bring assets into partnership or corp without disposition

Question 9

ucc and acb for partnership and wind up

Answer 9

ucc is acb for tax purposes. ucc (acb) will be increased by owners allocated percentage of net income and reduced by drawings from the partnership. when property is sold and partnership is wound up, proceeds greater than acb treated as capital gain.

Question 10

partnership agreement income stipulations

Answer 10

can stipulate that partnership is to be wound up in year where one person is responsible for much more of income generated

Question 11

death implications

Answer 11

partnership is wound up (like sole prop). unless partnership dictates otherwise.

Question 12

very few situations where partnership makes more sense than corp. (unless a partnership among corps)

Question 13

limited liability partnerships and general partners

Answer 13

partners are liable for partnership issues but not the acts of other partners. ie, if another partner assaults a client, not liable. if an associate hurts a client, all partners liable. no general partner. liable for own mistakes. lawyers prefer to act as llp so they’re not punished for another lawyers mistake.

Question 14

limited partnerships

Answer 14

at least 1 general partner. limited partners can only lose their investment plus any amount lent to partnership

Question 15

legal structure of corp

Answer 15

shareholder - only investment at risk, no other liability.
bod - sets direction of corp (if they declare a dividend with debt, maybe recoverable from shareholder. owe employees advanced notice if corp is wound up. directors are fiduciary to corp.
employees-no liability unless actions are outside scope of job

Question 16

up to three share class rights

Answer 16

right to equity, rights to dividends, voting rights

Question 17

normal corp share setup

Answer 17

class a - 1 vote, dividend at discretion of board, equity right based on net equity when corp is wound up. (unlimited amount in treasury)
class b - identical to a. unlimited number in treasury
class c - 1 vote per 100 shares, discretionary dividends, equity rights paid after a and b are paid, if anything is left.
class d - same as class c
preferred shares - 100 votes per share, fixed dividend (maybe $100 per share), fixed redemption value of 1k per share, for example. unlimited in treasury

all defined in articles of incorporation

Question 18

Corporate ownership strategy

Answer 18

give spouse different class of shares so you can choose to pay yourself dividends and not them (avoid tosi rules). easier to do at the beginning. if done later, spouse/children has to bring value in the business to purchase shares at fmv and avoid tosi rules
children - give class c/d shares to children.

Question 19

whats in articl;es of incorporation

Answer 19

directors, number of directors, share amount and classes, address of corp.

Question 20

is a usa mandatory

Answer 20

no. dispute would be handle through business corps act and they would go to court. (courts may ask to be left out of it)

Question 21

Unanimous shareholder agreement

Answer 21

addresses questions and situations likely to arise.

Question 22

common usa clauses

Answer 22

tag along drap along. minority shareholders can’t block sale by majority but majority must get a price that makes sense
-restrictions on ownership[ (no corps or trusts, perhaps) or transactions, discussion around using shares as collateral
shotgun clause - something causes offer to be made (14 days notice for example) to buyout other party for certain amount ex 1m. The other party has to either accept the offer or buy out the offering party for that amount.

Question 23

shotgun clause issues

Answer 23

one party can be taken advantage of. ex. one party dies or becomes incapacitated and the remaining business partner makes a weak offer on the assumption the remaining spouse/poa doesnt have the knowledge or financial resources to buy them out for that price

Question 24

alternative to shotgun clause (also in usa) and considerations associate

Answer 24

buy sell agreement (considerations below)
circumstances that trigger - crime, death, serious disability, marital breakdown, serious illness, non resident, loss of professional status, morals clause, unresolvable disagreement,
source of funding/payment arrangements - insurance, funds in corp, time to pay (5 years, vendor funded for example)
how price is determined - fixed price, formula, method (annual valuation, valuation at the time of sale, use of certified business valuator)

Question 25

ways to deal with different situations in buy sell

Answer 25

death - life insurance (will need to be increased from time to time, guaranteed insurability rider may be appropriate)
unresolvable difference - cbv may be more reasonable. each party can pick a valuator and split the difference.

funded buy sells make the business more attractive for financing and capital raising

Question 26

prof corp for doctors and liability

Answer 26

prof corp doesn’t protect dr from being sued personally in case of botched operation (unless its a slip-and-fall situation, then its the corp) 1st example is medical malpractice and second is general liability

Question 27

things that can vary by provinces for professionals

Answer 27

hold co’s, trusts, spousal and child ownership, trusts,

Question 28

why incorporate

Answer 28

succession planning, perpetual ownership, tax deferring, tax splitting (to some degree), no liability extended to personal assets (except with personal guarantee), separation of affairs, easier to give shares to spouse instead of assets (if a sole prop) in the caser of a marital breakdown (especially if assets of a company). hold co assets safe from lawsuit against op co (in most situations).

Question 29

liability protection and limitations (nothing is 100%)

Answer 29

seg funds (with irrevocable beneficiary or, child, grandchild, spouse).
rrsp safe from bankruptcy (except amounts from last 12 months)
hold co. (low likelihood assets are taken)

Question 30

tax rates

Answer 30

9% fed active income small business, 15% general rate, 3.2% ontario active income small business, 11.5% provincial general tax rate. 38.67% tax on investment income fed, 11.50% ontario

Question 31

cash damming

Answer 31

transfer personal debt to business debt. need very good record keeping. cra will assume you’ve de risked your investments first