Extra Concepts Flashcards
Section 86 in action
pure rollover, dont trigger any tax, no option to use lcge at that time. preferred shares have heavy voting rights. shares bought by kids have nominal (buy for $1 each) -no value. these are the shares that will appreciate. best to use lcge to transfer shares to hold co before significant assets are accumulated and it becomes too late.
then mom and dad step back. need some degree of certainty over who eventual owner will be
all or nothing. swap all class a shares for preferred shares. no lcge available. total rollover of acb.
US Stocks held in corp
15% withholding tax, asset doesn’t count towards situs assets. taxable dividend still charged on full amount (eligible) shares of boa
section 85
i move my op co shares from personal to hold co and take back hold co shares. i can elect the transfer price to use lcge.
managing liability before you become a business owner
get everything into your spouses name. utilize rrsps and seg funds, resp in spouses name (no creditor protection), take name off family home.
Permanent insurance advanced uses
equalization: leaving a large illiquid asset (farm) to one child and use insurance to leave inheritance to another.
liquidity: lots of real estate holdings. use estate as beneficiary to make executor’s life easier. manage donations, trusts, liabilities, tax flexibility (timing of donations), manage transfer of corp at death, electing out of rollovers (if beneficial), family law concerns (spouse as beneficiary on insurance may try to take part of the estate from kids and claim preferential and distributive share)
taxes: taxes payable on assets
future insurability: so you at least have some insurance when needed.
pension: buy a straight life instead of a joint and last and use the additional funds to buy perm insurance (numbers don’t usually work out favourably)
confidentiality: not publicly available like a will, can’t be challenged in most scenarios. maybe useful if family issues
dividend scales lag interest rates
Immediate Financing Arrangement breakdown
10m UL policy (level plus) YRT policy. can borrow entire csv immediately (usually with a 3rd party lender).
year 1: 70k of cost of insurance + 430k investment component (max out under exempt test) = 500k total. company takes loan against 430k and takes 400k loan (100k net cost)
year 2 - 80k coi, 420k + growth, 500k spend, and 900k account value (approximate), 420k loan, 80k net cost.
year 3 - 90k coi, 410k + growth, 500k spend 1,400,000 account value, 50k net cost, 450k loan
after about 10 years, policy becomes cost neutral
-after loan is paid from death benefit, corp still gets cda. which is great if there’s other value in the corp. (because cash from policy won;t be there, at least not in full)
-Dies in year 15 with death benefit of 10m + 9.5m account value. =19.5 proceeds - 8m acb = 11.5 cda credit
IFA Concerns
-will the company have cashflow?
-what if investment returns start out poor?
-there is a loan, what if rates go u? this is leverage
-can make it challenging to sell business
-a
insurance transfer to and from corp
transfer to corp - disposition for shareholder base don csv-acb (passive income). The corps acb is then equal to the csv that the shareholder transferred at.
transfer from corp to shareholder - disposition for corp and taxed to shareholder based on fmv, fmv is roughly pv of death benefit (pv includes any premiums left to pay) - anything paid for the policy to the corp. if person is uninsurable, fmv will be higher.
life insurance isn’t capital prop so no section 85 rollover is available.
whos considered common law
24 or 36 months living in conjugal relationship, 12 months if you have a child
cra and cpp - 12 months in conjugal living together or living together with child.
private benefits - contracts start common law immediately
why does it matter? - child support, spousal support, division of property
what can be done - cohabitation agreement (can handle division of prop and spousal support). need separation agreement. lease agreement (helpful if arguing you weren’t in a relationship).
get a written separation agreement asap (child support, spousal support, canada child benefit, resp), rdsp
divorce
live apart and be separated for one year. less if you can prove cruelty or adultery.
dependent relief claim
girlfriend may still; be able to get something if they were dependent on married man (especially if they had kids together)
business assets and constructive trusts
in some provinces business assets are divisible by default and some provinces they aren’t.
constructive trust comes in where one party was building a business ‘in trust’ for the both of us. its our asset. in practice, it’s tough to keep a business asset out of a division.
protecting inheritance and issues
no commingling, if you leave an inheritance, stays as an inheritance.
was it really an inheritance? its not:
repayment of loan
payment for services
what did the will say?
what did the executor do?
was the account ever used for family vacations?
