Whether shares of a private business are gifted or sold to a family member, the Income Tax Act considers this to be a disposition, which could trigger a tax liability. It is important to obtain tax advice on this transaction, as otherwise it can result in double or even triple taxation if not completed in a tax-efficient manner. Our tax lawyers can advise you on how to tax-efficiently implement a succession plan.
We ask questions to enable us to understand your goals for your business. If there is a risk that your business may not qualify for the lifetime capital gains exemption (LCGE) later, we may recommend undertaking crystalizing the LCGE while you still can. If your business is still growing, we may implement a succession plan to multiply the LCGE with family members.
An important tool in succession planning is the ability to undertake an “estate freeze”. It is called a freeze because the value of your shares is “frozen”, and the future growth in your business can be transferred to a family member. Importantly, you can still retain full control over the company, and can decide later when you want your successor to take over the company.
If your family members are starting to work in the business, we can advise if any anti-income sprinkling rules apply (known as “tax on split income” or “TOSI”). If TOSI does not apply, you may be able to pay your family members a salary to limit the amount of income that is attributed to your personal income for the year.
