Your business’s corporate structure is a critical consideration for wealth protection and enhancement. A strategic corporate structure can help protect your wealth, provide tax efficiencies, and allow for the efficient splitting of income amongst family members. Like the sound of those benefits? Read more about three strategies you can use to your advantage.
A single corporation model used to be the common structure, but there are more complex models that provide better security and flexibility. The problem with a single corporation model is that all assets are in one single entity. If negative events impact one aspect of your operations, then all assets are at risk. You should assess your operations and assets to determine if you can split them into separate companies. One option is to maintain your real estate assets in a real estate corporation separate from the business operations to help isolate the risks.
A family trust allows you to easily split income to other family members. One advantage is that dividends could be paid to family members 18 and up. Assuming they don’t have other sources of income, they could receive up to $35,000 tax free. The family trust can also be used to multiply the capital gains deduction on the sale of shares of the operating business, which can result in savings of $170,000 per family member. However, the growth in the value of the shares must be attributed to the shares held in the trust. In the event of a sale, you can’t transfer the shares into a trust and then split the capital gain. Instead, you must transfer the shares into the trust and allow growth in the value of the shares to occur.
A holding company can be an effective strategy for wealth protection, allowing you flexibility to allocate excess cash and investments out of the operating companies and creditor-proof those assets in a separate company. If you need the funds for operating purposes, you may be able to transfer the funds to a holding company and loan the funds back to your operating company under a General Security Agreement (GSA) to secure your investment.
Think you might not have the correct structure? You can reorganize, but be careful not to incur an immediate tax liability. Work with your financial advisors to navigate the Income Tax Act carefully, and find the structure that will best meet your needs.
