The current crisis caused by the Covid-19 pandemic has had a severe impact on our society and businesses. The loss of income and value for companies caused by the sudden stop of the economy could take months or years to resolve itself. The situation should eventually return to normal, but it is possible to take advantage of the crisis to fine tune or finally put in place a long-term tax plan.
For example, an estate freeze is the basis of every good tax planning for an entrepreneur. Pursuant to the federal (“ITA”) and provincial income tax acts, taxpayers are generally deemed to have disposed of all of their assets at their fair market value (“FMV”) upon their death. For an entrepreneur who owns shares of a company with an FMV of over a million dollars, the resulting tax bill can be prohibitive.
In a typical estate freeze, an entrepreneur “freezes” the FMV of his shares with preferred shares with a fixed redemption value and issues the common growth shares to his children or a family trust created for the benefit of his children. This “freezes” the tax bill that will be due upon his or her death.
If you are thinking of putting in place or have put in place a tax plan a few years ago, now is a good time to ask yourself the following questions:
To know more, you can contact one of our professionals to discuss and find out if this can apply to your personal situation.