Insights

The practice of law is changing every day, and the effect of changing legislation on businesses is significant. We write about recent developments in the world of tax & business law, keeping a watchful eye on the changing landscape for our clients. See what we’re thinking about, and what your business should be looking out for.

Tax Law

Family Limited Partnerships

Click here to view in PDF. A Family Limited Partnership (FLP) is nothing more than a limited partnership, created as a vehicle to transfer income and title to assets from the family head to other family member, rather than to a non-family business associate. When the owner of a business is in a high income tax bracket, this transfer can drastically reduce any personal liability and taxes. In the case of an FLP, property with a high appreciation potential is the best type of contribution. It can be transferred in under a freeze-style transaction with all taxes deferred. At first...

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Tax Law

The Limited Partnership Protective Shield

Click here to view in PDF. In contrast to a general partnership, a limited partnership must by law be composed of at least one general partner, who serves as the managing partner, and one or more limited partners. Provincial legislation sets out the general rights and responsibilities of the limited and general partners between themselves, the public, and all other individuals with whom they have business dealings. This law protects the limited partners from the broader liability of a general partner – unless the limited partner actually takes an active part in management and control of the business. It further...

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Tax Law

General Partnerships

Click here to view in PDF. Family limited partnerships offer tax benefits, lawsuit protection, and financial control. To gain a full understanding of a family limited partnership, let’s first consider the general partnership, which is a device used mainly for active business purposes rather than for private family asset protection. In the broadest sense, a general partnership is an association of two or more persons formed to conduct an active business for mutual profit. “Persons” in this case includes other legal entities. The concept of a general partnership is long established in English common law. In a general partnership, each...

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Tax Law

The Prescribed Rate Loan Strategy

Click here to view in PDF. You might wish to consider using an irrevocable inter vivos trust to implement a prescribed rate loan structure. This strategy can facilitate income splitting by taking advantage of the marginal tax rate of family members with a lower income. For this strategy to work, you need to play out the following scenario involving a mythical Canadian, Alex. Alex will make $100,000 loan to such a trust at a prescribed rate, which is currently 1%. The trust will then use this money to purchase portfolio-type investments such as stocks. The net income earned by these...

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Tax Law

Irrevocable Inter Vivos Trusts

Click here to view in PDF. The settlor who wishes to avoid the pitfalls inherent in a revocable inter vivos trust should create an irrevocable inter vivos trust. An irrevocable trust denies a settlor all but indirect control over assets settled on the trust from the moment the trust is created. For this reason, as a scheme for protections against creditor attack or attachment, the irrevocable trust is virtually perfect. The settlor no longer holds the title to the property once it’s settled on the trust, and neither does he or she have any way to reacquire the settled property....

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Tax Law

Revocable Inter Vivos Trusts

Click here to view in PDF. What are the principal differences between a living (inter vivos) trust and a testamentary trust created by death? A living trust is just what the term implies, a trust created while the settlor is alive. Also known in lawyer Latin as an inter vivos trust (“between the living”), such trusts come in two basic forms – revocable and irrevocable. Because the form you choose has a significant impact on trust operation and asset protection, it’s imperative you understand the consequences of each choice before opting for one over the other. One big advantage of...

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Tax Law

Wealth Accumulation Trusts

Click here to view in PDF. A wealth accumulation trust strategy can lower your taxes, produce steady guaranteed annual income, and help your favourite charity all at once. This is an extraordinary tax saving and income producing trust. To make the wealth accumulation trust work, you give to your chosen charity, and establish an irrevocable living trust that ends your ownership of the donated assets. The terms of the trust provide that the trustee’s sale and reinvestment of those assets will produce an income for life for you. You will also receive a charitable tax receipt which will enhance your...

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Tax & Estate Planning

Alter-ego and Joint Partner Trusts

Click here to view in PDF. Alter-ego trusts and joint partner trusts are special types of revocable inter vivos trusts, which, if correctly structured in accordance with our tax rules, enable you to transfer the property to them on a rollover basis. An alter-ego trust is a trust you can create while you are alive, but not until you are 65 or older. In order for the trust to qualify for the alter-ego status, you must be entitled to receive all of the income, and no one except you may receive any income or capital until you die. The advantage...

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Tax & Estate Planning

Family Trusts

Click here to view in PDF. A family trust is a type of trust established solely for the benefit of your family. There are two primary reasons you might wish to create a family trust. First, you may wish to obtain a tax advantage. Second, you may wish to distribute assets to your children (who are designated as beneficiaries of the trust) while maintaining control over the assets in a safe harbour environment. One of the major advantages of a family trust is that it allows you to split income among several beneficiaries instead of reporting all the income personally....

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Tax & Estate Planning

Creating an Effective Trust

Click here to view in PDF. The most important decision you will have to make about your trust is the choice of the trustee(s). A trustee’s powers begin when the settlor transfers property to the trust, creating financial resources on the trust’s balance sheet. The trustee’s powers remain in force until the trust is dissolved. Whether you choose an individual or corporate entity to be the trustee, the trustee’s character and experience can spell success or failure for the trust and its stated objectives. The trustee must have unquestioned integrity and a genuine understanding and concern for the welfare of...

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