"How does your tax structure evolve with your business?" - Simon Davari SdM Accounting
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Transcript of "How does your tax structure evolve with your business?" - Simon Davari SdM Accounting
Agenda
1. Start-up phase
2. Incorporation and Holding companies
3. Expansion phase
4. Legal issues to consider
1-Development & Start-up
Pros• Losses are used against
other sources of income• Simpler to file• Lower cost for filing
Cons• Taxed at individual level• No benefit of incorporated
rates• Little or no opportunity for
SRED claim
Mr. A Mrs. Aor
Incorporated business
2- Benefits of incorporation
•Deferral of taxation
•Lower tax rate at corporate level▫CCPC status 19% in Quebec▫General rate 26.9% in Quebec
•Dividends are not taxable up to a certain threshold
•Changes to expect in 2017
•Legal protection
•Additional incentives available such as SRED
Cost benefit to consider
2- Benefits of incorporation (cont’d)
2- Growth
Pros• Lower corporate tax rate• Deferral of taxes• Access to 800K capital
gain exemption (“CGE”)• Access to SRED, if
applicable
Mr. A Mrs. Aor
OPco
100%
Cons• Distinct legal status• Requires accounting
process in place• More costly for
compliance
2 – Using a holding companyBenefits• Deferral of taxation
• Legal protection
• Can be used as an investment vehicle
• Income splitting opportunities
• Meet objectives of different shareholders
• Protects redundant assets
• Distribution of dividends from Opco without immediate taxation
• Allows to reinvest in other ventures
Holdco
Mr. A Mrs. A
OPco
Voting Non-voting
2 – Using a holding company (cont’d)
Can gather funds until timing is right for distribution
Drawbacks
• May contaminate access to capital gain
exemption
• Must sell Holdco to access capital gain
exemption
• Higher compliance cost
• Another separate accounting
2 – Using a holding company (cont’d)
Not using a Holdco - Scenario 2
3- Expansion through Holdco (cont’d)
Mr. A Mr. B
OPcoPUC 100$
Sells for 500K
No PUC to return to shareholder
3- Expansion through Holdco (cont’d)Using a Holdco for PUC preservation
OPco
Mr. A Mr. B
HoldcoSells for
500K
Injection of 500K
PUC 500K
PUC 100$
PUC can be returned tax-free to shareholder
Using a Holdco for debt pushdown – Step 1
3- Expansion through Holdco (cont’d)
OPco
Mr. A Bank
Holdco
Borrows 500KInterest
expenses
Using a Holdco for debt pushdown – Step 2
OPco
Mr. A Bank
Holdco
Borrows 500K
Interest expenses
Possible merger
3- Expansion through Holdco (cont’d)
3 – Expansion (cont’d)
•Consider impact in foreign jurisdiction▫Capital contribution▫Legal status (branch vs. subsidiary)▫Cash repatriation
•Impact on CGE
3- Expansion (cont’d)Canada International
OPco
Holdco 1
ForeignCo
Shareholders
Holdco 2
Holdco 1 Sold to use up to 800K CGEHoldco 2 Sold without access to CGE
4 – Legal issues
•Holdco allows protection of assets accumulated against lawsuits at Opco level.
•In the case of a lawsuit, plaintiffs cannot access assets in trust.