1. D'Amico Family Wealth Management Group Of RBC Dominion Securities
.  
Presents
Morris Jacobson  ​​
From
Spiegel, Sohmer Lawyers
“ Was a tax tsunami avoided ”
Angelo D’Amico
FCSI, CIM, CPA, CMA, CGA, CSWP
Vice President - Portfolio Manager
Tel: (514)
Web :
Christiana Kavadas
B. Comm.
Associate
Tel: (514)
Dario Falso Daniel Marro
Associate Marketing Assistant
Tel: (514)
December 6, 2017 

2. HAVE WE AVOIDED THE 2017 TAX TSUNAMI AND TIPS & TRAPS IN ESTATE PLANNING?
Presented to D’Amico Family Wealth Management Group
RBC Dominion Securities Inc.
December 6, 2017
By Morris Jacobson

3. Conversion of Income to Capital Gains
no changes to S.84.1; no new S (remove RDTOH/CDA)
would otherwise have been a disaster; e.g.
sale of business
pipelines
sale of assets
can we dig out the old plans again?

4. No Tax Planning Means Double Tax (Post-Mortem Tax Plan)
Mr. A
100 common shares worth $2,051,666
Holdco
marketable securities worth $2,000,000 with accrued gain of $200,000 and RDTOH of $75,000
* Double tax
1- deemed disposition of Holdco Shares upon death
2- second round of taxation when Holdco is liquidated and the Estate has to pay tax on dividends it receives .

5. If Just Liquidate Gain on death = 26.65% x $2,051,666: $546,768.99
Dissolution of Holdco
FMV of Marketable securities $2,000,000.00
(a) Tax on disposition of marketable securities = 26.65% x $200,000: =($53,300.00)
(b) Addition to RDTOH of $29,966 & RDTOH of $75,000: = $104,966.00
$2,051,666.00
Dividend to Estate: $2,051,666.00
CDA: ($100,000.00)
Net Taxable Dividend: $1,951,666.00
Tax at 44.23%: $863,221.87

6. Tax Disaster Total Tax = $1,409,990.86 Net = $641,675.14
Capital loss in the hands of the estate that does not offset the gain on death, as the redemption of shares was not done in the first year of the Estate

7. One Solution: 164(6) must elect in the first year following death
file an amended return for the year of death
January 1, 2016 Estate must be a GRE for 164(6) to qualify

8. Mixed Pipeline Strategy
MacDonald Case
CRA’s position
Continuation of the business for at least one year; and
Followed by a progressive distribution of the corporation’s assets over an additional period of time
Redeem shares with a value of 3 x RDTOH
$3 x $75,000 - $225,000
Tax = 44.23% x $225,000 - $99,517 of tax but Holdco receives a dividend refund of $75,000.
Carry-back loss and under subsection 164(6) reduce tax payable on death by $59,

9. Plan
Note $1,826,666
Estate
Newco
Note $225,000
100 A
Holdco

10. 88(1)(d) Bump Estate Newco Note $2,051,666.
Estate
Newco
Note $2,051,666
Marketable securities now have an ACB equal to $2,000,000. Tax liability is paid and RDTOH is refunded – Net assets = $2,051,666

11. Potential Saving Total Tax on Death: $546,768.99
Less Capital Loss (164(6)): $59,962.00
Tax on Capital Gain: $486,806.49
Tax due to Redemption: $99,517.00
$586,323.49
VS. No Planning: $1,409,999.00
Savings: ($823,675.51)

12. Capital Gains Exemption
what was originally proposed
on October 16, 2017, in the context of the above statement regarding income sprinkling, the Minister also stated the following:
“In addition, the government today announced it will not be moving forward with the proposed measures to limit access to the lifetime capital gains exemption”.

13. It is our understanding that we will be back to the pre-July 18 situation and will still be able to use the optimal structure

14. Opco
Holdco
client and family
trust

15. The Bad News That Remains
income splitting
January 1, 2018: end of income splitting for family members
context
on October 16, 2017 the Minister of Finance announced the government’s intention to simplify the rules. “Corporations with family members who meaningfully contribute to the business will not be impacted by the proposed measures on income sprinkling” (simplification to come)
moral of the story: for 2017 – maximize dividends

16. The $50,000 Rule what is the concept? what is grandfathered?
complexity: will you need a second holding company to keep your accountant sane?
if there is enough grandfathered value, can we defer the effect of the new rules forever?
Planning opportunites

17. BIAS capital Gains Over Dividends

18. Capital Gains - 2017 23.85% 24.00% 25.20% 26.76% 26.65% 29.38% 27.00%
Province
Capital Gains / 2017
British Columbia
23.85%
Alberta
24.00%
Saskatchewan
Manitoba
25.20%
Ontario
26.76%
Quebec
26.65%
New Brunswick
29.38%
Nova Scotia
27.00%
Prince Edward Island
25.69%
Newfoundland
24.15%

19. Eligible Dividends - 2017 British Columbia 31.30% Alberta 31.71%
Province
Eligible Dividends / 2017
British Columbia
31.30%
Alberta
31.71%
Saskatchewan
30.33%
Manitoba
37.78%
Ontario
39.34%
Quebec
39.83%
New Brunswick
43.79%
Nova Scotia
41.58%
Prince Edward Island
34.22%
Newfoundland
38.47%

20. Non-Eligible Dividends - 2017
Province
Non-Eligible Dividends / 2017
British Columbia
40.61%
Alberta
40.24%
Saskatchewan
40.06%
Manitoba
45.69%
Ontario
45.30%
Quebec
44.23%
New Brunswick
51.75%
Nova Scotia
46.97%
Prince Edward Island
43.87%
Newfoundland
39.40%

21. Capital Gains vs Dividends
parent owns all the shares of OPCO having a value of $2 million
parent intends to freeze into preferred shares; active child will subscribe for common shares
parent will redeem $200,000 of shares per year

22. $2 million preferred shares
Child
Parent
100% common shares
$2 million preferred shares
Opco
redemption of shares yields a deemed dividend of $200,000 per year, all ineligible
tax is $87,680

23. instead have parent sell the shares for $2 million to child, payable over 10 years
10 year reserve for an intergenerational sale of SBC shares
no capital gains exemption will be claimed by parent
child will transfer shares to a holding company
$200,000 per year capital gain to parent. Taxes are $53,300 as opposed to $87,680

24. Other Developments Quebec small business deduction 5,500 hours a year
if not, rate goes from 8% to 11.8%
5,000 hours will go from 8% to 9%
FEDERAL BUDGET 2016
precludes the multiplication of the small business deduction in certain partnership and corporate structures

25. Voluntary Disclosure voluntary disclosures where we stand
Bell vs Molson

26. Basic Rules
when a person dies, terminal T1 / TP-1 personal income tax returns must be filed for the period January 1 to the date of death. These returns include:
all income earned during that period
the fair market value (FMV) of any RRSP or RRIF on the date of death
any capital gains or losses resulting from the deemed disposition on death of the deceased’s assets at their FMV
commencing from the date of death, all of the deceased’s assets and liabilities constitute an estate
an estate is treated as a trust for tax purposes and thus files T3 / TP- 646 trust income tax returns
every Will results in the creation of an estate, some Wills in addition create one or more testamentary trusts

27. Common Errors in Settling an Estate
Following only the Will and not taking into consideration
trusts created by the deceased while he was alive
marriage contracts and martial regimes
matrimonial regime
Quebec - If there is no marriage contract, the regime is partnership of acquests (or community of property).
even if there is a marriage contract, you must check if they opted out of the family patrimony
check for changes in the matrimonial status, i.e. divorce, widow, etc.

28. Common Errors in Settling an Estate
why is the issue of the matrimonial regime such a big one?
your client can’t give what he doesn’t own
you could double-up
liabilities
Article 423 of the Civil Code
the surviving spouse has one year to renounce to the family patrimony
registered by notarial act en minute
family patrimony rules (homes, vehicles, RRSPs and pensions)
joint survivor rights and other laws governing foreign assets

29. Common Errors in Settling an Estate
Forgetting that US estate tax returns must be filed 9 months after death
US real estate and US securities are two common types of assets that can be subject to US estate tax
Canadian terminal returns are due either on April 30 of the year subsequent to death or 6 months after death for deaths that occur in November and December
US estate tax returns are due 9 months after death and therefore returns for deaths that occur prior to August can be due before the Canadian terminal returns
forgetting to transfer US marketable securities to a holding company.
forgetting to properly structure an acquisition of US real estate

30. Common Errors in Settling an Estate
Distributing assets in excess of $12,000 prior to issuance of Revenu Québec preliminary distribution certificate
under both federal and Québec legislation, liquidators are responsible for the tax debts of the deceased and the estate up to the value of the assets they distribute without obtaining clearance certificates
federal distribution certificates are generally obtained at the end of the administration of the estate
under Québec legislation, a liquidator is only allowed to distribute assets of $12,000 prior to obtaining a preliminary distribution certificate. The preliminary certificate generally allows for 75% of assets to be distributed. The final certificate is issued automatically and allows for the remainder of assets to be distributed. The liquidator is personally responsible up to the amount of any distributions not covered by the certificates

31. Common Errors in Settling an Estate
Distributing assets to non-residents without disposal certificates (Section 116 Certificate) or notification or proper withholding

32. Common Errors in Settling an Estate
Not redeeming shares of a private corporation in the first year of the estate to benefit from section 164(6) loss carryback rules
any capital gains in the year of death (from actual or deemed dispositions) can be offset by capital losses incurred in the first year of the estate.
the redemption of shares in the estate will generally result in a deemed dividend and a capital loss (assuming a deemed disposition of the shares at their FMV on death). If incurred in the first year of the estate, this loss can be carried back to the terminal return to offset the capital gain on the shares (or other assets).
this allows for the estate to pay tax on dividend income rather than having the deceased pay tax on capital gains.
given the current tax preference for capital gains over dividend income, this is only a good strategy if the redemption of the shares is sheltered by capital dividends or allows the company to obtain a refund of its refundable dividend tax.
from January 1, 2016, in order to benefit from 164(6) loss carry-back rules, the Estate must be a Graduated Rate Estate (“GRE”)

33. Common Errors in Settling an Estate
Bad record-keeping and research
estimates of V-day values
undocumented cost of improvements to property
forgotten principal residence elections
lack of proper tax background information (capital losses, capital gains exemptions, allowable business investment losses, rollover forms)

34. US Estate Tax Issues US$5,490,000 Estate tax exemption for 2017
relevance to Canadian residents – “By Pass” Trust or QDOT
use of US Inter-Vivos Trust for Wealthy US heirs

35. Other U.S. “Traps” purchase of condo – Canadian Trust
mismatch with respect to the difference in treatment of assets (Principal residence exemption and capital gains exemption and CDA)

36. Irrevocable Life Insurance Trust
trustees own the policy

37. Life Insurance Holdco Opco
Premiums are paid with .82¢ dollars and insurance creates a capital dividend account that can be paid out tax-free

38. Holdco Assumptions: 3 children and no spouse
holding company has marketable securities with accrued value.
father has $3,000,000 in cash
life insurance in Holdco
Father
$3,000,000 in cash
Life insurance
Holdco

39. Plan . Holdco Child 1 Canadian Child 2 Canadian Child 3 American
CDA
15% tax no CDA but potential RDTOH refund
Holdco
If necessary, equalize American child with personal cash so they all receive the same amount on an after tax basis.