1. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 1 Plan&Save

2. 2 The Grégoire Family Desharnais & Associates TEAM F Tahirah Massop – Amyn Damji – Lucie Wei

3. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 3 Address concerns with regards to acquiring Porte et Fenêtre McShane (PFM) and keeping tax consequences to a minimun Corporate tax issues Personal tax issues Recommendations + Other considerattons

4. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Current Situation 4 Portes et Fenêtres McShane (PFM) Mr. McShane -Established in 1991 -$10,000 for 10,000 common shares

5. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Desired Situation 5 Portes et Fenêtres McShane (PFM) Mr. McShane -Not an acquisition of control due to Jessy being a key employee in PFM Jessy Grégoire 90%10%

6. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 6 1| Corporate

7. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Qualified Small Business Corporation (QSBC) 110.6(1) 7 1- Canadian controlled private corporation (CCPC) 2- No unrelated party should have owned the shares in last 24 months 3- At the time of sale of shares at least 90% of fair market value (FMV) should be used to earn active business income (ABI) 4- At least 50% of FMV of assets are used to earn ABI in the last 2 years

8. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Qualified Small Business Corporation (QSBC) - Calculation 8 2015 $12,590,994 / 15,393,615 = 81.79 % Do not meet 90% threshold Solution: Purification  Sell off investments and pay off liabilities 2014 $9,644,896 / $10,658,042 = 90.49% Eligible for lifetime capital gains deduction $813,600

9. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Corporate Tax Implications 2: Investment Tax Credit (ITC) 9 First 3 million – Current expenditures ITC : 35% Refund: 100% Excess of 3 million ITC : 15% Refund: 40% Engage in research + development activities Be careful 3 million may be reduced depending on taxable income earned in Canada

10. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Corporate Tax Implications 3: M&P Credits 10 13% tax rate reduction for company on M&P Engage in manufacturing and processing activities Better off claming GRR of 13% Easier Building  Factory Add cost renovations to ACB Put in separate class If greater than 90% use for manufacturing  10% CCA Manufacturing & Processing Credits

11. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Administration 11 Capital Dividend Account (CDA) Balance of $72,000 Pay out as tax free dividends Refundable dividend tax on hand (RDTOH) Pay out 3x RDTOH as dividends = $45,000 Max dividend refund $15,000 GRIP balance : pay out as eligible  gross up at 38%, DTC 6/11 of gross up Instalments Tax payable > $3,000 Several ways to calculate

12. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Notes to Financial Statements 12 Note 1: Tavel expenses of $42,887 100% deductible due to employee travel Note 2: Employee meals of $5,000 per meal 50% deductible for tax purposes Note 3: Employee education costs Related to business Deductible for corporation Employees do not have to include in tax return

13. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Notes to Financial Statements 13 Note 4: Car benefit (Class 10.1) > $30,000 500 km personal use – assuming 12 months 2,500 km work related Standby charge: 500/1667 x 2% x 45,000 x 12 = $3239 Operating cost benefit: Lesser of 1- $0.27 x 500 = $135 2- 50% of SC = 1649 Total income inclusion: $3,374

14. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 14 2| Jessy Grégoire

15. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Income Splitting 15 1- Employ Nick and pay a reasonable salary Must be reasonable or cannot be deducted by Ms. Grégoire’s company Salary will allow for RRSP contributions Can contribute 18% of earned income or maximum of $24,930 2- Can also pay dividends up to $35,553 per year CDA account  tax free dividends can be paid out Jessy makes $240,000 Husband no longer works  Consider Income Splitting

16. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Income Splitting 16 3- Jessy can contribute to Nick’s RRSP Jessy can deduct contribution Contribution belongs to Nick 4- Jessy can make a loan to her husband Reasonable repayment terms, prescribed rate, paid within 30 days of year end 5- Jessy pays all family expenses Use Nick investment income  taxed at lower tax rate Pay out a mix of salary and dividend to husband

17. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Ms. Grégoire - Credits 17 1- Spousal amount $11,327 – Nick’s Net income 2- Family tax cut Currently eligible for $2,000 One spouse makes over $150,000, other makes $0 Couple is married with children under 18 With income splitting family tax cut may be reduced to 0. 3- Child care benefit – 3 year old child Can receive additional funds for child  should be given to Nick Mr. Grégoire can use his personal tax credits with income splitting Beware of income attribution to spouse when giving Nick money 74.1

18. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Ms. Grégoire 18 4- Registered Education Savings Plan Can contribute to your children’s RESP Maximum lifetime limit per child is $50,000 Can receive additional amounts from Canada  $500 Quebec  $250 Contributions are not deductible, however, when the amounts are given to the children:  Will be taxed in the child’s hands  Method of income splitting Must distribute funds to children before age 31

19. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Ms. Grégoire 19 5- For post secondary education, can receive per child: 118.5 Tuition maximum $5,000 x 15% = $750 118.6 Textbook $65 x 8 x 15% = $78 118.6 Education $400 x 8 x 15% = $480 118.02 – Travel to school – Public transportation for children under 19  15% of total paid

20. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Ms. Grégoire 20 Mortgage interest Mortage interest is not deductible Should use investments to pay off mortgage Use income for investments and then the interest will be deductible Investments must have an expectation of profit Allowable business investment loss Investments that are sold at a loss If the company is a small CCPC that carries on active business in Canda  Then losses become an allowable business investment loss when the shares are sold Can be applied against any income If not a CCPC  Loss will be a capital loss – applied against capital gain. Will reduce future lifetime capital gain deduction Investments – Interest & Broker fees = deductible

21. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 21 3| Recommendations

22. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Purchase of PFM - Funding 22 20% as a donation to her daughter is not deductible for Catalina Beauty Will be considered a gift at FMV, will have immediate tax consequenses 80% interest bearing loan Jessy will have to make interest payments within 30 days of year end  Not the best option Let’s look at other options

23. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Purchase of PFM - Funding 23 Can sell shares in Catalina Beauty to get the funds and make a personal loan Catalina indicated she does not want to sell her business Not viable

24. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Purchase of PFM - Funding 24 Can give a loan through the company ITA 15(2) Shareholder loan as Jessy and Catalina are related Must have bonafide repayment terms ITA 251(2) Loan must be used to: 1) Buy a house X 2) Buy a car for work X 3) Buy shares in Catalina Beauty X Not viable: Jessy will have to include the full amount in her income  Higher tax consequences

25. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Purchase of PFM - Funding 25 Catalina can acquire the shares in PFM Will be an acquisition of control PFM will have a deemed year end PFM will lose one year of loss carry overs Will have to involve Mr. Moore Not viable

26. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Purchase of PFM - Funding 26 1- Outright Gift Shares will deemed to be disposed of at fair market value Will have immediate consequences for Mr. McShane  Not viable 2- Instalment Sales Can defer tax consequences on capital gains Cannot defer tax consequences on recapture Jessy will require the funds 3- Can do an 85(1) Rollover to a Holdco Will need to create another company = expensive Can allow for crystalization of LTCGD Beware of kiddie tax 120.4 84.1 Deemed dividend, 74.1 attribution, 74.4 attribution

27. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Purchase of PFM - Funding 27 4- Trust Will have immediate tax consequences Normally created for estate planning 5- 86 Reorganization Can bring Catalina into the company and defer any tax consequences Do not have to create another company Will not have to sell investments to purify and crystallize Recommendation = Combination of 86 Reorg + Trust

28. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION How to Do 86 Reorganization 28 1- Mr. McShane exchanges 100% of his common shares for preferred shares in PFM 2- Mr. McShane will take consideration Boot = PUC of PFM shares = $10,000 This will prevent 84(3) redemption dividend when Mr. McShane is redeeming his common shares 3- Preferred shares will be Dividend bearing Voting Redeemable and retractable Have a price adjustment clause Non participating Value of the preferred shares will be FROZEN at the LSC of the shares  Important for estate planning as deemed to dispose assets at FMV upon death

29. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION How to Do 86 Reorganization 29 4- Open a new class of common shares Will have no value and can be transferred at a nominal value 5- Mr. McShane and Jessy should open an inter vivos discretionary trust Both have children, can plan for their futures

30. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION How to Do 86 Reorganization 30 Mr. McShane can place 10% of common shares in trust and sell 90% to Jesse Make his children beneficiaries Jessy can place 30% of her shares into the trust Make her 3 children beneficiaries Growth attributed to them Intervivos Still alive when created Testamentary upon death Discretionary Both Mr. McShane and Jessy can change the benefiaries of their respective trusts

31. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Trust 31 Taxed at 29%Must file a T3 trust returnDeemed disposal at FMV every 21 yearsAll beneficiaries will be eligible for LTCGD of $813,600Beware of 74.1 Attribution and 120.4 kiddie tax

32. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Trust 32 Trust Beneficiaries: -Children -Grandchildren -Spouse -Holdco Trustee: 3 rd party: accountant or lawyer PFM 90% of growing common shares Mr. McShane 100% Preferred Shares – Frozen Value

33. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Other Considerations 33 1- Mr. McShane can deduct any interest paid on investments made in the stock market and loan for building If he has the intention of makin money Will have to include any interest or dividends received 2- Mr. McShane should make timely payments on building for the loan as he pledged his patent 3- Bonus from McShane 0-180 days = include in income 180 days – 3 years = cash basis 3 year = deferred salary 4- Catalina’s mother should pay out CDA tax free and make use of the RDTOH balance of $483,325 Can pay up to $4,000,000 eligible If CCPC wil pay 38% - 10% - 17% = 11% federal + 8% provincial = 19% total tax

34. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 34 4| Conclusion

35. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Summary 35 Addressed concerns with regards to acquiring Porte et Fenêtre McShane (PFM) and keeping tax consequences to a minimun Corporate tax issues Personal tax issues Recommendations + Other considerattons

36. MANDATECORPORATEPERSONALRECOMMENDATIONSCONCLUSION Mandate 36 Thank you for choosing Desharnais & Associates