The COVID-19 pandemic has caused chaos and uncertainty for many practice owners and the broader economy. Stock exchanges around the world have experienced significant volatility, leading to investor worries. Having a comprehensive financial plan is the best way to deal with uncertain times, as it remains to be seen how long this will last and how the global economy will recover.
Even in these challenging times, there are opportunities you can take advantage of. Here are some tax planning ideas from our accounting partner, MNP, that may help you save on tax.
Do you personally own a portfolio that has suffered a large decline in value?
- Personal capital losses can be useful in specific circumstances.
- Certain transactions can be completed between spouses to take advantage of loss rules and prescribed rate loans.
Do you hold shares or debt of a small business corporation that will not recover their value or, in the case of debt, not be collectible?
- Losses on shares and debt of small business corporations may be eligible for treatment as allowable business investment losses, which are deductible against other sources of income.
Do you own shares of a holding corporation which owns an investment portfolio that has previously reported capital gains, but has now declined in value?
- Capital losses can be carried back to prior years to recover taxes paid — but timing is key, there may be tax-free funds a shareholder can access first.
- Consider an estate freeze to introduce family members into the ownership structure.
Current Year Operating Losses
Are you expecting your corporation to report a large operating loss for the current taxation year?
- Non-capital loss carry-back planning should first consider dividend payments to individual or Holdco shareholders.
- Utilization of losses in other corporations within a corporate group can occur in various ways — amalgamations, wind-ups or different structures that contain partnerships.
Depressed Corporate Value
Has the value of the shares you hold in a private corporation decreased substantially? This could be due to a reduction in value of the underlying assets or operating losses.
- Now may be the time to minimize future taxes on death by effecting an estate freeze and introducing family members or family trusts into the ownership structure.
- Buying out other shareholders may be more attractive, given depressed corporate values.
- Transferring assets out of the corporate environment can be more cost effective if there has been a reduction in the value of those assets.
- If cash flows have been affected, but retaining key employees is critical, consider equity positions as compensation while values are lower to minimize future taxes on benefits.
Do you hold preferred shares of a private corporation that may no longer be worth their value?
- Consider a refreeze transaction to exchange the existing preferred shares for new preferred shares with a lower value.
Do you have a business with tangible assets?
- Consider corporate reorganization to separate assets from operations.
The tax planning solutions above are just some examples of what is possible. Contact your accountant to discuss how these may apply to you and your business.
As the economic impact of COVID-19 continues to unfold, it’s more important than ever to have a financial plan. A financial advisor can work with your accountant to coordinate your tax strategy with your financial plan to help you save on tax.
For more information, contact an Investment Planning Advisor* at CDSPI at 1.800.561.9401 or email us at firstname.lastname@example.org.
*Investment Advisory services are provided by licensed advisors at CDSPI Advisory Services Inc. Restrictions may apply to advisory services in certain jurisdictions.
The above information should not be considered personal financial, investment, taxation, legal, accounting or similar professional advice. For specific advice about your situation, please consult a tax, accounting, legal or financial professional.