Many factors can affect the success of your business - not least of which is the company's structure itself
Unfortunately there is no "one-size-fits-all" solution;. You need to consider the specifics of your situation, before the optimal business structure to determine. Using the wrong structure for your situation can have far-reaching tax implications, it is also becoming increasingly important to update the structure as your business grows and becomes more successful.
With that in mind, some of the most important factors to be considered here, if the most appropriate business structure to determine:
Exit Planning
It's never too early to think your exit strategy to begin, and to ensure that your business is structured in a manner that maximizes tax savings until its sale. One of the biggest tax benefits through the Income Tax Act is the $ 800,000 capital gains exemption (CGE).
Each individual shareholder in a company is entitled to all or to maintain a portion of its CGE on the sale of shares in the company - provided that certain conditions are met. In other words, win the capital that you could be protected from the sale of your shares may result from the exemption and therefore be tax-free.
In very simple terms, in order to maintain this exception, that you have shares in a private company selling actively engaged in business in Canada. In addition, all or a substantial amount of the assets of the Company has at the time of sale to be in the business use. (According to the Canada Revenue Agency, "all or substantially all" means 0 percent.) Other tests, such as the two-year holding period test and a two-year asset test, and must be met.
If you think that you sell your business in the future, you will want to ensure that it will qualify through the removal of surplus assets of the Company for the exemption, and that the number of CGE exemptions multiply as much as possible.
redundant assets
There are two reasons why it is important to remove unnecessary assets from your business. First, as mentioned above, you have to by the company to remove all non-business assets to qualify the CGE. Moreover, it is extremely important from a legal liability point of view that it is as low as possible the asset value of the operating company.
Redundant assets may include, but are not limited to, cash, securities, loans and leasing property.
You can remove these redundant assets, by simply looking at the individual shareholders through a dividend, but flows are incurred substantial personal taxes. (The highest personal BC tax rate on dividends is approximately 38 percent). One of the tax benefits of an enterprise is the ability to move personal taxes until you actually need the funds that have accumulated in the company; when redundant assets are moved in a person's hands in the form of dividends, this advantage is waived.
If properly structured, redundant assets into a holding company can be moved without incurring taxes, whereby the operating company for the CGE to ensure qualified and defer personal taxes until the funds are actually required. This can be achieved in various ways, although it is very common to use family trusts
Significant business assets
It is not to keep unusual for companies significant assets that are used in an active business. - Properties or larger construction machinery, for example. In such situations it may be useful to keep these assets in a separate company.
This may have a few advantages. First, it can make the business easier to sell such a buyer may not want to make these additional assets or can. Second, an additional layer of creditor protection should be provided to a lawsuit against the operations to be submitted.
family
family companies have both advantages and complications. One advantage is to share his income with family members the flexibility of location. With a confidence, or direct shareholdings, family members over 18 years dividends from the company can be obtained, so that its lowest tax brackets are used. This can every year significant tax savings for a family means that the business is operated.
An additional complication of a family business is the potential for hurt feelings among family members, if the company passes from one generation to the next. It is imperative that a structure shall be such that the first generation allows the flexibility to determine in the second generation, the control of the company should receive and who can only receive a benefit.
Successful family businesses often use family trusts, which allow for both splitting and flexibility on the transfer of the business
Disclaimer :. This article deals with complex issues that have not been fully addressed and may not apply to your specific facts and circumstances. As well, represented the things and the references in the article laws and practices contained reflect that to change. Please consult a tax advisor for advice on how the above information to be applied.
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