Tax Opportunities During COVID-19

Doom, gloom, and losses. There’s been a lot of negative chatter in the past few weeks with the shutdown of the economy and community as we knew it. Along with the decline in consumerism and cash flow, we’ve also seen the decline in business values across various sectors (well, maybe except for toilet paper, hand sanitizer, Zoom, and delivery services). But for the majority of us, other than the opportunity to spend more quality family time with our quaran-team, there may also be an opportunity to do some long-term tax planning because, as we all know, we will come out the other side stronger than ever before.

Now is a very good time to chat with your accountant and us about doing estate and succession planning, such as an estate freeze or re-freeze to most efficiently manage the overall tax bill and to move the growth (value) of the company to the next generation. The lower business valuations at this time would allow for minimizing estate taxes that would be associated with this type of tax transaction. The basic idea behind the estate freeze is that the shareholder trades their (common or growth) shares in the business for preferred shares with the same value, with the future growth of the newly issued common shares can be issued to a family trust or other family members, or other managers and people lined up for succession of the business.

There are many benefits and ways that this could work for your company, such as:

  • Multiplying the lifetime capital gains exemption on the future sale or disposition of the shares by adding other shareholders or entities.
  • Deferring capital gains on the shares at death – by freezing the value of the shareholder’s common shares, any gain in the new common shares would not be taxed on the death of the current shareholder.
  • Taking advantage of any income splitting or dividend sprinkling (of course, subject to the TOSI rules).
  • Incorporating a holding company to shield assets from creditors or liabilities.

Of course, every business is different so it’s a good idea to start this process soon as it does take some time. We would be happy to discuss any questions you may have, our door is always open (at least figuratively for now!). Don’t hesitate to contact us.

The team here at Paperclip Law is here to help – as seasoned experts on business and taxes with years of experience, we are here to help you get plan for this transaction in a way that you understand and can appreciate.