Children Attending University/Working Abroad
Opportunities exists to divert Cdn source income to that child (subject to withholding tax) which could be received tax free if (for example the child was residing in the UK and based on the Resident but not ordinary tesident under UK tax law). That income could then be used to settle a non resident trust for Canadian Resident Beneficiaries; income of the trust would not be subject to Cdn tax (in the right circumstances).
Avoiding s.256 Association Rules
- The 25% coss ownership requirements of s.256 refers to beneficial ownership; with control of a corporation residing in a trustee, ownership of shares can reside with trust beneficiaries. The application of s.256 (1) (c), (d), & (e) is avoided (at the trust level) through the non application of the 25% cross ownership rules. This permits the Trust to be related to a person that controls another Corporation but does not result in the corporations being associated.
- The utilization of unrelated Trustee’s can avoid the application of the 256(1) (a) & (b) control test.
- The above leads of the conclusion that deemed ownership rules of 256 (1.2) (f) (ii)/(iii) will have to apply before companies are associated, raising the complex issues of who a beneficiary of a trust is for purposes of these sections. The language of 248 (25) makes it clear that the scope of “beneficiary” is narrower than that of being “beneficiary interested” in a trust (ie by the way of 248 (25) where there are circumstances where a person is not beneficiary but would be considered as being beneficially interested). It follows that a 248 (25) (ii) type of interest in a trust would not be caught by 256 (1.2) (f), this statutory scheme is consistent with the traditional definition of beneficiary as being someone with right to apply to the court to enforce the terms of trust. A 245 (25) (ii) type of interest would for example include an interest belonging to a class of persons anyone of which could be appointed by someone holding a(non fiduciary) power of appointment (ie not held by trustee) as a beneficiary.
- The Propec case should be considered although the facts there involved successive interests in a trust and wherein the definition of beneficially interested was read into s. 256 (1.2) (f).
Forward/Futures contracts; make your investments outside an RRSP more tax efficient by investing in Cdn. Securities and entering into an offsetting futures contract that effectively diversifies the Cdn Securities into a broader portfolio or debt;
Defer Investment Income
Invest in ETFt’s that accumulate income rather than distributing income annually. The disposition of such investments will generate a capital gain at the time of disposition. For example , one such fund is XT Singapore bonds.
Remove cash retained in your CCPC by way Capital Gains as opposed to higher taxed dividends; make use of Section 55(2) (and other techniques) to generated capital gains as a means to remove corporate assets tax efficiently.
Avoid RDTOH Taxes
By investing excess corporate funds in foreign LLC
Avoid taxes altogether as follows; on share exchange elect into a capital gain sheltered by the small business capital gains deduction; have the company redeem those shares for cash which generates a loss; generate a second capital gain on a second share exchange which is offset by the earlier loss; then transfer those shares to a related corporation for high ACB/high PUC shares; return the PUC tax free (avoid the stop loss rules by having a related party in control of the corporation at the time the loss is generated)