Corporate Transactions and Tax Implications

Managing corporate transactions while minimizing tax liabilities and compliance costs

Introduction 

Efficiently managing corporate wealth involves strategic transactions like capital dividend withdrawals and share redemptions. Gain insights into optimizing CDA balances, leveraging tax advantages, and navigating key tax implications to support effective financial planning.

Capital dividend withdrawal rule

Clients can efficiently extract wealth from their corporations using distributions, such as dividends and preferred share redemptions.

These can be easily configured through the 'Distributions' card, which is conveniently accessible in the 'Corporations Overview' section of the app. 

Dividends 

To add a dividend or redemption, click the '+ Add Distribution' button. Each distribution includes input fields for the Description, Frequency, Start Date, End Date, and Share Class, as well as dropdown menus to allocate proceeds to specific client accounts.

Additionally, you can adjust the Taxable option to control how the distribution is classified.

To designate a distribution as a capital dividend, ensure the Taxable toggle is set to 'No'. When set to 'No', the distribution is treated as a tax-free capital dividend, up to the CDA balance exceeding the minimum threshold defined in the CDA rule.

Once the CDA balance is utilized, the remaining amounts will be allocated as eligible dividends, followed by non-eligible dividends.

Redemption

Preferred share redemptions will be executed as scheduled within this card, provided the corporation maintains sufficient liquidity to complete the transaction. These redemptions will continue until the client either exhausts their redeemable shares or the specified end date in the input fields is reached.

Conquest provides comprehensive support for modeling the sale of both common and preferred private corporation shares. This feature is particularly beneficial for clients planning to sell a business as part of their retirement strategy.

To initiate the sale of shares, navigate to the 'Sale of Shares' card located on the 'Corporation Overview' page. This tool streamlines the process, enabling precise and efficient modeling of share sales.

Proceeds from share sales go to personal cash flow or a selected investment account. Gains above the cost basis may qualify for the lifetime capital gains exemption.

Preferred shares sell at redemption value, while common shares sell at net worth, factoring in liabilities and goodwill for excess value.

Lifetime capital gains exemption

The Lifetime Capital Gains Exemption (LCGE) can significantly impact the sale of shares. In the 'Corporation Details' section, you can specify if the shares qualify for the LCGE by selecting Qualified Small Business Corporation or Qualified Farm or Fishing Property under the Lifetime Capital Gains Exemption Eligibility field.

Initial Tax Values for LCGE

In the Current Overview page under Starting Tax Values, you can input prior years' tax data impacting the Lifetime Capital Gains Exemption (LCGE).

These values, often found in carryforward reports from tax software, should be entered if they significantly affect eligible share sales.

Income tax support for forms T657 Calculation of the capital gains exemption and T936 CNIL

The Income Tax Details reports now include updated calculations related to the Lifetime Capital Gains Exemption (LCGE) for the following forms:

• T936: Calculation of cumulative net investment loss
• T936 Chart A
• T657: Calculation of capital gains deduction

For qualifying shares, the capital gain eligible for the LCGE will appear under the respective sections of the Schedule 3 - Capital Gains form:

• Qualifying Small Business Corporation Shares
• Qualified Farm or Fishing Property

The deduction is then calculated on Form T657 - Calculation of Capital Gains Deduction.

In the year of death, if a deemed disposition of qualifying shares occurs without modeling a full corporate windup, the LCGE deduction is automatically calculated and applied, ensuring accurate and compliant reporting.

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