ACCO 655/2194

SECTION CC

TAXATION AND DECISION-MAKING

COURSE NOTES

WEEK 11

 PARTNERSHIPS
 TRUSTS AND ESTATE PLANNING

John Molson School of Business

Graduate Diploma in Chartered Professional Accountancy Program
Concordia University
Larry Jacobson, MBA, CPA, CA
February 2020

1
 Copyrighted Materials

All book excerpts included in these notes come from the required text for this
course: Byrd & Chens Canadian Tax Principles, 2019-2020 Edition. We
gratefully acknowledge permission from the publisher to use these excerpts.

2
 PARTNERSHIPS
Byrd & Chen: Chapter 18

Which Partnership topics you need to know for the CFE:

 For both Elective Roll and Non-Elective Roll candidates:

Pages 3 to 10.

The Basics:

 A partnership has three basic elements:

1. A relation that subsists between 2 or more persons (individuals,
corporations, or trusts)
2. These persons are carrying on a business in common
3. Intent of partners is to make a profit

 If the participants in a joint venture call the arrangement a joint

venture, but it contains the three basic elements above, it will be
considered a partnership for tax purposes.

 The ITA requires that all persons pay tax. A partnership is not a
person, so it pays no tax and does not file an income tax return.

 However, ITA 96 requires a partnership to compute net income for tax

purposes as if the partnership were a separate person.

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TYPES OF PARTNERSHIPS

 General partnerships
o A partnership where members are active in the management of
the partnership
o Joint and severally liable. This means that a partner’s personal
assets are at risk.
o Compare this to a corporation where shareholders are limited in
their liability to their investment in the corporation.

 Limited Partnerships
o Registered as a limited partnership under provincial legislation
o Limited partnerships have one or more general partners, and
usually many limited partners
o Limited partners are not involved in the management of the
partnership, and have limited liability

 Limited liability partnerships

o These are partnerships for professional groups, such as lawyers
and accountants
o Partners are liable for debts of the partnership, but are not liable
for obligations arising from negligent actions of other partners
or employees of the partnership

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TAXATION

 Partnerships do not file income tax returns, nor do they pay tax.

 Partnership income or losses are allocated to each partner on the

basis of their profit sharing arrangement, which is included in the
partner’s tax return, whether or not the profits were physically paid
out.

 All deductions allowed in the computation of taxable income and the

income tax payable must be claimed by the partners individually, since
only net income (not taxable income) is determined at the partnership
level.

 A partnership must have a calendar year-end if any of the partners are

individuals.

QUESTION: If a business can be carried on in partnership form or

in corporate form, what is the main tax reason for choosing a
partnership structure?

ANSWER: It is the ability to flow losses out of a partnership to the

individual partners (versus corporations which cannot flow losses
out to the shareholders).

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FLOW-THRU OF PARTNERSHIP INCOME TO PARTNERS

 Partnership income is allocated to each partner on the basis of their

profit share arrangement
 Income and expenditures maintain their character when allocated
to the partners:
o Business income
o Dividends
o Rental income
o Foreign income
o Property income
o Capital gains and losses
o Donations
o Political contributions

SPECIAL FLOW-THRU RULES FOR A CORPORATE PARTNER

 If a CCPC receives active business from a partnership, it can claim
the SBD.
 Example: Assume we have two corporate partners who share profits
equally. The Annual Business Limit of $500,000 must also be
allocated. If the partnership earned $1,000,000 of ABI, $500,000
would be allocated to each partner of which only $250,000 for each
partner would qualify for the SBD.
 Corporate partners are not considered to be associated solely
because they are partners in the same partnership.

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SPECIFIC PARTNERSHIP ITEMS REQUIRING ADJUSTMENT

 Salaries to partners
› A partner is an owner and not an employee. Therefore a partner
cannot receive a salary.
› If a salary is paid to a partner it must be added back to
accounting income.
› It cannot be claimed as an expense for tax purposes.
› Instead, it is treated as drawings.
› If the spouse of a partner receives a salary, it is deductible if
reasonable

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 Interest on a partner’s capital contributions
› Cannot be deducted as an expense
› Add back to accounting income
› Treat as an allocation of partnership income

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 Drawings
› Cannot be deducted as an expense
› Add back to accounting income if deducted
› Not taxable to the partner

 Business transactions with partners

› These transactions are recognized for tax purposes
› Example, if a partner rents property to a partnership, the rent is
deductible as an expense to the partnership, and the partner will
declare the rental income

 CCA
› Deducted by the partnership, and not by the individual partners
› All the normal rules are followed, such as the Accelerated
Investment Incentive, recapture, terminal losses, etc.

 Dividend income received by a partnership

› Full amount of dividends (not grossed up) included in
partnership income
› Flowed through to partners as dividends
› Partners gross up and claim the dividend tax credit

 Taxable capital gains and allowable capital losses

› Included in partnership income
› Partnership can also deduct capital gain reserves
› Flowed through to partners as capital gains/losses

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 Charitable donations
› No credit or deduction allowed to the partnership
› Flowed through to partners and they can claim credits

 Political Contributions
› No credit or deduction allowed to the partnership
› Flowed through to partners and they can claim credits

 Personal expenses of partners

› Partnership may pay personal expenses of partners
› Not deductible to partnership
› Not included in partner’s income
› They are treated as a withdrawal of capital

 Standby charge
› A standby charge is imposed on individuals who are members of
a partnership or who are employed by a member of a partnership
and are entitled to make personal use of an automobile provided
by the partnership. [12(1)(y)]

 Reserves
› Reserves can be deducted in the computation of partnership
income, such as CG reserves, bad debt reserves, etc.

 Elections
 Partnerships can make tax elections. Example: Section 22,
when selling accounts receivable

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DISPOSITION OF PARTNERSHIP INTEREST:

 An interest in a partnership is treated as a capital asset

 A disposal of the partnership interest will give rise to a capital gain

or loss.

 CG/CL = Proceeds of disposition - ACB of the partnership interest

ACB OF A PARTNERSHIP INTEREST:

ADD:

+ Original amount invested by the partner

+ Capital contributions by the partner

+ Partner’s share of business and property income of the partnership,

computed on a tax basis (and not accounting income)

+ Partner’s share of capital gains (100% and not ½)

+ Partner’s share of taxable dividends (not grossed up)

+ Partner’s share of capital dividends

DEDUCT:

- Partner’s drawings and other withdrawals

- Partner’s share of the business and property losses

- Partner’s share of the capital losses (100% and not ½)

- Partner’s share of donations and political contributions

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TIMING OF ADJUSTMENTS TO THE ACB OF THE
PARTNERSHIP INTEREST

 For capital contributions and drawings, the adjustment is made at the

time of the transaction.

 For adjustments related to income and tax credits, the adjustment

takes place on the first day of the following fiscal period.

Negative ACB of partnership interest:

 If the ACB of a partnership interest becomes negative, a capital gain,

unlike all other cases covered by Ss 40(3) where a capital gain will
result, for a partnership a negative ACB would NOT be a capital gain.

 If the ACB is still negative at the time the partnership interest is

disposed of, this negative amount would be added to the capital gain at
that time.

 The above exception does not apply to a limited partnership.

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COMMON PARTNERSHIP ROLLOVERS WITH NO TAX
CONSEQUENCES

Note: The rollovers below apply to Canadian partnerships only. A

Canadian partnership is one where all the partners are Canadians.

 Transfers of assets at ACB from the partners to the partnership, ITA

97(2) rollover at ACB. Often used on the creation of a partnership. If
ITA 97(2) election is not made, transfer takes place at FMV.

 Partnership property transferred to a new partnership, ITA 98(6).

Commonly used when a new partnership is created due to the addition
or withdrawal of a partner.

 Partnership property transferred to a sole proprietorship, ITA 98(3).

On the dissolution of a partnership, property is transferred to the
partner at ACB.

 Partnership property transferred to a corporation, ITA 85(2) and (3).

Used when the partners decide to incorporate the partnership.

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LIMITED PARTNERSHIPS

• A limited partnership is, at law, a partnership whereby its limited partners

have limited liability similar to shareholders of a corporation.

• A limited partnership must have at least one general partner who is fully
liable for the debts of the partnership

• Limited partnerships have been used in the past few years to finance
various projects such as film projects and SR & ED projects.

• The limited partners of a limited partnership enjoy limited liability with

respect to the partnership operations and, as such, are not permitted to
deduct allocated losses in excess of their liability to fund such losses ("at
risk amount").

• The amount of losses which can be deducted by a limited partner for tax
purposes is limited to the "at-risk amount" less certain deductions. Any
amount which is not deductible in computing the partner's income for the
year is deemed to be a "limited partnership loss" which may be deductible
in a subsequent year against future income from the partnership.

• The amount of the investment tax credit which a limited partner could
claim is also limited to the at-risk amount.

• A "limited partner" is defined for the purposes of the provisions dealing

with losses and with investment tax credits.

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"At-risk amount" defined.

 The "at-risk amount" is the aggregate of:

1. the limited partner's adjusted cost base of his or her partnership interest;

plus:

2. the limited partner's share of the current year's income from the
partnership;

minus:

3. all amounts owed by the limited partner to the partnership, and

4. any amount or benefit to which the partner is entitled where the amount
or benefit is intended to protect the partner from the loss of his or her
investment.

• For the purpose of the reduction of the at-risk amount in respect of amounts
owning to the partnership, loans between persons not dealing at arm's
length with the partner or the partnership are taken into account.

• A revenue guarantee in respect of the gross revenues of a partnership will

not reduce the at-risk amount except where the revenue guarantee ensures
the partner of the return of a portion of his or her investment. As well, the
reduction does not apply to a prescribed revenue guarantee in respect of
certified film productions.

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Example:

In October 2019, Mr. Donald subscribed for a $20,000 interest in a Limited

Partnership. Mr. Donald made a cash payment of $5,000 and signed a demand
note for $15,000 payable to the Limited Partnership in January 2020. For
fiscal period ending Dec. 31, 2019, the Limited Partnership allocated an
operating loss of $18,000 to Mr. Donald and $3,000 of ITC.

Tax consequences

1. Computation of the at-risk amount – 96(2.2):

ACB of the interest in the Limited Partnership: $ 20,000
Less:
Amount due to the Limited Partnership (15,000)

At-risk amount $ 5,000

2. Computation of the non-deductible loss – 96(2.1):

Allocated loss $ 18,000
Less:
At-risk amount $ 5,000
Less:
I.T.C. (3,000) (2,000)

Non-deductible loss $ 16,000

3. Computation of the deductible loss:

Allocated loss $18,000

Non-deductible loss (16,000)
Deductible loss $ 2,000

4. I.T.C. $ 3,000

5. Limited Partnership loss $ 16,000

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Tax consequences continued . . .

In 2019, Mr. Donald is entitled to a total of $2,000 loss in computing income,

equal to his at-risk amount less I.T.C. of $3,000. The deductible loss is
deducted in computing the ACB of his partnership interest. Mr. Donald is also
entitled to an ITC of $3,000.

In 2020, because Mr. Donald is paying back the demand note of $15,000, his
at-risk amount becomes $15,000; he can therefore deduct $15,000 of the
limited partnership loss of $16,000 from 2019.

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 TRUSTS AND ESTATE PLANNING

(TEXTBOOK: CHAPTER 19)

What is a Trust?

Property Benefits

Settlor Trustee Beneficiaries

Legal
Ownership

© 2009 Clarence Byrd Inc. 2

DEFINITION:

A trust is a relationship whereby one person (called a trustee) has legal

control and management of property that is held for the benefit of another
person(s) (the beneficiary). The settlor is the person who initially transfers
property to the trust.

The trustee administers the assets of the trust and may distribute capital
and/or income to the beneficiaries.

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TAX RETURNS:

ITA says that a trust is a "person." Therefore, trusts must file annual T3 tax
returns and taxes are calculated using the individual tax rates.

TYPES OF TRUSTS:

 We have commercial trusts and personal trusts.

 Commercial trusts include mutual funds, RRSPs, registered pension

plans, etc. For the CFE you are not responsible to understand the
taxation of commercial trusts.

 Personal trusts are arrangements where the beneficiaries have not paid
anything for their interest. We will examine two types of personal
trusts:
1. Testamentary Trusts and Estates, which arise on death. Note
that the Income Tax Act gives the same meaning to the terms
trust and estate.

2. Inter Vivos Trusts, which are created during the settlor’s

lifetime.

For purposes of the CFE, we are only interested in Testamentary Trusts

and Estates.

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ESTATES ARISING ON DEATH

 When a person dies all of the deceased assets, net of liabilities, are
referred to as an estate.

 The administrator (executor, or liquidator in Quebec) of the estate is

the trustee.

 The trustee will need time to arrange for the reading of the will,
handle any disputes with the heirs, take charge of all the assets, pay
any debts, file all the required forms, prepare the necessary tax
returns, and distribute the assets in accordance with the wishes of the
deceased, which are normally noted in the will.

 While the trustee is administering the estate, which could take weeks
or several years, income can be earned on the estate assets. The
trustee will compute the net income, prepare the trust tax returns (T3),
and pay the taxes owing.

 For tax purposes there are two types of estates:

1. Graduated Rate Estates (GRE):

 The first 3 years of an estate, after the death of the individual, is

referred to as a GRE.
 These estates are taxed using the individual tax brackets (i.e.,
they are taxed at the graduated rates).

2. Estates (which are not GRE’s)

 For estates which exist beyond 3 years after the death of the
individual, they are taxed at the maximum individual tax rates
(33% federal and the maximum provincial rate).

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TESTAMENTARY TRUSTS CREATED ON DEATH.

 Sometimes an individual’s will provides for the setting up of a trust on

death. These are referred to as testamentary trusts.

 There are two main classifications:

o Spousal Trust: The surviving spouse is entitled to receive all

income of the trust, and no person other than the surviving
spouse can receive the capital from the trust, until the spouse’s
death.

o Other Trusts: Example, a trust where the assets are left to the
children, which they will receive when they reach the age of 35.

 These testamentary trusts are taxed at the maximum individual tax

rates (33% federal and the maximum provincial rate). They are not
GRE’s.

INTER VIVOS TRUSTS (*Note: Not required for the CFE*)

 You are no longer required to know

These are trusts created during the settlor’s lifetime. There are several
types:

o Spousal

o Alter Ego: Settlor is ≥ 65 and entitled to all income and capital

from the trust. Used to avoid probate fees on death,
for privacy reasons, or to help manage the affairs of
the individual.

o Joint Spousal: Similar to the Alter Ego, but either spouse is

entitled to the income and capital

o Other, e.g., Family trusts

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 Taxation of Trusts
Property At Property At
FMV Trust’s Cost

Settlor Trust Capital

Property Beneficiaries

Trust
Income

Distributed
Retained Income
Income
Income Beneficiaries
(beneficiaries
(taxed in trust)
taxed)

© 2009 Clarence Byrd Inc. 10

SETTLOR’S TRANSFER OF PROPERTY TO A TRUST

The settlor (dead or alive) transfers property to the trust.

o This transfer normally takes place at FMV triggering capital gains,

recapture, etc.

o For spousal, alter ego, and joint spousal trusts, the transfer takes place
at UCC/ACB.

Beneficiary:

 Income Beneficiary: Entitled to the income of the trust.

 Capital Beneficiary: Entitled to the capital of the trust.

 A person can be both an income and capital beneficiary.

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INCOME COMPUTATION FOR A TRUST AND BENEFICIARY

 A trust computes its net income in the same manner as an individual

 Income paid or payable to a beneficiary is deducted from the trust’s

income. This amount will be taxed in the beneficiary’s hands.

 Only income NOT distributed to the beneficiaries is taxed in the trust.

This income, after taxes, can be distributed to the beneficiaries on a
tax-free basis.

o Example:
Income earned by a GRE $100,000
Amount distributed (beneficiaries are taxable) (20,000)
Taxed in trust at graduated rates $80,000
Federal and Provincial tax (30,000)
Net retained by the trust $50,000*

* This amount can be distributed to the beneficiaries in later

years on a tax free basis.

 Non and Net Capital losses of the trust cannot be distributed to the
beneficiaries; only the trust can use them. They can be carried over to
other years by the trust.

 Income attribution rules apply if property is loaned or transferred to

an inter vivos trust, the income of which is subsequently allocated to a
spouse or related minor.

 Payments to beneficiaries from a GRE or testamentary trust are never

subject to the attribution rules or tax on split income.

INCOME DISTRIBUTIONS TO BENEFICIARIES

 Dividends paid out are considered to be dividends for the

beneficiaries. CG’s paid out will be a CG s for the beneficiaries.

 All other income paid out, including business income, is deemed to be

property income to the beneficiaries.

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CAPITAL DISTRIBUTIONS TO BENEFICIARIES

*(Review for the CFE only if Tax is your elective role)*

 Capital property in a non-spousal trust can be distributed to the

beneficiaries on a tax-free basis; i.e., trust's ACB flows to the
beneficiaries.

 Capital property of a spousal, alter ego, or joint spousal trusts are

transferred out at FMV, resulting in tax consequences for the trust.

TAX RATES

*All candidates for the CFE should know the following*

Tax rates apply only on income retained by the trust:

 Inter vivos trusts and testamentary trusts: Taxed at a flat rate of 33%
(= Maximum federal tax bracket). Therefore, no tax incentive to split
income by creating an inter vivos trust. Usually best to distribute
income to beneficiaries who might be in a lower tax bracket.
o Year end: Must be December 31.
o T3 tax returns due 90 days after the year end.

 GRE: Taxed at the same graduated rates as for individuals. (15-20.5-

26-29-33%). After the first 36 months of the individual’s death, the
estate will pay tax at the 33% rate.
o A GRE can choose any year end up to one year after death.
o After the first 36 months, the GRE must revert to a December
31 year end.
o T3 tax returns due 90 days after the year end.

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TAX CREDITS

 Tax credits available to trusts:

o Donation tax credits

o Dividend tax credits
o Foreign tax credits
o Investment tax credits

 Trusts are not eligible to claim personal tax credits, such as the basic
personal, age, and dependant tax credits.

EXCEPTION TO PAID/PAYABLE DEDUCTION BY TRUST:

*Note: Not required for the CFE*

ITA 104(13.1) & (13.2) permits a trust to designate all or part of amounts
paid/payable to beneficiaries as "not to have been paid/payable" to the
beneficiaries. Thus, the trust pays tax on this income.

Why make this election?

1. If beneficiaries are in a high marginal tax bracket, any trust income

paid or payable to them will be taxed at high tax rates. If the election
is made the trust may pay taxes at a lower rate if it is a GRE.

2. If trust has unused non-capital or net capital losses carry forward

(remember that these losses must be used by the trust and cannot be
allocated to the beneficiaries).

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CFE: SOME ESSENTAL POINTS REGARDING TRUSTS:

1. Assets are transferred to most estates and trusts at FMV (other than
spousal, alter ego, and joint spousal trusts). Therefore transfers to
trusts usually trigger capital gains and recapture.

2. Trusts and estates are taxed at the maximum individual tax

brackets (33% federal and the maximum provincial rates) other
than for GRE’s which are taxed using the individual tax brackets,
but only for the first 3 years after death.

3. Consider winding up GRE’s by the end of the first 3 years, because

afterwards they will be taxed at the maximum individual tax rates.

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Note: As there is no reference in the 2019 CPA Competency Map for
the following topics, you can ignore pages 27 to 34 of these notes for the
CFE.

TAX PLANNING: WHY ESTABLISH A TRUST

 Administration of assets: To provide capable management of the

trust assets.

 Avoiding changes in beneficiaries: E.g., put assets in a testamentary

trust for which a surviving spouse is entitled to the income, but the
capital is left to the children.

ESTATE PLANNING (= DEATH PLANNING)

Non-Tax Considerations:

o Intent of the testator: To who, timing

o Preparation of a will: Primary document of intentions. Should be

reviewed on a regular basis.

o Preparation of a living will: In the event of physical or mental

incapacity.

o Ensuring liquidity at time of death: Funeral, taxes, legal costs

o Simplicity: Easily understood, foreign assets repatriated

o Avoiding family disputes: Fair distribution

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Estate Planning – Tax Considerations

 Inter vivos Trust:

o Parent transfers capital property to a trust for the children.

Parent declares CG, if any on transfer, but future CG’s accrue
to the children (no attribution).

o There is no attribution on income earned on reinvested income.

o Caveat: Tax on Split Income (TOSI) was introduced to

discourage income splitting with children, spouse and other
related individuals. Maximum federal tax rates apply (33%) to
TOSI, with no NRTCs other than the dividend tax credit and
the foreign tax credit, on:

1. Dividends from private corporations

2. Income from partnerships or trusts which provides goods or

services to a business in which the related party participates.

 Testamentary Trust

o Prior to death: Defer unneeded income, if possible. This income

will be taxed in the estate, and if it is a GRE, it will be taxed at
the graduated rates.

o Year of death: Preferable to leave assets with accrued gains to

spouse (rollover), and assets with no accrued gains to others.

o Income splitting: Divide high income generating assets among

family members.

o Foreign jurisdictions: Foreign assets could be subject to foreign

estate taxes. Consider incorporating these assets or putting into
trust form to avoid these taxes.

o Administration period: During the administration of the estate,

consider distributing income to beneficiaries who have a low
marginal tax rate.

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ESTATE FREEZE (= ASSET FREEZE)

Primary Objective: The primary purpose of an estate freeze is to freeze all

or part of the value of growing assets of an individual at their current FMV
(this will be the FMV on death) so that the future growth accrues to the next
generation of family members.

Secondary Objectives:

 No immediate tax consequences

 Maintain control

 Retain a source of income

 Split income with family members while avoiding attribution/TOSI

 Crystallize CGD

 Split QSBC shares amongst family members to permit them to use

their CGD

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HOW TO CARRY OUT AN ESTATE FREEZE:

1) Outright immediate gift

Taxpayer will have deemed disposition at FMV, triggering immediate taxes.

Recipient will have ACB = FMV and future appreciation will be taxable in
their hands. Watch out for attribution.

Adv: - Easy

Disadv: - Immediate tax implications for person gifting

- Possible loss of control of assets or company
- Possible attribution

2) Instalment sale

Sell assets at FMV with proceeds receivable over a number of years

Adv: - Easy
- Can defer tax on C.G., compared to gift, over 5 years (10
years if to family member)

Disadv: - Possible loss of control

- Can’t defer tax on recapture
- Source of funds to purchase assets (If loan from parent, then
possible attribution)

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3) Establish an Inter Vivos trust

Transfer assets to a trust

Adv: - Can maintain control of assets

- Choose beneficiaries later (if discretionary trust)

Disadv: - Immediate tax implications; Deemed disposition at FMV for

assets transferred into the trust, unless it is a spousal trust
- Prepare trust returns (T3) every year
- Deemed disposition of trust assets at FMV every 21 years,
unless it is a spousal trust
- Trust taxed at high rate for income left in the trust
- Possible income attribution and tax on split income (TOSI)

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4) Holdco Freeze using 85 rollover

i) Incorporate a holding company

ii) Growing assets are transferred to Holdco using 85 rollover

provisions

iii) Parent takes as consideration for assets rolled over, debt and
preferred shares (preferably voting, maintaining control for the
parent)

iv) Issue common shares of Holdco to family members, often for

nominal value

Adv: - No immediate tax

- Can freeze non-share assets (e.g. a rental property)
- Maintain control
- Can create a CG to crystallize CGD
- Parent can retain a source of income (i.e., dividends on
preferred shares, interest on debt owing)
- Possible to split income if excepted from the TOSI rules

Disadv: - Must create a new company; incorporation and other costs

- Must file annual tax return, financial statements
- Watch out for TOSI and 74.1 attribution rules
- Possible 74.4 attribution rules if Holdco not a SBC

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5) Internal Freeze: 86 Share Exchange

Involves a capital reorganization of an existing company, where parent

exchanges common shares for debt and newly authorized preferred shares
(preferably voting to maintain control) using Sec. 86 to defer any accrued
gains on the common shares. Spouse and children can subscribe for new
common shares, often at a nominal value.

Adv: - No immediate tax

- Simpler to implement compared to a 85(1) Holdco freeze. A
new holding company is not required, and no election need be
filed with the CRA.
- Can maintain control of company
- Parent can retain a source of income to maintain
himself/herself (Preferred shares pay dividends, debt pays
interest)
- Possible to split income with family (watch out for TOSI)

Disadv: - Legal cost to reorganize

- Cannot create a CG to crystallize CGD
- If the corporation has investment assets, cannot segregate out
when doing the freeze. To remedy, see
Reverse or Asset Freeze, which follows.

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6) Reverse or Asset Freeze

1. Children incorporate a new corporation(s) and purchase common

shares for a nominal value.

2. Transfer assets (and not shares) of parent’s Opco to Newco(s) using s

85 to defer tax on any CG

3. Opco takes as consideration for assets rolled over, debt and preferred
shares (preferably voting, maintaining indirect control for the parent)

Adv: - No immediate tax

- Can freeze non-share assets (e.g. a rental property)
- Maintain control
- Parent can retain a source of income to maintain
himself/herself (Preferred shares pay dividends, debt pays
interest)
- Possible to split income
- Can transfer select growth assets to children, and retain other
assets (with Holdco freeze, the children get everything)
- If each child owns a separate Newco, can transfer different
assets to each child, as desired

Disadv: - Must create new company(s), incorporation and other costs

- Must file annual tax return(s), financial statements
- Cannot create a CG to crystallize CGD (as the assets are rolled
over and not the shares of Opco)
- Watch out for TOSI and 74.1 attribution rules

34