In Canada, so long as you meet certain requirements, you may be able to create a family trust to hold some of the shares in your private corporation.
What is a Family Trust?
A family trust is an agreement prepared by a lawyer based on the recommendations of your professional tax accountant. Notice of the trust is filed with the Canada Revenue Agency so that it will be given a business number ... similar to a social insurance number for an individual. The trust can hold property, earn income, and distribute its income and capital to the beneficiaries described in the trust document. As a result, it can hold shares in a corporation. If those shares receive dividends, or if it earns income in any other way, all or any portion of the income (or none) or the capital, can be paid out to the beneficiaries or any one or more of them.
Why Create a Family Trust?
The trustees of the family trust can decide who, if anyone, will receive the income or capital from the trust each year. If you have named your children as beneficiaries, then so long as they are at least 18 years old and they meet all of the other requirements (ask your tax professional), they can receive a payment from the trust. It must be reported on their tax return, but their tax rate may very well be low if they are a student, for example. Each case depends on its own circumstances.
Should You have a Family Trust?
If the same money was paid out as dividends to you under the shares you hold in the corporation, the tax may be higher than having it paid to a beneficiary under the family trust. Again, each case depends on the facts. You will need to consult your professional tax accountant for advice to see if your circumstances qualify and if the trust would be of benefit to you. I am not qualified to give that advice to you, but I can work together with your accountant to create the trust if they feel it is suitable for you.
You Must Follow the Rules Strictly & Live with What You Create
A trust will be considered a legal entity under the law. If you create a trust and want to enjoy the potential advantages, you must live by its rules. You cannot arbitrarily add or transfer property out of a trust. The CRA will strictly enforce their rules about trusts. They will often make enquiries to verify that the trust was properly established and that their rules have been complied with. Therefore it is something that should only be undertaken with qualified professional help.
Notice: The information on this website is general in
nature only. It relates to Saskatchewan, Canada and may not be
applicable in your jurisdiction. It does not constitute legal
advice to you and no solicitor client relationship will be established.
You should seek specific legal advice regarding your circumstances
from a lawyer entitled to practise law in your jurisdiction.
www.rickcarlson.com | Wed, 13 Dec 2017 14:35:04 CST1