All About Estates

Fair Tax Plan is Not Fair

When I was a child I would get together with kids in the neighborhood and we would play games like racing toy cars. Someone would call out the rules and the games would go for hours to the delight of our parents. On occasion one of the kids would do something that appeared to others as outside the rules which would be greeted with howls of protest “… not fair”. The game would break up and we would go our separate ways only to gather the next day to start a new game but not before going through the rules.

The Minister of Finance on July 18, 2017 introduced draft anti avoidance legislation that would significantly alter accepted practices to eliminate the double and sometime triple tax to occur on the death of an individual who owned shares of a private company on death. One of the practices, the pipeline method, relied on the the adjusted cost base in shares (created on a death) to extract assets from a private company without suffering the terminal tax liability all over again. The draft rules as written have both retroactive and prospective effect such that for deaths that occurred prior to July 18, 2017, the pipeline method is no longer available.

Imagine the uproar if you were an executor of an estate where the plan relied on the pipeline method and the rules were suddenly changed…. I say not fair. At a minimum there should be some sort of grandfathering with a sunset date to complete planning already in play.

If you are concerned with the fairness of Canada’s income tax system, you are encouraged to share your views and ideas about the proposals to address the tax planning strategies by either contacting your federal member of parliament or via email to fin.consultation.fin@canada.ca.

Stay tuned for more on this matter.

 

About Derek de Gannes
CW LLP is a firm of professional advisors providing a comprehensive suite of services to a diverse client base. Our experienced and skilled team can provide personal and corporate solutions to maximize growth potential, wealth and value. Email: ddegannes@cwcagroup.com

2 Comments

  1. Jill Bone

    August 9, 2017 - 4:23 pm
    Reply

    While I understand the need to update tax laws to eliminate “loopholes” as the Government sees them, the recent lack of use of grandfathering has been troubling. The changes to testamentary trust income taxation, for example, could have been a softened blow to income beneficiaries who have grown to rely on the income splitting allowances. When there is no option to rectify by changing plans (as in the case with the pre-deceased) then grandfathering should be automatic.

  2. David Pylyp

    August 10, 2017 - 1:18 am
    Reply

    Thank you for keeping us updated

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