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Not all heroes wear capes. In a world where tax matters can seem increasingly overwhelming and complex, Segal GCSE has come to the rescue with our 2022/23 Annual Tax Publication.
The theme of this year’s publication – Power of Partnership – is a direct reflection of the 2022 merger between Segal LLP and GCSE LLP, officially creating Segal GCSE. This bold union brought together two dynamic, respected and highly skilled groups of people. Most importantly, the combination of these two groups into one united firm has proven to be greater than the sum of its parts.
Our 2022/23 Annual Tax Publication is a prime example of the breadth and depth of expertise and talent Segal GCSE represents. When you’re surrounded by new regulations, evolving legislation and changing requirements, think of this tax publication as your ultimate not-so-secret weapon. We developed this publication as yet one more way to give you every advantage possible.
As you will undoubtedly see, many hours and much careful work went into the creation of this year’s tax publication. Within its pages, you will find a diverse range of topics, all thoroughly examined and explained, all to empower you with the knowledge and insight to plan and act with confidence. We encourage you to take advantage of this valuable resource today.
Laurie Starkman
416-512-3782
Toll Free: 1-800-206-7307
Segal GCSE is pleased to announce the partnership promotion of three exemplary team members: Christopher Citrullo, Daniel Wilson and Yat-Lung Shea. Each brings unique capabilities, experience and perspective to the role of partner, along with being great team players who embody our firm’s core values and culture.
A specialist in our assurance and advisory practice, Christopher Citrullo delivers exceptional financial and taxation support to clients across a broad range of sectors, including real estate, professionals and professional service firms, financial services, e-commerce and manufacturing. “Chris has demonstrated unparalleled commitment to his clients,” says Segal GCSE partner Eli Gembom. “In addition to helping clients navigate opportunities and challenges, he has proven his leadership abilities by adapting to new ways of working and supporting and guiding teams internally.”
Daniel Wilson is a highly insightful tax expert who assists owner-managed businesses and professionals with corporate and partnership reorganizations, tax aspects of selling or purchasing a business, cross-border tax and estate planning, as well as personal and corporate tax planning. “Daniel is always thinking strategically about the best solution for each client’s unique circumstances,” notes Segal GCSE tax partner Howard Wasserman. “He will continue to foster strong relationships with both existing and prospective clients.”
Finally, as an outstanding assurance and audit expert, Yat-Lung Shea provides clients in the financial industry – including investment brokers and dealers, and mutual fund managers – with guidance and support to address all their assurance needs. “Shea has distinguished himself as the go-to person in our firm for complex audits,” highlights Segal GCSE managing partner Dan Natale. “He possesses the perfect blend of technical knowledge along with the ability to offer practical solutions and actionable advice.”
As they collaborate with the rest of the Segal GCSE team, we look forward to the leadership and insight each of these dedicated individuals will bring to the table in their new roles as partners.
Strengthening our leadership in three more ways
Lavanya Sarathchandran
Marketing & Communications Manager
416-798-6929
The process of acquiring a company is a lengthy undertaking which, when completed smoothly, does not significantly impact its normal operations. As many deals are done on a cash-free, debt-free basis, the post-closing balance sheet should reflect the true nature of the working capital of the company which differs from the traditional accounting-centric definition. Therefore, understanding a target company’s working capital cycle is a critical component in helping your client to negotiate a fair transaction and to ensure the smooth transition of control.
The type of deal described above typically begins with a letter of intent that has language in it relating to the seller leaving an appropriate amount of working capital in the business to ensure it continues to operate without interruption. As the deal nears completion, setting an accurate working capital target and definition for the purchase agreement is crucial so that undefined liabilities do not become the responsibility of the purchaser.
As such, deal-related working capital can consist of some or all of the following balances:
Determining which of the above components exist can be achieved through careful due diligence. Common steps in doing so consist of:
A well-understood and defined working capital target should ultimately leave both the purchaser and vendor on equal footing. The difference between the target working capital and the post-closing working capital (a period defined in the purchase agreement to allow for the books to be cleaned up post-acquisition) ultimately results in a downward or upward adjustment to the purchase price where both sides should feel comfortable about the deal you helped advise them on.
Greg Shagalovich CPA, CA
Senior Manager, Transaction Advisory
Lavanya Sarathchandran
Marketing and Communications Manager
Phone: 416-798-6929
LSarathchandran@segalgcse.com
Lavanya Sarathchandran
Marketing and Communications Manager
Segal GCSE LLP
Phone: 416-798-6929
LSarathchandran@segalllp.com
As parents age, they may think about transferring assets and family heirlooms to their children. Often, one such heirloom is the family cottage. Summer vacations at the family cottage are among the most memorable and cherished of times, holding deep sentimental value for parents.
Not surprisingly, many parents want the family cottage to stay in the family for future generations. It’s important to understand the issues surrounding the transition of such an asset to the next generation. This article highlights issues to consider, including income tax implications and options available.
Let’s use an example for the typical issues parents must consider in transitioning the family cottage. Mary, 68, and John, 65, are married with two adult children. Mary and John own a family home and a cottage, which was purchased 22 years ago. Recently retired, they are considering options to keep the cottage in the family, ensuring their legacy lives on.
FAMILY CONVERSATION
First, Mary and John need to have a conversation with their children to determine what is in everyone’s best interests. Are the children interested in keeping the cottage? Will they be able to pay the costs to maintain the cottage? What if only one child is interested in the cottage but cannot afford the costs? What if both children want to share the cottage? How can Mary and John ensure the enjoyment and costs are evenly divided between the children? How can conflicts be resolved?
Mary and John must have an open discussion with their children, expressing their desire to keep the cottage in the family as their legacy. At the same time, Mary and John need to listen to their children’s wishes regarding the cottage. The costs and responsibilities associated with cottage ownership must be discussed, especially if the parents will not be financially contributing to cottage upkeep.
Assuming Mary, John and their children all agree the cottage should remain in the family, several options are available to transition the cottage to the children, each with its own tax implications and other considerations.
Rishma Jessa CPA, CGA, MTax, TEP
Principal, Tax
Lavanya Sarathchandran
Marketing and Communications Manager
Phone: 416-798-6929
LSarathchandran@segalllp.com
Lavanya Sarathchandran
Marketing and Communications Manager
Segal GCSE LLP
Phone: 416-798-6929
LSarathchandran@segalllp.com
Note: This is an update to a Segal GCSE LLP article that was originally published on January 17, 2022
The Department of Finance recently provided clarification on the new 2022 reporting requirements for Trusts which would normally be due by March 31, 2023. The reporting applies to express Trusts resident in Canada, all non-resident trusts that currently must file a T3 return and Bare trusts.
Most noteworthy is the change in reporting for Bare trusts. This is a new requirement for a commonly used structure that previously was not disclosed to the CRA. Please see below for a detailed explanation of Bare trusts and the types of situations that will be caught under the new rules.
To ensure compliance with the beneficial ownership requirements, CRA can assess substantial penalties up to 5% of the maximum value of property if they believe a taxpayer knowingly withheld this information. This is of particular concern for real estate Bare Trustee situations. If the property being held has a value of $50 Million and the penalty clause applies, the penalty could be $2.5 Million.
1. What is an express trust?
An express trust is generally a trust created with the settlor’s express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provision of a statute).
The Exceptions are:
2. What is a Bare trust?
A bare trust exists where a person (i.e., the trustee) has legal title to property and has no other duty to perform or responsibilities to carry out as trustee, in relation to the property vested in the trust.
The sole duty of a bare trustee would be to convey legal title to the trust property on demand and according to the instructions of the beneficiary as provided for within the trust deed. The bare trustee does not have any independent power, discretion or responsibility pertaining to the trust property. In such cases, the beneficial owner retains the right to control and direct the trustee in all matters relating to the trust property.
Bare trusts are commonly used in variety of situations such as:
Historically, bare trusts have not been disclosed to the CRA. Instead, all income (losses) and capital gains (losses) in respect of the property have been reported by the settlor/beneficial owner in their tax filings.
Under the new reporting rules, all of the above situations will now be caught and give rise to a T3 return filing requirement. Please note that these rules relate to the disclosure of bare trusts and will not change the income tax treatment and income tax filing requirements of bare trusts. The disclosure requirement is on top of the normal tax filing requirements.
If you have any “in trust” accounts or bare trustee arrangements, please notify your Segal GCSE advisor as soon as possible.
3. What are the new T3 Filing Requirements?
Historically, a trust resident in Canada did not need to file an annual T3 return unless there was tax payable by the trust for the year or the trust disposed of capital property. In addition, trusts did not need to file a T3 return where nominal income was earned by a trust and allocated to Canadian resident beneficiaries.
Under the new rules, most personal trusts resident in Canada will have to file an annual T3 return regardless of the level of activity and the fact that no income taxes are payable for the year.
The Exceptions to these general rules will apply to the following situations:
4. What additional information will have to be provided?
For 2022 and subsequent taxation years, all express trusts resident in Canada (with exceptions noted previously), non-resident trusts that currently have to file a T3 return and bare trusts will need to report the name, address, birth date, jurisdiction of residence and identification number (SIN or Foreign ID) of:
5. How will the trust provide the additional information?
A trust will have to file a new schedule with its T3 return to report the additional information regarding its beneficial owners, that is, the identity of all trustees, beneficiaries and the settlor of the trust, along with each person who has the ability (through the trust terms or a related agreement), to exert control or override trustee decisions over the appointment of income or capital of the trust (e.g., a protector).
Further information about the new schedule will be posted on Canada.ca when it is available.
6. What happens if a trust fails to file the T3 return or forgets to provide the additional information?
For 2022 and subsequent taxation years, a penalty will apply if a trust that has to file a T3 return fails to do so or fails to provide the additional information about the beneficial ownership.
The penalty will be equal to $25 for each day of delinquency, with a minimum penalty of $100 and a maximum penalty of $2,500.
If a failure to file the return was made knowingly, or due to gross negligence, an additional penalty will apply. The additional penalty will be equal to 5% of the maximum value of property held during the relevant year by the trust, with a minimum penalty of $2,500. As well, existing penalties in respect of the T3 return will continue to apply.
As an example, assume a corporate bare trustee holds legal title to commercial real estate with a fair market value of $50 million in 2022. The beneficial owner of the property decides that they do not want to disclose the required information in a T3 Trust filing. In this situation, CRA can assess a penalty of $2,500 if the T3 return is not filed within 100 days of the trust filing deadline. As well, CRA can assess an additional penalty of $2.5 million (i.e., $50 million x 5% of the maximum value of the property held during 2022).
Please contact a Segal GCSE representative if you have any questions.
