Tax Reorganization for Tax Planning in Canada
Tax reorganization for tax planning often makes use of the establishments of the Tax Act’s section 85. The tax rollover in section 85 is a delayed transaction in which one part, corporation, or an individual, transfers shares or assets to a company in exchange for shares of the transferee company. It’s a complicated transaction that requires the experience and expertise of tax lawyers.
The reasons for tax reorganization
Tax Reorganization for Estate and Tax Planning
Estate planning is a specialized kind of tax planning reorganization that usually involves either a section 86 internal reorganization or a section 85 rollover.
Tax Reorganizations for Creditor Proofing
Tax reorganization for a company can be undertaken to protect assets from future creditors. It’s vital to make sure that all critical creditor protection laws conform, as the transactions that are done to beat existing creditors can be contested under various provincial laws.
This type of tax planning reorganization will also use rollovers that fall under section 85. Therefore, these tax reorganizations won’t have negative tax consequences to the parties involved.
Tax Reorganizations for Equity to Employees
When a worker, typically a senior one, is given a significant percentage of the corporation, the company’s tax reorganization will be undertaken by a tax lawyer. This tax reorganization is to let the worker invest in the company’s future at a low cost instead of purchasing into the current corporate equity.
Tax reorganization carried out well, according to section 86, won’t have adverse tax consequences to the investor if the process is carried out correctly. One group shared with an adapted cost base and paid capital will convert into more than one group of shares with the same company.
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