CAUTION: We have been advised that fraudulent emails with a modified domain name have been sent by a source purporting to be from Aird & Berlis LLP. These communications are not legitimate and are not from Aird & Berlis LLP. Disregard any such emails and do not engage with the sender or the email in any way. Please report the attempted fraud by contacting the Canadian Anti-Fraud Centre and by emailing Aird & Berlis LLP at help@airdberlis.com.

Back to all publications
Apr 3, 2020

Tax Planning in a Down Market – Seize the Opportunities

By Francesco Gucciardo

Tax Planning in a Down Market – Seize the Opportunities

In these difficult times, where asset values may be depressed, there may be some planning opportunities that you can take advantage of in order to free up some cash flow or reduce future taxes payable.

A. Crystallize (Not Cut!) Your Losses

Consider triggering unrealized capital losses to recover tax paid on capital gains in the three previous taxation years. This can be accomplished by selling the assets within the family group if you still want to own the asset. Alternatively, you can sell assets (like securities) in the market and reinvest the proceeds in other securities that you feel may be a bargain. Any loss not used in the current year can be carried back up to three taxation years (it can be carried forward too) to reduce or eliminate previously realized gains and net you a refund of previously paid tax. Anti-avoidance rules can apply to this strategy so if you are considering triggering losses, please contact a member of our Tax Group or your accountant. If your loss is in a corporation, you may want to pay out previously undistributed realized capital gains (e.g. capital dividends) before you trigger your capital loss. We can also provide guidance if you have gains in one corporation in your group and losses in another.

B. Freeze (or Re-Freeze!)

The recent decline in asset values may have widened the window of opportunity to effect a freeze or re-freeze. A freeze is usually done to reduce taxes owing at death or multiply the lifetime capital gains exemption. A freeze shifts the future growth in value of an asset you own to another person or group of persons, like family members. The family business is the most common candidate, but most any valuable asset can be frozen. The value of your interest is “frozen” as at the time of the freeze so that any future increase in value accrues to the other person or group of persons, often through a trust. If you have already completed a freeze, then you may wish to revisit the current value of your frozen interest – it may be less than its stated value. In that case, you might “re-freeze” the asset so as to reset its value down to current levels.

C. Purifications May Be Inexpensive

The lifetime capital gains exemption exempts from tax approximately $866,000 of a capital gain realized by an individual on the sale of shares of a qualifying small business corporation. A number of conditions must be met. One of those conditions is that 90% or more of the corporation’s assets at the time of the sale must be attributable to assets used principally in an active business carried on primarily in Canada (active business assets). Securities, passive rental properties, cash (other than cash needed for working capital or to meet debt covenants, etc.), do not generally qualify as active business assets. Since this 90% test must be met at the time of sale, you can take steps to extract non-qualifying assets (or “purify” the corporation) in anticipation of a sale. Consider whether it might be a good time to effect a purification on a pre-emptive basis while asset values (and the tax cost associated with the purification) might be low.

For further information regarding any of the foregoing strategies, please contact a member of our Tax Group.

Areas of Expertise

Related Publications

Publications Article
Infectious Disease Emergency Leave Extended to January 1, 2022 By Jessica Schissler and Daria (Dasha) Peregoudova Sep 23, 2021 On September 16, 2021, the Government of Ontario once again extended the period that the infectio... On September 16, 2021, the Government of Ontario once again extended the period that the infectious disease emergency leave will apply pursuant to Ontario Regulation 228/20: Infectious Disease Emergency Leave under the Employment Standards Act, 2000. While previously scheduled to expire on Sept...
Publications Article
The Ontario Not-for-Profit Corporations Act, 2010: Better Late Than Never By Jeremy D. Burke, Portia Biswas and Angela Oh Sep 16, 2021 The much anticipated Ontario Not-for-Profit Corporations Act, 2010 ("ONCA") will come into force ... The much anticipated Ontario Not-for-Profit Corporations Act, 2010 ("ONCA") will come into force on October 19, 2021, after receiving Royal Assent in 2010.
Publications Article
Practical Considerations for Returning Employees to Work By Alex Kagan Sep 14, 2021 As employers either prepare, or have started, to return employees to work, often by relying on va... As employers either prepare, or have started, to return employees to work, often by relying on vaccination policies of one type or another, there are a number of practical issues to consider. We have addressed some of these issues in our article to provide your organization with guidance in navig...