6 minute read 8 Dec. 2021
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The great family wealth transition

By EY Canada

Multidisciplinary professional services organization

6 minute read 8 Dec. 2021

Authored by: Liam Bordeleau, Associate Partner, Business Tax Advisory

Year-end tax tips to help family businesses prepare for and protect wealth succession

In brief
  • You can’t protect or transfer wealth effectively without a strategic plan
  • Embrace end-of-year tax planning in December to better position yourself for 2022
  • Take advantage of current tax regulations before its too late

Whether you’re charting an exit in 2022 or in the early stages of succession planning, now’s the time to give some thought to year-end tax planning.

Why? Private family capital currently represents a greater share of the market than private equity and venture capital combined. Increasing globalization is fuelling the growth of family enterprises everywhere. This unique environment represents a wealth of possibilities for family businesses or family offices building out strategies for the next 12 months. Focusing on the right calendar year-end priorities now can position you to capitalize on any opportunity the new year has in store.

Ask yourself these five key questions to focus on the right tax planning opportunities and head into 2022 strong:

1. Are we approaching philanthropy strategically?

Managing philanthropic efforts and community engagement is an increasingly important function for any family office. Personal and corporate donations can generate tax savings. Still, keep in mind: depending on the situation, corporate donations may maximize those results. Setting up a private foundation can allow you to focus giving around a key passion point. This approach fosters flexibility and allows you to change course if charitable objectives evolve over time.

Private foundations also encompass built-in agility. This means you can donate at times when the tax benefit — the tax credit in the year of the donation — aligns best with your tax or estate-planning goals, without having to immediately choose the charitable organization or program that will ultimately receive your gift. You should also consider where a donor-advised fund with a public foundation — such as a community foundation — may be the most appropriate vehicle for your family office’s donations.

2. Do we understand how Bill C-208 could affect our succession plans?

What happened with Bill C-208: When Bill C-208 came into effect earlier this year, it drove important changes around the tax implications in connection with the sale of qualified small business corporation (QSBC) shares or shares of the capital stock of a family farm or fishing corporation to the next generation. Put simply, Bill C-208 provides that the intergenerational transfer of QSBC shares or shares of the capital stock of family farms and fishing corporations is excluded from the anti-surplus stripping rules.

What this means for you: On the intergenerational transfer of such shares to a corporation that’s controlled by your adult children or adult grandchildren, you can receive non-share consideration (e.g., cash or a promissory note) without the anti-surplus rules deeming you to have received a dividend. In addition, you should be able to claim the lifetime capital gains exemption against the capital gain realized.

Further, as part of the transfer of your business, if a portion of the sale proceeds is payable after year end (e.g., by way of promissory note), you could defer a portion of the tax on the gain. There is a minimum annual inclusion of 20% of the gain, or 10% if the extended capital gains reserve applies.

3. Are we managing family wealth effectively across borders?

Owners and family beneficiaries who live outside Canada are most susceptible to higher tax rates. Evolving transparency and reporting requirements across many different jurisdictions bring an added layer of complexity to these scenarios. That means planning ahead and working to understand the options available are absolutely essential for any owner or beneficiary who makes their home abroad. Reviewing current asset-holding structures can be a good first step.

Go further to assess how changing rules might impact family members who live or work in the US or other jurisdictions. If they’re beneficiaries of Canadian-resident trusts, they could face income or estate tax exposure here or there, along with complex annual reporting requirements. Key tax strategies can mitigate those risks and cut down reporting responsibilities.

Life insurance can provide another avenue for equalizing family members as part of the overall estate planning process.

But before you can pursue any of these paths forward, you need a clear understanding of the big picture and relevant laws. That’s key.

4. Have you prepared for potential trust filing disclosures in Canada?

Most trusts with a taxation year ending on or after December 31, 2021 will soon be subject to evolving federal disclosure requirements. What will that mean?

Most trusts that are not currently required to file a T3 return will now have an annual filing requirement. Further, as part of the annual filing requirement, you’ll need to disclose the identity of the settlors, trustees, beneficiaries and any other person who can control the way a trust’s income or capital is allocated. If this affects your trust, it’s time to start planning for how you’ll handle these additional requirements. Only limited exceptions will apply, so it’s wise to get ahead of the change and put a plan in place now.

5. Looking ahead: the rise of family offices and the “do it yourself” investment strategy

If you haven’t gone the family office route yet, it might be time to consider your options. A family office can be an effective way to manage and invest wealth. Doing so can help you get more strategic about long-term planning and explore new opportunities — think real estate transactions — in different ways. Recently, a strong trend has emerged of family offices pursuing direct investments in the private market. The primary drivers of this trend have been:

  • A search for better investment control
  • Attractive risk-adjusted returns that have limited public market correlation
  • Lower price volatility, since private direct investing requires the implementation of a formal investment committee process to identify, vet and execute new opportunities as well as manage ongoing portfolio needs

Some family offices have chosen to team up with others to pursue this strategy together. This offers attractive synergies in infrastructure, deal sourcing and idea sharing, but it also creates governance issues with investment selection and ongoing management. For small to mid-sized family offices, the team approach may also enhance their overall competitiveness in the marketplace by increasing the capital available to pursue new opportunities — an important criterion in winning a competitive deal.

What gives family offices a competitive edge against PEs or other funds?

  • Family offices have flexibility to change their focus
  • They’re not beholden to a 7- to 10-year exit timeline
  • They don’t face the same regulatory requirements as funds
  • They may or may not have ESG requirements for their investments like larger PEs or funds may have for impact investing
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As trusted advisors to ambitious family businesses, including more than 80% of the world’s top 500 family enterprises, EY teams have the experience and knowhow to help the entire family enterprise — families, their family business and their family office — pursue growth opportunities while preserving values and building the family legacy.


Contact a local EY Private advisor today to talk through any number of the strategies and tips highlighted in this year-end tax planning guide.


What’s the bottom line?

You can’t protect or transfer wealth effectively without a strategic plan. Embrace year-end tax planning in December to strongly position yourself — and succeeding generations — as you head into a new calendar year.

About this article

By EY Canada

Multidisciplinary professional services organization