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Tax Law

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What is an estate freeze?
An estate freeze is a restructuring of a company done primarily for tax purposes. The objective is to lock or freeze the value of the company in preferred shares which do not increase in value and to issue common shares to the children or spouse so that the spouse or children can participate in the future growth of the company. This permits a more beneficial tax treatment as income is split among all the members of a family usually resulting in a lower overall tax rate.

What is a rollover?
A rollover is a sale that is done according to specific articles of the income tax act. The purpose of a rollover is to transfer an asset or business to a company without having an immediate tax consequence and to defer any taxes until a later date. Generally a rollover will be done to defer capital gain taxes or recuperation of depreciation. The asset will be sold to the company at fair market value but the payment will be made in a combination of shares and cash. The taxable portion would be paid with shares and as a result any tax consequences would be postponed until such time as the shares are sold or bought back by the company.

Do you pay twice the tax when using a company?
No, the Income Tax Act provides a reduction of taxes when a dividend is paid by a company instead of a salary to take into account the fact that the company already paid taxes. Nevertheless, the advantages of being paid by salary or dividends is a complex matter and an attorney or accountant should be consulted to determine the most advantageous solution to minimize taxes.

What is a dividend?
A dividend is an amount that is paid by a company to its shareholders. A dividend is taxed at a lower rate than salaries or bonuses as the dividend is paid by the company with after tax money. A company is not obligated to pay a dividend and can only do so if it has the financial means. A share may or may not entitle its holder to receive a dividend and different classes of shares may pay a higher, lower or no dividend at all. A dividend can be paid in cash, in shares or in property.