1) Is your business a Canadian Controlled Private Corporation (CCPC)?
[x] Yes
[x] No

A main advantage to owning a CCPC is that it is eligible for the Small Business Deduction (SBD) which reduces the tax rate on the first $500,000 of active business income. For business owners looking to invest excess earnings, and who have taken full advantage of available RRSP and TFSA contribution room, the SBD offers a significant tax deferral opportunity. Over time as the value of your business assets increase, your estate plan should include an estimate of your deferred taxes along with strategies to reduce or eliminate them at your death.

Planning Tip:
If you have an established business that is unincorporated, you should consider the tax advantages of incorporating as a CCPC. The Corporate Tax Rates webpage on the Government of Canada website provides a summary of all Federal and Provincial corporate tax rates.

2) How many different business entities do you own an interest in?
[x] 1
[x] 2 or more

When owning a single corporation, you need to ensure that 90% or more of the company’s assets are used to earn active business income. Not meeting the 90% test means that should you ever decide to sell or otherwise dispose of your shares in the business, you may not qualify for the Lifetime Capital Gains Exemption (LCGE). Your estate plan should include strategies to ensure your business will meet the 90% test criteria in the future.

Planning Tip:
Your estate plan should fully document your corporate structure. The easiest way to create a corporate structure is draw a flow-chart on paper with interconnecting lines for ownership percentage.

3) Aside from you, are there other shareholders in your business?
[x] Yes
[x] No

If your business is a Canadian Controlled Private Corporation (CCPC) with one or more shareholders being an associated CCPC, the $500,000 Small Business Deduction (SBD) will need to be shared and allocated amongst the corporations for the taxation year. The rules can be quite complex and should be discussed with a knowledgeable tax advisor. Your estate plan should also account for any loss of the SBD where future retained earnings are factored into your plans.

Planning Tip:
Should you decide in the future to sell some of your shares, or raise capital by issuing treasury shares, you should consult with a knowledgeable tax advisor before finalizing any transaction to avoid any unintended tax consequences.

4) In the event of death, do you know what will happen to your business?
[x] Yes
[x] No

Knowing what will happen to your business requires that you have a plan to ensure the continued success of the business you have worked hard to build. Having a proper estate plan will help to ensure your family’s financial security while minimizing any related taxation due to the distribution of your corporate assets.

Planning Tip:
If you do not have a corporate succession plan, it increases the risk that the business you have worked hard to build may fail once you are no longer managing the day-to-day operations.

5) Does your business have a Unanimous Shareholder’s Agreement (USA) in place?
[x] Yes
[x] No

Every corporation is governed by the Articles of Incorporation and By-Laws. These are documents that cover the basic rules and procedures to be followed. However, there may be situations where shareholders will need to agree on matters beyond the scope of these documents. Having a well written USA will provide the rules and guidelines on how to handle different circumstances that could impact your financial security.

Planning Tip:
A shareholder agreement is not necessary in a one-person corporation. However, you should enter into a shareholder agreement if you have more than one shareholder or when you want to bring in other investors as your business grows.

6) Does your business have a Buy-Sell agreement in place?
[x] Yes
[x] No

Many people confuse the term Buy-Sell Agreement with Shareholder’s Agreement. The purpose of a Buy-Sell Agreement governs the conditions where a shareholder wants to sell their shares or dies, while a Shareholder’s Agreement is to govern the relationship between shareholders. Implementing a Buy-Sell Agreement can help to ensure that your business will continue to operate should you or another shareholder die or decide they no longer wish to own shares in the company.

Planning Tip:
Your estate plan should include a review of your Buy-Sell Agreement to ensure that it properly addresses all situations where you could have a departing shareholder.

6a) If you answered Yes, is it funded in the event of death?  
[x] Yes
[x] no

Signing a Buy-Sell Agreement is only the first step, you also need to address how you will fund the purchase of shares should a shareholder die. Your estate plan should include a cost assessment of the different ways to provide the funding you require.

Planning Tip:
All parties to a Buy-Sell Agreement should have life insurance equal to the value of their ownership interest. Use this calculator from COMPULIFE to see how affordable term insurance can be.

6b) If you answered Yes, is it funded in the event of a disability?  
[x] Yes
[x] No

Providing adequate funding to purchase the shares of a disabled shareholder can be challenging. Your estate plan should include an assessment to determine if there are any gaps in the funding method you are using.

Planning Tip:
Funding of a Buy-Sell Agreement in the event of a shareholder’s disability using insurance can be quite expensive. If you have not already done so, contact your insurance advisor to discuss if disability insurance is right for your situation.

6c) If you answered Yes, is it funded in the event of a critical illness?  
[x] Yes
[x] No

Your estate plan should also include an assessment to determine if there are any gaps in your funding should an active shareholder become seriously ill and require time to focus on their health.

Planning Tip:
Although critical illness insurance can be expensive, there are policy structures that return all premiums paid if a claim is not made. Contact your insurance advisor to see if critical illness insurance is something you should consider.

7) Are there key employees that are essential to the future success of your business?
[x] Yes
[x] No

There are many ways employees contribute to the success of your business. Your estate plan should evaluate if any employees pose a financial risk to your business should they die, become disabled or critically ill.

Planning Tip:
Planning Tip: If you have one or more key employees that are important to your success, use this calculator from COMPULIFE to see how affordable key-person term insurance can be.

8) Have you considered an Estate Freeze?
[x] Yes
[x] No
[x] Unsure how one works

An Estate Freeze is a transaction where the owner of a business “freezes” the value and tax liability of selected assets while remaining in control. Future growth and tax liability can then be attributed to one or more family members or a trust, reducing future taxes on your estate. Whether you have already implemented an Estate Freeze, or are considering one in the future, your estate plan should clearly document the assets and reasons behind your decision.

Planning Tip:
If you expect your corporation will grow in value, and you have a next generation successor, you should contact your tax advisors to discuss the pros and cons of an estate freeze.

9) Have you considered a Family Trust?
[x] Yes
[x] No
[x] Unsure how one works

A Family Trust is a vehicle for passing on assets to family members. There are several reasons for creating a Family Trust, income splitting, creditor protection, succession planning and protecting a family member with special needs to name a few. Whether you have already created a Family Trust, or are considering one in the future, your estate plan should clearly document the assets and reasons behind your decision.

Planning Tip:
If you have, or are considering setting up a family trust, every 21 years property held in a trust is deemed to be sold. Failing to plan for this event means you will have to pay capital gains tax based on the property’s fair market value.

10) What goal do you have for the succession of your business? 
[x] Sell
[x] Wind-up
[x] Family legacy

Regardless of whether you intend to sell, wind-up or create a family legacy, careful planning should be done well in advance to minimize taxes and ensure there is adequate liquidity to pay all associated costs and taxes.

Planning Tip:
The rate of tax your estate will pay on the value of your business will be determined by the type of planning you do in advance. Failing to plan can result in double taxation exceeding 70% of the value of your business.