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Legal Ease
Legal Ease, Lawyer
Category: Canada Tax
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Experience:  Lawyer
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Mother wants to leave her 40% shares in ltd bc company to son

Resolved Question:

Mother wants to leave her 40% shares in ltd bc company to son and daughter in law. which is best way to minimize taxes?

Should she gift the shares to her son and daughter in law (both hold 60% shares in the company already?
shold she sell the shares to them?
should she make a will and leave her shares to them/

In the above situations, what are the tax consequences to both parties?
Submitted: 1 year ago.
Category: Canada Tax
Expert:  Legal Ease replied 1 year ago.
Thank you for your question.

Before I begin I want to explain a bit about how the site works.

It may be that I will find that I need to gather further information from you. As well, it's quite possible that you may feel the need to ask me additional questions for further clarification.Please do not worry that you will be charged additionally if I ask you questions or if you need to ask me questions. That is not at all how the site works.

As well, please understand that as a careful lawyer I will always give you an honest answer even if the answer is sometimes not what you were hoping for.

Finally, as we go through the process please do not feel rushed if I ask you a question. You are always free to take your time to gather more information before you post back. As well, please understand that even after you rate me the post will not lock and you could always come back for further clarification if you think of something a bit later on down the road.

The issue here is about capital gains tax.

There really is no way to minimize capital gains tax.

Whether the mother gifts the shares to the son and daughter-in-law or sells the shares to the son and daughter-in-law or whether the shares pass to her estate upon her death and then to her son and daughter-in-law, the capital gains tax would be the same

There is a deemed disposition at fair market value no matter how the shares are transferred to the son and daughter-in-law or to the estate. At the same time the son daughter-in-law will be deemed to have acquired the shares at fair market value.

So the mother will pay capital gains tax or theestate will pay capital gains tax if the shares are worth more when she transfers them than when she inquired them.

If the shares are held jointly or are gifted or sold to the son and daughter-in-law before the mother's death then this is a way of avoiding probate fees.

Let me know if you need any further clarification.
Customer: replied 1 year ago.

Thanks for your answer!


 


If she is alive and wants to transfer shares, what is the difference if she give the shares as a gift or sell those shares to them? Does she have to pay capital gain tax even if she give the shares as a gift, and also if she sells the shares to them?


 


If the shares are a gift, when will the daughter in law and son have to pay capital gain tax?


 


If she sells the shares, when will they pay capital gain tax?


 


Also , if she wants to the either of the above, what is the process to transfer her shares?


 


Can you give some general advise on that? Is there a place she can contact to get the paper work done that is not so costly to her?

Expert:  Legal Ease replied 1 year ago.
She has to pay capital gains tax no matter how or when she transfers them.

Only she pays capital gains tax now.

The son and daugther-in-law would pay capital gains tax if they ever transfer the shares to someone else.

She should pay the taxes when she transfers them.

She would need a corporate lawyer to help her with the transfer if she is not sure how this works.

She can contact the BC Branch of the Canadian Bar Association and use their Lawyer Referral Service. She will be given the name of a lawyer and can consult with the lawyer and the first half hour will be $25.

The number is:

604.687.3221 or 1.800.663.1919.
Customer: replied 1 year ago.

since the company is very small,and the only people involved are the son, daughter in law,and the son. If she wants to gift this to them, does she need to go through a long process, and is there lot of paper work involved. could she not get the forms and have those filled by a bookkeeper and send for registrations. She just want to avoid lot legal fees. All she wants to do is to keep it as simple as possible.

Expert:  Legal Ease replied 1 year ago.
An accountant may know how to deal with this.

There need to be share certificates done and there needs to be motions passed and there need to be corporate minutes done.

It's not a long process though.

So the corporation's accountant can likely do it.
Customer: replied 1 year ago.

Thanks for being so patience, and this is my last question. could you please also tell where we can get the documents to fill in the necessary information so she does not have to go to a lawyer. Does she need to draw up letter saying that she is gifting her shares to son and daughter in law


 


Thanks you so much for your help, once I get this answer back

Expert:  Legal Ease replied 1 year ago.
No

She needs to update the corporate minute books and write out some motions etc.

This is not about a letter. It's about making sure this is done correctly both for the CRA and also to make sure the corporate laws are dealt with.

She needs some professional to assist her. But an accountant may be able to do this instead of a lawyer if the accountant has experience in this area.
Legal Ease, Lawyer
Category: Canada Tax
Satisfied Customers: 85781
Experience: Lawyer
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