Close-up of two people working on a tablet

Tax Planning Tips During an Economic Slowdown

May 05, 2020

Tax Planning Tips During an Economic Slowdown

Synopsis
5 Minute Read

Ten questions to help you optimize your tax plan amid the COVID-19 downturn and ongoing economic uncertainty.

Insight
Agility Insight

The COVID-19 pandemic has caused chaos and uncertainty for many business owners and sharp declines on stock exchanges around the world. Many people have seen a significant erosion of their retirement assets. It remains to be seen how long this will last and how the global economy will recover. 

We have heard from many clients who understandably have a lot of questions. These unprecedented events do present some opportunities so we have put together a few planning ideas that may apply to you and your business. We also offer some questions to get you thinking about what may or may not be beneficial given your specific circumstance.

Investment Portfolios

Do you personally own a portfolio that has suffered a large decline in value?

  • Personal capital losses can be useful in specific circumstances.
  • Certain transactions can be completed between spouses to take advantage of loss rules and prescribed rate loans.

Do you hold shares or debt of a small business corporation that will not recover their value or, in the case of debt, not be collectible?

  • Losses on shares and debt of small business corporations may be eligible for treatment as allowable business investment losses, which are deductible against other sources of income.

Do you own shares of a holding corporation which owns an investment portfolio that has previously reported capital gains, but has now declined in value?

  • Capital losses can be carried back to prior years to recover taxes paid — but timing is key, there may be tax-free funds a shareholder can access first.
  • Consider an estate freeze to introduce family members into the ownership structure.

Current Year Operating Losses

Are you expecting your corporation to report a large operating loss for the current taxation year?

  • Non-capital loss carry-back planning should first consider dividend payments to individual or Holdco shareholders.
  • Utilization of losses in other corporations within a corporate group can occur in various ways — amalgamations, wind-ups or different structures that contain partnerships.

Depressed Corporate Value

Has the value of the shares you hold in a private corporation decreased substantially? This could be due to a reduction in value of the underlying assets or operating losses.

  • Now may be the time to minimize future taxes on death by effecting an estate freeze and introducing family members or family trusts into the ownership structure.
  • Buying out other shareholders may be more attractive, given depressed corporate values.
  • Transferring assets out of the corporate environment can be more cost effective if there has been a reduction in the value of those assets.
  • If cash flows have been affected, but retaining key employees is critical, consider equity positions as compensation while values are lower to minimize future taxes on benefits.

Do you hold preferred shares of a private corporation that may no longer be worth their value?

  • Consider a refreeze transaction to exchange the existing preferred shares for new preferred shares with a lower value.

Do you have a business with tangible assets?

  • Consider corporate reorganization to separate assets from operations.

The planning solutions presented above are just some of many that are possible. Contact your MNP advisor to discuss how these may apply to you and your business. For additional insights to help you navigate the pandemic’s ongoing challenges, visit our Business Advice Centre

Learn more at MNP's COVID-19 Business Advice Centre

Strategies and tools to help your company navigate the coronavirus crisis, stay resilient and take the next steps towards recovery.

Insights

  • Confidence
    Holding a portfolio on one hand, comparing data on another

    July 28, 2021

    How to optimize value from an Internal Audit co-sourcing partnership

    Co-sourcing your internal audit function can help you navigate several contemporary challenges — including the need for greater agility and subject matter expertise, as well as cost and resourcing pressures. Here we investigate practical steps to find the right vendor and make this relationship as seamless, targeted, and cost effective as possible.

  • Progress
    person reviewing graphs on their phone

    July 26, 2021

    Automating finance, so you can focus on your business

    Cloud accounting and bookkeeping solutions allow you to focus on the critical parts of your business instead of shuffling through paperwork every week.

  • Progress
    ""

    July 22, 2021

    Cloud accounting and bookkeeping can transform your real estate and construction operations

    Priorities are changing after the long hours that came with navigating COVID-19. Here’s how you can free up time to focus on what really matters.