Business owning clients need their advisors more than ever

Advisors will have a key role to play when, if as expected, the government’s new tax proposals get approved

Business owning clients need their advisors more than ever

Advisors will have a key role to play when, if as expected, the federal government’s new tax proposals get passed into law. Business owning clients are going to be hit hard and for advisors the changes represent a good opportunity to really prove their value.

On two of the three new tax proposals (the conversion of income into capital gains and income ‘sprinkling’), there isn’t really anything that can be done – there is no way around the government’s proposed changes. However, on the third proposed change (the use of passive investment portfolios within a private corporation), advisors should definitely be thinking about how they can help.

Under the new rules, any gains accrued to shares held by a family trust after 2017 would not qualify for the capital gains exemptions.

“Anyone using a family trust structure to multiply the capital gains exemption needs to start talking to their lawyers and advisors about how they can restructure if these measures become a reality,” says Jason Pereira, Senior Financial Consultant at IPC Securities Corp. “If you are a business owner who set up all of your shares through a family trust, you’ll want to transfer those shares out of the trust to yourself as soon as possible.”

“There is still room for change on these proposed changes; we will probably see a secondary release on this at some point, but that is the one action item that people need to look at.”

Pereira is concerned that some advisors won’t fully understand the proposed tax changes. In his view, the new proposals take an already complex and convoluted tax system and make it even more difficult to comprehend.

“There are many more ways now, especially if this passes, to fall foul of tax rules without even realizing it,” Pereira says. “Advisors should be educating themselves on what the world will look like after these changes and learn about strategies for dealing with the new reality. Look at every business owning client who is incorporated, especially anyone who has a family trust structure, and examine the impact these changes will have for them.”

Pereira encourages advisors to be proactive and to seriously consider ways to redesign their clients’ corporate structures. It could also be a good time to start conversations with specialist accountants and lawyers. “Have those discussions now but don’t make any big changes until the end of the year when we hope to have more clarity,” Pereira says. “All we can do now is plan. There is no need to move yet, but the chances are there will be a need to move.”

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