Ontarios Related Party Rules Allow for TAX FREE / LESS TAX GST - PowerPoint PPT Presentation

Ontario Related Party Rules ROAD MAP What do they do ? RST RST –Ontario Related Party Rules Ontario’s Related Party Rules Allow for TAX FREE / LESS TAX GST – Carrying on Business Policy Transfer of Taxable TPP between Related Parties First substantive changes since 1961 Also Address Partnerships MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP Ontario Related Party Rules Ontario Related Party Rules Ontario Related Party Rules Main Requirement: Related Party Eligible Property Main Rule Tax Paid Where Related Parties, Same 95% Exempt or Resale Eligible Property may be Ownership Test transferred tax free Situations NOT Eligible Fine Print: Expanded Application Now Allows for (1) 180 day holding period (2) After July 19, 2004 Multiple Usage MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 1

Ontario Related Party Rules RST & Partnerships Rule on Creation of Partnership Rule where less than 95% Where Unrelated Parties, Eligible Property may be No RST if “Consideration Received” Special Rules for Partnerships for TPP = “Partnership Interest” transferred on a pro-rated basis What is the “Partnership Interest” Concept: You don’t pay tax on How should it be valued ? your percentage ownership. Remember: Can Take it Out Tax-Free Too Same Fine Print MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP RST & Partnerships GST & Carrying on Business Rule for Transfers After Creation Draft GST Policy P-051 R2 GST & Treat certain amount as exempt, GST based on “% of Profits” of Partnership Carrying on Business Brings a CARRYING ON BUSINESS Applies on TPP Going IN and OUT Non-Resident INTO the GST System (But not if taking out someone’s else’s TPP) Significant Change in the Inherent Double Tax Still the Norm Traditional Guideposts Why % of Profits ? MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 2

Regulation 1013 Regulation 1013 Interpretation 13 Interpretation 13 1. This section contains interpretation rules that apply for the purposes of this section 1. This section contains interpretation rules that apply for the purposes of this section and sections 13.1 to 13.7. and sections 13.1 to 13.7. 2. A corporation is related to another corporation if one corporation wholly owns the 2. A corporation is related to another corporation if one corporation wholly owns the other corporation or if both corporations are wholly -owned by the same person. other corporation or if both corporations are wholly -owned by the same person. QUESTIONS 3. A corporation is wholly -owned by a person or an individual, as the case may be, if the 3. A corporation is wholly -owned by a person or an individual, as the case may be, if the beneficial ownership of shares representing not less than 95 percent of the sum of the beneficial ownership of shares representing not less than 95 percent of the sum of the stated capital of all classes and series of shares of the corpor ation is held directly or stated capital of all classes and series of shares of the corpor ation is held directly or indirectly, indirectly, a. by the person; or a. by the person; or b. by the individual and one or more individuals who are members of his or her family. b. by the individual and one or more individuals who are members of his or her family. 4. A corporation (the "subsidiary corporation") that is wholly -owned by another 4. A corporation (the "subsidiary corporation") that is wholly -owned by another corporation shall be deemed to include any other corporation that is itself wholly - corporation shall be deemed to include any other corporation that is itself wholly - owned by the subsidiary corporation. owned by the subsidiary corporation. MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP The Related Concept Regulation 1013 Regulation 1013 Interpretation 13 Interpretation 13 1. This section contains interpretation rules that apply for the purposes of this section 1. This section contains interpretation rules that apply for the purposes of this section and sections 13.1 to 13.7. and sections 13.1 to 13.7. A A 2. A corporation is related to another corporation if one corporation wholly owns the 2. A corporation is related to another corporation if one corporation wholly owns the other corporation or if both corporations are wholly -owned by the same person. other corporation or if both corporations are wholly -owned by the same person. 3. A corporation is wholly -owned by a person or an individual, as the case may be, if the 3. A corporation is wholly -owned by a person or an individual, as the case may be, if the 95% 95% 95% beneficial ownership of shares representing not less than 95 percent of the sum of the beneficial ownership of shares representing not less than 95 percent of the sum of the stated capital of all classes and series of shares of the corpor ation is held directly or stated capital of all classes and series of shares of the corpor ation is held directly or indirectly, indirectly, B B C a. by the person; or a. by the person; or b. by the individual and one or more individuals who are members of his or her family. b. by the individual and one or more individuals who are members of his or her family. 4. A corporation (the "subsidiary corporation") that is wholly -owned by another 4. A corporation (the "subsidiary corporation") that is wholly -owned by another A & B are related A & B & C are Related corporation shall be deemed to include any other corporation that is itself wholly - corporation shall be deemed to include any other corporation that is itself wholly - owned by the subsidiary corporation. owned by the subsidiary corporation. Return Return MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 3

The Related Concept The Related Concept The Related Concept A A D 95% 95% 95% 95% 95% 95% 95% 95% B C B C A B B A & B & C A & B & C & D are Related are Related Return MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP The Related Concept The Related Concept The Related Concept A F A F A 95% 95% D D D 95% 95% 95% 95% 95% 95% 30% H 95% 95% 95% B C B C B C 70% 95% 95% 95% 95% 95% E E E A & B & C & D & E A & B & C & D & E & F & G EVERYONE IS RELATED are Related are Related G G Return MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 4