For high-net-worth families at the helm of family-owned enterprises, retirement planning is a multifaceted challenge…
Why Combine Your Businesses into One
If you’re managing multiple family businesses, combining them into one company could simplify your life. This isn’t just about making your business easier to manage—it’s also about saving money on taxes, merging any losses you might have across your companies, and organizing your company shares more smartly.
Understanding the Rules with Section 87
Canada has special rules that let companies combine without paying taxes right away. But it’s important to follow these rules carefully. If not, you could face big tax penalties.
How to Bring Your Businesses Together
You can bring your businesses together in two main ways: a long-form or a short-form amalgamation. The short form is simpler and only needs the company directors to agree. This can save time if you’re all on the same page about combining your companies.
Types of Amalgamations: Vertical and Horizontal
There are two main types of amalgamations:
Vertical Amalgamation: This is when a parent company combines with its subsidiary. The parent company stays in charge, and the subsidiary’s shares disappear.
Horizontal Amalgamation: This is when two companies at the same level—like sister companies under the same parent—combine. They merge their shares and continue as one.
Thinking Beyond Taxes
Combining companies isn’t just about tax rules. You also need to think about other laws, especially if your businesses are in different provinces. Plus, you’ll need to make sure you can still pay all your bills (that you’re solvent) and handle some paperwork, like filing Articles of Amalgamation.
What Happens to the Businesses After Combining
Even after you combine your businesses, the law sees the new company as a continuation of the old ones. So, all your business relationships, contracts, and obligations keep going just like before.
Combining Without Owing Taxes
To avoid taxes when you combine companies, you need to make sure all the property and debts of the old companies are properly transferred to the new one. And, all the shareholders from the original companies need to get shares in the new company.
Be Careful with Taxes When You Combine
Combining companies can trigger a ‘deemed year-end,’ which means you might have to do your taxes at a different time than usual. Also, not all tax benefits from the old companies will automatically transfer to the new one, so you need to plan this carefully.
Getting Professional Help Is Key
It’s important to work with a tax expert when you’re thinking about combining your businesses. They can help you avoid mistakes and make sure the process is done correctly. At Shajani CPA, we specialize in helping high-net-worth families like yours manage their businesses efficiently and with the best tax outcomes.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.
Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.