IS A MANAGEMENT COMPANY FOR YOU?
A frequent question from our customers concerns the relevance of having a management company. Here are some answers.
ASSET PROTECTION
Assets that are not required to run your business should be held by the management company (GestionCo). In the event of legal action against your operating company, these assets cannot be seized. For the same reason, assets that increase in value, such as buildings, should also be held by GestionCo.
PAYMENT OF EXCESS PROFITS
Your operating company makes a profit, and you don’t need the funds personally. You can pay dividends to GestionCo tax-free, since dividends are generally tax-free when paid to another corporation. This means you’ll have an extra amount to invest, since taxes won’t have been paid. Given that the tax rate can be as high as 38%, it makes sense to use a management company. Taxes will be payable only when GestionCo pays you dividends.
CAPITAL GAINS DEDUCTION
An individual is entitled to a $750,000 (lifetime) capital gains deduction when he or she disposes of shares of a private active business corporation under certain conditions. Shares may not qualify if the operating company holds surplus assets, such as investments. It is therefore useful to have a management company in order to use it to transfer surplus assets from the operating company.
TEMPORARY TRANSFER OF SURPLUS
The operating company earns profits that it will one day need to make investments, such as the purchase of equipment. Transferring these funds to GestionCo provides asset protection while ensuring that the operating company remains eligible for the capital gains deduction.
SEVERAL SHAREHOLDERS IN AN OPERATING COMPANY
It is often useful to have a management company when there are several shareholders in the operating company. GestionCo can be used to meet shareholders’ personal objectives. For example, you are two shareholders. Your business partner has a very high lifestyle and wants to receive substantial annual dividends. Personally, you don’t need these funds right away. It will be possible to put these dividends into GestionCo without having to pay taxes immediately.
YOU RECEIVE OLD AGE SECURITY BENEFITS
You’re old enough to receive this benefit, but your investment income is too high, so you have to repay it annually. It could be advantageous to transfer your investments to GestionCo, and thus be able to determine your income so that you no longer have to repay the Old Age Security benefit.
ESTATE PLANNING
With a management company, you can limit taxes on your death by issuing participating shares to your children. In this way, GestionCo’s future added value will no longer belong to you.
Before deciding to set up a management company, you need to take into account the set-up costs and annual maintenance fees. A decision that should be analyzed by an expert.
This article appeared in: Les Affaires |
Is a management company for you?
| April 6, 2013
