Tax planning
Tax planning is the deliberate structuring of your corporate and personal affairs (corporation, trust, family wealth) to legally reduce your overall tax burden. KB Fiscalité designs tailored plans for business owners, incorporated professionals and families in Montreal, Vaudreuil-Soulanges and across Quebec.
What is tax planning?
Tax planning is the legal structuring of your personal and corporate affairs to reduce the overall tax burden carried by your family or your business. It works with federal and Quebec tax legislation as written, choosing the right vehicle (a corporation, a holding company, a family trust), the right timing and the right way to carry out a transaction.
Unlike tax return preparation, which records what has already happened, planning shapes what happens next. A dollar of tax is saved before a transaction closes, rarely after. That is why KB Fiscalité gets involved early, within the rules administered by the Canada Revenue Agency (CRA) and Revenu Québec.
When should you consult a tax advisor?
You should consult a tax advisor before any decision that permanently changes your wealth or your corporate structure, not at filing time. In Montreal, Vaudreuil-Soulanges and elsewhere in Quebec, the following situations call for a tax consultation.
- incorporating your business or your professional practice
- buying or selling a business, in whole or in part
- bringing a spouse, a child or a partner into the shareholding
- growth that leaves surplus cash exposed to business risk
- preparing your retirement, your succession or the transfer of your company
- a dispute or an audit involving the CRA or Revenu Québec.
The right moment is almost always earlier than you expect. Once the transaction is signed, the tax outcome is largely locked in.
How does income splitting work?
Income splitting spreads family income across several family members so that each person’s progressive tax brackets are put to use. In practice, it can take the form of dividends paid to family shareholders, a reasonable salary paid to a spouse who genuinely works in the business, or distributions from a family trust.
These strategies are tightly regulated, first and foremost by the tax on split income, which targets dividends paid to family members who are not actively engaged in the business. A poorly designed arrangement can be recharacterized and taxed at the top marginal rate. Reviewing each situation beforehand (the role each person actually plays, the classes of shares they hold, the exceptions available) is what separates a durable plan from an expensive reassessment.
What is a discretionary family trust?
A discretionary trust is a vehicle in which the trustees decide, year after year, which beneficiaries receive income or capital and in what proportion. That flexibility makes it one of the most versatile tools in family tax planning.
Its main advantages. Allocating income among beneficiaries according to each person’s circumstances. Keeping assets out of reach of business risk. Allowing more than one family member to access the lifetime capital gains exemption on qualified small business corporation (QSBC) shares when the company is sold. And preparing the next generation without giving up control right away.
The 21-year rule imposes its own discipline. A trust is deemed to dispose of most of its property every 21 years, which can trigger significant tax if nothing has been arranged. A trust should therefore be created with a defined horizon and an exit strategy.
How do you protect your assets?
Asset protection legally separates valuable property (accumulated cash, investments, real estate) from the risks of operating a business. The most common tools are a holding company, which receives surplus funds from the operating company, and a discretionary trust, which holds shares or specific assets outside the entrepreneur’s personal estate.
Asset protection is put in place while things are going well. A reorganization carried out after creditors have already surfaced can be challenged. Set up early, it shelters years of work without interfering with day-to-day operations.
Why does estate planning start now?
Estate planning organizes the transfer of your wealth during your lifetime, so that the tax payable at death is reduced and the work of the liquidator of your estate (Quebec’s term for the estate executor) is simplified. In Canada, death triggers a deemed disposition of most property. Without planning, the latent tax on a corporation or a rental property becomes payable in the deceased’s final return.
The spousal rollover defers that tax when property passes to a spouse or to a qualifying spousal trust. For everything else, the will, the corporate structure, insurance and any trust must be aligned. A will drafted without regard to the corporate structure can undo years of planning. KB Fiscalité also assists heirs and liquidators when a death has already occurred.
Which planning tool fits which objective?
No tool is right in the abstract, each answers a specific objective, and the strongest plans combine several.
| Tool | Primary objective | Typical situation |
|---|---|---|
| Income splitting | Use each family member’s tax brackets | Family business where several members play a real role |
| Discretionary trust | Flexible distributions, protection and succession | Family shareholding expected to evolve |
| Holding company | Shelter surplus cash and defer personal tax | Operating company generating excess liquidity |
| Estate freeze | Lock in today’s value for the next generation | Intergenerational business transfer |
| Estate planning | Reduce tax at death and equip the liquidator | Any estate that includes a corporation or real estate |
Should the purchase or sale of a business be planned in advance?
Yes, how a business purchase or sale is structured (share sale or asset sale) changes the tax result for both parties, and that structure is negotiated before the letter of intent. Sellers generally prefer a share sale in order to claim the exemption on QSBC shares if the company qualifies. Buyers often prefer to acquire assets.
Qualifying is not automatic. Some conditions are tested over the period leading up to the sale, which can require a purification or a reorganization well beforehand. KB Fiscalité acts on either side of the transaction, from the initial structuring through to the tax elections filed after closing.
What does a tax consultation at KB Fiscalité look like?
A tax consultation at KB Fiscalité follows a four-step process, carried out jointly by a tax lawyer and a tax accountant.
- Analysis of your situation. Current structure, financial statements, will, existing agreements.
- Understanding of your objectives, succession, retirement, sale, protecting your family.
- Recommendation. Compared scenarios, each with its tax consequences laid out.
- Implementation. Legal documents, resolutions, tax elections and accounting follow-up.
The firm meets clients at 24 Saint-Jean-Baptiste Avenue in Vaudreuil-Dorion and serves Greater Montreal and clients across Quebec.
Frequently asked questions
What is the difference between a tax advisor and an accountant?
Your accountant prepares financial statements and files your returns. A tax advisor designs the structure that determines how much tax those returns will show. At KB Fiscalité, a tax lawyer and a tax accountant work together, covering both the legal and the accounting sides of a plan.
Is tax planning legal in Canada?
Yes. Tax planning applies the rules written into federal and Quebec tax legislation to arrange your affairs in the most tax-effective way. It is entirely distinct from tax evasion, which involves hiding income. Every strategy must also stand up to the anti-avoidance rules applied by the Canada Revenue Agency and Revenu Québec.
When should I set up a discretionary family trust?
Ideally before your company's value grows significantly, so the trust captures the future growth. A trust remains useful later, typically as part of an estate freeze, but the 21-year deemed disposition rule and your family situation should be analyzed before it is created.
Can I still split income with my spouse and children?
Yes, within a much stricter framework than in the past. The tax on split income restricts dividends paid to family members who are not actively involved in the business, though exceptions remain based on age, the role a person actually plays and the shares they hold. Each situation has to be reviewed before any amount is paid.
Let’s talk about your tax situation.
General informational content, not legal or tax advice. Every situation requires its own analysis. Contact us for advice tailored to yours.