CIBC report explores tax-efficient transition strategies for business owners

Just in time for Small Business Month, CIBC has issued a special report by Jamie Golombek, managing director of tax and estate planning, highlighting a number of key tax and estate planning opportunities and issues every Canadian business owner should be aware of.

“Canada’s small business owners are often so consumed with growing and managing their businesses that they can neglect to plan ahead for the eventual transition of their business,” says Golombek. “When done properly and in advance, transition planning can ensure that the business will be transferred to the new owners in the most tax efficient manner possible.”

The report explores the three most common transition planning scenarios: a transfer to family members; key employees’ or a third party. Some owners will choose to transfer their business to the next generation and Golombek’s report discusses options such as a gift or sale of shares and the potentially mitigating impact the lifetime capital gains exemption or an estate freeze could have prior to transfer.

While many of the same tax-planning concepts will apply to non-family member transfers, there are additional considerations to explore when dealing with a sale to employees, such as a leveraged buy out. And for owners who are considering a sale to a third party, the report outlines different strategies for facilitating a transfer of either shares or assets.

From an estate planning perspective, the report also discusses the role life insurance can play in planning for a transition, including issues such as the need for a properly-funded shareholders’ agreement and whether the insurance should be owned personally or by the company.