Shareholders of Canadian-controlled private corporations face a substantial barrier to the distribution of the corporation’s profits in the form of high combined personal and corporate tax rates.
Utilizing a structured flow-through share transaction, the Corporate Initiative provides (i) tax deductions to reduce the corporation’s taxable income and (ii) an increase to the corporation’s Capital Dividend Account (CDA) enabling the shareholder to receive corporate cash tax-free. Together, these tax benefits result in the shareholder significantly increasing his or her after-tax share of the income earned by the corporation and paid out to the shareholder.
Before a client commits to a particular transaction, we arrange for a liquidity provider – typically, an institutional investor – to purchase the shares at a predetermined price. Therefore, any changes to the market price of the flow-through shares will not impact a participant’s return.
Whether the Corporate Initiative is suitable for your private corporation will depend on your corporation’s circumstances (including historical income and retained earnings). Your company must also qualify as an Accredited Investor.