Topic: Tax

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M&A update: Canadian federal budget 2017 tax measures

Yesterday, Budget 2017 was tabled by the Liberal government. While Budget 2016 contained many significant tax changes, Budget 2017 does not. Despite having indicated in its 2015 election platform and in Budget 2016 that the Liberal government intended to eliminate a number of perceived tax advantages it considered were benefitting wealthy Canadians and not the … Continue reading

M&A: the subsection 20(24) election

In a business acquisition transaction, it is not uncommon to find an assumption by the purchaser of the obligations of the vendor to deliver goods or perform services in the future for which the vendor has already received payment. In such a scenario, there are two possible outcomes from a tax perspective, as set out … Continue reading

Supreme Court of Canada clarifies law of rectification

Deals often come together very quickly. In all that rush, it’s easy for the parties to forget to think about all of the long term implications of the deal. Perhaps the parties simply didn’t realize that the deal would have certain consequences that frustrated their original intentions. Maybe the parties intended to avoid particular tax … Continue reading

Applicability of the capital gains exemption in M&A

Individuals selling their business often think of using the capital gains exemption to help keep the tax man at bay. Undoubtedly, this tax exemption is a useful tool when an individual is thinking of selling shares in their business, however, there are several conditions that must be satisfied before this exemption applies. The following is … Continue reading

Tax considerations for earn-outs and reverse earn-outs

As we have previously noted, earn-outs are becoming an increasingly common part of M&A deals, and there are a number of key commercial questions to consider when negotiating them. But there are also tax consequences that must be considered when structuring earn-outs. Earn-outs link a portion of total purchase price to the performance of the … Continue reading

Hybrid entities in Canada

In the context of cross-border business transactions, the term hybrid entity is often mentioned.  Generally, a hybrid entity is considered, for tax purposes, as one type of entity (e.g., a corporation) in one jurisdiction while being considered another type of entity (e.g., a partnership) in another jurisdiction. One example of a hybrid entity is an … Continue reading

Incoming tax changes may spawn a surge in private company asset sales

With fall around the corner and looming tax changes, certain private companies – Canadian-controlled Private Corporations (generally, private corporations that are controlled by Canadian residents, referred to herein as CCPCs) – may begin to feel pressure to quickly start and/or complete asset sale transactions. On March 22, 2016, the federal Finance Minister released the 2016 … Continue reading

Corporate residency for tax purposes

A corporation that is resident in Canada for Canadian income tax purposes is subject to Canadian income tax on its worldwide income. On the other hand, corporations that are not resident in Canada are only subject to Canadian income tax on their Canadian-source income. Accordingly, residency is an important factor in determining which Canadian income … Continue reading

Inversion control: U.S. Treasury announces new rules affecting cross-border transactions

In September 2014 we reported on the practice of “tax inversions”, cross-border transactions in which the resulting entity may be headquartered in another country for tax purposes. A number of recent transactions between the U.S. and Canada have been seen as inversions by some. On April 4, the U.S. Department of the Treasury and the … Continue reading

Update: 2016 Federal Budget – Liberals drop tax proposal for employee stock options

Tuesday marked the release of the new Liberal government’s first budget. The budget, entitled “Growing the Middle Class”, did not contain the anticipated changes to the tax treatment of employee stock options discussed last week on Deal Law Wire. The proposed changes were first announced in the Liberal party’s election platform and would have capped … Continue reading

Will the 2016 Federal Budget contain anticipated changes to employee stock options?

There has been much speculation about the tax measures to be included in the new federal government’s first budget that will be presented next week, on March 22. Of particular interest to the start-up and technology communities is whether the budget will introduce changes to the tax treatment of employee stock options. The Liberal party’s … Continue reading

Avoiding tax traps: don’t forget about non-competition agreements

Non-competition agreements can be a valuable tool for purchasers who want to protect their investments in new businesses. However, non-competition agreements can have unintended and unexpected tax consequences, particularly to sellers who grant non-competition agreements to purchasers. The Income Tax Act (Canada) (the Act) contains specific provisions regarding the taxation of “restrictive covenants”, a broadly … Continue reading

Price adjustment clauses in contractual agreements

This article highlights the importance of price adjustment clauses in contractual agreements from a tax perspective. A price adjustment clause is often used in transactions if property is transferred between non-arm’s length taxpayers and the intention of the parties is for the transaction to occur at fair market value (FMV). If the transaction is later … Continue reading

Taxation of dividends

One of the most commonly used methods of returning investments to shareholders is the declaration of dividends. In this article, we summarize the tax treatment of some different types of dividend income for Canadian resident investors. Canadian corporations can declare both eligible or ordinary cash dividends. The distinction reflects the difference in tax treatments on … Continue reading

Federal elections: not the political kind

In this article, we highlight joint tax elections companies should consider filing in asset purchase transactions in Canada. These elections will not only save companies time, but they will also relieve taxpayers from hassles down the road. A GST/HST election under section 167 of the Excise Tax Act (Canada) is one of the most commonly … Continue reading

Limiting tax exposure on an acquisition by share purchase

One characteristic consequence of a share sale is, generally, that the vendor realizes a capital gain. Canadian resident shareholders are generally taxed on half of the amount of the capital gain. If available, the cumulative lifetime capital gains exemption can shelter all or a portion of the capital gain, reducing the overall tax bill of … Continue reading

Tax considerations in M&A for purchasers dealing with non-resident vendors

If a non-resident vendor sells property, one consideration that a purchaser must be cognizant of is whether that property constitutes “taxable Canadian property” under the Income Tax Act (Canada). If the property is taxable Canadian property and the vendor does not obtain a certificate of compliance (discussed below), generally the purchaser must withhold 25% of … Continue reading

Asset deal versus share deal: what’s right for you?

Generally, there are two basic structures that can be used in the purchase and sale of a business: acquisition of the assets of the business from the operating corporation (an Asset Deal); or acquisition of the shares of the operating corporation from the corporation’s shareholders (a Share Deal). In some cases, commercial considerations will be determinative of … Continue reading

The return of the REIT

M&A activity involving real estate investment trusts (REITs) is heating up in Canada and south of the border, according to a recent PWC report, “Emerging Trends in Real Estate: Global Outlook for 2015”. Following a succession of REIT conversions in 2014 by companies with significant real estate holdings, coupled with ripe market conditions for REITs, … Continue reading
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