Meet Dylan and Dina. Dylan and Dina are husband and wife and in their mid-forties. Together, they own a business in Ontario that sells camping equipment. The business was structured as a corporation, Camquip Inc. (“Camquip”).

The business has been growing fast, and there is a lot of cash left in the business. They also want to sell the business and retire in the next 10 years.

Dylan and Dina have one daughter, Ella. She is the apple of their eyes, and they want to set her up for a good life.

The business is currently worth about $1 million but is expected to grow to $2 million in value in 10 years. The business had about $500,000 of excess cash and other assets not needed.

Goals

Dylan and Dina came to LRK Tax with the following goals in mind:

1. Creditor Proofing: Protect the business’s cash from creditors and any future lawsuits.
2. Progressively clean up the company so that when they sell, there are no redundant assets (not needed to run the business) in Camquip.
3. Invest excess $500,000 cash in the business in the most tax-efficient manner to grow wealth quicker –the expected annual return is 8%.  
4. Minimize the taxes on selling their company shares, so they leave more for their retirement and Ella.
5. Dina is expected to have other personal income. She wants the flexibility to take fewer dividends from Camquip than Dylan to save taxes by income-splitting.
6. Above all else, make sure they leave as much wealth as possible for Ella.

Dylan and Dina heard that a lot of these problems could be solved by a holding company. However, the holding company has to be structured in the right way.

The current Structure is Not Efficient

Dylan and Dina’s current structure had the following problems:

1. Because excess cash was sitting inside Camquip, it was not protected from creditors.
2. It would not be possible to extract the excess cash out of Camquip without paying a lot of tax (close to $239,000).  
3. Dina is not able to receive a different dividend amount from Dylan.
4. Dylan and Dina would not be able to utilize their lifetime capital gains exemption, which would allow each of them to avoid paying taxes on up to $971,190 on the capital gain when they sell the shares of Camquip.
5. Because the corporation-owned assets that were not needed in the business, Dylan and Dina would have had to spend lots in taxes and money (legal and accounting fees) at the time of sale trying to clean it up so a buyer would buy the company’s shares. Generally, buyers prefer to buy business assets instead of shares if the company has too many non-business assets. Sellers prefer to sell their shares to qualify for the capital gains exemption and reduce taxes on the capital gain.

LRK Tax Wealth Max™ Holdco Tax Plan to Save Taxes and Maximize Wealth

We worked with Dylan and Dina, along with their lawyer, to implement the LRK Tax Wealth Max™ Holdco Tax Plan, which would achieve all their objectives through a series of legal steps:

Tax Savings

Overall, the plan would save them $716,000 in taxes:

	Current (No Plan)	LRK Tax Wealth Max™ Holdco Plan	Tax Savings
Immediate tax on taking $500K of excess assets out of business to invest	$239,000	$ –	$239,000
Tax on sale of shares if value grew to $2 million	$535,000	$58,000	$477,000
Potential tax savings on retirement
Total Tax	$774,000	$58,000	$716,000

Investments and Net Worth

• Dylan and Dina would have $240,000 more money available to invest right off the bat.
• Their Net Worth would be $760,000 higher under the LRK Tax Wealth Max™ Holdco Plan for retirement and to set up Ella for financial success.

Investments	Current	LRK Tax Wealth Max™ Holdco Plan	Diff
Money available to invest after taxes	$260,000	$500,000	$240,000
Investment value in Year 10 after taxes	$376,000	$665,000	$289,000
Net Worth	$1,840,000	$2,600,000	$760,000

With a plan in place, Dylan and Dina had the peace of mind that their tax strategy was looked after and that they had the most efficient structure in place so they didn’t have to work more than they had to.