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Complex Financial Issues

client and lawyer discussing the separation process


Family Trusts
•Courts interpret the true asset entitlement a beneficiary has in a DISCRETIONARY  ‘family trust’ very differently if the matter is a trust/estate matter vs. a family law matter.
•SCC stated in S.A v. Metro Vancouver Housing Corp [2019] SCC 4 for an asset to exist there has to be more than a ‘mere hope’ a beneficiary will obtain the asset in the future.
•While there have been no recent Court of Appeal decisions in the family law context, the recent caselaw seems to suggest that the purpose of the Family Law Act must always form part of the analysis when interpreting whether the discretionary trust has a value to the beneficiaries or not.


•Some factors to consider when determining if beneficiary has ‘control’ can be found at para 32 of the decision:

i.   Any evidence with respect to the founding intent of the trust. Was the trust designed to effectively allow control by the beneficiary?

ii.   The composition of the trustees, including whether the beneficiary is a trustee;

iii.   Any requirement, including veto powers, that the beneficiary be part of any trustee decisions;

iv.   Any history of past trustee actions which demonstrate direct or indirect control by the beneficiary;

v.   Any powers of the beneficiary to remove trustees, or to appoint replacement or additional trustees;

vi   The relationship of the beneficiary to the trustees. Are the trustees independent and at arm’s length or are they instead family members or other persons who may not act independently?

Practice Points

•Family Trusts can be used to hold interest in matrimonial home and therefore interest may be permitted to be excluded from a spouse’s net family property.
• Matrimonial Home held validly by a family trust can be exempt from the provisions of Part II of the Family Law Act.
 – New tax reporting rules in 2023:  Trusts need to file T3’s. Provides key info about trust.If your client as a beneficiary wishes to do his/her best to avoid his/her interest in a family trust from being included as property in the equalization calculation, it is best for the client/beneficiary NOT TO BE A TRUSTEE!!  TRUSTEE’S SHOULD ALSO BE ‘ARMS’ LENGTH

Capital Gains Surplus Stripping

It is a tax strategy which allows you reorganize shares of a company in order to distribute cash from a corporation as capital gains instead of as ‘eligible’ or ‘non-eligible’ dividends (which both have a higher tax rate than capital gains do).
The original corporation will have to amend its articles of incorporation to create new classes of shares to conduct the reorganization with the new holding company created by the shareholder to effectuate the ‘capital gains strip’.
Transfers of the newly formulated shares in the original company are sold to the new holding company at fair market value in exchange for a promissory note owing. Capital gains are triggered which must be reported on the payor’s personal tax return.
Assets from the original company can be used over time to repay the promissory note payable (i.e. through tax-free inter-corporate dividends to the holding company or by combining the two companies). Amounts received on account of the promissory note are not taxable.
A recent case we had at our firm netted the following results:

  – Assuming top combined marginal income tax rates:

  i.  The tax rate payable on ‘non-eligible’ dividends would be 47.74% 

  ii: The tax rate payable on ‘eligible’ dividends would be 39.34%

  ii. The tax rate payable on capital gains (via capital gains strip) would be 26.76%

In this scenario, the capital gains strip would mean a 20.98% tax savings if it was compared to ‘non-eligible dividends or 12.58% tax savings if compared to ‘eligible’ dividends.

As discussed by Partner Glen Schwartz discussed during the FDRIO Conference

To download the whole presentation please click below

Complex Financial Issues Part 2 final

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About the Author

Glen has obtained a Bachelor of Arts Degree from McGill University while majoring in Political Science, with a minor in Canadian history. He went on to obtain his LL.B degree in 2010, while studying at the University Of Ottawa Faculty Of Law as part of a select few accepted into the National Program. Glen took a special interest in the field of family law as he completed specialized courses ranging from Complex Division of Property to Child Protection Law and Trust Law.