Private Corporations

This page covers the following location(s) in NaviPlan:

Enter Financial Data – Net Worth – Private Corporations

Planning Objectives :: Procedures :: Screen Notes :: Related Information

Planning Objectives

ClosedWhat assumptions does NaviPlan make about Private Corporations?
  • The corporation is a Canadian-controlled private corporation (CCPC).
  • Taxes are due and paid at the end of each calendar year.
  • Corporate taxation year-end is assumed to be December 31.
  • Shareholder loans are assumed to be non-interest bearing.
  • The portion of any non-taxable CDA dividend distribution that exceeds the projected value of the CDA at the time of the distribution is treated as a taxable dividend.
  • When a non-taxable CDA dividend is paid out, the associated tax election form is assumed to be filed in a timely manner and the necessary corporate resolutions completed.
  • All taxable dividends received by the shareholder are considered non-eligible dividends.
  • Rental income from a real estate asset owned by the Private Corporations is considered passive income.
  • Any interest in a private operating company held by another private operating company represents at least 10% share ownership such that the companies are considered connected for tax purposes. In addition, it is further assumed that no dividend refund is received by the payer corporation such that all inter-company dividends are received tax free for planning purposes. Users should consult with their tax advisors to determine the actual tax implications.
  • The value of an Private Corporationis calculated as the estimated value of its assets (investment accounts, real estate assets, other assets, and the CSV of life insurance policies), minus the estimated value of its liabilities (shareholder loans and estimated deferred tax liability). There may be other assets and liabilities in the Private Corporation that are not included in this estimate. The estimated deferred tax liability is calculated by netting all the Private Corporation’s untaxed capital gains (both realized and unrealized) with all realized but unused capital losses, and multiplying any net gain by an estimated rate at which those capital gains would be taxed if realized at that point in time.
  • For planning purposes, it is assumed that there are no future unrealized capital losses. The calculated value of an Private Corporation is only an approximation that does not account for the effects of all tax items such as the CDA, GRIP, RDTOH, Capital Cost allowance (CCA) recapture, and refundable tax credits. The estimated tax liability is for illustration purposes only; it should not be used for tax planning purposes.
ClosedHow does NaviPlan consider taxes for Private Corporations?
  • Private Corporations: When withdrawing funds from assets to support an income need in any given year, consider the tax treatment of various asset pools available and how to use them efficiently. Using Private Corporations provides additional goal funding options, in addition to the typical registered and non-registered withdrawals. However, the use of Private Corporation accounts introduces another level of complexity, since tax implications at both the personal and corporate level must be considered. You may wish to consider using accounts within Private Corporationswhere funds can be withdrawn on a tax-free basis, such as Capital Dividend Account (CDA) balances and shareholder loans.
  • At Death: At death, an individual is deemed to have disposed of all assets at their fair market value, unless there is a qualified transfer to a spouse or spousal trust. The use of a personal Private Corporation creates the potential for double-taxation by introducing a second level of (corporate) tax. This is of particular concern if an individual dies owning shares of a personal Private Corporation where his or her heirs are more likely to sell the underlying assets owned within the personal Private Corporation and then wind-up the personal Private Corporation, rather than selling the shares of the personal Private Corporation directly to a third-party after death. Various post-mortem tax strategies exist to reduce or eliminate this double-taxation, but it is important to be aware of this issue and incorporate an appropriate strategy into the estate plan whenever shares of a personal Private Corporation may be held at death. Executors of an estate containing shares of a personal Private Corporation should be particularly careful to seek out the appropriate advice in administering the estate to ensure tax minimization for the estate and its beneficiaries.
ClosedHow does NaviPlan consider notional accounts?
  • Refundable Dividend Tax On Hand: a notional account used by the Private Corporation to capture the amount of refundable tax payable. When a corporation pays a taxable dividend to its shareholders, the tax is refunded to the Private Corporationat a rate determined by legislation. RDTOH is calculated on an annual basis using the carryover amount of RDTOH from the previous year.
  • Capital Dividend Account: a notional account used by the Private Corporation to capture the non-taxable amounts received by the Private Corporation such as the tax-free 50% portion of capital gains, or the death benefit of certain life insurance policies. This capital is used when paying out non-taxable dividends. Subsequent years are calculated by NaviPlan.
ClosedHow does NaviPlan consider distributions from Private Corporations?

    Dividend Distributions

  • Private Corporation dividend distributions are paid to all shareholders.
  • Dividend distributions can apply to either preferred or common shares with the total amount of the distribution being determined by the number of shares owned by the shareholders.
  • Dividend distributions can be either automatic or manual.
    • Automatic dividend distributions can only be for preferred shares and will automatically occur annually. The dividend distribution can be either taxable or non-taxable.
    • Manual dividend distribution transactions must be manually entered on the Withdrawals tab. You must specify the following:
      • Common or preferred shares
      • Taxable or non-taxable
      • Frequency of the dividend distribution
      • Start and end date for the period and/or span of time the dividend distribution is to take place
    • You can add or delete manual dividend distribution transactions at any time.

    • Funding Dividend Distributions

  • In order to pay out a non-taxable dividend distribution to all shareholders, there must be sufficient capital in the Private Corporation CDA to do so. If sufficient funds are not available in the CDA, then the dividend will be paid as a taxable dividend from the Private Corporation investment account. The amount of the non-taxable dividend is restricted to the amount in the CDA, and must not reduce the CDA to a negative balance/amount. Dividends can be paid out tax free providing the Private Corporation has a positive balance in the CDA, and has filed the applicable tax forms.
    Note: NaviPlan does not link Private Corporations to goals.

Procedures

ClosedHow do I add a Private Corporation to the plan?
  1. From the Private Corporations container, select Add Private Corporations.
  2. Enter basic information for the Private Corporation including a Description, Province of Incorporation, Province of Taxation, and Corporate Year End.

    3. Share Structure

  3. From the Share Structure subtab, define the share structure for the Private Corporation.
    • Enter the last known date when the market value of the Private Corporation was assessed in the Valuation Date field.
    • From the Common Shares section, click the Add New Common Share Class button, then enter the following for each shareholder:
      • a Common Class Description
      • the number of common shares owned
      • the paid-up capital per share and the total value
      • the adjusted cost base per share and total value
    • From the Preferred Shares section, click the Add New Preferred Share Class button, then enter the following for each shareholder:
      • a Preferred Class Description
      • the value of preferred shares in the Redemption value per share field.
      • the number of preferred shares owned
      • the paid-up capital per share and the total value
      • the adjusted cost base per share and total value

    4. Historical Data & Shareholder Loans

  4. From the Historical Data subtab, define any existing shareholder loans and notional account information for the Private Corporation.
    • From the Notional Accounts section:
      • Enter the previous year's end-of-year Refundable Dividend Tax On Hand (RDTOH) into the RDTOH End-of-Year Value for <previous year> field.
      • Enter the previous year's end-of-year General Rate Income Pool (GRIP) into the GRIP End-of-Year Value for <previous year> field.
      • Enter the previous year's end-of-year Capital Dividend Account (CDA) value into the CDA End-of-Year Value for <previous year> field.
      • Enter the previous year's dividend refund into the Dividend Refund for <previous year> field.
      • Enter the total value of the Private Corporation's capital loss carryovers for the previous year in the Capital Loss Carryover End-of-Year Value for <previous year> field.
      • If desired, select Details to enter additional historical information.
    • From the Outstanding Shareholder Loans to the Private Corporation section:
      • Enter the loan balance for each shareholder in the appropriate field. NaviPlan will total these loans automatically.

    5. Investment Account

    Note: You may add multiple investment accounts into a Private Corporation, click the Add Account to add them.

  5. From the Investment Account subtab, enter information for the Private Corporation's investment account and its holdings.
    • Enter basic information for the investment account including a Description, the Market Value, the Adjusted Cost Base, and Asset Class Weightings information.
      • To enter or modify the rates of return associated with the account, select the Return Rates link.
      • To add subaccounts, click Add for the Subaccounts label.
      • To enter additional details, click Details.
        Note: For more information on adding accounts, see the Account Details Help page.

    6. Real Estate

  6. From the Real Estate subtab, enter real estate property owned by the Private Corporation.
    • From the Real Estate section, select Add Real Estate.
    • Enter information for the newly created real estate asset including a Description, the Market Value, and Rental Income.
    • If more information is available, click Details to enter additional details.
      Note: For more information on adding real estate accounts, see the Real Estate Details Help page.

    7. Other Assets

  7. From the Other Assets subtab, enter assets such as commercial/rental properties or equipment owned by the Private Corporation.
    • From the Other Asset section, select Add Other Asset.
    • Enter information for the newly-created asset including a Description, the Market Value, the Adjusted Cost Base, and the Deferred Growth and Standard Deviation percentage.

    8. Life Insurance

  8. From the Life Insurance subtab, enter life insurance polices whose premiums are paid by the Private Corporation.
    • From the Life Insurance container, select for Add Life Insurance and make a selection from the menu.
    • Enter information for the newly-created life insurance policy.
      Note: The fields available for the policy may vary based on your selection.
    • To add further details for the policy, select Details
      Note: For more information on adding insurance policies, see the Insurance Coverage Help page.

    9. Contributions

  9. From the Contributions subtab, enter transactions from the shareholder to the Private Corporation.
    • To add an inter-company dividend, select Add Inter-Company Dividend Received.
      To add a shareholder loan, select Add Shareholder Loan.
      To add a share purchase, select Add Share Purchase.
    • Enter information for the newly-created transaction.
      Note: The fields available for the transaction may vary based on your selection.

    10. Withdrawals

  10. From the Withdrawals subtab, enter dividend redemptions, loan repayments to shareholders, and share redemptions.
    • To add a manual dividend, select Add Manual Dividend Distribution.
      To add a loan repayment, select Add Loan Replacement to Shareholder.
      To add a share redemption, select Add Share Redemption.
    • Enter information for the newly-created transaction.
      Note: The fields available for the transaction may vary based on your selection.

    11. Estate

  11. From the Estate subtab, define what happens to the Private Corporation in the event of <client>'s and/or <co-client>'s death.
    • Indicate whether shares should be purchased by the Private Corporation, sold to the Other shareholder, or transferred to the surviving client from the Share options at first death menu.
    • Indicate whether shares should be purchased by the Private Corporation or sold to the Other shareholder from the Share options at second death menu.
    • Use the Estate Freeze option and associated field to indicate whether an estate freeze should occur and when it should occur.
  12. When you are satisfied with these options, click OK.

Screen Notes

ClosedAsset Allocation
  • Opens the Asset Allocation Details dialog box for Private Corporations. Use this option to define asset allocation information specific to Private Corporations.

Related Information




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