BUSI 4005 Lecture Notes - Lecture 11: Disposable And Discretionary Income

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Estate freeze
- freeze all or part of value of growing asset at current FMV In order to allow future
growth of these asset accrue to next generation
- after tax liability
- maintain control
- retain source of income
- income tax splitting
- use up CG deduction
- generate future CG for next generation
Predecessor
- Preferred share
- Voting feature
- Redeemable. Retractable
- Price adjustment mechanism
- Dividend feature
- Preference on liquidation
Method
1. Holdco freeze
a. Step
i. Incorporate new company
ii. Successor subscribe common share
iii. Growing asset transferred
iv. predecessor receive debt and preferred
b. Share provide income but no grow in value
2. Internal freeze
a. Section 85
i. Predecessor give up common share for new preferred share by
reorganize capital
ii. File election
iii. Successor subscribe to common share
iv. Allow CG crystallization
v. Allow cost base sequestering
b. Section 86
i. Predecessor exchange common preferred
ii. Successor exchange common
iii. Advantage
1. No new corporate
2. No need election
3. Avoid dividend stripping
4. No CG crystallization
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