Investing in a company via a proxy. How to handle taxes? Details inside
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Thread: Investing in a company via a proxy. How to handle taxes? Details inside

  1. #1
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    Investing in a company via a proxy. How to handle taxes? Details inside

    So I am about to invest in a company via a proxy person. I am unable to invest directly because it is only open to accredited investors officially. So I will be giving the money to my friend to invest on my behalf. So to the company its as if he is investing more.

    So thats the backstory....

    My question is come time of sale of my shares my friend will incur a capital gains tax, which I will of course pay for my shares. Now when my friend cuts me a check for profits and I deposit it into my bank I still need to account for those earnings/profits.
    How exactly do I report it? It is a capital gain yes...but I will have already paid the capital gains taxes via my friend. Id be double taxed if I paid it on his end and then again on my end when I report it on my taxes.
    I cant just take the check he gives me and put it in my bank and not say anything. Thats sure to send up red flags and bite me in the ass at some point.

    Any info or clarification would be great


  2. #2
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    I am "bumping" this post because it had not been visible until it was approved by a moderator, should be visible now

  3. #3
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    I'd say you need to talk to a tax lawyer. You are getting into offside issues with the cra here - I doubt that your friend can claim gains that are attributable to you. That is a big red flag. Does your friend have a tax lawyer - you may need something like a formal investment loan agreement?

    I don't know the circumstances of your investment but ask yourself if it is necessary and prudent - are you reaching for returns (and risk) here? That often works out poorly.
    Last edited by OnlyMyOpinion; 2017-04-30 at 08:46 AM.

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    Since your whole investment scheme is based on a fraudulent misrepresentation, I would say CRA will be the least of your worries.

    Your "friend" (co-conspirator) will be the investor and owner of record. Any distributions/profits will be taxable in his name. If he is sufficiently dishonest he may not even have to return your money.
    Last edited by OhGreatGuru; 2017-04-30 at 03:05 PM.

  6. #5
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    I agree, this does not sound like a legitimate ownership or investment method. It sounds like a bad idea all around, especially because your friend may not repay your money (what if they go bankrupt? or decide not to pay you?).

    Perhaps you can look for an investment that you can make in the more conventional way? Something in the same sector for example.

  7. #6
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    I agree that it looks like a plan to get ripped off but if you do this then your friend can give you his after tax money. There would be no tax for you on receiving a gift (if he's not your spouse or kids).

  8. #7
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    Taxation always accrues to the beneficial owner of an asset, although if the CRA deems that the asset has been held in trust for you by another person, the trust itself may be subject to tax.

    You'll definitely want to get professional advice on this, to ensure that whatever contract you draw up with your 'friend' is iron-clad, and provides for protection of your assets just in case the 'friend' goes bankrupt/gets a divorce/gets sued/etc. You do not want to be an unsecured creditor to your 'friend'.

    I hate to suggest this, but plenty of people lie about meeting the accreditation criteria to be accredited investors all the time. Maybe, just maybe....

  9. #8
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    Quote Originally Posted by maxim_311 View Post
    So I am about to invest in a company via a proxy person. I am unable to invest directly because it is only open to accredited investors officially. So I will be giving the money to my friend to invest on my behalf. So to the company its as if he is investing more.

    So thats the backstory....

    My question is come time of sale of my shares my friend will incur a capital gains tax, which I will of course pay for my shares. Now when my friend cuts me a check for profits and I deposit it into my bank I still need to account for those earnings/profits.
    How exactly do I report it? It is a capital gain yes...but I will have already paid the capital gains taxes via my friend. Id be double taxed if I paid it on his end and then again on my end when I report it on my taxes.
    I cant just take the check he gives me and put it in my bank and not say anything. Thats sure to send up red flags and bite me in the ass at some point.

    Any info or clarification would be great
    Look up offshore banking in BVI

  10. #9
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    Any weird arrangement like this is probably not worth the effort. Someone probably convinced him of an "amazing investment opportunity".

    My guess is that standard couch potato investing or even a single good mutual fund (all completely legal and simple) will provide as good returns, if not better returns, than this amazing once in a life time investment opportunity.

    Keep it simple

  11. #10
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    it's more than an issue of just "keeping it simple."

    the arrangement described sounds atrocious. Other parties have pointed out some of the risks, ie the friend has no obligation to share any gains he may receive or even to return the money/ what if friend get sued/ friend dies/ friendship ends.

    the minimum standards for accredited investor are relatively low. A basic threshhold is net worth of $1M, other calculations involve income or family income.

    therefore, if the OP doesn't himself qualify as accredited, presumably the investment he wishes to make is relatively small. It would be pointless to talk of having a lawyer structure the deal, the metrics here do not justify a lawyer's fees.

    one's eye falls on the OP's assertion that the proposed investment "will incur a capital gains tax." This statement cannot possibly be accurate. No future gain can be assured. Instead there might be a capital loss or even a total loss of all invested funds.

    i have only one remaining takeaway. Is there a possibility that the "friend" is also a secret salesman for the proposed deal? is he preying on innocent or vulnerable persons by pretending he will take their savings & "invest" for them in a trustee capacity?

    .


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