# Should I set up a holding company



## 2tire2work (Jul 20, 2013)

I currently own a corporation makes active income. However. I don't need any money from it to maintain my living style. It is accumulating money in the business account making no interest at all. And I don't want to take out the money so I don't need to pay for personal tax. It will be my retirement fund. 

So I talked to my acountant and he sees no benefit of setting up a holding company. The only benefit is for the tax free capital gain when I sell it. But that can be done when I have a buyer. So I don't have to pay for years of accounting fees on it. 

I have a question that he wasn't able to give me firm answer. does the holding company keep my corporation from all liabilities? So if anything the corporation has no money and found at fault. The money in the holding company can not be touched by any legal authorities in anyway?

Is there any other benefits of having a holding company?

I also plan to open an investing account to invest the money instead of sitting in the checking account. Is it possible? How much booking keeping will be required? Is it tax efficient?
Thanks


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## RBull (Jan 20, 2013)

Get advice from another accountant if you don't trust yours. The other questions should be answered by your lawyer.


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## Charlie (May 20, 2011)

No reason for your money to be making no interest at all. A corp can invest in anything you can. Investment income flows out to you without a tax penalty.

Not so sure about your 'tax free gain' on shares if you're accumulating non business assets in there. Big rules about that. So possibly your corp will be offside there. Tonnes of planning avail around that (at a cost -- both for the planning and to keep the corp qualifying) if it's likely your active business is saleable. 

Generally the holding corp can shield your non operating corp assets from general creditors. Won't protect from CRA, some professional body exposure, and a few others. So not 'all' or 'any legal authority in any way.' But a bit of shield as long as you're not trying to be too cute about it. 

You should go up a level on your accounting and legal advice if you're particularly concerned about potential liabilities or you think your active bus is saleable and you anticipate selling shares in the next few years. If it isn't something your accountant does, he can likely hook you up with a tax accountant on this.


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## Synergy (Mar 18, 2013)

Tax efficiency - yes, it's a tax deferral opportunity.

Interest Income - taxed roughly 20% inside a corp and taxed another 30% once you pull it out (combined 50% tax) - Ontario.
Dividend Income - roughly 30% total tax (combined corp / personal) - Ontario
Capital Gain - roughly 23% total tax (combined corp / personal) - Ontario

From a tax perspective capital gains are the most tax efficient investment inside a corp.

I'd get some accounting / investment advice to figure out what would work best for you.


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## NorthKC (Apr 1, 2013)

I would seek a second opinion. There are some accountants who are not comfortable discussing about the holding company. There could be an opportunity there for you but a lot of it really depends on your business which is where the accountant comes in. Get someone who specializes in this tax planning.


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## techcrium (Mar 8, 2013)

How much assets made you consider a holding company, if I may ask?

I am wondering if I should set up a holding company too but I don't know if low 6 figures is worthwhile...


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## marina628 (Dec 14, 2010)

There is no set dollar amount to open a holding company and that is why when it comes to taxes and planning you are best to go to a professional as every one of us has a different situation.This is the one area I am always learning new stuff but I don't like to share much as I know my circumstances may not be anything like the readers here.We are shooting for dividend income only for the biz as we are in retirement mode now.


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## Homerhomer (Oct 18, 2010)

In addition to what has been said it may be an issue of cost versus benefits. Your current accountant is aware of how much money we are talking about here, something that you didn't mention to us, the advice will be different if you are talking about $100K to invest or $1M to invest.


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## atrp2biz (Sep 22, 2010)

Either way, the OP can invest through the current corporation. The holding question is only a question about liability. How are the assets transferred from the current corp to a potential holding corp? (ie. will there be a resultant liability to the current corp and an asset held by the current corp?)


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## Synergy (Mar 18, 2013)

^ perhaps this will help a little:



> The Benefits of the Holding Company Model
> What if something horrible happened? For example, what if our Hampton Inn hotel franchise went bankrupt? If the holding company itself didn't co-sign on the debt, it isn't liable for the loss. Instead, we would record a $2,000,000 write-off in our net worth as a capital loss on our shares of Southworth Hospitality, LLC.
> 
> The holding company model protected our other assets from this one subsidiary. We didn't lose our Dairy Queen franchise, or our stocks, or our bonds, gold, silver, or bank balances. We only lost the money we invested into that one subsidiary.
> ...


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## atrp2biz (Sep 22, 2010)

Right. Which was my point. The argument on the benefits of investing in a holding company or the size of investments is moot. It's about liability.


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## KRIS_KROSS (Jan 28, 2014)

Here are some basic advantages and disadvantages to your situation. There are many left out that will not apply to an InvestCo (ie. SBD or CGE).
- Advantages:
- Limited liability for owners...Charlie described this well, and ultimately you will have to contact a PCS lawyer to get a confirmed 
answer
- Estate planning using rollovers that will defer tax on assets brought into corporation
- Income splitting- dividends to spouse or family members (non-minors)
- Deferral of tax on earnings retained in corporation
- Get to select corporate y/e
- Have until 6 months after y/e to file T2
- Easier to deal with disposal of shares than investments on death
- Lower tax rate on all investment income (dividends, CG, rent, royalties, interest) than reporting under T1 because of RDTOH
- CDA
- Disadvantages:
- Compliance costs of T2 each year
- Instalments

There are many other questions to ask before you can recommend an InvestCo. Some of these are:
- What age are you? 
- What income do you expect you will need in the future?
- Married? Kids? Financially poor parents?
- What type of investments do you currently have? $ amount? Do they have CG or losses?
- What type of active business are you running? Is there risk of being sued? What are your current tax rates and what are you reporting on your current T2 and T1? Could you potentially report the investment income if you are already at a low personal tax rate?
- RRSPs and TFSA maxed out?

I would think about ditching your current accountant, as he said "only benefit is for the tax free capital gain when I sell it". There is no tax-free CG when you sell an InvestCo, as it does not meet the definition of SBC (no active income). This is very basic tax knowledge! 
Also, Synergy's combined tax rates are very high and completely unrealistic if you are structuring this InvestCo with an actual tax accountant...anyone who pays 50% tax on interest does not have things structured correctly.


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## Synergy (Mar 18, 2013)

^ here's a chart for those interested

https://www.invesco.ca/publicPortal...mmon/library/PDF/tax_planning/ISPCIS//eBinary

I would be curious to learn how to structure your accounting so you can avoid paying the combined 45.7% tax on interest income within a corp.


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## 2tire2work (Jul 20, 2013)

I guess I will need to talk to a tax planning acountant. The acountant I have dose most of the business within my sector for many years with lots of clients and it is a big firm. So he knows a lot of my kind of business. 

So the only advantage I can see is liabilities with a holding company. But I have a 5 million dollar insurance. Whoever sues me has to go through the insurance company first. If 5 million is not enough then they come after me? So what is the point? Am I missing something with this concept?

So I am not going to have a holding company


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## Synergy (Mar 18, 2013)

5M is pretty good, are we talking commercial general liability or professional liability? Make sure you read your policies carefully - exclusions. Lawyers / the courts can eat through a few mil pretty quick nowadays.


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## KRIS_KROSS (Jan 28, 2014)

Income splitting. Not everyone is in the top tax rate year-after-year. Especially when they are paying themselves a dividend from their InvestCo. Most likely any taxes in the InvestCo earning AII would be subject to 19.5% Ontario (38 general - 10 abatement + 6.67 ART - 26.67 RDTOH + 11.5 Ontario). Income split with your spouse, and take the ideal mix of salary and dividends, and personal tax rate will likely be 10% or less. You just saved 20%...plus the deferral in tax on the personal side.


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## 2tire2work (Jul 20, 2013)

It's general commercial. We are in Canada. Unlike the us. People sue for insane amounts for the smallest damage.


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## Synergy (Mar 18, 2013)

Sure, that can work for some. But it won't work for those that are single or for those stuck within the top bracket despite income splitting. dividends, etc.


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## Synergy (Mar 18, 2013)

2tire2work said:


> It's general commercial. We are in Canada. Unlike the us. People sue for insane amounts for the smallest damage.


Your agent or broker would know best, but 5mil seems like ample coverage for a CGL policy. Your policy would cover court costs, legal fees, etc. so yes your insurer would be the first paying party and you'd be responsible for any balances exceeding your policy limits.

Personally I'd seek some professional advice. Could save you a lot of $ in the long run.


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## richard (Jun 20, 2013)

marina628 said:


> This is the one area I am always learning new stuff but I don't like to share much as I know my circumstances may not be anything like the readers here.


Real examples are a great way to learn, and most people here know enough to get good advice when they need it. If not they're still better off than following something completely crazy or just making it up. Of course if the arrangements you use reveal too much about why you chose them that's different.

If the only people who posted were those who know everything, then only a couple of threads would still be here


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## marina628 (Dec 14, 2010)

We did not go the holding company route after having long discussions with our accountant .My husband and I own the corporation and we sold all the assets over last 2 tax years .What is left is cash in the corporate account earning zero and dividend paying stocks we purchased .Probably in next 6-12 months there will be less cash and more stocks .My husband and I are pulling a mix of dividend and salary .We did get a will for our corporation and we have a big life insurance on each of us that the business pays for as part of tax planning /probate issues.


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## marina628 (Dec 14, 2010)

Another example I can give is our purchases in USA for rental properties .We bought them for cash and we have taken out additional insurance to protect us from liability.Our friends on other hand set up a series of shell companies including a corporate account then a LLC for each house.Sounded to us like an expensive option but I can tell you the quality of homes and neighbor she bought compared to us is like day and night.She also has set up a family trust and has no plan to ever sell them and pass on to her kids where we would not burden our kids with real estate and tenants and made a plan to sell it all and pay the capital gains in our lifetime.I understand there may be more efficient tax ways to do things but I consider the human element in our business affairs too,I want to do things simple as possible.


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## Charlie (May 20, 2011)

if you sold off the operating assets, and are left with cash and portfolio investments, sounds like you ended up with a holding company after all, marina...

seems you've got it all well in control. congrats. simple trumps complex, and it's often cheaper too when you factor in all the costs.


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## marina628 (Dec 14, 2010)

SAME BUSINESS and bank accounts we had for 9 years.And big income tax bills lol


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## Charlie (May 20, 2011)

only sure fire way to avoid those tax bills is not to make any money .


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