# deferral capital gain through the holding company



## Walksing (Oct 16, 2012)

we are seeking advice on our tax situation 

We have invested a QSBC a few years ago. The company finally went to public 2012.Before its IPO, 
we have transferred all stocks into a holding company (Incorporation) in exchange of the holding company’s shares whose value is equal to stock’s IPO price.
Regard to 2012 personal tax, we have to claim capital gain for this transaction and plan to use $750000 QSBC exemption . 
However it still triggers AMT that means we have pay tax on this capital gain. 

We are seeking advice on capital gain tax:
1) Can we defer the capital gain tax using Capital gains deferral for small business investment ? 
we didn’t actually sell stocks and just exchanged them with shares of our holding company .

2) Can the holding company claim capital loss ? 
we sold stocks to the holding company with IPO price in March ,2102 and current price of the stock is far below IPO price . It appears to be capital loss if the holding company sell these stocks now

looking forward to your inputs


----------



## Walksing (Oct 16, 2012)

No reply ?
Can anyone kindly direct me a right resource on this ?


----------



## RBull (Jan 20, 2013)

I'm no expert on this but it sounds like you should be going to a good accountant rather than an internet board. I am surprised you don't have this sorted out before making the investment and incorporating.


----------



## OptsyEagle (Nov 29, 2009)

Yeah. This one is above my pay grade. Usually Canada will implement certain tax amendments to ensure that small business owners are not discouraged from strategies that may be used for expansion. IPOs certainly fit that bill. You definitely need an accountant with experience in corporate finance. 

I suspect you will be able to take a capital gain reserve which can allow you to defer the tax owing on a capital gain where you did not receive the money. If I recall, this happens when you sell an asset to someone and take a IOU instead of cash, but I suspect it may work in your case as well.

I believe AMT tax is paid back to you over a period of some years (7, I think) if you don't have a big CG in those following years as well, so perhaps this payback can be designed to cover the deferred tax owed from the CG reserve.

Anyways. I am just an internet poster and you have a sophisticated problem, which sounds like it is worth the cost of someone who actually went to school and learned about this stuff. I just pick up what I can. Good luck to you.


----------



## Walksing (Oct 16, 2012)

Thank you for your suggestions! 

Is the holding company an active busniess company ? 

Thanks


----------



## domelight (Oct 12, 2012)

Walksing said:


> we are seeking advice on our tax situation
> 
> We have invested a QSBC a few years ago. The company finally went to public 2012.Before its IPO,
> we have transferred all stocks into a holding company (Incorporation) in exchange of the holding company’s shares whose value is equal to stock’s IPO price.
> ...


 1) Your structure is not eligable for a deferral. http://www.cra-arc.gc.ca/tx/ndvdls/...m/lns101-170/127/lss-ddct/dfrrl/menu-eng.html
-even if it was by taking a share exchange to your hold co. you have received full consideration of the amount. You have not deferred anything.
-further note deferred Gains do not qualify for the CGD. if the deferral is used. http://www.cra-arc.gc.ca/tx/ndvdls/...ns101-170/127/lss-ddct/dfrrl/clcltng-eng.html

2) The hold Co. is subject to the same Capital Gains rules as you are Re: Capital losses can only be applied against Capital gains back three years or forward indefefitely.

3) AMT can be simply defined as a prepayment of tax. you will be able to apply it against taxes you may owe in the next seven years after which it expires and is surrendered to CRA if not used.

4) Investments inside a CCPC are inactive income and taxed at the higher rate. 

If your running an investment corp you need to understand RDTOH (Refundable Dividend tax on Hand) and the CDA (Capital Dividend Account) if the investments are capital i nature.

If your trying to exercise all this without professional advice. I wish you the best of luck.


----------



## Walksing (Oct 16, 2012)

thank you very much , domelight .

a CRA suggested me to use deposition reserve in my case since I didn't received any cash so far.

any insight on it

regards


----------



## domelight (Oct 12, 2012)

Walksing said:


> thank you very much , domelight .
> 
> a CRA suggested me to use deposition reserve in my case since I didn't received any cash so far.
> 
> ...


 I believe CRA is suggesting that you reduce the cost of the new shares by the amount of the capital gains on the old shares. So If you sold the old shares for 750K and paid $1 for them. Then when you buy the new shares of your company for 750K you declare the defferal which reduces their cost to $1 for tax purposes. 
So now when you sell your new shares for $800k for example your right back where you started with a $800K Capital gain, only now you can't claim the capital gains exemption.

If you have the capital gains exemption available it only makes sense to use it.


----------

