Are you a business owner planning to transfer your business to a
younger family member? While it is a proud moment to be able to
keep the business in the family, many factors need to be considered
to ensure the best result possible.
Tax implications
When shares of a private company are given or sold to a family
member, the owner must (for income tax purposes) declare the fair
market value of the shares. The declared value is then used to
calculate the income tax consequences as of the date that they are
given or sold. However, with appropriate tax planning it is
generally possible to defer that tax for an extended period of
time. This is commonly referred to as a tax freeze. The fair market
value of the company at the time of the tax freeze will be the
amount that the original owner will eventually have to pay tax on.
To avoid immediate tax consequences, it is important to make a
reasonable attempt to place a correct value on the shares at the
time of the tax
