Table 1: Comparison of entity tax treatments Direct General partnership Limited partnership LTC LAQC (no longer QC Trust Company available) ownership N/A No restrictions No upper limit on Five or fewer Was five or No new QCs allowed No restrictions on No restrictions Ownership rules number of partners but owners shareholders Existing QCs must settlors or must have at least one (under review) including have five or fewer beneficiaries general partner, and one associates shareholders including limited partner associates Different N/A Partnership agreement Partnership agreement Only one class of Multiple classes Multiple classes of Trust agreement Multiple classes of shares ownership could provide for could provide for share allowed of shares allowed shares allowed could provide for allowed different rights for different rights for different rights for rules / class of shares different partners different partners different beneficiaries Unlimited Unlimited Limited Limited Limited Limited Limited for Limited Owner’s liability beneficiaries, unlimited for trustees Tax rate tax rate Partners’ tax rates Partners’ tax rates Shareholders’ tax Company tax rate Company tax rate on Trustee income taxed Company tax rate on rates on accrual, accrual, adjusted to at equivalent to top accrual, adjusted to adjusted to shareholders’ tax rates personal rate, shareholders’ tax rates on shareholders’ tax on distribution beneficiary income distribution rates on taxed at beneficiaries’ distribution tax rates Losses Available to Available to partners Available to partners Available to Available to Quarantined to Quarantined to trust Quarantined to company owner subject to loss limitation shareholders subject shareholders company rules to loss limitation rules (under review) Capital gains Never taxed Never taxed Never taxed Never taxed Never taxed taxed Never taxed Not taxed on accrual, may be taxed on distribution Owner taxed Partners taxed on Partners on share of Shareholders taxed Not (unless Not taxed (unless Not taxed Not taxed (unless shares are Ownership changes / on revenue share of revenue revenue account gains / on share of revenue shareholder holds shareholder holds (beneficiaries’ rights held on revenue account) restructures account gains account gains / losses losses and depreciation account gains / shares on revenue shares on revenue could be changed by Shareholder continuity / losses and and depreciation adjustments subject to losses and account) account) varying trust requirements apply if – depreciation adjustments subject to de minimis rules depreciation agreement) breached, losses and adjustments de minimis rules adjustments subject imputation credits are to de minimis rules forfeited
Table 1: Comparison of entity tax treatments Direct ownership General partnership Limited partnership LTC LAQC (no longer available) QC Trust Company Ownership rules N/A No restrictions No upper limit on number of partners but must have at least one general partner, and one limited partner Five or fewer owners (under review) Was five or shareholders including associates No new QCs allowed Existing QCs must have five or fewer shareholders including associates No restrictions on settlors or beneficiaries No restrictions Different ownership rules / class of shares N/A Partnership agreement could provide for different rights for different partners Partnership agreement could provide for different rights for different partners Only one class of share allowed Multiple classes of shares allowed Multiple classes of shares allowed Trust agreement could provide for different rights for different beneficiaries Multiple classes of shares allowed Owner’s liability Unlimited Unlimited Limited Limited Limited Limited Limited for beneficiaries, unlimited for trustees Limited Tax rate tax rate Partners’ tax rates Partners’ tax rates Shareholders’ tax rates Company tax rate on accrual, adjusted to shareholders’ tax rates on distribution Company tax rate on accrual, adjusted to shareholders’ tax rates on distribution Trustee income taxed at equivalent to top personal rate, beneficiary income taxed at beneficiaries’ tax rates Company tax rate on accrual, adjusted to shareholders’ tax rates on distribution Losses Available to owner Available to partners Available to partners subject to loss limitation rules Available to shareholders subject to loss limitation rules (under review) Available to shareholders Quarantined to company Quarantined to trust Quarantined to company Capital gains Never taxed Never taxed Never taxed Never taxed Never taxed taxed Never taxed Not taxed on accrual, may be taxed on distribution Ownership changes / restructures Owner taxed on revenue account gains / losses and depreciation adjustments Partners taxed on share of revenue account gains / losses and depreciation adjustments subject to de minimis rules Partners on share of revenue account gains / losses and depreciation adjustments subject to de minimis rules Shareholders taxed on share of revenue account gains / losses and depreciation adjustments subject to de minimis rules Not (unless shareholder holds shares on revenue account) Not taxed (unless shareholder holds shares on revenue account) Not taxed (beneficiaries’ rights could be changed by varying trust agreement) Not taxed (unless shares are held on revenue account) Shareholder continuity requirements apply – if breached, losses and imputation credits are forfeited
2015-ip-closely-held-company-tax-issues.docx