The bad news is we are still in an economic mess, principally outside of our control and the result of the Euro Zone issues and the continuing problems in the U.S. While Canada has weathered the storm rather well it is not always reflected in our markets and it has affected the value of many businesses and also family holding companies with portfolio investments.
Now for the good news, you can do something about this to reduce your tax burden. While many taxpayers have taken advantage of the ability to undertake an estate freeze the current economic conditions may present an opportunity to take advantage again.
An estate freeze is the exercise of valuing a business or family holding to establish a current value and freeze the value to limit the tax impact on death and pass the assets to the next generation, giving them the growth value on a go-forward basis.
Where this was done in the past, it likely resulted in the parents freezing their shares at a substantial value. The impact of the economic downturn may have resulted in a value that is less than the original freeze. As an example assume that in 1995 the principal of ABC Inc, Ms Jones, froze her shares at a current value of $10 million and a cost base of $1 and created a trust for her children to hold the new common shares for any future growth. This freeze would result in a tax on her death of $2.3 million. Assume that the company continued to grow and became worth $13 million. The $3 million growth would accrue to the shares held by the trust.
Along comes 2008 and the downturn. The company value has now decreased to $7 million but Ms. Jones holds shares with a value of $10 million. In order to take advantage of the reduced value and reduce the tax on her death to $1.6 million we can refreeze her shares, issuing new preference shares at the revised value and reducing her estate’s tax liability.
In addition this can also provide an opportunity to address the issue of the 21-year rule faced by the trust and reconfigure the shareholdings as desired.
As they say, every cloud has a silver lining.


The IRS released the new compliance procedures for the newest version of amnesty for non-resident US tax filers. The new procedures are effective from September 1, 2012 and do not seem to have a deadline at this time. The amnesty covers US taxpayers who have not filed income tax returns and/or Reports of Foreign Bank and Financial Accounts (FBAR) reports.
The amnesty is available to anyone who has lived outside of the US since 2009. They must be from a low level of compliance risk (see below) and file the most recent 3 years of tax returns and 6 years of FBARs along with a questionnaire. The returns and questionnaire must be sent to a special address of the IRS. Residents of Canada electing the deferral of tax on RRSPs and RRIFs will have to file an extension request along with the appropriate form 8891 and a statement indicating the reason for the failure to file on time.
Compliance risk levels may increase based on the following however if the tax liability is less than $1,500 per year then the return is considered low risk in any event:
• If the returns claim refunds;
• The returns indicate material economic activity in the U.S.;
• The taxpayer has not claimed their world-wide income in the country of residence;
• The IRS has already begun an audit of the taxpayer;
• The taxpayer has previously received an FBAR related warning or penalty;
• The taxpayer has financial interests or signing authority on accounts outside of their country of residence (excluding the U.S.);
• The taxpayer has any U.S. source income.

We welcome our newest staff members, Tony Lee and Fei Cao to our PGC family. Both Tony and Fay are staff accountants