Entrepreneurship & Small Business

Can I add spouse as a co-owner to a corporation?

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  • Mar 9th, 2020 2:47 am
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[OP]
Newbie
May 7, 2014
58 posts
12 upvotes
Winnipeg , MB

Can I add spouse as a co-owner to a corporation?

Hi ,

I did some contract work in 2016 and 2017 and opened a corporation for that . At that time I just added myself as the owner and director . My corporate account have around 60k in balance from last few years but I could not take any dividend as I am already in a higher tax bracket .

Could someone suggest what are by best options to take the money out ? My wife works but she is on a lower tax bracket , so is it possible to add her as a co-owner easily ?

Thanks
10 replies
Deal Addict
User avatar
Aug 15, 2015
1568 posts
194 upvotes
Markham, ON
Yes. Speak with your wife first before going to any third party (ie. Accountants).
Jr. Member
Jan 18, 2017
166 posts
122 upvotes
Based on what you've detailed here, it's not all that easy to add a new shareholder. You can look at something like a Sec 86 freeze, or pay out a dividend that wipes out all of the corp's retained earnings.

Additionally, adding a new shareholder for purposes of income splitting is now a heck of a lot harder to make work due to the Liberal's tax changes. Look up "TOSI rules" to see the current state of affairs on that type of things.

In terms of taking money out of the corp, based on the details you've listed here, I would suggest the following:

-- Regular T5 dividend for you;
-- T4 bonus payment to your wife for a reasonable amount;

Watch that you properly remit the CPP on the bonus payment - timing is important.

If you can spread out the payments over a couple of years (or more), you should be able to pull the money out at decent personal tax rates.

stevesingh wrote: Hi ,

I did some contract work in 2016 and 2017 and opened a corporation for that . At that time I just added myself as the owner and director . My corporate account have around 60k in balance from last few years but I could not take any dividend as I am already in a higher tax bracket .

Could someone suggest what are by best options to take the money out ? My wife works but she is on a lower tax bracket , so is it possible to add her as a co-owner easily ?

Thanks
______
Canadian & US tax guy
[OP]
Newbie
May 7, 2014
58 posts
12 upvotes
Winnipeg , MB
Thanks for the reply

Is it possible to sell the shares somehow to my wife ? Can that work ?
crossborderguy wrote: Based on what you've detailed here, it's not all that easy to add a new shareholder. You can look at something like a Sec 86 freeze, or pay out a dividend that wipes out all of the corp's retained earnings.

Additionally, adding a new shareholder for purposes of income splitting is now a heck of a lot harder to make work due to the Liberal's tax changes. Look up "TOSI rules" to see the current state of affairs on that type of things.

In terms of taking money out of the corp, based on the details you've listed here, I would suggest the following:

-- Regular T5 dividend for you;
-- T4 bonus payment to your wife for a reasonable amount;

Watch that you properly remit the CPP on the bonus payment - timing is important.

If you can spread out the payments over a couple of years (or more), you should be able to pull the money out at decent personal tax rates.
Jr. Member
Jan 18, 2017
166 posts
122 upvotes
This is actually a really complicated question. The short answer is yes you can, but the sale is deemed to take place at fair market value (meaning you will have a big capital gain on your hands.)

And no, you can't just "gift" them to your spouse either. CRA has rules covering that too.

I would suggest the simplest/best option would be to make dividend/bonus payments to you/your spouse over the next few years, until you have a deficit in the corp (ie. wipe out any retained earnings.) At that point you can bring on your spouse as a shareholder via a few different options.
stevesingh wrote: Thanks for the reply

Is it possible to sell the shares somehow to my wife ? Can that work ?
______
Canadian & US tax guy
Sr. Member
Nov 12, 2014
832 posts
559 upvotes
Kingston, ON
crossborderguy wrote: This is actually a really complicated question. The short answer is yes you can, but the sale is deemed to take place at fair market value (meaning you will have a big capital gain on your hands.)

And no, you can't just "gift" them to your spouse either. CRA has rules covering that too.

I would suggest the simplest/best option would be to make dividend/bonus payments to you/your spouse over the next few years, until you have a deficit in the corp (ie. wipe out any retained earnings.) At that point you can bring on your spouse as a shareholder via a few different options.
And even if it's sold to spouse at FMV, still have to deal with TOSI issues....
Newbie
Jul 13, 2018
66 posts
144 upvotes
Ottawa
crossborderguy wrote: I would suggest the simplest/best option would be to make dividend/bonus payments to you/your spouse over the next few years, until you have a deficit in the corp (ie. wipe out any retained earnings.) At that point you can bring on your spouse as a shareholder via a few different options.
I want to do a similar thing to the OP, but I'm at the point where I pretty much have a zero'd out balance right now. Do you have some advice on how I can share my structure now?

My issue is that my articles only have one class of share declared:
> The corporation is authorized to issue an unlimited number of common shares.

I spoke to my accountant and a lawyer, who wanted to charge me $2k + fees for a Section 86 reorganisation and to amend my articles of incorporation with a new set of share classes. This seemed a bit excessive to me... I can see that i can amend the articles online ($200) or restate them ($100). Not sure if I would need an article 86, or if i can do this myself? Any advice welcome...

TOSI issues are also a problem, since I am a services based company. My wife will be doing some work for the business, but not sure if it will average out 20hrs (she already has another job)... I need to inject about $40k into the business, so probably best that this comes from her as an investor/loan?

thanks
Jr. Member
Jan 18, 2017
166 posts
122 upvotes
This unfortunately is a bit beyond the scope of the forum. Having said that, the accountant/lawyer quote to revise your share structure sounds about right.

What might be worth doing is just incorporating a new corporation with the correct share structure in place. Seems a bit redundant, but assuming you can do the incorp for about $500, you'd be ahead compared to paying $2k to the accountants and lawyers.

But like I tell clients, how much is your time worth? Sometimes it's easier to just pay the bill and have things done right from the start.
Kamdo wrote: I want to do a similar thing to the OP, but I'm at the point where I pretty much have a zero'd out balance right now. Do you have some advice on how I can share my structure now?

My issue is that my articles only have one class of share declared:
> The corporation is authorized to issue an unlimited number of common shares.

I spoke to my accountant and a lawyer, who wanted to charge me $2k + fees for a Section 86 reorganisation and to amend my articles of incorporation with a new set of share classes. This seemed a bit excessive to me... I can see that i can amend the articles online ($200) or restate them ($100). Not sure if I would need an article 86, or if i can do this myself? Any advice welcome...

TOSI issues are also a problem, since I am a services based company. My wife will be doing some work for the business, but not sure if it will average out 20hrs (she already has another job)... I need to inject about $40k into the business, so probably best that this comes from her as an investor/loan?

thanks
______
Canadian & US tax guy
Deal Addict
May 22, 2003
4194 posts
1776 upvotes
Vancouver
We went through this a few years ago when I was added as a shareholder to my wife's corporation. We ended up going through the section 86 freeze route.
Newbie
Jul 13, 2018
66 posts
144 upvotes
Ottawa
crossborderguy wrote: But like I tell clients, how much is your time worth?
I'm on RFD. I'll drive cross town to save $2, so clearly not a lot Face With Tears Of Joy

Thanks guys, seems like there is quite a bit involved rather than a couple of standard forms/agreements then. I'll have a little think about it and decide whether to open a new corp or amend it through the lawyer. Thanks.
Newbie
User avatar
Mar 8, 2020
3 posts
2 upvotes
Vancouver
CRA stated in their website about split income:

The Department of Finance consultation paper, Tax Planning Using Private Corporations, released on July 18, 2017, included proposed amendments to expand the existing tax on split incomeFootnote1 to restrict income sprinkling involving adult individuals. The consultation period for public comments on the paper ended on October 2, 2017. Based on the comments received during that period, revised draft legislative proposals were released on December 13, 2017 (the "Proposals"). These new rules are proposed to be applicable to the 2018 and subsequent taxation years.

Overview
The Proposals will expand the tax on split income to amounts received by an adult individual. In this context, "split income" will generally include dividends or interest, but not salary, paid by a private corporationFootnote2 directly or indirectlyFootnote3 to an individual from a related business ("Related Business")Footnote4 in respect of the individual and certain capital gains unless the amount falls within a specific exclusion (the "Excluded Amount" or "Excluded Amounts").

Under the Proposals, the following will be Excluded Amounts from split income:

For adult individuals – amounts received from an excluded business ("Excluded Business"):

Excluded Business: amounts derived from a Related Business where the individual was actively engaged on a regular, continuous and substantial basis ("Actively Engaged") in the activities of the business in the taxation year or in any five prior taxation years of the individual.

An individual will be deemed to be Actively Engaged if the individual works in the business at least an average of 20 hours per week during the portion of the taxation year of the individual that the business operates, or meets that requirement for any five prior years. The five taxation years need not be consecutive. In any other case, whether an individual is Actively Engaged will depend on the facts and circumstances of that case.
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