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Toronto_ Canada Update On New Rules For The Taxation of Dividends

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Toronto_ Canada Update On New Rules For The Taxation of Dividends Powered By Docstoc
					Update On New Rules For
The Taxation of Dividends
             Jack Bernstein
             416.865.7766
       jbernstein@airdberlis.com

           Barbara Worndl
            416.865.7754
        bworndl@airdberlis.com

           Andrew Nicholls
            416.865.7703
       anicholls@airdberlis.com


         November 21, 2007




          Toronto, Canada
          Overview of New Dividend Proposals
          Favourable rate applies to eligible dividends paid after
           2005
               by Canadian-controlled private corporations out of
                income taxed at full rate (e.g. not out of ABI taxed at
                small business rate);
               by Canadian public corporations generally (other than
                with respect to certain amounts).
          Eligible dividends are grossed up by 45%
          Dividend tax credit equal to 11/18 of gross-up or
           27.5% of dividend
          Rate:
                 Ontario 24.64% in 2007 (reducing to 22.38% in 2010)
                 Quebec 29.69% (no projected reductions)
Page 2
                 Alberta 17.45% in 2007 (reducing to 14.55% in 2009)
                 British Columbia 18.47%
                   Two New Tax Accounts
          CCPC can pay eligible dividends out of its General
           Rate Income Pool (“GRIP”)
          Non-CCPC or public corporation can pay eligible
           dividends without penalty only after first distributing
           its Low Rate Income Pool (“LRIP”)
          In either case, the corporation paying the dividend
           must designate it to be an eligible dividend
          If corporation makes “excessive eligible dividend
           designations”, it may be required to pay a penalty tax




Page 3
          General Rate Income Pool (“GRIP”)
          CCPC may pay “eligible dividend” out of GRIP
          GRIP computed at end of the year
          GRIP can be positive or negative amount
          No consolidation of GRIP among affiliated corporations
          Can elect to be non-CCPC for purposes of SBD and
           eligible dividend rules, consider for associated company
          No ordering rule – eligible dividend out of GRIP can
           generate dividend refund. Should company with
           investment income become parent of company with
           GRIP?
          Deductible dividends received from a foreign affiliate
Page 4
           are added to GRIP
            General Rate Income Pool (cont’d)
         The GRIP may be a positive or negative amount based on the
         following formula:
         Add the following:

          The corporation’s GRIP at the end of the preceding
           taxation year (unadjusted for eligible dividends paid in
           that year)

          For 2006 taxation year, GRIP at the end of the preceding
           taxation year deemed to be equal to 63% of
           corporation’s income taxed at full rate (not SBD and not
           M&P for 2001-2003) from 2001 - 2005 including
           dividends received that were paid by connected
           companies out of income taxed at full rate. Dividends
           from public companies not included. If dividend paid by
Page 5     connected company in its 2005 year but received by
           parent in its 2006 year, not included.
            General Rate Income Pool (cont’d)

          68% of the taxable income (nil for a deposit insurance
           corporation) for the particular taxation year (without
           taking into account any losses carried back to the year)
           minus, if a CCPC, both the business income subject to
           the SBD rate of tax and the lesser of aggregate
           investment income and taxable income for the particular
           year. M&P income qualifies.

          Eligible dividends received by the corporation in the
           year (dividends designated as eligible dividends by a
           corporation resident in Canada) and dividends received
           in the year from a foreign affiliate of the corporation
           paid out of exempt surplus, taxable surplus that was
           taxed in a foreign jurisdiction, or pre-acquisition surplus.

Page 6
            General Rate Income Pool (cont’d)
          GRIP additions on becoming a CCPC, post
           amalgamation or post winding up
         Minus:
          Eligible dividends paid by the corporation in its
           preceding taxation year (regardless of whether dividend
           refund generated) less excessive eligible dividend
           designation made by the corporation in its preceding
           taxation year.
          68% of any loss that arose in the year that is carried back
           to reduce taxable income for a preceding year reduces
           the GRIP in the year (for example a non-capital loss
           which arises in 2008 but which is carried back to 2006
           will reduce the GRIP in 2008). Non-capital losses
           carried forward will reduce taxable income and therefore
           GRIP in the year the loss is deducted.
Page 7
             General Rate Income Pool (cont’d)
         Potential Anomalous Result re: deductions from taxable income
            If (i) a CCPC has claimed deductions from taxable income for
             the year in respect of Part VI.1 tax , charitable donations, or
             loss carry forwards, (ii) those deductions exceed its taxable
             income for the year subject to tax at full rates, and (iii) the
             CCPC also earned ABI to which the SBD applies or
             investment income, the deductions from taxable income will
             actually grind its GRIP.
            Example: If a CCPC has $300,000 of ABI and $200,000 of
             investment income and it makes a $100,000 charitable
             donation, in computing its GRIP at the end of the year it will
             add 68% of ($400,000 - $300,000 - $200,000) or -$68,000.
            Effectively, the charitable donation will be considered to have
             been made out of full-rate taxable income only, not ABI or
             investment income, whether from a prior year or a future year.
            Inappropriate result as the charitable donation will also reduce
             the amount that the investment income will add to the CCPC’s
             RDTOH
Page 8
            General Rate Income Pool (cont’d)
         Potential Anomalous Result
          68% of full-rate taxable income added to GRIP although
           actual tax rate may exceed the assumed federal and
           provincial combined rate of 32% that the formula is
           based on. A CCPC may have more GRIP than it can
           use. If GRIP builds over time, it could potentially
           become a tax asset.




Page 9
              Low Rate Income Pool (“LRIP”)
           Must be determined for non-CCPCs other than deposit
            insurance corporations
           The LRIP is calculated at any time as follows:
          Add the following:
           The LRIP at the end of the preceding taxation year (no
            deemed LRIP at end of 2005)
           Deductible taxable dividends (other than eligible
            dividends) payable in the year before that time from a
            corporation resident in Canada and received after 2005
            → generally non-eligible dividends payable by CCPCs
           LRIP additions on ceasing to be a CCPC, on an
            amalgamation or on a winding up
           For a corporation that elected not to be treated as a
            CCPC - 80% of its investment income for the preceding
Page 10
            taxation year (represents after-tax investment income)
                Low Rate Income Pool (cont’d)
           For a credit union only - 80% of the amount eligible
            for the small business deduction claimed for the
            preceding taxation year
           For an investment corporation only - four times the
            amount deducted under 130(1) in its preceding
            taxation year
          Subtract the following:
           Taxable dividends (other than eligible dividends)
            payable in the year before the particular time
           Excessive eligible dividend designations made in the
            year

Page 11
                 Low Rate Income Pool (cont’d)
          Potential Anomalous Result re: deductions from taxable income
             If (i) a CCPC has elected not to be treated as a CCPC for purposes of
              the small business deduction and the eligible dividend rules, (ii) the
              non-CCPC has claimed deductions from taxable income for the year in
              respect of Part VI.1 tax , charitable donations, or loss carry forwards,
              and (iii) those deductions reduce its taxable income below its
              aggregate investment income, 80% of the investment income will be
              included in LRIP although some of the investment income will have
              been taxed at full corporate rates, not the RDTOH rate of tax
             Example: If an elected non-CCPC earns $200,000 of investment
              income for a year and makes a $100,000 charitable donation in that
              year, in computing its LRIP at any time after that year it will be
              required to add 80% of $200,000, or $160,000, although $100,000 of
              that investment income will have been taxed at full corporate rates
             Effectively, the charitable donation will be considered to have been
              made out of full-rate taxable income only, not investment income,
              whether from a prior year or a future year
             Inappropriate result as the charitable donation will also reduce the
Page 12       amount that the investment income will add to the CCPC’s RDTOH
                 Low Rate Income Pool (cont’d)
          Potential Anomalous Result re: net capital loss carry backs
             A net capital loss carried back to a particular taxation year can
              reduce the aggregate investment income for that year
             If a CCPC that has elected not to be treated as a CCPC for
              purposes of the small business deduction and the eligible
              dividend rules carries back a net capital loss to a previous
              taxation year, it may reduce its LRIP for its immediately
              following taxation year. The LRIP formula provides that such
              a corporation is to include 80% of its investment income for its
              preceding taxation year in computing its LRIP for a year
             By reducing its LRIP for an earlier year, a corporation may
              reduce any excessive eligible dividend designation it made in
              that year and, consequently, its liability to pay Part III.1 tax in
              that year
             A surprising result, given that formula for GRIP at the end of a
              year expressly states it is unaffected by specified future tax
Page 13       consequences for the particular year
                  Change of Status – 249(3.1)
           From CCPC to non-CCPC
           From non-CCPC to CCPC
           Deemed year-end if after 2005
           Ensures that a corporation is either a CCPC or a non-
            CCPC throughout each taxation year
           Be careful – where non-resident agrees to purchase a
            CCPC, target will cease to be a CCPC when Share
            Purchase Agreement signed → paragraph 251(5)(b).
            If target will have LRIP and vendor is to receive a
            dividend before closing, pay eligible dividend before
            signing Agreement.

Page 14
                   From Non-CCPC to CCPC
           If the share ownership of a corporation changes and it
            becomes a CCPC
           Add to the GRIP of the new CCPC the amount, if any,
            by which the total of the following amounts, all
            determined in respect of the corporation at the end of
            its preceding taxation year:
                Cost amount of property
                Money on hand
                Unused loss carry forwards
           Exceeds the total of the following amounts, all also
            determined in respect of the corporation at the end of
            its preceding taxation year:
                  Liabilities
                  PUC (not contributed surplus)
                  Reserves deducted in preceding year
Page 15           Capital dividend account
                  Corporation’s LRIP
           GRIP on Amalgamation or Wind-up
           Amalco is a CCPC but predecessor was a non-CCPC,
            or Parent is a CCPC but a subsidiary was a non-CCPC
           Add to the GRIP of Amalco or Parent, the amount, if
            any by which the total of (determined at end of
            preceding tax year):
                Cost amount of property (of predecessor or sub)
                Money on hand
                Unused loss carry forwards
           Exceeds the total of (determined at end of preceding
            tax year):
                  Liabilities (of predecessor or sub)
                  PUC (not contributed surplus)
                  Reserves deducted in preceding year
                  Capital dividend account
Page 16           Corporation’s LRIP
           GRIP on Amalgamation or Wind-Up
           Amalco is a CCPC and a predecessor was a CCPC, or
            Parent is a CCPC and a subsidiary was a CCPC
           Increase GRIP of Amalco or Parent by GRIP of
            predecessor or subsidiary corporation that was a
            CCPC at end of the year preceding the amalgamation
            or winding-up
           Reduce GRIP of Amalco or Parent by eligible
            dividends paid by the predecessor or subsidiary in is
            last taxation year (less any excessive eligible dividend
            designation made in the last taxation year)
           Net reduction of Amalco or Parent’s GRIP possible
           Problem - if amalgamation in 2001 to 2005 - the
Page 17
            amount of each predecessor corporation’s GRIP is
            NOT added to GRIP of Amalco-Department of
            Finance is aware of this problem but has not corrected
                   From CCPC to Non-CCPC
           Ownership changes, corporation ceases to be a CCPC
           Add to LRIP the amount, if any, by which total of
            following amounts, all determined in respect of the
            corporation at the end of its preceding taxation year:
                  Cost amount of property
                  Money on hand
                  Unutilized loss carry forwards
                  Eligible dividends paid that were not excessive
           Exceeds the total of the following amounts, all also
            determined at the end of the preceding taxation year:
                  Liabilities (debt or other obligations)
                  PUC (again not contributed surplus)
                  Reserves
Page 18
                  Capital dividend account
                  GRIP at end of last taxation year
            LRIP on Amalgamation or Wind-up
           Amalco is non-CCPC but predecessor was a CCPC, or
            Parent is non-CCPC but subsidiary was a CCPC
           Add to the LRIP of Amalco or Parent, the amount, if
            any, by which total of (determined at last year-end):
                  Cost amount of property (of predecessor or sub)
                  Money on hand
                  Unutilized loss carry forwards
                  Eligible dividends paid that were not excessive
                   eligible dividends
           Exceeds the total of:
                  Liabilities (of predecessor or sub)
                  PUC (again not contributed surplus)
                  Reserves
Page 19
                  Capital dividend account
                  GRIP at end of last taxation year
           LRIP on Amalgamation or Wind-up
           Amalco is a non-CCPC and predecessor was too, or
            Parent is a non-CCPC and subsidiary was too
           Add to the LRIP of Amalco or Parent, the LRIP of
            predecessor or subsidiary.




Page 20
                        CCPC Goes Public
           After going public, cannot pay eligible dividends until
            LRIP account has been paid out as non-eligible
            dividends
           Prior to ceasing to be CCPC - consider paying
            dividends to flush out GRIP
           Consider paying safe income dividend to extent
            available and consider paying non-eligible dividends
            to ensure no LRIP after becoming public
           Shareholders of CCPC should bear the cost of high
            rate dividends



Page 21
                          Eligible Dividends
           Taxable dividend received by Canadian resident
           Paid after 2005 and designated by corporation resident in
            Canada
           Public company can designate that all dividends are
            eligible dividends unless indicated otherwise; can
            designate by posting notice on companies website, press
            release, quarterly report, corporate report or shareholder
            publication
           CCPC must designate in writing for each dividend -
            includes letter to shareholders, dividend cheque stubs, or
            if all shareholders are directors, a notation in the Minutes



Page 22
                   Eligible Dividends (cont’d)
           Timing Problem: GRIP determined at end of year. If a
            CCPC pays a dividend during the year, it must rely on an
            estimate of what its GRIP balance at the end of the year
            will be.
           Corporation paying eligible dividend must also notify
            non-resident shareholders, although only residents
            benefit from eligible dividend designation
           A designation of an eligible dividend must include all
            shareholders of the class on which the dividend is paid;
            a corporation cannot designate in respect of the portion
            of a dividend paid to some members of a class but not
            others


Page 23
          Dividends earned through Partnership
             Dividends should retain their character, eligible or non-eligible,
              if earned through a partnership
             However, there are timing problems. Should eligible dividends
              received by the partnership be considered to have been
              received by the partners at the same time as the partnership
              received them? Or only at the end of the partnership’s fiscal
              period in which the partnership received them?
             Considering them only to have been received at the end of the
              partnership’s fiscal period may delay an addition to GRIP or
              LRIP by a year.
             However, a partner may not learn that it “received” a dividend
              at the time the partnership received it. If the dividend is a non-
              eligible dividend and it is added to LRIP before the partner
              learns of it, the partner may inadvertently make an excessive
              eligible dividend designation.
Page 24
              Dividends earned through a Trust
             104(19) permits a trust that has, in a particular taxation year,
              received a taxable dividend on a share of a taxable Canadian
              corporation to designate a portion of that taxable dividend in
              respect of a trust beneficiary.
             The beneficiary is deemed to have received that portion of the
              taxable dividend in the beneficiary’s taxation year in which the
              trust’s taxation year ends.
             The Department of Finance has stated that the dividend should
              retain its character, eligible or non-eligible
             Timing Problem: GRIP is calculated at the end of a taxation
              year, so knowing the year in which the dividend should be
              considered to have been received is sufficient. LRIP is
              calculated at any time, so knowing the year in which the
              dividend should be considered to have been received does not
              provide certainty as to the beneficiary’s LRIP at any time in the
              year.
             If the dividend is a non-eligible dividend which will be added
              to LRIP, the beneficiary may inadvertently make an excessive
Page 25
              eligible dividend designation.
              Excessive Eligible Dividend Designations
             If dividends designated as eligible dividends by CCPC in year
              exceed CCPC’s GRIP at end of year (negative GRIP not subject to
              penalty tax), portion of each dividend will be excessive.
             If dividend designated as eligible dividend by a non-CCPC at a
              time when it has a LRIP balance, designation will be excessive to
              extent dividend paid out of LRIP
             Penalty tax of 20% of excessive eligible dividend designation
              imposed on corporation that paid dividend under Part III.1
             Beware
                   A former version of T2 Schedule 53 – General Rate Income Pool
                    (GRIP) Calculation (2006 and Later Tax Years) contained an error
                    that could have led to overstating GRIP at the end of 2006
                   Various tax software packages incorporated the error
                   To avoid paying Part III.1 penalty tax on eligible dividend
                    designations made in excess of actual GRIP, corporation must
                    contact Wayne Adams at CRA in writing before December 31, 2007
Page 26             to identify steps to correct error
                          Avoidance Rule
           Entire amount of otherwise eligible dividend deemed
            to be an excessive eligible dividend designation if
            reasonable to consider that the eligible dividend was
            paid on a transaction or as part of a series of
            transactions one of the main purposes of which was to
            artificially maintain or increase the corporation’s
            GRIP or to artificially maintain or decrease the
            corporation’s LRIP
           Penalty tax of 30% on deemed excessive eligible
            dividend designation




Page 27
           Election to Avoid Excessive Dividend
           Elect within 90 days of assessment of penalty tax under Part
            III.1 to treat excessive portion of dividend as separate
            dividend taxable at ordinary rate
           Election not available if the excessive eligible dividend
            designation was part of an avoidance transaction and
            subject to 30% tax
           If election made within 30 months of date dividend paid,
            election requires concurrence of all shareholders who
            received a portion of the excessive dividend whose
            addresses are known
           Election can be made more than 30 months after date
            dividend paid only if all shareholders who received a
            portion of excessive dividend concur but they will be
            subject to interest and penalties
           If all shareholders are tax exempts, corporation must make
Page 28     election within 30 months of date dividend paid
                       Part III.1 Return and
                       Shareholder Liability
           If a corporation pays a taxable dividend in a taxation
            year, it must file a Part III.1 return (Schedule 55 to T2
            return) by its filing-due date containing an estimate of
            its penalty tax payable, if any, under Part III.1
           If non-arm’s length shareholder receives an eligible
            dividend in respect of which an excessive eligible
            dividend designation was made, joint and several
            liability with corporation for portion of tax relating to
            portion of dividend received by shareholder
           Payment by shareholder discharges shareholder and
            corporation
           Payment by corporation discharges shareholder for
            pro-rata share but only after corporation has first paid
Page 29     all other taxes owing for the year under the Income
            Tax Act (Canada)
                        Bonus vs. Dividends
           Reconsider use of bonus, EPSP or RCA
           In Ontario, 46.4% on bonus or EPSP (deferred)
           50% tax on RCA
           In Ontario, corporate rate is 40.79% (reducing to 33.67%
            in 2012) on non-M&P active business income over
            $400,000 but less than $1,128,519 (due to SBD claw-
            back)
           In Ontario, corporate rate is 36.12% (reducing to 29%)
            on non-M&P active business income in excess of
            $1,128,519
           Dividend after-tax income of Opco to a holding
            company and pay eligible dividends when Ontario
            eligible dividend rate is 22.38% (2010)
Page 30
                  Bonus vs. Dividends (cont’d)
           Approximately 10.3% more funds to invest if retain
            after-tax non-M&P income in company; also avoid
            employer health tax on bonus
           Consider impact on exemption for qualified small
            business corporation shares – retaining after-tax income
            may put shares offside 24 month / 50% test
           Consider implementing a freeze before retaining income
           Benefit from deferral at lower cost now that aggregate
            tax rate will be only 50.42% (assuming 36.12%
            corporate rate in 2007 and 22.38% dividend rate when
            dividend paid); aggregate tax rate falls to 44.89% in
            2012 when corporate rate is 32.5% and dividend rate is
            22.38%

Page 31
           Ensure sufficient salary for maximum RRSP
            contribution
                   Bonus vs. Dividends (cont’d)
             Consider impact on ITC if SR&ED – qualify for full
              refundable ITCs if (i) income of company (and associated
              companies) is $400k or less and taxable capital $10m or less
             ITC is reduced by $10 for each $10 income over SB limit
                 Eliminated if income of $600k or more
                  Also $2m expenditure limit is reduced by $4 for every $10
                   by which group’s aggregate taxable capital exceeds $10m
                  Eliminated when aggregate taxable capital of associated
                   corporation exceeds $15m
             AMT will be payable much sooner than where non-eligible
              dividends received, if shareholders have little or no other
              income and receive eligible dividends
             Dividends reduce CNIL – if owner has CNIL account consider
              paying dividends so capital gains exemption available on sale
             When owner manager has AMT – pay salary or bonus to use
              up AMT credit
Page 32
                  Bonus vs. Dividends (cont’d)
           Impact on corporate instalments
           Avoid issue of reasonableness of bonuses
           No EI or CPP if retain funds in corporation and then pay
            a dividend
           No EHT (in Ontario)
           Paying salary reduces retained earnings and therefore
            may reduce provincial capital taxes
           If retain ABI over $400,000 in corporation and suffer a
            non-capital loss in a subsequent year, can carry back
            non-capital loss to shelter full-rate income rather than
            income taxed at SB rate.
           If corporation carrying on specified investment business,
            may be worthwhile to hire more than 5 full-time
            employees and earn full-rate business income – deferral
            vs. investment income and roughly same aggregate tax
            rate.
Page 33
                                                Ontario

          ABI < $400,000
          Taxation Year                         2007      2008      2009       2010     2011

                                                                   Percent

          Corporate tax rate                     18.62     17.00      16.50     16.50    16.50

          Tax rate on non-eligible dividend      31.34     31.34      31.34     31.34    31.34

          Effective rate after non-elig. div.    44.12     43.01      42.67     42.67    42.67

          Personal tax rate                      46.41     46.41      46.41     46.41    46.41

          Potential deferral                     27.79     29.41      29.91     29.91    29.91

          Savings (cost)                          2.29      3.40        3.74     3.74     3.74




Page 34
                                            Ontario
          Non-M&P ABI > $400,000 but < $1,128,519
          Taxation Year                     2007         2008       2009       2010      2011

                                                                   Percent

          Corporate tax rate                    40.79     39.17       38.67     37.67     37.17

          Tax rate on eligible dividend         24.64     23.96       23.06     22.38     22.38

          Effective rate after elig. div.       55.38     53.74       52.18     51.62     51.23

          Personal tax rate                     46.41     46.41       46.41     46.41     46.41

          Potential deferral                     5.62      7.24         7.74     8.74      9.24

          Savings (cost)                        (8.97)    (7.33)      (5.77)    (5.21)    (4.82)




          M&P ABI > $400,000 but < $1,128,519
          Taxation Year                     2007         2008       2009       2010      2011

                                                                   Percent

          Corporate tax rate                    37.69     36.07       35.57     34.57     34.07

          Tax rate on eligible dividend         24.64     23.96       23.06     22.38     22.38

          Effective rate after elig. div.       53.04     51.39       50.43     49.21     48.83

          Personal tax rate                     46.41     46.41       46.41     46.41     46.41

          Potential deferral                     8.72     10.34       10.84     11.84     12.34

Page 35   Savings (cost)                        (6.63)    (4.98)      (4.02)    (2.80)    (2.42)
                                            Ontario
          Non-M&P ABI > $1,128,519
          Taxation Year                     2007      2008       2009       2010      2011

                                                                Percent

          Corporate tax rate                 36.12     34.50       34.00     33.00     32.50

          Tax rate on eligible dividend      24.64     23.96       23.06     22.38     22.38

          Effective rate after elig. div.    51.86     50.19       49.22     47.99     47.61
          Personal tax rate                  46.41     46.41       46.41     46.41     46.41

          Potential deferral                 10.29     11.91       12.41     13.41     13.91

          Savings (cost)                     (5.45)    (3.78)      (2.81)    (1.58)    (1.20)




          M&P ABI > $1,128,519
          Taxation Year                     2007      2008       2009       2010      2011

                                                                Percent

          Corporate tax rate                 34.12     32.50       32.00     31.00     30.50

          Tax rate on eligible dividend      24.64     23.96       23.06     22.38     22.38

          Effective rate after elig. div.    50.35     48.67       47.68     46.44     46.05

          Personal tax rate                  46.41     46.41       46.41     46.41     46.41

          Potential deferral                 12.29     13.91       14.41     15.41     15.91

Page 36   Savings (cost)                     (3.94)    (2.26)      (1.27)    (0.03)     0.36
                                                Alberta
          ABI < $400,000
          Taxation Year                         2007      2008      2009       2010     2011

                                                                   Percent
          Corporate tax rate                     16.12     14.50      14.00     14.00    14.00

          Tax rate on non-eligible dividend      25.21     26.46      27.71     27.71    27.71

          Effective rate after non-elig. div.    37.27     37.12      37.83     37.83    37.83

          Personal tax rate                      39.00     39.00      39.00     39.00    39.00

          Potential deferral                     22.88     24.50      25.00     25.00    25.00

          Savings (cost)                          1.73      1.88        1.17     1.17     1.17




          ABI > $400,000 but < $430,000

          Taxation Year                         2007      2008      2009       2010     2011

                                                                   Percent

          Corporate tax rate                     26.85     25.23      24.73     23.73    23.23

          Tax rate on eligible dividend          17.45     16.00      14.55     14.55    14.55
          Effective rate after elig. div.        39.61     37.19      35.68     34.83    34.40

          Personal tax rate                      39.00     39.00      39.00     39.00    39.00

          Potential deferral                     12.15     13.77      14.27     15.27    15.77

Page 37   Savings (cost)                         (0.61)     1.81        3.32     4.17     4.60
                                                                      Alberta

          ABI > $430,000
              Taxation Year                                              2007               2008               2009        2010      2011

                                                                                                             Percent

              Corporate tax rate1                                          32.12              30.50              30.00      29.00     28.50

              Tax rate on eligible dividend                                17.45              16.00              14.55      14.55     14.55

              Effective tax rate after elig. div.                          43.97              41.62              40.19      39.33     38.90

              Personal tax rate                                            39.00              39.00              39.00      39.00     39.00

              Potential deferral                                            6.88               8.50                9.00     10.00     10.50

              Savings (cost)                                               (4.97)             (2.62)             (1.19)     (0.33)     0.10




          1    Alberta’s long-term goal is to reduce its general rate (which also applies to M&P income) from 10% to 8%.




Page 38
                                                British Columbia
          ABI < $400,000
          Taxation Year                             2007      2008       2009       2010      2011

                                                                        Percent

          Corporate tax rate                         17.62     16.00       15.50     15.50     15.50

          Tax rate on non-eligible dividend          31.58     31.58       31.58     31.58     31.58

          Effective rate after non-elig. div.        43.46     42.53       42.19     42.19     42.19

          Personal tax rate                          43.70     43.70       43.70     43.70     43.70

          Potential deferral                         26.08     27.70       28.20     28.20     28.20

          Savings (cost)                              0.06      1.17         1.51     1.51      1.51



          ABI > $400,000

          Taxation Year                             2007      2008       2009       2010      2011

                                                                        Percent

          Corporate tax rate                         34.12     32.50       32.00     31.00     30.50

          Tax rate on eligible dividend              18.47     18.47       18.47     18.47     18.47

          Effective rate after elig. div.            46.29     44.97       44.56     43.74     43.34

          Personal tax rate                          43.70     43.70       43.70     43.70     43.70

          Potential deferral                          9.58     11.20       11.70     12.70     13.20
Page 39

          Savings (cost)                             (2.59)    (1.27)      (0.86)    (0.04)     0.36
                     RDTOH - No Ordering
           Assume $2,128,519 of ABI earned in Ontario for 2007
           Assume existing RDTOH of $250,000
           Pay corporate tax of $361,000 on $1,000,000 of ABI
            in excess of $1,128,519
           Pay taxable dividend of $639,000 and designate
            dividend to be eligible dividend taxed at 24.64% =
            $157,450
           Dividend will generate dividend refund of $213,000
           Overall tax rate of only 30.5% paid on fully
            distributed $1,000,000 of ABI earned in excess of
            $1,128,519
Page 40
             Estate Freeze and Income Splitting

                                                    Trust for
                Parents                             children
                                                    over age
                                                       18
                      $5 million P/S                      C/S


                                                     OPCO



           Pay corporate tax on income over $400,000
           Gradually redeem parents’ shares (with eligible
            dividends) and reduce tax on death
           Consider use of Alberta trust to further reduce tax rate on
            eligible dividends
           Approx. $50,000 per year of dividends to adult family
Page 41
            member with no other income; beware alternative
            minimum tax and provincial tax
                     Sale of Assets vs. Shares
           Capital gains exemption, and then, in 2007, individual
            tax rate on capital gains is 23.2% in Ontario, 21.85%
            in B.C., and 19.5% in Alberta
           Possible discount for shares vs. assets
           In 2007, corporate tax rate on goodwill is 18.06% in
            Ontario, 17.05% in B.C., and 16.06% in Alberta
           Consider asset sale and subsequent payment of
            dividends when tax rate on dividends is reduced
           If share sale, more advantageous to first pay safe
            income dividend out of GRIP to holding company


Page 42
                                                                         Ontario


                       Comparison of share sale proceeds and asset sale proceeds in relation to sale of eligible capital property taxed at 2007 rates

                                                                                                 Share sale                    Asset Sale
                                                                                                                    Small business     No small business
                                                                                                                  deduction but no         deduction but
                                                                                                                    GRIP addition         GRIP addition

                    Proceeds from sale                                                               100.00                100.00                 100.00

                    Corporate tax                                                                       Nil                   9.31                 18.06

                    Personal tax                                                                      23.21                 12.75                   7.87

                    Net after-tax funds                                                               76.79                 77.94                  74.07

                    Tax cost (savings) versus share sale                                                Nil                 (1.15)                  2.72
                    Tax deferral versus share sale                                                      Nil                 13.90                   5.15




          Page 43


2229230
                                                              Ontario
          Comparison of share sale proceeds and asset sale proceeds where asset sale proceeds taxable as regular income at 2007 rates, and
                                                                no SBD is available

                                                                                     Share sale                  Asset Sale

                                                                                                          No eligible              Eligible
                                                                                                           dividends            dividends*

          Proceeds from sale                                                            100.00                100.00                100.00

          Corporate tax                                                                     Nil                36.12                 36.12

          Personal tax                                                                   23.21                 20.01                 15.74
          Net after-tax funds                                                            76.79                 43.87                 48.14

          Tax cost versus share sale                                                        Nil                32.92                 28.65

          Tax deferral (prepayment) versus share sale                                       Nil              (12.91)               (12.91)




          Comparison of share sale proceeds and asset sale proceeds where asset sale proceeds taxable as regular income at 2007 rates, and
                                                                 SBD is available

                                                                                     Share sale                  Asset Sale

                                                                                                          No eligible              Eligible
                                                                                                           dividends            dividends*

          Proceeds from sale                                                            100.00                100.00                100.00

          Corporate tax                                                                     Nil                18.62                 18.62

          Personal tax                                                                   23.21                 25.50                 20.05

          Net after-tax funds                                                            76.79                 55.88                 61.33

          Tax cost versus share sale                                                        Nil                20.91                 15.46

          Tax deferral (prepayment) versus share sale                                       Nil                 4.59                  4.59

Page 44



          * Assumes a pre-existing GRIP balance in the case of a CCPC, or a nil LRIP balance in the case of a non-CCPC
                                                                         Alberta


                       Comparison of share sale proceeds and asset sale proceeds in relation to sale of eligible capital property taxed at 2007 rates

                                                                                                 Share sale                    Asset Sale
                                                                                                                    Small business     No small business
                                                                                                                  deduction but no         deduction but
                                                                                                                    GRIP addition         GRIP addition

                    Proceeds from sale                                                               100.00                100.00                 100.00

                    Corporate tax                                                                       Nil                   8.06                 16.06

                    Personal tax                                                                      19.50                 10.57                   5.92

                    Net after-tax funds                                                               80.50                 81.37                  78.02

                    Tax cost (savings) versus share sale                                                Nil                 (0.87)                  2.48
                    Tax deferral versus share sale                                                      Nil                 11.44                   3.44




          Page 45


2229230
                                                              Alberta
          Comparison of share sale proceeds and asset sale proceeds where asset sale proceeds taxable as regular income at 2007 rates, and
                                                                no SBD is available

                                                                                     Share sale                  Asset Sale

                                                                                                          No eligible              Eligible
                                                                                                           dividends            dividends*

          Proceeds from sale                                                            100.00                100.00                100.00

          Corporate tax                                                                     Nil                32.12                 32.12

          Personal tax                                                                   19.50                 17.11                 11.85
          Net after-tax funds                                                            80.50                 50.77                 56.03

          Tax cost versus share sale                                                        Nil                29.73                 24.47

          Tax deferral (prepayment) versus share sale                                       Nil              (12.62)               (12.62)




          Comparison of share sale proceeds and asset sale proceeds where asset sale proceeds taxable as regular income at 2007 rates, and
                                                                 SBD is available
                                                                                     Share sale                  Asset Sale

                                                                                                          No eligible              Eligible
                                                                                                           dividends            dividends*

          Proceeds from sale                                                            100.00                100.00                100.00

          Corporate tax                                                                     Nil                16.12                 16.12

          Personal tax                                                                   19.50                 21.15                 14.64

          Net after-tax funds                                                            80.50                 62.73                 69.24
          Tax cost versus share sale                                                        Nil                17.77                 11.26

          Tax deferral (prepayment) versus share sale                                       Nil                 3.38                  3.38

Page 46



          * Assumes a pre-existing GRIP balance in the case of a CCPC, or a nil LRIP balance in the case of a non-CCPC
                                                              British Columbia


                       Comparison of share sale proceeds and asset sale proceeds in relation to sale of eligible capital property taxed at 2007 rates

                                                                                                 Share sale                    Asset Sale
                                                                                                                    Small business     No small business
                                                                                                                  deduction but no         deduction but
                                                                                                                    GRIP addition         GRIP addition

                    Proceeds from sale                                                               100.00                100.00                 100.00

                    Corporate tax                                                                       Nil                   8.81                 17.06

                    Personal tax                                                                      21.85                 13.01                   6.08

                    Net after-tax funds                                                               78.15                 78.18                  76.86

                    Tax cost (savings) versus share sale                                                Nil                 (0.03)                  1.29
                    Tax deferral versus share sale                                                      Nil                 13.04                   4.79




          Page 47


2229230
                                                        British Columbia
          Comparison of share sale proceeds and asset sale proceeds where asset sale proceeds taxable as regular income at 2007 rates, and
                                                                no SBD is available

                                                                                     Share sale                   Asset sale
                                                                                                          No eligible              Eligible
                                                                                                           dividends            dividends*

          Proceeds from sale                                                            100.00                100.00                100.00

          Corporate tax                                                                     Nil                34.12                 34.12

          Personal tax                                                                   21.85                 20.80                 12.17

          Net after-tax funds                                                            78.15                 45.08                 53.71

          Tax cost versus share sale                                                        Nil                33.07                 24.44

          Tax deferral (prepayment) versus share sale                                       Nil              (12.27)               (12.27)




          Comparison of share sale proceeds and asset sale proceeds where asset sale proceeds taxable as regular income at 2007 rates, and
                                                                 SBD is available

                                                                                     Share sale                   Asset sale

                                                                                                          No eligible              Eligible
                                                                                                           dividends            dividends*

          Proceeds from sale                                                            100.00                100.00                100.00

          Corporate tax                                                                     Nil                17.62                 17.62

          Personal tax                                                                   21.85                 26.02                 15.22

          Net after-tax funds                                                            78.15                 56.36                 67.16
          Tax cost versus share sale                                                        Nil                21.79                 10.99

          Tax deferral (prepayment) versus share sale                                       Nil                 4.23                  4.23
Page 48




          * Assumes a pre-existing GRIP balance in the case of a CCPC, or a nil LRIP balance in the case of a non-CCPC
                       Post Mortem Planning
           Assume shares have a FMV of $1 million
           Assume ACB and PUC = $100
           Capital gain on death of $999,900 (subject to tax at 23.2%
            in Ontario, 21.85% in B.C., and 19.5% in Alberta)
           ACB to estate is $1,000,000
           If redeem within first taxation year, deemed dividend of
            $999,900 and capital loss of $999,900
           In 2007, tax on dividend if sufficient GRIP is 24.64% in
            Ontario (reducing to 22.38% in 2010), otherwise 31.3%, is
            18.47% in B.C., otherwise 31.58%, is 17.45% in Alberta,
            otherwise 25.21%.
           Alternatively, sell to holding company owned by estate for
            $1 million note and use inter-company dividends to pay the
            note (i.e. tax is 23.2% in Ontario, 21.85% in B.C., and
Page 49
            19.5% in Alberta)
             Disadvantage of Holding Company
           Assume Canadian publicly traded securities which pay
            taxable dividends
           If personal ownership - tax on dividends is 24.64%
            (reducing to 22.38%) in Ontario, 18.47% in B.C., and
            17.45% (reducing to 14.55%) in Alberta
           If use holding company - Part IV tax at 33 1/3%
           Use spouse trust, alter ego or joint person trust to
            avoid probate fees




Page 50
              Corporate Owned Life Insurance
              Estate                                Survivor

                       50%                       50%



                                 OPCO


          Assume             - FMV of deceased’s shares $10m
                             - ACB and PUC $1
                             - Life insurance proceeds $10m
          Alternative 1:     Purchase for cancellation shares
                             from estate within year of death
                             and declare $10m capital dividend
                             Net result: $5m capital gain taxed
Page 51
                             at 23.2% in Ontario, 21.85% in
                             B.C., and 19.5% in Alberta
                    Corporate Owned Life
                     Insurance (cont’d)
          Alternative 2: Purchase for cancellation all shares
                         of estate; deemed dividend of $10
                         million; elect $5 million capital
                         dividend and designate $5 million
                         eligible dividend (must have GRIP)
                         Net result: no capital gain, $5
                         million eligible dividend taxed at
                         24.64% (reducing to 22.38%) in
                         Ontario, 18.47% in B.C., and
                         17.45% (reducing to 14.55%) in
                         Alberta; no harm to estate and
                         survivor left with $5 million capital
Page 52
                         dividend account
              Advantage of Holding Company
           Assume CCPC
           Pay dividends from Opco to Holdco
                GRIP will move

           Opco has losses in subsequent year – GRIP in Holdco
            unaffected even where Opco carries back loss to
            previous year resulting in negative Opco GRIP
            balance

                        HOLDCO         GRIP

                                    dividend


                         OPCO
                                  losses don’t reduce GRIP in Holdco
Page 53
          Comparison of individual tax rates in
          2007 where taxable income > $120,887
                                                                           Canadian dividends

                                  Ordinary income &
                                                      Capital gains   Non-eligible       Eligible
                                       interest
          Federal                      29.00%           14.50%          19.58%           14.55%

          Alberta                      39.00%           19.50%          25.21%           17.45%

          British Columbia             43.70%           21.85%          31.58%           18.47%

          Manitoba                     46.40%           23.20%          36.75%           23.83%

          New Brunswick                46.95%           23.48%          35.40%           23.18%
          Newfoundland &
                                       47.04%           23.52%          35.60%           30.63%
          Labrador
          Northwest Territories        43.05%           21.53%          29.65%           18.25%

          Nova Scotia                  48.25%           24.13%          33.06%           28.35%

          Nunavut                      40.50%           20.25%          28.96%           22.24%

          Ontario                      46.41%           23.20%          31.34%           24.64%

          Prince Edward Island         47.37%           23.69%          33.61%           24.44%

          Quebec                       48.22%           24.11%          36.35%           29.69%

          Saskatchewan                 44.00%           22.00%          30.83%           20.35%

Page 54   Yukon                        42.40%           21.20%          30.49%           17.23%

          Non-resident                42.92 %           21.46 %         28.98 %          21.53%
      Jack Bernstein
      416.865.7766
jbernstein@airdberlis.com

   Barbara Worndl
    416.865.7754
bworndl@airdberlis.com

    Andrew Nicholls
     416.865.7703
anicholls@airdberlis.com


  November 21, 2007




   Toronto, Canada

				
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