Stuck in the urban environment of Burnaby, as a 13-year-old I longed for open space and fish bearing streams. We were avid summertime trout fisherman, spending several weeks in the central interior enjoying the sweet smell of pine along with freshly caught fish for dinner nearly every night.
Behind our modest condominium project in the city there was a set of train tracks and a small creek, which had a few little fish in it. New to the area, and not particularly social well-adjusted, I spent a good deal of my spare time wondering along the banks of the creek with a fishing rod in my hand, and not a friend in sight.
Worms were important part of the formula for catching a hungry trout, and we were not fond of the big fat store-bought dew worms, which were expensive, and didn't behave properly on a hook. They were also quickly rinsed out by the flowing waters of the creek and made to look like a dead old elastic band.
We had no yard to speak of, and very few places nearby to get fresh garden worms, so I came up with a plan to grow my own. My father brought home a large fiberglass tub from work, and I began collecting soils and composting leftover breakfast porridge in an effort to grow a quantity of little pink wriggly friends. It worked, very well.
The 8th grade is not an easy environment for a new kid. How does one make conversation with a brand-new friend? I managed to catch the attention of a pretty brunette, after a few bus rides to and from school sitting near her. We even walked home together a couple of times before I scared her off with this charming attempt at deepening our friendship.
"So... Wanna to come over and see my worm farm?" As you can imagine, it got lonelier again.
I intended to start selling my produce, which kept growing as I added miscellaneous leftovers to the stinky compost. There were hundreds, maybe thousands of worms, many of them clumped together in slimy bulks of flesh. But the tub began to stink to high heavens, and I eventually lost the entire project to excessive rain and poor drainage -- which brought the stink to another level of achievement.
Speaking of selling the farm, here is another installment in our selling the business series, this time focusing on the year of the sale.
Tax Strategies to Implement Before Year-End
The sale may result in a significant capital gain, either in your hands personally because you have sold shares, or in your corporation because you have sold assets of your private corporation. Aside from the capital gains exemptions we already discussed at length in this series, some tax strategies to minimize taxes on the capital gains on the sale of your business are briefly discussed below.
Charitable Giving/Foundation
You may want to think about using some of the sale proceeds to make a charitable gift in the year of sale either directly to a registered charity or to your own charitable foundation.
In general, every two dollars donated will eliminate one dollar of tax on the sale of the business. However, in order for this strategy to be effective, the charitable donation should be made before the end of the year in which the sale occurs (either December 31 in the case of an individual vendor or the fiscal year-end of the corporation for a corporate vendor).
Individual Pension Plan (IPP) or Retirement Compensation Arrangement (RCA)
In some cases, you may want to look at the pros and cons of setting up an IPP or a RCA in the year of sale, if you have not already done so. Either of these topics could take up lots of print space on their own.
Capital Losses
If you have publicly traded securities that are in a capital loss position, consider selling these loss securities prior to year-end to trigger the capital loss. This may help reduce the capital gain on the sale of your business. This decision should be made based on investment merits as well.
Capital Gains Reserve
Instead of receiving all the sale proceeds in the year of sale, consider taking back a promissory note and having the purchaser pay the proceeds over a number of years, (with an adequate guarantee of payment and an attractive interest rate on the note). You can spread the capital gain on the sale over a maximum of five years. If your marginal tax rate is expected to be lower in the near future, the delayed tax can help minimize your overall tax. However, if you are always going to be in the top marginal tax bracket then this strategy is not effective.
As always, this article is not meant as individualized tax or legal advice, and you should consult your own professionals before proceeding with a strategy.
Mark Ryan is an advisor in Prince George with RBC Wealth management, Dominion Securities, (member CIPF) and can be reached at [email protected], or 250-960-4927.
