Connect with us
[bsa_pro_ad_space id=12]

Local Business

Tax – Settling a Shareholder Dispute under a Unanimous Shareholders Agreement is taxed as a Restrictive Covenant – Tax Court of Canada

Published

5 minute read

Tax – Settling a Shareholder Dispute under a Unanimous Shareholders Agreement is taxed as a Restrictive Covenant – Tax Court of Canada

By Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr – President & Founder of CGL Strategic Business & Tax Advisors (CGLtax.ca)

From the WTF (Weird Tax Findings) department…

Consider this, you have three shareholders with a Unanimous Shareholder Agreement (USA) that says you can’t sell shares to a third party without consent of the other shareholders. Pretty standard stuff in agreements that I’ve seen.

Now if two of the shareholders want to sell, and one does not want to agree. What do you do?

In the Tax Court of Canada ruling in Pangea v The Queen (2018 TCC 158) that came out July 31, 2018, it became a little murkier.

The day-to-day common understanding of the Restrictive Covenant rules was that it was mainly for things like Non-Competition Agreements when selling a business, etc.

In this case, a shareholder that did not want to sell received an amount from the other shareholders. Basically, they paid him to go along with the sale of the shares and not exercise their right to veto the sale.

Now to a Canadian shareholder, such a payment could be also taxed as business income as an “inducement payment” so it really doesn’t matter the characterization. However, to a non-resident shareholder, inducement payments could be treaty exempt as business profits, but restrictive covenant payments are not. This was the case for Pangea, and why it went to court.

The commentary provided by the Tax Court of Canada however got me to thinking how far does this reach, and is there something else that could have been done?

You see, the agreement between the disputing shareholders does not have to be a formal agreement. The restrictive covenant rules say that it can be an “agreement”, “undertaking”, or “waiver of an advantage or right” whether legally enforceable OR NOT.

This wording makes me concerned.

So even if the other two shareholders, tied me up, held a gun to my head, and made me agree under duress to accept the payment and sell my shares, I would still be taxed as though I was a willing participant?

Now, this didn’t happen (I think) in this case, however, it begs the “what if” question, and brings a whole new meaning to “shotgun clause” in Unanimous Shareholder Agreements.

So what if the transaction would have been structured differently?

The interpretation by the tax court, although likely correct based on the extremely broad wording of the provisions, begs the question “what if” when viewing this scenario.

The questions below do not imply that they would have been viewed favourably by the CRA or the Tax Court Justice, but it makes me wonder how they would view it.

What if, instead of the amount being to agree, it was an outright sale of the right from Pangea to the other shareholders to veto the sale? Would the result be different? Would it be considered a disposition of property and exempted from the restrictive covenant rules? The Tax Court Justice hinted that this didn’t occur, so he does not have to consider it, but what would the ruling be if he did?

What if the purchaser agreed to pay more for the shares held by Pangea than the amount paid to other shareholders?

What if the other two shareholders assigned some of the sale proceeds directly to Pangea instead of receiving it first? Would it change the outcome?

If the two shareholders committed a criminal act (which they didn’t) in forcing Pangea to agree under duress, would the CRA and Tax Court still enforce the restrictive covenant rules? It appears that they could.

Unfortunately, this ruling raises more questions than answers with disagreeing shareholders tied to a Unanimous Shareholder Agreement trying to solve a dispute.

One can only pop some popcorn and stay tuned…

Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr is the President & Founder of CGL Strategic Business & Tax Advisors; member of CPA Alberta Tax Working Group advisory panel; and recently, moderator at the 2018 Canadian Tax Foundation Prairie Provinces Tax Conference in Saskatoon, SK; and Master of Ceremonies at the 2018 Canadian Association of Farm Advisors Alberta Update

CEO | Director, Canadian Tax Advisory CGL Strategic Business & Tax AdvisorsWith the Income Tax Act always by his side on his smart-phone, Cory has taken tax-nerd to a whole other level. His background in strategic planning, tax-efficient corporate reorganizations, business management, and financial planning bring a well-rounded approach to assist private corporations and their owners increase their wealth through the strategies that work best for them.An entrepreneur himself, Cory started CGL with the idea that he wanted to help clients adapt to the ever-changing tax and economic environment and increase their wealth through optimizing the use of tax legislation coupled with strategic business planning and financial analysis.His relaxed blue-collar approach in a traditionally white-collar industry can raise a few eyebrows, but in his own words: “People don’t pay me for my looks. My modeling career ended at birth.”More info: https://www.CGLtax.ca/Litzenberger-Cory.html

Follow Author

#RedDeerStrong

Downtown Wednesday Market returns tomorrow!

Published on

It’s Back!! Downtown Red Deer Market offering local goods and produce on Little Gaetz Avenue

Throughout the summer season, the farmers’ market comes to Little Gaetz Avenue in Downtown Red Deer every Wednesday from 3:30 – 6:30 p.m.

You can purchase farm fresh food from nearby farms including meat, fresh vegetables and fruit, baked goods and handmade items at this accredited Alberta Farmers’ Market.

Check out the Downtown Red Deer Market Facebook page for regular updates throughout the market season.

COVID-19

The 2020 Downtown Red Deer Market is launching on June 3rd.  During Market, precautions will be taken to ensure physical distancing and hand sanitization practices are adhered to.

The health and well-being of our staff, vendors, and the public is our number one importance and we encourage you to stay informed by regularly reviewing information on the Canadian government’s COVID-19 webpage.

https://www.canada.ca/en/public-health/services/diseases/2019-novel-coronavirus-infection.html

Please note: Dogs are not permitted on-site during the market, as per Alberta Health Services regulations. We apologize for any inconvenience this may cause.

Interested Vendors

If you’d like to join our market as a vendor, please send us a completed application form. We welcome both seasonal and weekly vendors, and approve applications as they arrive throughout the season.

Please allow 2-3 business days to process applications. Click here to access the 2020 vendor application form.

Some of our regular vendors include:

Parking at the Market

See our parking page for Downtown parking options near the market site.

#RedDeerStrong – Tacoloft can’t wait to open for customers again on day 1 of phase 1 this Thursday

Continue Reading

Alberta

German Fitness Trainer Finds Himself Stuck in Calgary – And Making the Best of It!

Published on

Cultures collide as COVID-19’s descent on the world leaves personal trainer global adventurer Darian Bessell stuck in Calgary. 

Originally from Germany, Darian has been travelling the world for the last year and a half, landing in Canada in February with plans to stay and work for a year. After getting all his permits in place and obtaining a work visa, he was hired by one of the major gyms in Calgary as a personal trainer. Unfortunately, he was immediately laid off after COVID-19 hit the city.

Seeing the situation as an opportunity to strike out on his own, Darian began offering his services as a personal trainer online, offering free consultations by Zoom or in person. His first client, Matt Keay, connected with Darian during his search for a way to improve health and mobility as well as mental wellbeing in his demanding role as a CEO. 

“I look over at my two-year-old daughter and she’ll be holding a squat position playing with toys for nearly an hour, totally natural for her,” says Keay, “why can’t I do that?” Keay suffers from sore hips and wrists due to years of abuse from skateboarding and poor diet. This proves difficult, as his role as a leader demands high performance and consistent energy.

“I’ve got training every day with Darian … well, it’s more like all day long,” says Matt, “I’ve heard people say how fitness is a lifestyle, well I really understand that now. I am standing more at my desk, doing more stretches, busting into a squat in the boardroom and the pain I’ve dealt with for years is melting away.”

Darian Bessell, newly appointed Business on Camera Director of Physical and Mental Health will bring health and wellness to high-performance entrepreneurs in Calgary. “The knowing-doing gap is a worldwide common issue,” offers Bessell, “people know that enjoying nuts as a snack is healthier than a chocolate bar, and they know the way they feel physically could be better. Often some simple support tools to improve mobility can have a huge impact on overall fitness and hold the key to a new healthy lifestyle.”

The human body sends signals that it is in poor condition by aching and demonstrating discomfort.  The mind also sends signals, for example, feeling depressed or tired all the time. Most people know that they have to change something, but it is all too easy to get caught up in routines and maintain bad habits. 

“Most people have the desire to do more for their mental and physical health, so why not just do it then?”

Health and fitness is one of the most flooded industries on the market with new gadgets, diets and methods constantly emerging, leaving no shortage of options when it comes to personal health. 

“Choosing to work with Darian was based on the education he had regarding the symbioses between mental health and physical performance, nutrition and mobility. He often referred to a program created by Dr. Kelly Starrett called “Becoming a Supple Leopard,” continues Keay, “a ton of professional athletes and stunt actors are Supple Leopards; I would describe it as intentional and intuitive.  For me at this time, the goal is to feel better everywhere, increase mobility, energy, and mood in under thirty minutes a day.”

Darian’s goal is to help individuals overcome the disconnect between desire and action by cultivating discipline and a strong commitment to health and happiness in his clients. “People have to take a huge step to get over the gap between knowing what is good for them and really having the discipline to do it,” says Bessell, “Human beings get used to things so fast and fall into a cycle of ‘I need to do something about that’, then continue to ignore it, and fall into the deep hole between knowing and doing.”

 

Darian gives people that much-needed kick in the butt. By helping clients reposition their approach to fitness and replace negative habits with positive changes, his program addresses physical and mental wellbeing, leaving clients feeling better than ever. “Other benefits include better sleep, more focus and better work-life balance,” says Darian, “it is all about implementing a holistic approach to health to get your body in an efficient, healthy position, and maintain it with intentional practice.”

Keay is thrilled with his results and excited to see where the program takes him. “I am constantly paying attention to my body now,” he says,  “the way I sit, the way I walk, engaging my core, doing a squat instead of bending over to pick something up…it’s really had a tremendous impact on my ability to move properly, and we’re just getting started.”

Darian can be reached by phone at 403-478-3836 or [email protected]

 

For more stories, visit Todayville Calgary.

Continue Reading

june, 2020

No Events

Trending

X