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Financial Issues This forum is for discussing any of the financial issues involved in your divorce.

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  #11 (permalink)  
Old 09-19-2012, 05:51 PM
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Originally Posted by sahibjee View Post
1- Incorporate a holdings company with sole proprietorship to yourself
2- Incorporate a technology company with 100% shares to the ownership holdings company
I'm afraid it is not going to work. If your ex gets a hold of the holding inc, she is likely to be able to impute your income with all retained earnings.

You can inc the #1 however you can't hold any shares if you don't want any additional income imputed to you.

I say the way to go is offshore corp owned by nominee shareholder. Legal (well, sort of...) if shit hits the fan, otherwise non-existent and invisible to leeches.
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Old 09-19-2012, 05:58 PM
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Originally Posted by sahibjee View Post
...
So the real question is how do we drive to the income to the charities without it ending up biting me...
My opinion is that the only way it should not be considered income for support purposes is if you can guarantee you will never receive it, and don't have control over it.

If the companies earn the money and you intend to put some to charity is not enough to avoid paying support based on the companies' income.

You would have to prove that that money will never be your income or your financial benefit, or anyone you know.

Also, you would have to prove that the charity angle is what is driving your profits and without it you would make less.

Just as I can't take part of my income and send it to charity and then reduce my support payments, neither can you, no matter what complex entities you set up.

If you proved that you can't get the money and that it would not exist if the charity was not part of the business model, then I would be fine with not including it as income for determining your support obligations.

But if that is not the case, then you pay based on full income of the companies under your control. And if you want money to go to charity, then do it with after support dollars and ask your ex to do the same.
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Old 09-19-2012, 11:38 PM
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Originally Posted by randomjohndoe View Post
I say the way to go is offshore corp owned by nominee shareholder. Legal (well, sort of...) if shit hits the fan, otherwise non-existent and invisible to leeches.
this might be a very good idea, we need to talk more about this, what exactly is a nominee shareholder and would that be me in this case? if yes wouldnt the nominee need to declare the income? also arent the taxes higher for offshore corps?

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Originally Posted by billm View Post
My opinion is that the only way it should not be considered income for support purposes is if you can guarantee you will never receive it, and don't have control over it.

If the companies earn the money and you intend to put some to charity is not enough to avoid paying support based on the companies' income.

You would have to prove that that money will never be your income or your financial benefit, or anyone you know.

Also, you would have to prove that the charity angle is what is driving your profits and without it you would make less.

Just as I can't take part of my income and send it to charity and then reduce my support payments, neither can you, no matter what complex entities you set up.

If you proved that you can't get the money and that it would not exist if the charity was not part of the business model, then I would be fine with not including it as income for determining your support obligations.

But if that is not the case, then you pay based on full income of the companies under your control. And if you want money to go to charity, then do it with after support dollars and ask your ex to do the same.
billm your post makes total sense, i absolutely agree with the rational. but i doubt that the judge will see it this way even if i prove that i can never touch the money and that the business wouldnt work without the charity side.
i actually do intend never to touch the endowment fund money, it is going to be under a board's control, who will decide what other businesses to buy and then those businesses will generate the money directly for charity. but since the principal is an endowment fund, i doubt the judge will think its "for charity"

another suggestion that i was given was to find a retiree and make him/her the owner of the company, that would mean I do all the work, they "control" the company i.e. taxes etc. though i am not sure what will happen if the retiree perishes
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Old 09-20-2012, 12:34 AM
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offshore corp is not present in Canada and pays no taxes here. in the country off the incorporation they pay usually ridiculously small tax, or none at all. As long as you inc in a 'tax heaven' country. Nominee shareholder is basically a make believe 'owner' who acts only on your behalf. So in an unlikely event that someone finds out about the off-shore corp, the money in it can't be attributed to you. The scheme is obviously falling into rather grey area of legality, I mean, it is legitimate, but only on paper.
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Old 09-20-2012, 09:56 AM
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Quote:
Originally Posted by randomjohndoe View Post
offshore corp is not present in Canada and pays no taxes here. in the country off the incorporation they pay usually ridiculously small tax, or none at all. As long as you inc in a 'tax heaven' country. Nominee shareholder is basically a make believe 'owner' who acts only on your behalf. So in an unlikely event that someone finds out about the off-shore corp, the money in it can't be attributed to you. The scheme is obviously falling into rather grey area of legality, I mean, it is legitimate, but only on paper.
Just know that in order to "carry on business" in any province in Canada, the corporation would have to be registered in such province.

The definition of carrying on business varies from province to province, but most have a catch all phrase of "solicits business in the province" and/or has an office or representative in the province. In Quebec you are carrying on business if you carry on an activity for the purpose of obtaining profit. You would likely be subject to pay some provincial income taxes.

From what I understand, you aren't divorced yet? But are you close? Why can't you just hold off incorporating until after you are divorced and then use whatever structure you want. Yeah, she can argue that she deserves more in SS, you can argue that you had the idea post divorce and didn't use matrimonial funds to setup the business so why should she participate in increased revenues when she never contributed to process? I see no difference in this scenario than lets say a person divorces and 4 years later comes up with a great idea and becomes successful. Why should the ex spouse be entitled to anything from this success. SS should be based off of the standard each spouse had when they were together. Not if one spouse later on becomes more successful then the other.

But I could be wrong here, and there could be case law saying the exact opposite...but it pretty much where I sit on the topic.
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Old 09-20-2012, 10:45 AM
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Quote:
Originally Posted by HammerDad View Post
The definition of carrying on business varies from province to province, but most have a catch all phrase of "solicits business in the province" and/or has an office or representative in the province. In Quebec you are carrying on business if you carry on an activity for the purpose of obtaining profit. You would likely be subject to pay some provincial income taxes.
That would be true if the REAL owner were linked to the corp on paper. In this setup you'd be doing 'work' but if you are not officer or director of it, then the corp is in the clear. Naturally you don't want to have an office of that corp here, so there are limits of what it can do.
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Old 09-20-2012, 10:48 AM
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Quote:
Originally Posted by HammerDad View Post
From what I understand, you aren't divorced yet? But are you close? Why can't you just hold off incorporating until after you are divorced and then use whatever structure you want. Yeah, she can argue that she deserves more in SS, you can argue that you had the idea post divorce and didn't use matrimonial funds to setup the business so why should she participate in increased revenues when she never contributed to process?
Because the sep.agreement will have a clause that he must provide her with fin. statements of all corps of businesses he controls.

It might not affect the SS, but for sure could be used to get more CS
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Old 09-20-2012, 11:33 AM
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Originally Posted by randomjohndoe View Post
That would be true if the REAL owner were linked to the corp on paper. In this setup you'd be doing 'work' but if you are not officer or director of it, then the corp is in the clear. Naturally you don't want to have an office of that corp here, so there are limits of what it can do.
The owner is the shareholder. The directors and/or officers may, but need not be, shareholders. And officers may, but need not be, directors.

Are you suggesting that the OP not be the shareholder, but just enter into an employment agreement? IMO, that would be crazy as it is the shareholder who is entitled to all of the assets of the corporation. And if one thinks a holding corporation would solve the problem, a court will simply just keep going up the chain of corporations to determine the ultimate shareholder.

As for reporting/registration requirements, here is what the Corporations Information Act (Ontario) provides:

Quote:
Initial return
2. (1) Every corporation other than an extra-provincial corporation or a corporation of a class exempted by the regulations shall file with the Minister an initial return setting out the prescribed information as of the date of filing. R.S.O. 1990, c. C.39, s. 2 (1); 1994, c. 17, s. 33.
Idem
(2) The initial return shall be filed within sixty days after the date of incorporation, amalgamation or continuation of the corporation. R.S.O. 1990, c. C.39, s. 2 (2); 1994, c. 17, s. 33.
Initial return, extra-provincial corporation
3. (1) Every extra-provincial corporation, other than a corporation of a class exempted by the regulations, that begins to carry on business in Ontario shall file with the Minister an initial return setting out the prescribed information as of the date of filing. R.S.O. 1990, c. C.39, s. 3 (1); 1994, c. 17, s. 34.
Idem
(2) The initial return shall be filed within sixty days after the date the corporation begins to carry on business in Ontario. R.S.O. 1990, c. C.39, s. 3 (2); 1994, c. 17, s. 34.
Offence
13. (1) Every person who makes a statement in any document, material, evidence or information submitted or required by or for the purposes of this Act that, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact or that omits to state any material fact, the omission of which makes the statement false or misleading, is guilty of an offence and on conviction is liable to a fine of not more than $2,000 or to imprisonment for a term of not more than one year, or to both, or, if such person is a corporation, to a fine of not more than $25,000. R.S.O. 1990, c. C.39, s. 13 (1).
Knowledge as element of offence
(2) No person is guilty of an offence under subsection (1) if the person did not know the statement was false or misleading and, in the exercise of reasonable diligence, could not have known that the statement was false or misleading. R.S.O. 1990, c. C.39, s. 13 (2).
Responsibility of directors and officers
(3) Where a corporation is guilty of an offence under subsection (1), every director or officer of such corporation who authorized, permitted or acquiesced in such offence is also guilty of an offence and, on conviction, is liable to a fine of not more than $2,000 or to imprisonment for a term of not more than one year, or to both. R.S.O. 1990, c. C.39, s. 13 (3).
General offence
14. (1) Every person who,
(a) contravenes this Act or the regulations; or
(b) fails to observe or comply with an order, direction, or other requirement made under this Act or the regulations,
is, except where such conduct constitutes an offence under section 13, guilty of an offence and on conviction is liable to a fine of not more than $2,000 or, if such person is a corporation, to a fine of not more than $25,000. R.S.O. 1990, c. C.39, s. 14 (1).
Responsibility of directors and officers
(2) Where a corporation is guilty of an offence under subsection (1), every director or officer of the corporation, and, where the corporation is an extra-provincial corporation, every person acting as his or her representative in Ontario, who authorized, permitted or acquiesced in such offence is also guilty of an offence and on conviction is liable to a fine of not more than $2,000. R.S.O. 1990, c. C.39, s. 14 (2).
Ability to sue
18. (1) A corporation that is in default of a requirement under this Act to file a return or notice or that has unpaid fees or penalties is not capable of maintaining a proceeding in a court in Ontario in respect of the business carried on by the corporation except with leave of the court. R.S.O. 1990, c. C.39, s. 18 (1); 1994, c. 17, s. 41 (1).
Idem
(2) The court shall grant leave if the court is satisfied that,
(a) the failure to file the return or notice or pay the fees or penalties was inadvertent;
(b) there is no evidence that the public has been deceived or misled; and
(c) at the time of the application to the court, the corporation has filed all returns and notices required by this Act and has no unpaid fees or penalties. R.S.O. 1990, c. C.39, s. 18 (2); 1994, c. 17, s. 41 (2, 3).
Contracts valid
(3) No contract is void or voidable by reason only that it was entered into by a corporation that was in contravention of this Act or the regulations at the time the contract was made. R.S.O. 1990, c. C.39, s. 18 (3).
So I can't see where it provides that an off-shore corporation need not register in Ontario if they are carrying on business in Ontario.

About the only grey area would be is if it is an internet based business also based off-shore. Ontario may not cover that. But if said internet based company has an office/agent/representative in Ontario, that would fall under the umbrella of carrying on business. In Quebec the test is even more onerous as, if a corporation is carrying on the business for the gain of profit, there is a requirement to register.
  #19 (permalink)  
Old 09-20-2012, 11:36 AM
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Originally Posted by randomjohndoe View Post
but for sure could be used to get more CS
As it should.
  #20 (permalink)  
Old 09-20-2012, 11:54 AM
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Quote:
Originally Posted by randomjohndoe View Post
Nominee shareholder is basically a make believe 'owner' who acts only on your behalf. So in an unlikely event that someone finds out about the off-shore corp, the money in it can't be attributed to you. The scheme is obviously falling into rather grey area of legality, I mean, it is legitimate, but only on paper.
Are you suggesting having someone (because, if you up the ladder for shareholdings, it eventually has to be a person) to hold the shares in trust for the benefit of the OP....there are obvious risks involved for all parties here.

For the trustee, there could be tax risks. A tax agency may try to tax the trustee for the income and then the trustee would have to turn around and say "no this isn't for me it is for them".

The beneficial owner of the shares would have to worry about whether or not the trustee actually acts in their best interests and not go rogue on them or take advantage of them.

Further there are complications of where or not that would fall under embezzlement or other tax evation and possilby be deemed a criminal matter.

I'm not gonna say I am an expert on these sorts of things. Offshore holdings and stuff like that can get REALLY complicated. I'd want to get some high level advice from tax lawyers, accountants, corporate lawyer even before trying something like this.....and than hopefully have pissed away any profits I may have gotten on legal fees to try and avoid paying the ex more coin.
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