There are many reasons why one might decide to use a holding company, which include: Corporate Planning: If you are a business owner you transfer the shares of your operating company (Opco) to a holding company (Holdco) and then you can pay part of the earnings of Opco to Holdco as a dividend each year. This is generally a tax-free, intercorporate dividend. Holdco then uses that money to purchase investments such as real estate, marketable securities, and other private businesses. If Opco requires more cash for any reason, Holdco can lend the money back to Opco. If the business owner personally withdraws the same earnings from Opco, the dividend will be taxable. However since the dividend to the holding company does not trigger any taxes, more funds are available to invest, and therefore more investment income can be generated. In addition, a Holdco can pay income to the business owner and other family members. If other family members are in low tax brackets, they will pay less tax on the income distributions than the major shareholder would. One can consider a holding corporation as a private pension plan. The owners can accumulate funds in a holding company during high earning years, and then withdraw these funds when they are required, often when they are taxed in lower brackets. Another benefit is the excess earnings are transferred out of the operating company every year. As a result, these amounts are generally protected from the creditors of the operating company. If necessary, Holdco can lend that money back to Opco on a secured basis to retain that protection from creditors. Estate Planning: If you die with many investments owned as an individual, each asset will have to be re-registered in the name of an heir, unless they are held in joint ownership with the intended heir. However, if you own the same investments in a company, transferring assets to an heir can be accomplished by simply transferring the shares of the holding company to the beneficiary. If you own investments personally, the use of a holding company can allow you to do an estate freeze so that future growth accrues to your intended heirs, perhaps children or grandchildren. Properly structured, future growth goes to your heirs’ common shares, but voting control stays with you. Your estate’s potential tax liability will be limited to the value of the investments at the date of the freeze – the taxes on the future growth will be deferred to some time in the future. If you reside outside of Quebec, there may also be some advantages in using a holding company to reduce probate fees. US Estate Tax: Canadian residents could be subject to US estate tax if they own "US sites property," which includes shares in US corporations, among other things. If you're otherwise subject to US estate tax on those securities, you can hold these investments in a Canadian holding company to avoid the estate tax. OAS Claw-back: Taxpayers start to repay any federal OAS received when their income exceeds $67,668. If the individual can transfer investments to a holding company, the individual’s personal income may be reduced below the level where the OAS claw-back applies. Notice: While holding companies offer excellent planning opportunities for many individuals, this route should not be taken without first consulting with a qualified tax advisor. Contact us if you have questions or comments. UHY Victor LLP Canada US Tax Team crossbordertax@uhyvictor.com (514) 282-0067