A trust is a vehicle for holding and passing on the family property. As such, it typically serves at least one of two purposes: It can reduce a family’s taxes by shifting income to members in lower tax brackets, and it can provide for less fortunate (or more impulsive) members by controlling how their money is disbursed.
The laws surrounding trusts differ from one country to the next. Just because there may be certain rules about trusts in the United States doesn’t mean those rules apply to trusts in Canada. This article looks at some of the basics of establishing trusts in Canada and how they’re maintained in that country.
What Is a Trust?
A trust is nothing more than a relationship. It occurs when one person, often called the settlor, gives property to another person—the trustee—to manage on behalf of still other people. These people are known as beneficiaries. Using the estate freeze, for instance, owners of a growing company convert their shares of the existing business into preferred stock calibrated to the value of the business and sell new common stock to the family trust that captures the company’s future growth.
Depending on the type set up, a trust is not a legal entity that can enter into contracts or incur liability. As such, trusts are not particularly difficult to establish. In fact, technically speaking, most trusts don’t even require a founding document. But the tax law surrounding trusts is just as complex as one might expect. An individual interested in setting up a trust should talk to a lawyer first.
How Canadian Trusts Are Different
Because of the dividend tax credit and personal tax credit, a Canadian without any other income—especially a student with deductible education expenses—could receive tens of thousands of dollars in dividends from Canadian companies tax-free.1 But while the family trust has a well-earned reputation as a tool for the wealthy, these benefits can reach deep into the middle class. For example, a special rule known as an estate freeze can make a trust indispensable for even modestly successful family businesses. An estate freeze is one type of strategy whereby the owner of an estate transfers assets to their beneficiaries without incurring any tax consequences.
By locking in the current generation’s stake at the company’s current value, they can prepare for the tax liability when they die without worrying about having to sell the company. Meanwhile, the next generation can share in the company’s profits through dividends allocated to the common shares.2
Living or Estate Trust?
There are fundamentally two kinds of trusts. Testamentary trusts are created as part of a will and take effect upon the death of the testator.3 Changes to Canadian law took away the tax advantage of setting up long-term testamentary estate trusts, making them less useful.
Any other trust, including one using an estate freeze, is a living, or inter-vivos, trust, established while its architect is still alive. A living trust can be established for a variety of purposes—the Canada Revenue Agency (CRA) has identified 33 different types of living trusts—for a variety of different beneficiaries. Some of these include:
- Alter Ego Trust: This trust allows the settlor, aged 65 or older, to receive all the income during their lifetime. This person is also the only one who can receive income or capital of the trust during the settlor’s lifetime.
- Employee Trust: Employers in this type of trust make payments to a trustee. These are made for the benefit of their employees. Any business income acquired cannot be distributed and is taxed.
- Master Trust: Among the rules involving this trust, it must never have taken any deposits, has been a resident of Canada, and can only have invested its funds.
- Real Estate Investment Trust (REIT): Some of the conditions in this trust include at least 90% of the trust’s portfolio must include qualified REIT properties. In addition, at least 90% of the income generated must come from rent—among others.3
Special rules allow an individual aged 65 or older to roll over assets into these trusts without having to pay capital gains on the assets first. Only the individual—and the partner, in the case of a joint trust—can benefit from the trust while they are alive. When the settlor or surviving partner dies, the trust pays tax on realized capital gains, but the property in the trust can be distributed to heirs without being subject to probate fees.3
Only the individual who established it can benefit from the trust while they remain alive.
Mind the Attribution Rules
Though a Canadian trust is not a legal entity, it is considered a taxpayer at the highest rates under Canadian law. That is why trustees try to pass on any income earned by trust property to beneficiaries, so they can pay the taxes at their own, presumably lower, rates. But in an effort to limit using trusts for tax avoidance, Canadian tax law attributes trust income to the person who transferred the property to the trust if the recipients are close relatives.
In general, these attribution rules apply when the beneficiary is either a spouse or under the age of 18, in the case of dividend and interest income, but not capital gains. The attribution rules do not apply when the beneficiary is an adult child, grandchild, niece, or nephew.4
Other rules attribute the income to a transferor who can effectively control, or reclaim, the assets in the trust. There are exceptions including alter-ego trusts and joint partner trusts. But otherwise, the rules make revocable trusts increasingly common in the U.S., while difficult to use in Canada.
Choose a Settlor and Trustee
The attribution rules guide these decisions. Since a transferor is unable to control the property in a trust, they cannot be a sole trustee. The person who is transferring the property that is to be put into trust usually asks someone else to be the settlor. This may be a grandparent, perhaps, or close family friend.
There are times, however, when you must appoint someone else as a trustee such as a trust company. For example, if you want to establish a trust in another province, the trustee—or the majority if there are multiple trustees—must reside there. In other instances, you can appoint an outside trustee when you want pure independence or anticipate conflict within the family.
Decide on What Property to Transfer
A trust does not exist without some property being transferred, or as it’s called, settled. The prospect or promise of making the transfer is not enough to create a trust in advance. Moreover, given the attribution rules, it may be unwise to settle a trust with the actual property that will provide income or capital to the beneficiaries, though the settling property should have some value.
If a trust’s beneficiaries would otherwise trigger the attribution rules, the settlor or the individual with the real assets can avoid them by making what’s known as a prescribed interest rate loan, a documented loan with an interest rate no lower than the CRA prescribed interest rate.
The trust can then use the proceeds of the loan to purchase the assets it will hold. For example, in the case of an estate freeze, a small loan of, say, $100, ought to be enough for the trust to buy the family company’s new common shares at a nominal par value. The trust can repay the loan when it receives the first dividend check.
International export offices worth the investment, according to Saskatchewan government – Global News
The Saskatchewan government is moving full steam ahead on its plan to open four new international export offices.
The offices will be opening in London, United Kingdom; Dubai, United Arab Emirates; Mexico City, Mexico; and Ho Chi Minh City, Vietnam.
The move will give Saskatchewan a stronger presence in those regions, by expanding the province’s international network, according to the government.
The province says the establishment of these spaces is being implemented in an effort to facilitate investment trade efforts to grow and diversify Saskatchewan’s exports, assisting in COVID-19 economic recovery.
“Now we’re going through the process of hiring managing directors for those offices and we hope to have two of them open in November and two more in the first quarter of the calendar year,” said Jeremy Harrison, Saskatchewan Minister of Trade and Export Development.
The number of international offices will be doubling as the province already has a permanent presence in Japan, India, Singapore and China.
The offices in Japan, India and Singapore were open for businesses earlier this year, whereas the one in Shanghai, China has been operational since 2010.
Staff at the offices work full-time for the provincial government to promote trade and economic interests.
Harrison says despite the pandemic, Saskatchewan companies are able to export approximately 65 per cent of what they produce.
Some popular export items include potash, oil, wheat, canola seeds, lentils, canola oil, peas, canola meal, soya beans, and barley.
Just like the cost to export these products, operating those international offices isn’t cheap.
“It’s about a million dollars per year, per office, our entire international engagement will be about $9 million this year with the eight offices and the administration associated with that, but I mean with the return on investment being over $30 billion of international trade last year…” Harrison explained.
“Of course the offices aren’t responsible for every dollar of that trade, but that being said, having that long-term, on-the-ground presence really has paid significant dividends to the province, we would view it as being a tremendous return on investment,” he added.
Harrison also says with Saskatchewan negotiating its own deals, rather than the Canadian government, the province has been able to secure lower tariffs.
Tension with China grows with blow to Canadian canola farmers
The trade and export development minister goes on to say the Saskatchewan government decided to take trade matters into its own hands, opposed to relying on the federal government because it believes it can secure better deals overall.
In 2019, the minister, with the help of former Conservative Canadian Prime Minister Stephen Harper and his company called Harper and Associates, lobbied senior officials with the government of India to lower tariffs on Saskatchewan peas and lentils.
Harper and Associates is being paid for its role in assisting with the establishment of the international offices. The contract is yearly, and is renewed annually.
Harrison said the meeting resulted in the province temporarily reducing the tariff from 30 per cent to 10 per cent from June to August in 2020 and onwards.
Jason Childs, associate professor of economics with the University of Regina explains why the provincial government may have felt enticed not to leave trade matters to federal government officials.
“I think the perception that Saskatchewan feels underrepresented abroad and our interests aren’t being served, I think that says a lot about what’s going on,” Childs said.
He adds international offices are not uncommon among provinces in Canada, and they are supported across party lines.
International trade essential to Alberta’s food trade: Minister of Agriculture
By Saskatchewan being at the helm of its own trading decisions, Childs says the province can head trade missions that are dedicated to vouching for the specific agricultural products the province has to offer the rest of the world.
“So, the products we produce here in Saskatchewan, are going to be radically different than say the products produced in Quebec or southern Ontario, which are much more manufacturing-driven,” Childs said.
He says if the Canadian government was making these deals, then time government officials spend on having to represent the other jurisdictions across the country would be split.
Childs continues to say there are some notable benefits to Saskatchewan having its own international trading partners to advocate its own interests to, rather than other Canadian provinces or somewhere else in North America.
“Sheer population, sheer market size, the Canadian market is only 38 million people, whereas some of the countries we’re talking about Vietnam, China, India and the U.K., there’s hundreds of millions, billions of people involved, right so it’s a much larger market,” Childs said.
Harrison says these exports will bring numerous job opportunities to residents.
—With files from Mickey Djuric
© 2021 Global News, a division of Corus Entertainment Inc.
Israeli developer of popular apps for creators nabs $130m investment – The Times of Israel
Lightricks, a Jerusalem-based software startup that makes photo and video editing apps, raised $130 million in a Series D investment round at a valuation of $1.8 billion, the company announced on Sunday.
The round was co-led by New York-based global private equity and venture capital firm Insight Partners and Hanaco Venture Capital, with participation from existing investors Goldman Sachs Asset Management, Clal Tech, Harel Insurance and Finance and Greycroft. New investors Migdal Insurance, Altshuler Shaham and Shavit Capital also participated in the round.
Founded in 2013, Lightricks developed a number of photo and video editing tools that are widely popular with content creators on social media networks, especially Instagram, the highly visual content platform owned by Facebook. The company’s suite of 11 apps including Facetune, Facetune Video, and Videoleap has over 500 million downloads worldwide across Android and Apple users, Lightricks has said.
Facetune, the company’s flagship app used to enhance and retouch photos (think tooth whitening and blemish removal) has previously earned accolades such as Apple’s App of the Year and Google Play’s Best of the Year. The app VideoLeap, which offers powerful editing tools for video content, is one of the most widely used tools to create Tik Tok content, the company indicated.
The apps are geared for individual consumers, beginners and professionals, as well as businesses and brands. Lightricks uses a freemium model for the tools, which offers some functions for free while other features require payment to unlock.
Dr. Zeev Farbman, co-founder and CEO of Lightricks, told The Times of Israel on Sunday that business and brand customers present a huge opportunity for the company as it establishes itself “not just as a toolmaker but also a service provider for content creation.”
“We are looking to help people and businesses draw in their audience and engage with them,” he said.
The company said in a statement that it will use the fresh funding to expand and create new platforms and tools for content creators in an effort to “become a one-stop-shop for resources including creative tools, services, and monetization opportunities.”
Farbman said the funding is a sort of “war chest” with which to acquire similar or related companies and startups to leverage their user base for Lightricks’s growth.
He estimated that the company might be “ready for IPO [initial public offering] in about a year.”
“Our mission has always been to continuously strive to bring creators the most advanced technology and help them find new ways to express themselves,” Farbman said in the company statement. “The rise of the creator economy has only exacerbated the need of mobile users to streamline the content creation and monetization processes. With this latest funding, we’re able to help elevate our users’ creativity and capabilities with continued advancements to our technology and offering.”
The creator economy — an industry of bloggers, influencers, brands, photographers and videographers monetizing their online presence — has an estimated total market size of $100 billion and has seen $1.3 billion in funding for US creators in 2021 alone, according to New York-based research firm CB Insights.
Lightricks reported “tremendous growth” over the past year with the COVID-19 health crisis driving people to tap their creativity “to express themselves and earn income during the pandemic.” The company says it saw a 90 percent increase in app usage across its creativity tools in the US alone.
Worldwide, it says, its users develop over a billion creations per year on the company’s apps.
Farbman confirmed that Instagram is the biggest platform for users of Lightricks’ tools “with Tik Tok playing a bigger part overall and Snap seeing a resurgence.”
“The creator economy has changed the way we, as a society, experience social networks,” said Pasha Romanovski, co-founding partner of Hanaco Ventures. “Audiences constantly consume information through the different content channels daily. Lightricks’ platform enables creators to have a broader, more professional and higher-quality set of tools to optimize content.”
Lightricks was founded by Farbman, Nir Pochter, Yaron Inger, Amit Goldstein, Itai Tsiddon, almost all with a computer science or artificial intelligence background. The company is headquartered in Jerusalem with offices in the UK. Most recently, Lightricks opened an office in China to focus on tapping into the country’s huge potential user base. The company employs approximately 500 people.
Applications now open for 2022 Halton Region Community Investment funding – Oakville News
Community organizations can now submit applications to the Halton Region Community Investment Fund (HRCIF) for non-profit human service programs and initiatives that enhance the health, safety and well-being of Halton residents. Applicants must describe how they will incorporate the latest COVID-19 public health guidance and how their program or initiative aligns with Halton’s overall approach to community safety and well-being.
“We are pleased to support the important work of local non-profits through the Halton Region Community Investment Fund,” said Regional Chair Gary Carr. “I would like to thank these organizations for delivering vital services to some of our most vulnerable residents and working alongside us to keep Halton a safe and healthy community.”
Funding is available in single year and multi-year grants through two categories:
- Category One: Provides up to one year of funding, to a maximum of $30,000. Non-profit, charitable or unincorporated community organizations can apply to fund short-term, small capital and/or innovative projects.
- Category Two: Provides up to three years of funding to registered charities for programs and initiatives.
Organizations that meet eligibility criteria may submit one application in each funding category. The initial application deadline for both categories is Monday, November 1, 2021 at 2 p.m. Additional opportunities to apply for HRCIF funding will be available in 2022 for programs and initiatives that help respond to emerging community needs.
The Region will host three virtual information sessions to help community organizations learn about the HRCIF and the application process:
- Friday, September 24 from 10 a.m. to noon
- Wednesday, September 29 from 2 to 4 p.m.
- Tuesday, October 5 from 6 to 8 p.m.
For more information about HRCIF guidelines, upcoming virtual information sessions and the application process, please visit the HRCIF webpage on halton.ca or call 311.
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