Services · Family Business Office
A family business office for business-owning families
When a family owns a business, the accounting, tax, and planning for the companies, the trust, and each family member are connected. Amir Rosenthal, CPA, CA, LPA, CBV, CFF, coordinates that work so the pieces fit together.
What it means here
A family that owns a business often ends up with several entities: an operating company, a holding company, perhaps a family trust, and the parents and adult children. Decisions in one, such as a dividend, a loan, or a change in who owns shares, affect the others. A family business office means having one accountant who sees the whole group and coordinates the accounting, tax, and planning across it, working alongside the family’s lawyer and financial adviser.
Looking for personal, holding company and trust filings for the family? See High Net-Worth Individuals.
A common family group structure (illustration only)
Coordinated year-end for related companies
Companies owned by the same family are often associated for tax purposes, for example when the same person or group controls them, when related family members control them and own shares across them, or when a family trust holds shares (each beneficiary of a discretionary trust is treated as owning the trust’s shares). Shares owned by a child under 18 are generally treated as the parent’s.
Associated companies share a single $500,000 small business limit, so the group decides each year how to allocate it on an agreement filed with the returns. Dividends, management fees, and loans between the companies need to be recorded the same way on both sides. Preparing the group’s year-ends together keeps the numbers consistent. See audit and accounting and owner-managed businesses.
Family trusts and the 21-year rule
A family trust is often used to hold shares for children or grandchildren, commonly as part of an estate freeze. Under subsection 104(4) of the Income Tax Act, most personal trusts are treated as selling their capital property at fair market value every 21 years, which can create tax on gains that built up inside the trust. Before that date, the trustees often consider distributing property to Canadian-resident beneficiaries, or other planning with the trust’s lawyer.
A distribution of the trust’s capital property to a Canadian-resident beneficiary can generally be made at the trust’s cost, so the tax on the gain is postponed until the beneficiary sells, not eliminated. This rollover is not available for distributions to non-resident beneficiaries, and not in some trusts subject to special attribution rules.
The trust’s yearly income is different: income paid or payable to a beneficiary is deducted by the trust and taxed to the beneficiary that year, and the tax on split income (TOSI) and attribution rules can apply.
The trust’s annual T3 return and beneficial ownership reporting are covered on the high net-worth individuals page.
Estate freezes
An estate freeze locks in the current value of the parents’ shares and lets future growth go to the next generation, often through a trust. It depends on a supportable valuation of the shares at the freeze date.
The freeze is usually done without immediate tax by exchanging the parents’ common shares for fixed-value preferred shares (sections 85 or 86 of the Income Tax Act).
If a spouse, or a child, niece or nephew under 18, can benefit through the trust, the corporate attribution rules can deem the parent to earn interest each year at the CRA prescribed rate. This does not apply while the company is a small business corporation, or if the trust terms prevent those family members from benefiting while the rule would apply. See estate freeze valuation and Goudreau v. The King for a recent Tax Court case on freeze valuation and price adjustment clauses.
Passing the business to the next generation
Transferring a family business to children or other family members involves many complexities and potential traps that can lead to unwanted tax consequences. Careful planning with tax and legal advisers well before any transfer, usually including a business valuation, helps avoid them.
Paying family members
Dividends paid to family members can be caught by the tax on split income (TOSI) rules unless an exclusion applies. The owner-managed businesses page explains the common exclusions in plain terms.
Shareholder agreements and family governance
Family businesses benefit from writing down what everyone expects before there is a disagreement. A shareholder agreement, which in Ontario can be a unanimous shareholder agreement under the Business Corporations Act, can cover what happens on a death, disability, separation, or a family member leaving, and how shares are valued if they have to be bought. A marriage contract can also keep a business interest out of net family property under the Family Law Act.
Some families add a simple family charter or regular family meetings about the business. The lawyer drafts the documents; the accountant and valuator help with the tax and valuation terms. See shareholder disputes and family-law business valuation for what happens when these questions are left open.
This page is general information, not tax or legal advice. Trust, succession, and intergenerational transfer planning depends on the family, the companies, and the documents, and is done with the family’s lawyer.
Related pages: estate freeze valuation, high net-worth individuals, owner-managed businesses, selling a business, and all services.
Family business office questions
What is a family business office?
Here, it means one accountant coordinating the accounting, tax, and planning for a family that owns a business: the operating company, any holding company or family trust, and the family members. The aim is that decisions in one entity take the others into account. Legal work stays with the family’s lawyer, and investment advice with their financial adviser.
What is the 21-year rule for family trusts?
Under subsection 104(4) of the Income Tax Act, most personal trusts are treated as selling their capital property at fair market value every 21 years, which can trigger tax on gains that built up in the trust. Options before the anniversary often include distributing property to Canadian-resident beneficiaries, which can generally be done at the trust’s cost so the tax on the gain is postponed until the beneficiary sells (not available for non-resident beneficiaries), or other planning with the trust’s lawyer. It is worth starting several years ahead.
Why does it matter that the family companies are related?
Associated corporations (for example, companies controlled by the same person or group, by related family members who own shares across them, or partly through a family trust) share one $500,000 small business limit, so the group has to decide how to allocate it each year. Dividends, management fees, and loans between the companies also need to be recorded the same way on both sides. Coordinating the year-end across the group keeps those numbers consistent.
Do we need a shareholder agreement if we are all family?
Families often benefit most from one. A shareholder agreement, which in Ontario can be a unanimous shareholder agreement under the Business Corporations Act, can set out what happens on a death, disability, separation, or a family member leaving the business, and how shares are valued if they have to be bought. The lawyer drafts it; the accountant and valuator help with the tax and valuation terms.
How are family members paid without running into TOSI?
The tax on split income rules can tax dividends paid to family members at the top rate unless an exclusion applies, such as a family member who is 18 or older in the year and works in the business regularly, continuously and substantially in that year or in any five earlier years (an average of at least 20 hours a week counts), or a shareholder who is 25 or older in the year and owns at least 10% of the votes and 10% of the value of a company that is not a professional corporation, earns less than 90% of its business income from services, and earns all or substantially all of its income from its own business rather than from another family member’s business. A spouse of an owner who is 65 or older can also be excluded. See the owner-managed businesses page for a plain-language summary.
Complimentary discussion
A list of the family’s companies, any trusts, and who owns what makes the first conversation more useful.