A corporate reorganization is a restructuring of how a business is legally held or operated, changing the corporate structure, share classes, or entity relationships to improve tax efficiency, facilitate succession, or prepare for a transaction.

Reorganizations take many forms: introducing a holding company above an operating company, splitting a business into separate entities, adding share classes to facilitate income splitting or estate planning, or restructuring to optimize the use of the Lifetime Capital Gains Exemption before a sale. What they have in common is that they need to happen before the event that makes them valuable, not during or after.

A reorganization executed years before an exit gives the structure time to operate as intended and gives the CRA less basis for challenge. One executed in the months before a sale, under time pressure, attracts scrutiny and may not achieve the intended result. The Income Tax Act provides specific rollover provisions, most notably Section 85, that allow reorganizations to occur on a tax-deferred basis when structured correctly.

Structural decisions made years in advance create options that last-minute reorganizations cannot. See how Wefinx approaches tax planning.

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