The Role Of Tax Lawyers In Structuring Corporate Transactions In Canada

Taxation lawyers, whether acting in an external or in-house capacity, increasingly contribute to helping corporations realize their business objectives, particularly regarding corporate transactions, such as corporate restructuring and mergers and acquisitions. During these transactions, taxation lawyers add value by understanding a transaction’s tax consequences, minimizing tax risks, and maximizing taxation efficiency. Discover the role of tax lawyers in structuring Canadian corporate transactions, and find out how a seasoned Nova Scotia tax lawyer from Jeremy Scott Law can help in this area; contact our legal team today by calling (902) 403-7201.

Understanding Corporate Transactions

Corporate transactions encompass different commercial activities occurring throughout the business lifecycle. Below is a summary of some of the main corporate transactions that transpire in Canada.

Mergers and Acquisitions

Mergers involve amalgamating two companies into one. The companies could operate in the same industries, in the same or different development stages, or unrelated sectors; they may offer similar products but serve markets differently, or they might provide different products but serve markets in the same way. Acquisitions, by contrast, refer to a company absorbing another, either in a friendly capacity (where the shareholders and board of the acquisition agree to the arrangement) or in an unfriendly capacity (where the larger business buys out most or all of the smaller company without the acquisition’s agreement).

Asset and Share Purchases

Selling part of, or an entire, company typically involves deciding whether to do this via asset or share purchases. The former entails a purchaser negotiating the company’s rights and assets to acquire during the purchase, such as choosing to only take responsibility for specific liabilities. Conversely, the latter involves a buyer obtaining company shares.

Corporate Finance

Corporate finance refers to methods of acquiring capital to fund company investments and operations. Example methods falling in this category include initial public offerings (IPOs), equity financing, equity restructuring, private equity and venture capital, joint ventures, debt financing, and securitization.

Management Buy-Ins/Buy-Outs

Management buy-outs take place when a business’s current managers decide to purchase a substantial proportion of a company, or even the entire business, enabling managers to exercise greater influence and control on the company’s direction. A key benefit to this transaction is that it enables individuals who already know how to effectively run the firm to continue doing so, offering a straightforward transition of ownership. In contrast, management buy-ins involve buyers from a management team based outside of the organization who will replace the current managers after the transaction’s completion.

What Do Tax Lawyers Do in Canada?

Tax lawyers provide tax-related legal services to their clients, ranging from businesses and individuals to not-for-profit entities and charities. In Canada, their main role involves providing tax planning strategies to clients to identify the optimal methods of arranging their financial matters, to minimize the taxes paid while still complying with Canadian tax laws. They also assist with audits or legal actions launched by the Canada Revenue Agency (CRA); according to the CRA, they may instigate audits to ensure taxpayers and tax-paying entities fulfill their tax responsibilities, correctly follow tax laws, and receive the correct tax refunds and benefits.

Explore the role of tax lawyers in structuring corporate transactions in Canada in greater detail, and learn how a Halifax taw lawyer from Jeremy Scott Law may aid businesses with their corporate tax concerns. Contact our firm today to arrange a consultation.

How Does Corporate Tax Work in Canada?

Corporations in Canada pay tax at both a federal and provincial level, with Canadian-based firms accruing tax on their global income, and non-resident companies paying tax on Canadian income sources. Canadian corporate tax rates include a general rate applying to large entities, which combines the federal rate, set at 15% per the CRA, with the provincial rate, totaling between 25% and 31% depending on location. Also included is a separate, lower corporate tax rate for small Canadian-controlled private corporations (CCPCs) on their initial $500,000 of income, called the small business limit, levied federally and provincially.

In addition, corporations may reduce their taxable income through the credits and deductions afforded by the Canadian tax system, such as investment/research and development tax credits, provincial tax credits, non-capital loss carryovers, and the capital cost allowance (CCA). Regarding tax reporting and compliance, corporations must file their corporate tax returns no later than six months after the corporation’s fiscal year ends, make monthly or quarterly tax payments based on their estimated owed levels of tax, prepare and file financial statements alongside tax returns, and keep accurate financial records to support filings in the event of a CRA audit. For Canadian firms engaged in international commercial activities, cross-border tax issues may apply, such as tax treaties, withholding taxes, and transfer pricing rules.

Tax Lawyers and Canadian Corporate Transactions

During corporate transactions, taxation lawyers help ensure tax law compliance, minimal tax liabilities, and optimal financial benefits for their clients. Here is a summary of a tax lawyer’s role in structuring corporate transactions in Canada:

• Knowledge of Canadian tax law: Taxation lawyers have an excellent understanding of key Canadian tax legislation, such as provincial statutes, the Excise Tax Act, and the Income Tax Act (ITA), as well as the latest legal precedents and tax policies, allowing them to advise on a corporate transaction’s tax consequences.
• Tax efficiency: A tax lawyer designs corporate transaction frameworks that reduce tax liabilities while complying with tax legislation. They may implement several tax-efficient strategies during the structuring of corporate transactions, such as determining appropriate transactions to obtain favorable tax outcomes, deferring taxes through reorganization and rollover mechanisms to acquire financial relief and improve cash flow management, and utilizing tax attributes like tax credits, deductions, and loss carryforwards to reduce the corporation’s total tax burden.
• Due diligence: Taxation lawyers carry out thorough reviews of a target business’s tax position to identify any tax liabilities that might negatively impact a corporate transaction’s viability or value. For instance, they may review a company’s previous and most recent tax filings, disputes, and liabilities.
• Cross-border issues: For cross-border corporate transactions, a tax lawyer makes sure their clients comply with Canadian and international tax regulations while addressing double taxation issues and utilizing tax treaties to reduce tax liabilities.
• Compliance: A tax lawyer checks that their clients complete accurate and timely tax filings and disclosures and respond to CRA audits and other inquiries; this helps companies avoid fines, interest charges, and possible legal disputes while also ensuring the smooth execution of corporate transactions.
• Documentation and negotiation: Taxation lawyers help negotiate the tax components of corporate transactions and collaborate with financial and legal advisors to create transaction documents, such as financing arrangements, merger agreements, and purchase agreements.

Contact a Nova Scotia Tax Lawyer Today

Taxation lawyers provide valuable services to companies, utilizing their insight, industry knowledge, and experience to address organizational concerns and meet corporate objectives. In terms of Canadian corporate transaction completion and structuring, a tax lawyer can help businesses stay on top of and comply with relevant tax treaties, regulations, and legislation, anticipate and manage tax authority scrutiny, manage tax risks, undertake due diligence, create tax-efficient and innovative transaction structures, and draft and negotiate the tax-related elements of the transaction agreement, among other areas. Learn more about the role of tax lawyers in structuring corporate transactions in Canada, and discover how a Halifax tax lawyer can assist firms with their tax-associated legal issues; call Jeremy Scott Law today at (902) 403-7201.