Valuation Multiples – A Primer
What is a multiple?
Have you ever wondered what stock traders mean in the movies when they say “what’s it trading at?” Are you a tad confused when you hear “it’s worth about 4-times EBITDA”? If you are, you are not alone, and the truth is that the answer is not as complicated as one may think.
Post-Mortem Tax Planning: CRA Allowing Quicker Access to Cash with Pipeline
For deceased individuals who owned shares of a private corporation, the so-called “pipeline” transaction is a commonly used post-mortem tax planning strategy designed to minimize taxes on death. While the Canada Revenue Agency (the “CRA”) has, historically, consented to the use of pipeline transactions, it has usually imposed strict timing requirements that restrict the ability of the estate to access corporate funds in the years following death. In a recent tax ruling, the CRA relaxed its position when corporate funds were used to pay taxes of the deceased.
New Trust Reporting Rules Starting 2021
Starting 2021, new trust income tax return filing and information reporting requirements will come into effect for most Canadian trusts. Non-resident trusts that are required to file a T3 trust tax return are also subject to the new rules. The changes were announced in the 2018 federal budget and will be applicable for trust taxation year ending on or after December 31, 2021.
Reported Income vs. Earning Capacity
Determining a person’s earning capacity is crucial when establishing damages as part of a personal injury or wrongful death lawsuit. However, quantifying earning capacity can be more complicated than one might think. Typically, the starting point is reported income (i.e. the income reported on a tax return), but certain factors may exist that could render reported income an inaccurate measure. In these cases, it may be necessary to calculate earning capacity using different methods, or by adjusting reported income. Even for the same individual in the same year, the calculations of reported income and earning capacity can result in much different conclusions, as you will see below.
Valuations Issues and the Oppression Remedy
“Mr. Woods and Mr. Mickelson are here to see you,” the law firm receptionist’s voice came over Jane Wu’s speakerphone. Something in her voice warned Jane that this would not be an easy meeting. As Eddie Woods and Paul Mickelson were making their way to her office, Jane thought back five years to the time a retiring partner had passed their file on to her. “These are two golfing buddies who are living their dream,” he’d told her as he packed up his bookshelf. “They’ve built Augusta Greens into one of the best courses close to the city. Paul put up most of the money and Eddie loved operating the course. They’ve always worked well together.”
But now with the two sitting in her office, Jane thought that the two looked like an elderly married couple in the first stages of a divorce. “Eddie wants to sell out to an interested developer and I don’t – at least not yet,” said Paul. “He says we can sell it for $10 million.”
Changes to the Principal Residence Exemption
In 2016, the Department of Finance introduced significant changes to the principal residence exemption rules under the Income Tax Act
(Canada). The mandate of these changes was specifically to “improve tax fairness by closing loopholes surrounding the capital gains exemption on the sale of a principal residence”. The proposed changes to the principal residence exemption rules effectively limit the ability of certain taxpayers to reduce or eliminate the capital gain on the sale of their home.
The valuation concept of “double-dipping” refers to the double counting of marital assets; once in the property division and again in the support award. This theory is premised upon the fact that the same cash flows capitalized to determine the value of a spouse’s business (an asset subject to equitable distribution) are also considered a component of that spouse’s total income for support calculation purposes.
Foreign Reporting Requirements
Recent legislative changes to foreign reporting requirements for Canadian taxpayers requires the reporting of all specified foreign property owned during the year if the cost base of all specified foreign property exceeds $100,000 at any point during the year.