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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.

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Bill C-208: Much Needed Flexibility on Intergenerational Transfer of Business

Overview of Intergenerational Transfers

When transferring a business to the next generation, the most commonly used tax strategy is to implement an estate freeze. An estate freeze will allow the business owner to transfer the business without triggering income taxes. Alternatively, business owners may choose to sell their business to their children or other family members to utilize their lifetime capital gains exemption (“LCGE”) – approximately $892K in tax-free capital gains. Care must be taken in selling a business to family members as the Income Tax Act contains “surplus stripping” rules which prevents the selling parties from extracting cash on such sales.

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How do you Value a Dot-Com?

Twenty years ago today, Tom Strezos — currently a Senior Business Advisor in the Valuations Group at Grewal Guyatt LLP — wrote an article published in The Lawyers Weekly on valuing a In this article he valued the then struggling internet start up company, Amazon. Tom thought his assumptions, in 2001, were “crazy”  and valued it at 3x the then market value of  $5B. With the passage of time, those “crazy”  assumptions weren’t nearly enough as it’s value today is in excess of $1 trillion…… but with hindsight, who would have known. We hope you enjoy the read on how to value a start up company and the valuation of Amazon 20 years ago.

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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.

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Special Considerations When Valuing a Family-Owned Business

Although there are many factors to consider when valuing a business, there are particular nuances to contemplate with respect to private, owner-managed or family-managed companies. These can include, but are not limited to the following:

  1. Whether compensation is paid to family members, including those who do not actively participate in the business (i.e., income splitting);
  2. If there are transactions with related parties;
  3. The existence of non-operational assets or liabilities;
  4. Internal controls and governance policies; and
  5. Transferability of goodwill (i.e., personal goodwill vs. commercial goodwill).
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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.

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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.

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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.”

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Ontario 2020 Budget – Tax Measures

On November 5, 2020, Ontario Minister of Finance Rod Phillips announced the province’s 2020 Budget.  Highlights of the tax measures in the 2020 Budget are discussed below:

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