Who might consider this? A sole proprietor or someone starting a new business.

Owning an incorporated business can allow you to keep funds within the company structure where there is preferential tax treatment. The most obvious example is that the tax rate for small businesses (9% to 13%) is considerably less than the personal marginal tax rate for individuals (which may be closer to 50%). There may also be significant tax deferral opportunities and, depending on the nature of the business, a significant lifetime capital gains exemption available for the owners.

If you privately hold real estate situated in the U.S. in excess of US$60,000 and your worldwide assets exceed US$11.7million as of 2021, then you may be subject to U.S. estate tax. 

Business owners and entrepreneurs should be aware of the legal and accounting charges involved with setting up a corporation: Shareholder agreements, articles of incorporation, annual financial statements and reports and filing tax returns are just some of the costs involved.

Who might consider this? Families who are sharing wealth and complex tax issues.

The tax benefits of a trust are the abilities to distribute wealth to family members and to lower the overall tax exposure of the family. A trust, which is regarded as a taxpayer for Canadian income tax purposes, is a legal relationship between the person who sets up the trust (the settlor), the person who manages the assets in the trust (the trustee) and the individuals who benefit directly — the beneficiaries of the assets. It can be used to mitigate taxes around the transfer of property, estate planning or preserve assets for minors.

Who might consider this? High income family members with surplus funds.

Similar to income splitting, this strategy may lower the overall tax obligation for a family and may be suitable for higher income families with liquid assets. Briefly, it involves a higher income family member loaning a lower income member funds at the government prescribed rate of interest. The recipient can invest the money and keep the capital gains after they have paid the interest on the loan. In this way, funds have shifted from an individual in a higher tax bracket to a lower tax bracket where the overall tax impact is less. The rate of the prescribed loan fluctuates with interest rates which is why this strategy makes most sense when the rate is low and the investment returns can justify the cost of the arrangement, says Geoffrey Chen, a High Net Worth Planner with TD Wealth. But unlike pension income splitting and spousal RRSPs, this strategy can include not only spouses as the recipients of the loans but also minor children.