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Hold the Holdco! Is a Holding Company Right for You?

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we often get asked about the benefits of

having a holding company should I have a

holding company and if so why do I have

one or do I need one or should I get rid

of one well these are all great

questions so let's start with a

discussion of what is a hold cult

in the first place a whole code doesn't

actually do anything it doesn't produce

any goods or provide any services it

primarily exists either to hold shares

of another operating company or to hold

investments such as a portfolio of

marketable securities the first common

use of a hold Co is where a hold co is

interposed between the owner of the

company and the active operating

business this allow profits to be float

up tax-free via dividends and retained

in the holding company until the

business owner needs the money

personally the second use of a hold Co

is to simply hold investments those

investments could be marketable

securities or could be a portfolio of

rental properties and again that income

is then kept inside the holding company

till need it and ultimately paid up to

the individual ultimately as a dividend

there are a number of benefits of using

a hold coat as discussed in our latest

report called hold the hold Co the first

one is asset protection the legal

structure by which you hold your assets

is obviously critically important and

using a hold Coll for various assets

like investments means that typically

they may not be accessible by the

creditors of the operating company

another reason for using a holding

company is the timing of compensation

namely dividends because a hold Co can

effectively allow you to retain income

inside the holding company which is paid

up by the operating company and then

defer

get out to yourself until later point in

time number three it may be benefit to

have US securities held inside of a

holding company simply for US state tax

planning purposes

fielding UI shares when you die those

are considered to be us situs property

and that could be subject to us estate

tax depending on the value of your

estate by using a Canadian holding

company to own us situs property you may

be able to avoid having to pay us estate

tax on debt on the US situs property

held inside the hold coat there are a

variety of other reasons discussed in

our report as to why someone might use a

holding company such as for our mergers

and acquisitions activity or a future

sale of the business or even in the

context of an estate freeze the second

area that we often get asked about when

it comes to holding companies is should

I incorporate my investment portfolio to

answer that question we really need to

come back to the concept of integration

in other words would I actually pay more

or less tax on my investment income if

that income was earned in a corporation

or earned personally I figure one in our

latest bulletin hold the hold Co shows

in every province in Canada there is a

tax cost of earning investment income

inside of Acadian holding company versus

earning that same income personally

there's no immediate corporate tax on

Kenyan dividends provided they're paid

out the same year but in essence what

this chart shows is that in most cases

it doesn't really make sense to have a

holding company that being said will it

be a tax deferral in other words is

there some flexibility in timing as we

said earlier using a hold Co when we

have investment income can allow us to

defer paying tax on that income again if

we take a look at figure 2 from our

report you can see that pretty much

every province there's actually a

prepayment of tax as opposed to a

deferral and even in the few provinces

where there is a slight deferral those

amounts are relatively small so in a

nutshell I would say be careful when it

comes to incorporating an investment

portfolio there's a limited application

in most cases unless you've got money

already in there from the sale of an

operating company or maybe moved up

there from the operating company holding

an investment portfolio inside of a hold

coal generally does not make good

financial sense

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you

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