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Are You Set up for Double and Triple Taxation?

Written by Pascale Hansen

Blog banner of a hand typing on a calculator. The title says "Are You Set up for Double and Triple Taxation?"

If you’re a typical business owner with a holding company that you’ve set-up with assets that will be the source of your retirement income, pay close attention long before you decide to hand over your business keys to your successor(s) to avoid the double or triple taxation.

As the value of the assets in the holding company grows, a double-tax problem arises when you pass away.

Consider this scenario:

You own a holding company that holds assets worth, say, $5 million, with minimal liabilities, meaning the value of your shares in that holding company will be $5-million and that’s the amount you’ve planned to use as your retirement income source or planned to leave to your spouse for their retirement. When you pass away the CRA will deem you to have sold those shares at fair market value (FMV) and you will owe tax on the capital gains unless those shares are left to a spouse, in which case the tax will be deferred. After taxes are paid, your spouse’s retirement nest egg could realistically be cut in half. Nevertheless, the gain will be taxable. That’s tax event #1.

Tax event #2 happens when the corporation sells those assets (which have now grown in value) and this is tax on those capital gains. As the passing shareholder you owe tax and so will the company when they sell assets. This is a double-taxation problem. The same growth in value is being taxed twice.

For a business owner with a holding company, it’s fairly typical for them to pay the holding company any surplus cash generated by the operating company as dividends to protect that cash from creditors. Over time the assets will grow, and the business owner will have a capital gain to report on their tax return.

On death there will be a tax to pay and if the business owner’s children will be inheriting the holding company shares and they decide to sell them, it will trigger the capital gains tax. They may decide to pay the proceeds inside the holding company to themselves as dividends, but either way, there will be a third level of tax (tax event #3) on the amount they receive.

Layers of tax can get expensive, not to mention stressful, when you’re not aware of how much you will have to pay and when they come due.

There are many solutions to this problem, and we welcome having a conversation with you and your advisors about strategies and solutions that will avoid the double tax trap, ensuring that you maximize your estate not your tax bill.

Pascale Hansen is the Co-founder, CEO and Financial Strategist at Zada. Check out Pascale’s lessons in Elevate, Zada’s online course for business owners.


 Malahat Valuation Group specializes in business valuation and real estate appraisals to owners of privately owned companies and their professional advisors.

When owners need to leverage, sell or reorganize their assets, we answer the age-old question "What is it worth?".

We provide our clients and their advisors peace of mind by preparing professional valuations that stand up to scrutiny from lenders, the Courts, and the Canada Revenue Agency.

Malahat Valuation Group Inc.

(250) 929-2929


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