Know Your Enemy: Avoiding Tax Traps in Matrimonial Property Settlements


This paper focuses on tax risks in matrimonial property division. First, it reviews the tax concepts of “relatedness,” “affiliation,” and “arm’s length dealings.” Next, it discusses tax issues associated with transfers of matrimonial property, including income attribution, derivative liability, and shareholder benefits. It also discusses proposed income splitting rules and potential income tax traps associated with distributing corporate property as dividends and with capital gains deduction planning. Finally, the paper discusses related-party “butterfly” reorganization and what should be avoided in such a transaction.

This paper is part of a collection presented at LESA’s Business Issues in Family Law Matters program in Calgary on January 17, 2018 and in Edmonton on January 24, 2018.

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