TIP #14: REVIEW LEGAL AGREEMENTS FOR TAX

CONSIDERATIONS.

Agreements with co-venturers may have unexpected tax

implications. Ignorance is no excuse.
You can’t un-spill milk and you can’t retroactively undo the tax
implications of a legal document. To make sure you and your co-venturers
do not get an unwelcome surprise on your tax return, let your tax advisor
review any legal documents related to co-venturers or other investment
partnerships. Here are some issues that frequently arise:
• Does your co-venturer or partnership agreement represent co-
ownership or a partnership? Each has different tax implications.
• Agreements with fixed disposition dates or criteria may strongly
suggest a real estate investment will be taxed as “income” not
“capital.” (See Tip #53.)
• Unusual terminology or calculations related to the distribution of
profits may attract the Canada Revenue Agency’s attention.
• When corporations are involved, definitions regarding property
ownership are important. Investors may provide a loan, invest into
special or common shares in a company, have the company act as a
“bare trustee” or have the company own a portion of the property on
behalf of its shareholders while another portion of the property is
owned by an independent individual or entity. Each option may
provide or limit various tax advantages.