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Lethbridge Herald Newspaper Archives

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Lethbridge Herald, The (Newspaper) - February 26, 1972, Lethbridge, Alberta Joturfoy, THE leTHBRIDGB HKAIO 27 i Family business income spl'Ming case A victory for the taxpayer Western oils lead advance By PETER LEICIINITZ Canadian Press Staff Writer A spectacular advance by western oil issues, based on two major oil and gas discoveries, highlighted trading activity on major Canadian stock markets this week. The gradual upward trend es- tablished early in the week reached a peak Friday when the Toronto stock market recorded its best session in more than two years. One market observer said: "It was the most hectic session I've seen in five years." The advance left most Cana- dian markets littered with is- sues trading at highs for the year. At New York, however, most issues only recorded fractional advances in moderate trading. On the Montreal and Cana- dian exchanges, the composite index rose 4.C5 points during the week, closing Friday at 205.13. Combined volume on the two By Gene Fawcette DREAM INTERPRETATION- LONG A FAVORED TCOi. OF THE PSWHOANALYST-IS NOW BENS USED A UTTLE DIFFERENTLY. A REPORT FROM THE U. OF CINCINNATI MEDICAL SCHOOL SKIS MOST PRESNANTWOMEN WHO HAVE "BAP DREAMS" CAN LOOK FORWARD TO "-------LABOR... ...w me HAW, MILD. TfMCTfOlABOKFOR IN EDMONTON Stay At the RIVIERA exchanges was 5.93 million shares, compared with 5.48 mil- lion last week. Trading was active on the To- ronlo market with a total of 19.12 million shares changing hands, up from 13.59 million a week earlier. Friday, volume was 6.00 million shares, the highest since June Gulf and Mobil Oil announced Tuesday a major gas discovery in the Mackenzie Delta area of British Columbia. Later in week, Panarctic Oils Ltd., a consortium of exploration com- panies and the federal govern- ment, said it had made its first oil discovery in the Canadian Arctic on El'lcstncre Island. The Toronto market's western oil index recorded its largest one-week advance of the year climbing 16.01 points and clos- ing Friday at 22B.29. INDUSTRIALS STILL UP Industrial issues continued their upward trend, supported iw an increasing number of fa- ___Me earnings reports by sev- eral major companies. The Toronto market's In- dustrial index closed Friday at 203.28, an all-lime high, up 3.46 during the week. At New York, the Jones ndustrial average of 30 key )ltie-chip issues gained 5.27 mints during the week, closing riday at 922.79. Volume was 69.97 million shares, down from 93.02 million a week earlier. However, U.S. markets were closed Monday Feb. 21. Base metal issues were mod- erately higher on the strength ol a copper price increase by one major Canadian producer. Ana lysts said they expected othci producers to make similar pric adjustments in the near futur and that this has caused some buying in the base metal sector of the market. At Toronto, the base meta rose 3.65 points, closing Fridai at 90.92, its best level since Aug 6, 1971. A marked reduction in tradmi activity and prices for gold o international bullion markel continued to exert an advers effect on Canadian gold-produc ers this week. However, the general upwar trend of the market erase losses suffered early in th week and by Friday the Toronto stock market's gold index was ahead 2.53 points to 177.31. THE HOTEL WITH MORE TO OFFER AND WE NOW HAVE COLORED TV For Your Convenience in Making Reservations CALL AND ASK FOR LONG DISTANCE ZEnith 0-7255 at no cost 1o You IVIERA MOTOR HOTEL 5359 Calgary Trail Edmonton, Alberta Phone: (403) 434-3431 Telex: 037-2510 Record snowfall NORDEN, Calif. (Ecuter) Norden, a town high in the Sierra Nevada mountains, is used to a heavy annual snowfall averaging 92 inches. But in the last four days alone, the na- tional weather service said, I Norden has received 51 inches of snow, bringing the year's total snowfall to 102 inches. By I. II. ASPER The newly constituted Tax Review Board has handed down a decision of consider- able interest to those families who plan their tax affairs so as to split business or invest- ment income of the various family members. The board's decision was given orally, and may well appealed by the department of national revenue, so taxpayers would do well to await further developments in the law before relying on the principles enun- ciated by board member A. J. Frost. What the case decided, basi- cally, was that on the facts pre- sented, there is nothing in the income tax act which specif- ically prevents a family from splitting its income amongst the various members through a family partnership. That is itself an over-simplification and some understanding of the ackgrourid is essential to see in its proper perspective. Up until 1903, there WRS othing to prevent a family j rom incorporating each mem- jer, say, the father, mother nd three children, into five eparate companies. The five ompanies would then form a artnership to invest funds or airy on the family business. corporation would be tax- ed at. 21 per cent on its income p to and 50 per cent n anything above that. The result was that up to (five companies at could be earned by the group and be taxed at 21 per cent. If they had lumped their earnings into family company, all but the first would lave been taxed at 50 per cent. Dining the late 1950's and early 1960's, this corporate in- come splitting had become so extensive that the government adjusted the tax law. A new ,aw was enacted which gave ;he revenue department the right, in its discretion, ig- nore the separate corporations and lump the income of all companies together and tax it as though it bad been earned by one company. The tax ef- fect of this would be quite sub- stantial. FIRST ONE Many family businesses, tra- ditionally hard-pressed to find capital for growth and expan- sion, decided to re-structure themselves in order to steer clear of the new taxing regula- tion for corporations. This is the essence of (lie case, the first of its kind to come before the review board. The owners of the family business arranged to have a separate trust established for all seven members of the fam- ily. As well, they established a new corporation which, in turn, was owned by the original sev- en corporations which had been used to carry on the family business. The business was (hen sold to the new partnership which consisted of the new company and seven trusls for the fam- ily members. The tax effect of this was that instead of the business income being taxed at Winchell estate for daughter NEW YORK (AP) Walter Winchell, the columnist who died last Sunday at the age of 74, left the bulk of his estimated estate in trust for his daughter, his will filed for pro- bate showed Friday. The Damon Runyon Cancer Fund, which Winchell founded and helped enrich by millions of dol- lars, received Rose Big- man, the secretary whom Win- chell called Ins "girl was given Dividends By THE CANADIAN PRESS Atlantic Sugar Refineries Ltd., 10 cents April 3, record March 20. Bell Canada, common 66 cents April 14, record March 15; pfd. 80 cents May 1. record March 30. Maple Leaf Mills Ltd., com- mon 20 cents; per cent pfd. both April 3. record March 15. Readers Digest Association Canada Ltd., 16 cents March 31, record March 10. Shell Oil Co., 60 cents U.S. March 27, record March 8. 50 per cent, as it would have been if it were earned by one company, it was taxed at the personal rates of the wives and children and their trusts. This could in many cases produce a lower net tax bite, although in higher income brackets, the tax rates for individuals does exceed the corporate rate by a considerable amount. In this particular case, the family partnership structure produced a lesser tax result than would have been paid had the family carried on business through a single corporation. The revenue department originally accepted this method of structuring family business- es, but after reviewing them again in the late 1960s, decided to attack them on the chief ground that they constituted unauthorized tax avoidance. In this first case, they pro- ceeded under a section of the act which says no deductions will be allowed if they "artifi- reduce one's income. They also claim the transac- tion was void because the fam- j ily trusts were not completely documented until several months after the new partner- ship was officially created. COMMON PRACTICE Mr. Frost, in making his rul- ing, quickly put aside the issue j of when the legal documents' were finalized, because he rec- ognized that it is common prac- tice for people to decide on a course of action, begin to im- plement it, even though the me-1 fulfills, -Dealki, Juncmis, Carcli Of Jtianhi, Jn tl'lemortam) chanics and legal formalities aren't completed for several months. The tax department argue that all the income of the part- nership should be taxed as though it was earned by the single corporation, rather than split amongst the family mem- bers at lower tax rates. Tlie board came to the con- clusion that because of many of the specific techniques employ- ed in this particular case, there was a ring of artificiality to the transaction. However, Mr. Frost ruled that Hie income tax act only attacks these transac- tions where the taxpayer seeks artificially contrived tax deduc- tions, but not where the tax- payer legitimately redistributes hij income in favor of others. The board said that if the government didn't like family income splitting, it had the power to outlaw it, hut that the law gave the board no such au- thority. There are many similar cases awaiting trial. Until a fi- nal legal position is adopted, perhaps by the Supreme Court, families in business together will continue to have difficulty in planning their affairs. However, this first judgment cases a ray of hope in their di- rection. The government would do well to resolve the backlog of cases in a reasonable man- ner and publish clear guide- lines to govern the future. (Mr. Asper is a Winnipeg lawyer) IN MEMORIAM BROWN In-loving memory of a dear brother, Paul Richard, aged four, who passed away February 26, 1971. We often sit and think of you awl of the way you died. Many times we've longed for you, many times we've cried. You gave no one a last fare- well, nor even said good- bye. You were gone before we realized, and only God knows why. remembered by David and Edith. 799 IN MEMORIAM BUOWN .last a prayer, In memory of a dear son, broth- Paul Rich-