Vancouver wealthy divorce family lawyers understand that high net worth divorce cases involving family property will involve different types of property that have different types of latent and distributive taxes. A common scenario in Vancouver wealthy divorce cases involves substantial real and personal property as well as lucrative businesses, professional practices, and other entrepreneurial ventures. It is not uncommon for one spouse to keep a multimillion dollar family home in West Vancouver or on the West side of Vancouver, or elsewhere in British Columbia, and for the other spouse to keep investment real estate, stocks and the business.
Savvy Vancouver wealthy divorce family lawyers know that a family home which is a principal residence currently has no capital gains tax paid on its sale whereas an investment real property currently has a 50% capital gain tax which may or may not be increasing in the future. Finally, a company can have capital gains taxes payable on assets it owns that have gone up and valuable that are taxable and second level of tax which is called distributive tax which is the tax paid when you seek to draw money out of your company.
In today’s blog Lorne MacLean KC and Fraser MacLean explain the concept that can impact settlements in the hundreds of thousands of dollars or not at all.
Vancouver Wealthy Divorce Family Lawyers Tel: 604 602 9000
In short, wealthy or ultra wealthy divorce clients need to understand that a $10,000,000 family home has no taxes on it whatsoever, a personally owned real estate investment property or stocks will have capital gains tax payable in the most heavily taxed asset of all will be the family corporation which could have capital gains taxes as well as distributive taxes.
Whether at court takes into account these taxes will depend on whether taxable property needs to be sold to facilitate a settlement or a court judgement on family property or alternatively even if not sold is there proper evidence that the tax will be paid eminently or in the future at some point and if so is it certain or merely speculative. For example an investment property has capital gains tax payable if it were to be sold but at the time of settlement or court order one party is given this property with the latent or future taxes payable when and if it is sold. However, if the property is not sold for several years it may increase in value more than offsetting any notional calculation of the capital gains tax payable now and present value discounted assuming it will be sold in 10 years.
There have been differing BC Court of Appeal opinions on the burden that will have to be met by the person retaining a property that may have future tax payable on it.
Vancouver Family Distributive Tax Lawyers Tel: 604 602 9000
In Dignard v Dignard 2025 The Court of Appeal provided an update on what the test should be in this Vancouver wealthy divorce cases.
[50] The appellant argues that the tax liability is not speculative. She says the evidence showed that she would have to pay capital gains tax if the Langley Condo was sold, whereas capital gains tax would not be payable on the sale of the Sechelt House because it was the respondent’s principal residence. In addition, the capital gains tax was specifically quantified in an expert report. The appellant says that the law is clear that where taxes are known, they should be taken into account in an order for dividing property. She argues that this is true even when the property is not immediately sold, relying on the judgments of this Court in Sanai v. Mahmoud, 2017 BCCA 155 and Maguire v. Maguire, 2016 BCCA 431.
[51] There is no question that a judge should take corporate and distributive taxes into account in the division of family property if there is evidence that a division of family assets will attract tax consequences. This is so even in cases where an asset does not have to be sold to allow the non-owning spouse to realize their interest: Sanai at para. 33. However, there is no absolute rule as to whether taxes should or should not be taken into account in the division of family assets: Sea v. He, 2024 BCCA 161 at para. 86, quoting Sanai at para. 155. A judge may decline to take taxes into account where it is not clear when or in what amount they will be payable, or where taxes are speculative: Maguire at para. 38. A trial judge must conduct a case- and fact-specific inquiry into the likelihood that distributive taxes will be incurred: Sea at para. 88.
[52] In McKenzie v. McKenzie, 2015 BCSC 241 at para. 8, Savage J., as he then was, summarized the principles applicable to distributive taxes:
(1) where there is sufficient evidence to satisfy the Court of tax consequences or other costs inherent in a compensation order the Court should take these into account in setting the compensation amount;
(2) the onus is on the payor to provide the trial judge with the necessary evidence of the tax consequences arising from the division of assets or other consequences of having to acquire the funds to pay the payee;
(3) there is no absolute rule as to how the compensation order might be calculated, depending, as it does, on the type of assets to divided, timing, the parties involved and other orders in the action;
(4) the matter should be considered as of the date of trial, not as of the date the matter comes back before the court; and
(5) the overriding principle is fairness.
[53] These principles were cited by this Court in Sea at para. 86, and in Healey v. Healey, 2024 BCCA 68 at para. 87.
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[55] It is not the law that tax consequences can only be accounted for if the order for property division requires sale of the property in question. However, it is also not the law that taxes have to be accounted for when it is impossible to know when, if ever, they will be incurred or in what amount. In the present case, I conclude that it was open to the judge on the evidence to find that the appellant’s tax liability was too speculative to be accounted for in the division of property. There is no basis for appellate interference with this conclusion.
Vancouver Wealthy Divorce Family Lawyers Tel: 604 602 9000
Vancouver family distributive tax lawyers can help you ensure a fair settlement or proper trial decision. Call our Vancouver Wealthy Divorce Family Lawyers today to make sure you don’t’ lose hundreds of thousands of dollars on failing to account for Vancouver family distributive taxes.
