Canadian family offices operate today in an environment that is markedly different from even a decade ago. As global trade continues to shift in unexpected ways, many family offices are increasingly looking for opportunities beyond their immediate borders to invest in operating companies across jurisdictions, hold global real estate portfolios, leverage debt and manage trusts with beneficiaries who reside in different countries. These changes also come at a time when some families may be reassessing their long-term residency in Canada.
But with this expanding global footprint come increasingly complex Canadian and international tax considerations. While family offices are used to dealing with tax issues at home, it’s now critical to undertake a co-ordinated analysis that considers how domestic and international tax issues interact. Proper planning can help avoid unexpected tax consequences and compliance errors. In particular, family offices need to take action to understand their obligations under the Global Minimum Tax rules, Excessive Interest and Financing Expenses Limitation (EIFEL) rules and foreign reporting requirements, as well as Canada’s departure tax regime.
Investing in family operating companies: structure matters
Family offices frequently hold controlling or significant interests in family operating businesses, whether in Canada or abroad. These structures, which often involve multiple classes of shares, estate freezes, trusts and holding companies, are typically designed to achieve Canadian income tax and succession objectives.
However, offices may be surprised that they may now have to consider whether these arrangements are also subject to the Global Minimum Tax.
Under the Global Minimum Tax rules, multinational enterprises with €750 million (about CAD $1.2 billion) or more of annual revenue must pay a minimum 15 per cent effective tax rate on profits in each jurisdiction. Canada enacted these rules in June 2024 under its Global Minimum Tax Act (GMTA), which implements Pillar Two of the OECD/G20 BEPS initiative.
While Pillar Two is often associated with large multinational enterprises, family offices with global investments and layered holding structures also need to be aware of how these rules apply with regard to share rights, consolidation and financial reporting. Because a central feature of Pillar Two is the importance of rights attached to shares, family offices should be prepared to undertake a detailed share analysis under these rules. Offices will have to determine each class of shares in context and consider other critical factors, including rights to profits, capital and reserves, as well as voting rights, to determine group inclusion and consolidation outcomes. For example, an entity may be treated as part of a consolidated group for Pillar Two purposes based on factors such as disproportionate economic entitlements, liquidation preferences or structured growth shares. This analysis can be even more complex for larger family enterprises with both private holding companies and public subsidiaries.
While the Global Minimum Tax rules present new challenges for family offices, it’s not all bad news.
Larger family enterprises with both private and public company interests may be able to gain some compliance relief under the proposed “deconsolidation” rule. This proposal, which was released in recent draft amendments to the GMTA, allows a private corporation that controls a publicly listed corporate group to calculate its minimum “top-up” tax separately from the public group. As a result, family holding structures that report under Accounting Standards for Private Enterprises (ASPE) will not be required to consolidate with the public company and align with International Financial Reporting Standards (IFRS)—a helpful change that means a family office would not see a significant increase to their compliance burden. Note that this deconsolidation relief is not available to private-only groups.
Consolidation and financial reporting: the starting point for Pillar Two
However, family offices that report under ASPE and do not prepare IFRS consolidated statements may face other accounting challenges, given that Pillar Two calculations generally begin with the consolidated financial statements of the ultimate parent entity (i.e., the top-most corporate group).
In a global environment where investment and mobility are increasingly intertwined, family offices must ensure that tax risk management is fully integrated into both enterprise strategy and family governance planning.
This creates two potential challenges.
First, family offices may face reporting issues when they make certain acquisitions—such as foreign operating companies or real estate vehicles—as these purchases do not always neatly align with the parent entity’s reporting perimeter. This discrepancy can result in differing year-ends and reporting standards, which can cause misalignment between the Pillar Two reporting year and the tax years of a particular jurisdiction.
Second, differences in ASPE and IFRS reporting could also trigger top-up tax in some circumstances. Pillar Two’s 15-per-cent effective tax rate test incorporates both current and deferred taxes, but because ASPE often doesn’t recognize deferred taxes in the same manner as IFRS, this can result in a lower computed tax rate, which in turn can mean a top-up tax will apply under the Global Minimum Tax regime.
To meet these challenges, it’s a good idea to take a close look at your reporting framework. Family offices should verify that the framework accurately reflects deferred tax attributes, and they should consider making adjustments or structural refinements to ensure they are not subject to unintended minimum tax.
Global real estate and foreign shares: EIFEL considerations
Family offices that commonly leverage debt to acquire companies, marketable investments, private equity or real estate should also determine whether they are subject to Canada’s EIFEL rules. This regime can limit the deductibility of interest and financing expenses based on a percentage of earnings before income, taxes, depreciation and amortization (EBITDA), subject to relieving provisions.
EIFEL can apply where a family office has foreign investments, or where a Canadian-resident family trust has non-resident beneficiaries, by restricting the family office’s ability to deduct interest.
EIFEL can apply where a family office has foreign investments, or where a Canadian-resident family trust has non-resident beneficiaries, by restricting the family office’s ability to deduct interest. While EIFEL may restrict interest deductibility at an entity level, offices that make distributions to non-residents could also face withholding tax or foreign reporting considerations. In addition, offices that are denied interest deductions could see an increase in their Canadian taxable income, despite having a limited cash flow.
Foreign reporting obligations
As family offices expand globally, they need to be ready to contend with additional foreign reporting obligations. Canadian residents, corporations and trusts should be prepared to file detailed disclosures for foreign affiliates, foreign property that exceeds specific thresholds and certain cross-border transactions.
It’s important for family offices to meet these reporting requirements, or else they could face significant penalties, extended reassessment periods and even expose themselves to reputational risk. This can be even more onerous where family members reside in multiple jurisdictions and reporting must be co-ordinated across countries.
Trusts with foreign beneficiaries may have to take additional steps, including determining whether foreign trust reporting is required in other jurisdictions. To make this easier, family offices often put systems in place to track foreign holdings, beneficiary residency and cross-border flows of capital and income.
Ending Canadian residency and the departure tax
For some family offices, departure planning is another important consideration that can help mitigate unexpected tax treatments.
Generally, under Canada’s departure tax regime, an individual who ceases to be a Canadian resident is considered to have disposed of certain kinds of property at fair market value, triggering accrued gains. This deemed disposition can occur on property such as shares of private corporations, investment portfolios and certain trust interests, subject to specific exclusions.
As part of departure planning, family offices must consider a host of issues, including:
- The valuation of private operating companies and holding structures.
- The treatment of interests in family trusts.
- The taxation of real estate owned in corporate form.
- The impact on ongoing governance and central management and control.
- The interaction with foreign tax systems in the destination country.
This analysis can become even more complex as family offices must now align post-departure structures with Pillar Two grouping rules and EIFEL constraints. Careful planning is needed so that a restructuring that is undertaken immediately prior to departure will not be subject to unintended global minimum tax or interest limitation consequences.
Sequencing is also critical. Family offices must take care to evaluate governance changes, share reorganizations and financing adjustments holistically rather than in isolation.
A co-ordinated approach is key
It can be challenging for Canadian family offices to keep track of the continued evolution and complexity of domestic and global tax regimes. From the Global Minimum Tax and EIFEL to the expanded foreign reporting requirements and Canada’s departure tax, family offices often have their hands full in determining how their tax obligations intersect with investment strategy and family mobility.
As businesses look to grow in new ways and in new countries, a proactive review of share structures, financial reporting frameworks, financing arrangements, trust governance and residency status is essential. In a global environment where investment and mobility are increasingly intertwined, family offices must ensure that tax risk management is fully integrated into both enterprise strategy and family governance planning.
Ultimately, ensuring that your family office is meeting its tax obligations both at home and abroad is one reliable way to help ensure that your business and your family can continue to reach their full potential.
Blaine Cameron is the National Leader for Tax, KPMG Family Office. He is based in Toronto.
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