Butterflies

No, not the literal “garden variety”, but tax butterflies. Tax lawyers and accountants know exactly what I’m talking about, the rest of you will take this as confirmation of your long-term suspicion that I’ve lost my mind.

The word “butterfly” is not actually found in the Income Tax Act, but every practitioner knows exactly what it is, and can quote the relevant part of the sections of the Act which permit this planning device to occur.

In essence, a tax butterfly is said to occur when the assets of one corporation are moved over to another corporation, a related one, so as to allow better and more efficient tax and succession planning. It’s an extremely finicky and exacting process, with no room for error (tax planning never does allow for errors). Whoever first tried to explain the function of the section described it as the two wings of a butterfly rising to meet each other, exactly touching and matching, then settling back to their original position, the transfer having been made. That nicely covers the essential steps of the device, a mnemonic for the tax practitioner to hold in mind working through the steps.

It’s been over five years since I’ve done one of these things and I’ve forgotten all the fine points, so this discussion is NOT a tax paper! Rather, it’s about the clever use of ingenious analogy to make a point or to clarify the obscure.

Just as the matching wings of the butterfly illustrate the precisely aligning contours of the two corporations, so any good analogy takes something familiar to explain a difficult concept. It’s said that St. Patrick used the shamrock to explain to his skeptical Irish audience that it’s possible for God to be one deity yet exist in three persons.

Good analogies are simple and creative and always provoke an “aha!” response. They draw the curtains to let the light shine in. They are, in a sense, a simple sketch of a complicated picture, allowing the reader or listener to seize the essential proportions, then they can fill in the details, and own it forever.

Parables, metaphors, and similes allow us to use the familiar to grasp a new but parallel concept. Jesus said that the Kingdom of Heaven was like a treasure in a field, the discoverer of which went and sold everything he had to purchase the field and own the treasure. Simple analogy, but full of meaning.

John Denver sang of Annie “You fill up my senses like a night in a forest, like the mountains in springtime, like a walk in the rain. Like a storm in the desert, like a sleepy blue ocean …” Everything which is transcendent about love. The power of the word, “like”.

But gauging the parable must be precise. Like the sniper’s bullet, the wind, the elevation, and even the curvature of the earth must all be considered. Your analogy must do its job of enlightening just so, instructing just so, and emoting just so, not more, not less.

Sometimes the analogy can serve its purpose by being memorable. Who can forget Winston Churchill’s admonition, “A good speech should be like a woman’s skirt; long enough to cover the subject and short enough to create interest.”

And with that admonition, I’ll end.