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TAX SAVING CANADIAN INCOME TAX LEGAL TIPS BY TORONTO ONTARIO TAX LAWYER

WEEKLY INCOME TAX MINIMIZATION STRATEGIES FOR CANADIAN INDIVIDUALS & CORPORATIONS

• The Canada Revenue Agency (the Canadian income tax department, "CRA") has extended theT1 (Canadian personal income tax return) filing deadline to May 6, 2008 for netfile (individual internet filers) and for efile (professional tax return preparers). The deadline does not apply for paper returns. Furthermore any taxes owing have to be paid by April 30 or will be subject to interest.

• The Queen v MacKay et al, 2008 FCA 105 is a recent Federal Court of Canada decision holding that a series of transactions was contrary to the Canadian Income Tax Act’s General Anti-Avoidance Rule (GAAR).

• The Ontario Estate Administration Tax Act provides for probate fees of $5 tax payable for each $1,000 in value of the estate up to $50,000 and a $15 tax for each $1,000 above $50,000. Section 73 of the Canadian Income Tax Act allows for the creation of alter-ego trusts and joint partner trusts which would avoid probate fees. These trusts cannot be created by will. The person who gifts property to the alter-ego trust (i) must be alive and be at least 65, (ii) must be entitled to receive all the income of the trust prior to their death, and (iii) must be the only person able to receive income or capital of the trust prior to their death.

• If you have more than $100,000 (at cost) in foreign you are required to declare the assets on your T1 Canadian personal income tax return and file a form T1135.  Foreign assets include US securities held in a Canadian brokerage account.   If you did not do so you are subject to penalties, which can be avoided with a Voluntary Disclosure.

• The Canadian Income Tax Act allows a person who is at least 65 to use an inter vivos trust as an alternative to a will to transfer assets free from the probate fees levied under the provisions of the Ontario Estate Administration Tax Act.

• In the recent Federal Court of Canada decision in Telfer v. CRA, 2008 FC 218, the Court granted the taxpayer’s application and said that she was entitled to a relief of 50% of the interest charged. CRA held the Notices of Objection of the taxpayer in abeyance pending the outcome of a tax shelter case in the Tax Court of Canada. Based on the test case the taxpayer accepted a settlement offer from CRA. The taxpayer requested interest relief which was refused by CRA.

• Under recent amendments to the Canadian Income Tax Act, a Registered Retirement Savings Plan (RRSP) can now be kept until the end of the year in which you turn 71, rather than 69 as was previously the law.

• The deadline for making your 2007 Registered Retirement Savings Plan (RRSP) contribution is February 29, 2008.

• The federal government has announced plans to extend the carryforward period for unused federal investment tax credits earned before 2006 to 20 years from the current 10. This measure, which would apply to credits earned in taxation years between 1998 and 2005, is good news for corporations and individuals across Canada with SR&ED credits that were set to expire in the next few years.   Credits earned after 2005 are already eligible for a 20 year carryforward.

• Under the recent amendments to the Bankruptcy and Insolvency Act, which are expected to take effect in December 2008, RRSPs will be exempt from seizure, with no upper limit. There will however be a 1 year clawback.

• The Bankruptcy and Insolvency Act was recently amended, with the changes expected to take effect in December 2008. Bankrupt individuals with more than $200 000 in personal income tax debts representing 75 percent or more of their total unsecured liabilities will not be eligible for an automatic discharge from bankruptcy. They will have to seek a Court order to be discharged and will have to convince the Court that the relief they are seeking is justified on the basis of their efforts to repay their debts, their financial situation when the debt was incurred and their future financial prospects. The Court will be able to fix conditions on the discharge.

• December 31 is the deadline for most 2007  tax planning opportunities, such as making charitable donations or acquiring depreciable property to maximize 2007 capital cost allowance.

• The Canada Revenue Agency (the Canadian income tax department, "CRA") released new guidelines for the voluntary disclosure program (tax amnesty) on October 22, 2007. The rules have become more restrictive in some areas, especially with respect to CRA actions with respect to a related party and enforcement actions by other authorities.

• In the case of The Queen v MacLean [2007] B.C.J. No. 1844, the taxpayer who was the executrix of her mother’s estate was acquitted of charges of failing to file returns for her late mother on the basis that she exercised due diligence in relying on advice of a lawyer, bookkeeper and accountant.

• In the recent Tax Court of Canada decision in Yates v The Queen 2007 TCC 498 the court affirmed that an assessment for transfers between spouses under subsection 160(1) of the Income Tax Act does not apply to payments by a spouse for reasonable living expenses of the family.

• The Canada Revenue Agency has won an order in the Federal Court of Canada requiring eBay Canada to turn over the names, addresses, phone numbers and e-mail addresses of all high-volume sellers.  EBay sellers who have not reported their online income should consider making a voluntary disclosure (tax amnesty) application before being approached by CRA.

• In the recent Tax Court of Canada decision in Copthorne Holdings Ltd. v The Queen 2002-1316(IT)G the court held that a general anti-avoidance rule (GAAR) assessment under section 245 of the Income Tax Act cannot give rise to penalties for non-compliance with the technical sections of the Act.

• The legal representative of a deceased taxpayer is required to obtain a clearance certificate from the Canada Revenue Agency (the Canadian income tax department, "CRA") before distributing any of the deceased person's property to the heirs. Note that the legal representative can be held personally liable for paying the deceased person's tax liability if such a clearance certificate is not obtained. The legal representative can reasonably expect to be asked by CRA to provide a copy of the will, if such a will exists and has not already been submitted, when applying for the clearance certificate.

• Information Circular IC 00-1R, Voluntary Disclosures Program, (Canadian Tax Amnesty) is currently being updated and should be released this summer to reflect the implications of the changes to the GST/HST penalties and interest, as they currently stand.

• CRA is currently reviewing the implication on the VDP of the changes to the GST/HST penalties and interest that are effective April 1, 2007. With the elimination of the late payment penalties effective April 1, 2007, and their replacement with higher interest charges, it appears that there is no longer any mechanism in place to give registrants any protection should they wish to voluntarily disclose their GST/HST liabilities, since the VDP provides relief for penalties and not interest. The same problem also exists in wash transaction situations, because effective April 1, 2007, the flat 4% wash transaction penalty is being changed to a flat 4% interest charge.

• John Alexander McCullough was sentenced to imprisonment by the British Columbia Provincial Court  in March 2007 for failing to comply with an order to file his personal income tax returns.  He had a previous history of failure to comply and failing to pay his fines.

• If you have an income tax balance owing you may have to make quarterly income tax installments.  If you fail to do so you will charged arrears interest.

• The Canada Revenue Agency (the Canadian income tax department, "CRA") recently confirmed its view that subsection 18(12) of the Income Tax Act (which deals with home business expenses) generally applies to Bed and Breakfast (B&B) businesses. The CRA recognizes that an exception occurs in situations that fall within the same fact pattern as that in Sudbrack (2000 DTC 2521), a decision heard under the general procedures of the Tax Court of Canada, in which that Court ruled that subsection 18(12) did not apply.

• The Canada Revenue Agency (the Canadian income tax department) has changed the name of the discretion given to the Minister of National Revenue to provide the following relief where warranted by the taxpayer’s circumstances:

  • cancel and waive penalties and interest;
  • accept certain late-filed, amended, or revoked income tax elections; and
  • issue income tax refunds beyond the normal three-year period to an individual and a testamentary trust.

  from “fairness provisions” to “taxpayer relief provisions”.

   

• The Canada Revenue Agency (the Canadian income tax department) announced two new initiatives, a Taxpayer Bill of Rights and a Taxpayers' Ombudsman, to ensure CRA is more accountable to Canadians.

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• The Federal Court of Appeal just allowed the appeal by the Canada Revenue Agency (the Canadian income tax department) in the case of Baxter v. The Queen, and held that the taxpayer had acquired a tax shelter.  Since the promoter of the investment did not have a tax shelter ID number, all deductions were denied to Mr. Baxter.

• If you are assessed for income tax by the Canada Revenue Agency (the Canadian income tax department) and do not pay the amount assessed or file a Notice of Objection, CRA can seize your assets, including your bank account, without a court order.

• ALISTAIR JOHN CAMPLIN was found in contempt of court for refusing to comply with a Compliance Order issued by the Federal court of Canada pursuant to subsection 231.2(1) of the Canadian Income Tax Act (ITA).  The court held that the Tax Act does not carve out a distinction, for the purposes of a Compliance Order, between a natural person and the legal representative of the taxpayer, which was the basis of Mr. Camplin’s argument and his refusal to comply with the order.

• The recent Canadian federal budget contains a proposed amendment to the Excise Tax Act that would grant Web site owners GST relief for their foreign customers, both in the future, and retroactively to 1990 (when GST came into effect).  This effectively overturns Dawn’s Place v. R 2006 FCA 349, where the Federal Court of Appeal ruled against Dawn's Place, an adult-oriented Web site, for failing to collect GST from non-residents for fees earned in 2001.

• A Canadian income tax reduction is available to Canadian corporations that carry out manufacturing and processing provided that they meet certain criteria. However determining what is manufactured and what isn't is not always clear.

• Last week’s 2007 federal Canadian budget includes a proposal to effectively disallow as income tax deductions all costs incurred by Canadian corporations to finance their international subsidiaries.

• As of March 5, 2007, the St. Catharines Tax Services Office, Enforcement Division will be the initial point of contact and intake centre for all Ontario and Nunavut voluntary disclosures (Canadian Tax Amnesty) and related enquiries. Overall, the Voluntary Disclosures Program for Ontario and Nunavut will be handled by the St. Catharines, London and Peterborough-Kingston-Belleville Tax Services Offices - Enforcement Divisions.

• The Canada Revenue Agency (CRA) is now processing electronic and paper Canadian income tax returns, after a 1 week suspension due to computer problems.  They will not be extending the April 30 deadline as a result of the suspension.

• The Canada Revenue Agency (CRA) advised that some computer applications related to personal income tax filing are temporarily halted. These applications include online services like Efile, Netfile, and My Account. There are indications that CRA computer systems have run into infrastructure problems. The CRA will provide daily updates to the media on the steps they are taking.

• The deadline to contribute for your 2006 RRSP is March 1, 2007.  The maximum amount of your contribution is indicated on your 2005 assessment.  Any unused contribution room can be carried forward to future years.  Any permitted contribution reduces your 2006 Canadian income tax liability.

• In the Canadian income tax case of McMullen v. The Queen, 2007 TCC 16, the decision of the Tax Court of Canada was that a split up of a corporation by two shareholders did not violate the anti-surplus stripping provisions found in subsections 84(2) and 84.1(1) of the Canadian Income Tax Act, and was not caught by GAAR (the general anti-avoidance rule).

• Tax filing season is here.  If you are worried about filing your 2006 Canadian personal income tax return because of unfiled returns in previous years, you may qualify for the Voluntary Disclosure Program (VDP) also called Tax Amnesty, which eliminates penalties and prosecution and may result in a discounted interest rate.  It is important not to file the back returns without making a VDP application, or you will be charged penalties and full interest.

• In the income tax case of Papiers Cascades Cabano Inc. v The Queen the Federal Court of Appeal ruled that the Canada Revenue Agency (the Canadian income tax department) can adjust the balance of a carry-forward of investment tax credits from a statute-barred year.

• According to the Canada Revenue Agency (the Canadian income tax department) in 2005-06, Canadian taxpayers were convicted in 293 cases of income tax evasion or fraud. Taxpayers had to pay close to $14.4 million in fines, and were sentenced to more than 33 years in jail.  Even if someone else prepares the tax return, the taxpayer is responsible for all the information on the return.  Stay away from return preparers who offer you false tax claims. This could include false charitable donations or false child care expense claims, or maybe even false business expenses or losses.  If you have filed a false tax return, you can make a Voluntary Disclosure (Tax Amnesty Application) and avoid prosecution and penalties.

• Payments received for a non-competition agreement as part of the sale of shares of a business are usually treated as part of the proceeds of disposition for Canadian income tax purposes.

• Before acquiring any tax shelters by the December 31 deadline ensure you understand the business and tax implications of your investment, as well as the position of the Canada Revenue Agency (the Canadian income tax department) with respect to the shelter.

• December 31 is the last day to undertake 2006 tax planning including charitable donations, realization of losses, RESP contributions and tax shelter acquisitions. December 22, 2006 is the last day for tax loss selling of publicly traded securities.

• In 236130 British Columbia v. The Queen, the Federal Court of Appeal upheld the Tax Court’s decision that a reassessment was not properly issued where it was mailed to the taxpayer’s books and records address, rather than mailing address, on the basis that the mailing address is the only one authorized and adopted for mailing purposes. Therefore, the Court concluded that the reassessment had not been issued at all.

• If you are thinking of acquiring business assets, acquire them before December to be able to claim capital cost allowance (depreciation for Canadian income tax purposes) in 2006.

• December 31 is the deadline for tax planning for the 2006 year.  Now is the time to ensure that your tax affairs are in order and to carry out any necessary transactions to minimize your Canadian income tax liability.

• Employers are required to deduct and remit Canadian income taxes (as well as Canada Pension Plan and Employment Insurance premiums) from their employees. If they fail to do so they are subject to interest and penalties. If they hire workers as independent contractors the risk and liability is with the employer if the Canada Revenue Agency (the Canadian income tax department) determines that the worker is in fact an employee.

• In Ceco Operations Ltd. (2006 TCC 256), the Tax Court of Canada applied the general anti avoidance rule (GAAR) to a partnership asset rollover. A sale of a business contemplated two years before the transactions was structured via a partnership with the purchaser in 1998. Ceco rolled business assets to the partnership under subsection 97(2) for cash and a partnership interest. The purchaser injected cash equal to the value of Ceco's partnership interest and the partnership used the cash to invest in preferred shares of a company; that company and Ceco were owned indirectly by the same holding companies. The court said that the series of transactions was a patent abuse of subsection 97(2) and that GAAR applied to deny the partnership asset rollover.

• In the Canadian Income Tax decision Anchor Pointe Energy Ltd. (2006 TCC 424), the Tax Court of Canada concluded that the reverse onus (that requires the taxpayer to disprove Canada Revenue Agency’s assumed facts) did not apply to facts assumed by the minister subsequent to the expiration of the reassessment period. The court concluded that the normal-course rules relating to the reverse onus of proof do not apply where the Minister of Revenue first raises the factual assumptions at the confirmation stage. The Minister has the onus of proof for such assumptions of fact.

• Canadian income tax shelters are now being sold for the 2006 taxation year.  Be sure you understand the risks, both business and tax, before making any decision to invest in a tax sheltered investment or charitable donation gifting arrangement.

• In the case of Smith v. The Queen the Supreme Court of British Columbia upheld a conviction of failing to file Canadian Income tax returns on the part of Mr. Smith who was self employed as a consultant to the tax protestor community.

• The Federal Court – Trial Division conducted a judicial review of a denial of a Voluntary Disclosure in the recent case of 334156 Alberta Ltd. v The Queen. The court found that the Canada Revenue Agency (the Canadian income tax department) was justified in denying the application since they had contacted the taxpayer to file the outstanding returns.

• Canadian residents are taxable in Canada on their world income. This includes income or capital gains earned offshore, such as through the rental or sale of a foreign property such as a vacation condominium in the Caribbean or elsewhere. Failure to report such income is tax evasion and is punishable by a fine or even a jail term.

• Unclaimed allowable business investment losses (ABILs) are not included in the newly enacted extended 20-year carryforward period for non-capital losses for Canadian Income Tax purposes. ABILs retain their 10-year carryforward period and become net capital losses thereafter.

• A taxpayer who uses public transit should be sure to maintain proper documentation to claim the new transit-pass tax credit on his or her 2006 personal Canadian income tax return. The credit applies to monthly or longer passes for transit.

• When computing Canadian income tax students can deduct moving expenses from the taxable amount of scholarships, bursaries or research grants that they receive, or against employment or business income, so moving expense receipts should be kept.

• The Tax Court of Canada decided in the recent case of JACQUES MARCHESSAULT v. HER MAJESTY THE QUEEN that the Canadian income tax liability on income earned during the year prior to the making of a proposal under the Bankruptcy and Insolvency Act is subject to the terms of the proposal and the income tax would therefore not have to be fully paid.

• The decision of the Tax Court of Canada in the case of Carrier v The Queen confirms that a Notice of Objection that was not filed on time due to an accountant being busy during tax season will not be accepted late.

• If you acquire a depreciable asset for business purposes you can claim tax depreciation, called capital cost allowance for Canadian income tax purposes. The rate depends on the type of asset.  In the year of acquisition only 50% of the normal depreciation can be claimed.

• Canadian taxpayers need to have transfer pricing documentation in place to support their inter-company transfer prices and this documentation must adequately address the contributions of the parties, in particular the Canadian entity. The CRA (the Canadian income tax department) indicated that deficiencies have resulted in penalties being applied.

• If you sell shares of a business and part of the proceeds is based on future results, this is called an “earn out” and it must be structured properly so as to enjoy favourable Canadian income tax treatment.

• Income from a foreign pension plan received while a resident of Canada is taxable in Canada irrespective of where it was earned.  If you have failed to report such income you can avoid penalties by making a voluntary disclosure (tax amnesty application).

• The recent Federal Court of Appeal judicial review decision in Jerry Ross v. Canada Customs and Revenue Agency found that the financial hardship of a taxpayer must be properly evaluated by the Canada Revenue Agency (the Canadian income tax department) in making a “fairness” determination to cancel income tax interest and penalties.

• The deadline for self-employed taxpayers to file their T1 Canadian income tax returns for 2005 is June 15.  If you missed the deadline, and are behind in filing other years, do not file your returns without making a voluntary disclosure (tax amnesty application) in order to avoid penalties and reduce interest.

• The recent Federal Court of Appeal judicial review decision in Jerry Ross v. Canada Customs and Revenue Agency found that the financial hardship of a taxpayer must be properly evaluated by the Canada Revenue Agency (the Canadian income tax department) in making a “fairness” determination to cancel income tax interest and penalties.

• The Ontario Ministry of Finance has recently published a Land Transfer Tax Bulletin entitled “Determining the Value of the Consideration for Transfers of New Homes, Land Transfer Tax Act”. The Bulletin contains information on how to calculate the value of consideration in the purchase of a newly constructed home and indicates that in certain circumstances the value of extras, are to be included in determining the value of consideration. The Bulletin may be obtained from the Ontario Government, Ministry of Finance.

• Money lost investing in a small business corporation may be claimed as a “business investment loss”. It is like a capital loss in that only one-half is deductible however, it can be claimed against any income in the year, not just capital gains.

• In most, if not all, cases transfer pricing documentation prepared for the requirements in other jurisdictions, including the U.S., will not meet the Canadian documentation requirements. Taxpayers need to have transfer pricing documentation in place to support their inter-company transfer prices and this documentation must adequately address the contributions of the parties, in particular the Canadian entity.  Failure to provide transfer pricing documentation within 3 months of the CRA's request, even by one day, will give rise to the 10% transfer pricing penalty.

• Details about the 2006 Canadian budget are available at the Department of Finance web site at http://www.fin.gc.ca/budtoce/2006/budliste.htm.

• If you missed the April 30^th Canadian income tax return filing deadline due to missed filings in past years, do not file your returns directly with Canada Revenue Agency (the Canadian income tax department).  If you do you will be charged penalties and full interest.  Instead you should contact a Canadian tax lawyer to make a voluntary disclosure (Canadian Tax Amnesty) application that will eliminate all penalties and reduce interest.

• The lower-income spouse should claim all medical expenses on behalf of the entire family for Canadian Income Tax. The lower your net income, the more you can claim in eligible medical expenses. But since the credit is nonrefundable the spouse who is making the claim should have sufficient income to absorb the entire credit.

• One spouse should claim all the family charitable donations for Canadian Income Tax purposes to maximize the overall income tax credits available.  You can also carry charitable donations forward since the donation credit is available for donations made within the five preceding years.

• Changing the ownership of a life insurance policy is considered to be a disposition of the contract for Canadian Income Tax purposes and can result in an income inclusion for tax purposes to the policyholder if the proceeds of disposition, often the cash surrender value, exceed the adjusted cost basis of the policy.  However there is tax free rollover to spouses.

• While the Voluntary Disclosure program (Canadian Tax Amnesty) of the Canada Revenue Agency will be moved from Appeals to Audit effective April 1, 2006, a transitional team has not yet been put into place and it appears that Appeals may continue to handle the files until August 2006.

• Changing the beneficiary of a life insurance policy can be made without any adverse Canadian income tax consequences.

• Effective April 1, 2006 the Voluntary Disclosure program (Canadian Tax Amnesty) of the Canada Revenue Agency (the Canadian income tax department) will be moved from Appeals to Audit and new personnel will take over.

• Canada Revenue Agency (the Canadian income tax department) employees do not have the right to enter taxpayer premises, home or business, without a search warrant.  If they do show up a taxpayer does not have to admit them or speak to them.  If they refuse to leave the police can be called to remove them.

• When corporations carry out a vertical short form amalgamation any losses in one of the amalgamating corporations may be carried back for Canadian Income Tax purposes and may be used to offset profits previously incurred by the other amalgamating corporation.

• If you have established an RESP (Registered Educational Savings Plan) and made tax deductible payments, if a child does not pursue post-secondary education, one of your options, if the RESP has existed for at least 10 years and all beneficiaries are over the age of 21 and not pursuing a post-secondary education, is to transfer up to $50,000 to your RRSP (or your spousal RRSP) provided you have the contribution room available.

• The Canada Revenue Agency (Canadian income tax department) conducts credit checks without notifying the taxpayer in cases where a tax return has been filed prior to the due date and is shows a large balance owing.

• There is no solicitor-client privilege for communications between an accountant or an investment banker and client.  Any such communications, including audit and tax working papers, can be seized and used by the Canada Revenue Agency (Canadian income tax department) as part of an audit.  The only exception is where the accountant prepares the documents for a lawyer to facilitate the rendering of legal advice.

• The Tax Court of Canada confirmed in the recent case of Scavuzzo et al v The Queen 2005 TCC 772, that dealt with director liability for unremitted GST and payroll source deductions, that the concept of de facto director is of very limited application.

• If you carry on business in a province that charges provincial sales tax (PST) and you purchase goods from outside that province, you are required to self assess on PST.  Self assessment on out of province purchases is a focus of provincial sales tax auditors.

• December 23, 2005 is the deadline for selling marketable securities to realize a loss for Canadian income tax purposes for the 2005 taxation year.  Sales orders placed after that date will settle in the new year.

• If a corporation has unpaid corporate income taxes, and a dividend was paid, then the Canada Revenue Agency (Canadian income tax department) can claim that dividend from the shareholder who received it using subsection160(1) of the Income Tax Act.

• Businesses often want to retain independent contractors instead of hiring employees to avoid payroll taxes. The Canada Revenue Agency (Canadian income tax department) recognizes four tests for the determination of the nature of the work relationship between a business entity and the worker who provides services to it, as established by case law.  They are: “control” test, “ownership of tools” test, “chance of profit or risk of loss” test, and the “integration” test. The risk of taking the position that a person is not an employee is that the business will be reassessed and will have to pay amounts that should have been withheld, as well as penalties and interest.

• A Canadian employee cannot simply resign his employment and start billing for his services through a corporation.  Such an arrangement may be considered to be a “personal services business” with the result that most corporate expenses will be disallowed.

• The Canada Revenue Agency (Canadian income tax department) has just issued another press release warning Canadian taxpayers about participating in “gifting trust arrangements” and “leveraged cash donation” “tax shelter” plans.  The position of CRA is that these plans are contrary to the Canadian Income Tax Act and that CRA will deny deductions to participants.  While CRA may or may not be correct, and many of the plans being offered have supporting tax opinions, any participant should expect to be reassessed and have a fight with CRA, possibly in the Tax Court of Canada of Federal Court of Appeal,  before the deductions are ultimately allowed or disallowed.

• Incorporating a business offshore and running business operations through it will not avoid Canadian income taxation if the mind and management of the corporation are based in Canada.  That corporation will be considered to be resident in Canada, and fully taxable in Canada.

• Subsection 227.1(4) of the Canadian Income Tax Act provides that no action for director liability for unpaid source deductions of a corporation may be commenced more than 2 years after a director ceased to be a director of the corporation.

• The position of the Canada Revenue Agency (Canadian income tax department) is that they will accept a court ordered rectification order of a transaction where the purpose of the order is to put into effect the original intention of the parties.

• For medical related expenses to be deductible for Canadian income tax purposes they must be prescribed by a medical professional.

• The Supreme Court of Canada has released 2 cases dealing with the general anti-avoidance rule (GAAR) in the Canadian Income Tax Act, The Queen v Canada Trustco Mortgage Compan and Kaulius et al v The Queen  It has ruled that the application of the GAAR involves three steps.  It must be determined: (1)whether there is a tax benefit arising from a transaction or series of transactions within the meaning of s. 245(1) and (2) of the Income Tax Act; (2)whether the transaction is an avoidance transaction under s.245(3), in the sense of not being “arranged primarily for bona fide purposes other than to obtain the tax benefit”; and (3)whether there was abusive tax avoidance under s.254(4), in the sense that it cannot be reasonably concluded that a tax benefit would be consistent with the object, spirit or purpose of the provisions relied upon by the taxpayer.  The burden is on the taxpayer to refute points (1) and (2), and on the Minister to establish point (3). 

• A voluntary disclosure (tax amnesty) application can be submitted to the Canada Revenue Agency (Canadian tax department) for an individual even if the individual is a shareholder or director of a corporation and the corporation is the subject of a request to file returns or an audit.

• The position of the Canada Revenue Agency (Canadian tax department) is that a voluntary disclosure (tax amnesty) must be substantially complete in order to be accepted as valid.  However a taxpayer must only make his reasonable best efforts to ensure that his disclosure is substantially complete, rather than meet some arbitrary test as to what constitutes completeness.

• In Ontario Land Transfer Tax normally has to be paid when transferring property to a corporation. Regulation 697(3) under the Ontario Land Transfer Tax Act exempts transfers of land to a family corporation to enable it to continue an active business. A recent Divisional Court case (Upper Valley Dodge Chrysler Limited v Minister of Finance, 73 OR (3d) 146) considered the regulation. In Upper Valley the individual owned the land and the corporation operated the dealership on it.  He then transferred the land to the corporation.   The taxpayer won under that regulation.

• The Tax Court held in the decision of Brouillette v. The Queen, 2005 DTC 1004, that the anti surplus stripping rules in section 84.1 are not applicable where the buyer corporation and the seller have separate economic interests, and they carry out a purchase and sale in accordance with those separate interests, effectively overruling the position of the Canada Revenue Agency in Technical Interpretation 2002-0166655.

• A voluntary disclosure (tax amnesty) application may be considered to be voluntary if a computer generated notice to file a return was generated by the Canada Revenue Agency (Canadian tax department) if the notice was not received by the taxpayer or if a significant amount of time has passed since the date of the last notice and the date of the disclosure.

• The Canadian Income Tax Act was amended effective April 1997 so that child support payments are no longer deductible to the payor or taxable to the recipient.  While payments made under a written agreement or court order made before May 1997 are subject to the old rules (deductible to the payor and taxable to the recipient), any change to that agreement or court order will mean that the new rules apply.

• The “kiddie tax” in section 120.4 of the Canadian Income Tax Act generally applies to income of a child under 18 attributable to dividends or shareholder appropriations from a private corporation designed to split income.  The kiddie tax is not applicable to capital gains.

• In the recent Tax Court of Canada decision in  Morin v. The Queen, 2005 DTC 813 the taxpayer was able to deduct payments made to a company hired to provide employment advice to maximize his financial benefits from income earned on the exercise of employee stock options.

• The Canada Revenue Agency (Canadian tax department) can assess transfer pricing penalties on cross border transactions if they adjust transfer prices to comply with arm’s length prices.

• A Canadian resident who pays a fee or commission for services rendered in Canada to a non-resident is required to withhold tax of 15% and to remit it to the Revenue Agency (Canadian tax department).

• Canadian businesses with cross border transactions must establish a detailed transfer pricing plan supported by comprehensive documentation to ensure compliance with the Canadian income tax rules.

• A private corporation that is going public should pay out certain Canadian income tax accounts, such as the Capital Dividend Account (CDA) and Refundable Dividend Tax on Hand (RDTOH) prior to the public issue since only private corporations can benefit from those accounts.

• If you are renovating your kitchen, Habitats for Humanity will remove kitchen cupboards and appliances and provide a Canadian income tax receipt for the value of anything they can reuse.

• In the case of Ottawa Senators Hockey Club, 73 OR (3d) 737, the Ontario Court of Appeal decided that the Canada Revenue Agency has priority over other creditors for collected but unremitted GST, but not for penalties and interest on GST or unremitted payroll deductions for income tax, CPP or EI.

• The Canada Revenue Agency (Canadian tax department) has recently changed its rules for interest reduction on a voluntary disclosure (tax amnesty application).  They will no longer waive or reduce interest for years prior to 1995.

• The disposition of Canadian property by a non-resident of Canada is usually subject to income taxation in Canada, and the purchaser is normally required to withhold funds and remit them to the Canada Revenue Agency, unless a certificate is provided under section 116 of the Canadian Income Tax Act.

• There are income tax treaties between Canada and numerous countries, including the United States and United Kingdom, that affect the treatment of taxpayers with ties to, or sources of income in, both treaty countries.

• Communications between a taxpayer and his accountant are not subject to privilege and can be seized by the authorities including the Canada Revenue Agency.  However communications made and materials prepared by accountants are privileged when the accountant is the client’s agent for the purpose of obtaining legal advice.

• In the recent Tax Court of Canada income tax case of Aprile v The Queen the court allowed the taxpayer to deduct $7,000 in expenses paid to his 11 and 13 year old sons. The taxpayer testified as the exact duties performed by each son, including the number of hours worked. He also testified that he paid his sons in kind rather than by way of cheque.

• For self employed individuals and their spouses or common law partners, the tax filing deadline is June 15. Regardless of your filing deadline, you had to pay amounts owing by May 2, 2005, or incur interest charges.

• In the case of GUSTAVE MERCURE ESTATE, the Tax Court of Canada held that recaptured capital cost allowance (tax depreciation) cannot be included in a separate “rights and things” Canadian income tax return of a deceased taxpayer.

• A Canadian taxpayer who is disabled may be entitled to an income tax deduction for attendant care expenses.  For nursing home residents, attendant care expenses include a portion of the monthly fees paid to the nursing home.

• If you are hesitating about filing your 2004 Canadian personal income tax return (T1) by the deadline of May 2, 2005 because you have not filed returns for previous years, you should make a voluntary disclosure (tax amnesty application) with the Canada Revenue Agency (the Canadian income tax department) and file your 2004 return on time.

• A Canadian personal income tax return (T1) can be filed over the internet using the Revenue Agency (the Canadian income tax department) Netfile program. Commercial tax return preparation software is required, along with a 4 digit access code. The access code is on the label sent out to previous netfile users, or can be obtained over the internet or by phone. To netfile go to http://www.netfile.gc.ca.

• Even if you're missing slips or receipts ensure that file your income tax return with the Canada Revenue Agency (the Canadian taxation authority) by May 2, 2005.  Otherwise you will be assessed a late filing penalty.

• Once the Canada Revenue Agency (the Canadian income taxation department) commences an investigation to look for evidence of tax evasion, the protections afforded by the Canadian Charter of Rights are applicable and CRA can no longer use its statutory audit and investigation powers such as the requirement to provide information set out in the Income Tax Act.

• A recent Tax Court of Canada decision confirmed that an individual who withdraws money from an RRSP as part of the Home Buyer’s Program must still make the required annual repayments to the RRSP even if the house has been acquired by a spouse as part of marriage dissolution, or be taxable under the Canadian Income Tax Act.

• The Supreme Court of Canada ruled in the case of Vasiliki Tsiaprailis v. Her Majesty the Queen that a lump sum settlement from an insurance company that represents disability benefits that would have been taxable for Canadian income taxation purposes when received remains taxable when received as a lump sum.

• An offshore (non-Canadian) corporation may still be taxable in Canada if the guiding mind and management of the corporation are in Canada.  In order to avoid Canadian income tax an offshore corporation must be managed offshore.

• The Ontario Court of Appeal, in Amherst Crane Rentals Ltd. V. Perring, (2004) D.T.C. 6584 has ruled that in certain circumstances proceeds of an RRSP are excluded from the estate of an owner and therefore protected from the creditor’s estate.

•  The Canadian income tax treatment of options issued to an independent contractor differs from those issued to an employee. The contractor will have an income inclusion at the time of grant of the option equal to the value of the option and will have an income inclusion (or capital gain) at the time of exercise of the option equal to the difference between strike price and fair market value of the shares at time of exercise of the option.

• The Canada Revenue Agency (the Canadian income tax department) issued a technical interpretation in response to a taxpayer enquiry and confirmed that any employer reimbursement of the cost of a PDA (personal digital assistant such as a Palm Pilot) will be a taxable benefit to the employee.

• As of Jan 1, 2005, charitable tax receipts issued by registered Canadian charitable organizations under the Canadian Income Tax Act must include the name of the Canada Revenue Agency and its website http://www.cra.gc.ca/charities.html.

• The Tax Court of Canada confirmed in the case of MICHAEL MELNYCHUK v. HER MAJESTY THE QUEEN that vitamins, even if prescribed by a physician for a patient undergoing chelation therapy, are not deductible medical expenses for purposes of the Canadian Income Tax Act.

• An employee who receives stock options for a public company and elects to defer the taxable benefit of up to $100,000 per annum (under subsection 7(8) of the Canadian Income Tax Act) until the shares are disposed of must report the taxable benefit (receipt of the stock option) at the time of disposition (on form T1212) and must pay Canadian income tax at that time.

• The Canadian federal government has extended the deadline for Canadians to claim contributions for the tsunami relief effort on their 2004 income tax returns to Tuesday, January 11^th, and has also agreed to match all donations, dollar-for-dollar, up until that date.

• The Canada Revenue Agency (the Canadian income tax department) has announced that effective May 25, 2004 it will no longer accept a single purpose Canadian corporation that would previously been set up to hold United States personal use real property with the objective of avoiding US estate tax on death of the individual. The previous policy will continue to apply to arrangements in place on May 25, 2004.

• Employee stock options for a public company are subject to Canadian income tax, and Canada Pension Plan levies, when they are exercised and acquired and it is the employer’s obligation to withhold CPP and income tax on the amount of the benefit at that time.  However if the employee elects to defer the taxable benefit (under subsection 7(8) of the Canadian Income Tax Act) until the shares are disposed of, the employer is only required to withhold CPP.

• December 24, 2004 is the deadline for selling marketable securities to realize a loss for Canadian income tax purposes for the 2004 taxation year.  Selling orders placed after that date will settle in the new year.

• Tax planning is arranging your income tax affairs in order to legally minimize your Canadian income tax burden.  Now is the time to carry out year end tax planning for 2004. Consider retaining a Canadian tax lawyer for assistance.

• The Canada Revenue Agency (the Canadian income tax department) issued a press release on November 25, 2004 advising that it will reassess taxpayers who make charitable donations through leveraged donation programs.  While CRA may not be correct in its analysis of the programs, any taxpayer who participates in such plans should do so knowing a CRA challenge will inevitably follow.

• In the Canadian income tax case of 9044-2807 Québec Inc. v The Queen, 2004 FCA 23, the Federal Court of Appeal held that corporations were associated under subsection 256(5.1) of the Income Tax Act by virtue of de facto control based on the controlling influence of one corporation on the other.

• The Canada Revenue Agency (the Canadian income tax department) has wide powers of inquiry and investigation under the Canadian Income Tax Act, including the power to demand records and information.  A person who refuses to comply with the requirement to provide information is subject to prosecution under section 238 of the Tax Act. Consider retaining a Canadian taxation lawyer for assistance.

• A taxpayer who incurs a loss for Canadian income tax purposes cannot file a Notice of Objection.  The taxpayer must request a Notice of Determination from the Canada Revenue Agency (the Canadian tax department) and then file an Objection to it.

• The taxation of an award of damages in a law suit will depend on the nature of the payment.  Generally, damages that replace income receipts are taxable for Canadian income tax purposes and damages for capital are not.  To maximize favourable tax treatment tax advice should be obtained when the pleadings are first being drafted.

• Claw backs of the age exemption, which reduces your Canadian income taxes, start at $26,941. If an individual over 65 earns over $55,309 a portion of the Old Age Pension is taken back.

• The British Columbia Supreme Court upheld the dismissal of tax evasion charges due to problems with document disclosure by the prosecution in the October 2004 decision of Regina, v. Jeffrey Robert Wilson and Christopher David Wilson, 2004 BCSC 1220.

•  In the October 2004 case of Quinn v The Queen, 2004 TCC 64, the Tax Court of Canada ruled that the taxpayer was entitled to a Canadian income tax credit for art prints acquired at a wholesale price and then donated to a charity for their retail value.

• In the month following the quarter when a business exceeds $30,000 in sales, it must start collecting GST. Consider retaining a Canadian income tax lawyer for assistance.

• September 30, 2004 is the end of the opportunity to arrange for loans between spouses at the low Canada Revenue Agency prescribed rate of 2%, thereby allowing some income splitting to take place. The rate will be increased to 3% for the last quarter of 2004.

• The Home Buyers’ Plan allows first time home buyers to withdraw up to $20,000 from their Registered Retirement Savings Plans (RRSP’s) free of Canadian Income Tax to assist in the purchase of a home and to repay the amount over 15 years

• If a Canadian is transferring to a country with which Canada has a Social Security Totalization Agreement, he or she may be exempt from contributions to the host country pension plan and continue to pay into CPP/QPP. (Quebec has its own agreements with certain countries.) For a country with which Canada (or Quebec) does not have an agreement, it may be possible, if beneficial, to voluntarily pay into both pension plans although it does increase contribution costs.

• When negotiating the sale of a business it is important to remember that the capital gains exemption from Canadian income tax is only available on the sale of shares, not on the sale of assets.

• CRA (the Canadian income tax department) has the right to serve third party demands, without a court order, on debtors or potential debtors of a taxpayer who owes money to CRA.  If you receive such a third party demand you must make payments directly to CRA, and not to your creditor.

• Effective after 2003 and for future taxation years, a preferential manufacturing and processing (M & P) tax rate is no longer available federally and is available provincially only in Ontario, Saskatchewan, Newfoundland and Labrador, Prince Edward Island, and Yukon.

• In the case of Perring the Ontario Court of Appeal held that RRSPs do not form part of the estate of a deceased  but instead devolve directly to the designated beneficiary and that a creditor has no recourse to repayment from the RRSP proceeds in the designated beneficiary’s hands when the estate cannot pay its debts. There has been a divergence of judicial opinion on the issue between Ontario and other provinces. RRSPs in Ontario are now treated in the same way as the proceeds of a life insurance policy, that is to say they both devolve directly to the designated beneficiary, not via the estate, and are thereby beyond the reach of creditors.

• In order for a corporation to claim a deduction for a bonus paid to an employee, or a shareholder, it must validly document the bonus.  Once it does so it is required to withhold and remit source deductions.

• The Federal Court of Appeal ruled in the case of Allchin v. H.M.Q. that a Canadian citizen with a US Green Card who lived in Canada and worked in the US and filed tax returns in the US on her worldwide income might be a dual resident and be subject to the residence provisions of the Canada-US Income Tax Treaty.

•  In the Tax Court of Canada decision of Baker et al v The Queen 2004 TCC 375 the judge ruled that employees who work four hours per day, five days per week were not engaged in full- time employment, and that as a result their corporate employer did not carry on an active business for Canadian Income Taxion purposes.

• The Supreme Court of Canada has established the standard of review to be applied by Appellate Courts in reviewing decisions of the Tax Court of Canada. For questions of law, the standard is correctness while for findings of fact, inferences or conclusions of fact and conclusions of mixed fact and law, the standard is palpable and overriding error. There is, however, an exception in regard to conclusions of mixed fact and law. If a clear legal error can be isolated from the facts, the error will be reviewed on a correctness standard.

• To accommodate valuation-related issues on proposed transactions, the CRA (the Canadian income tax department)  plans to provide a new valuation service and has issued an exposure draft.

• If you are called upon to honor an arm’s length guarantee given to a private Canadian corporation that carries out an active business, you may be able to claim an Allowable Business Investment Loss (ABIL) for Canadian income tax purposes.

• Ontario has released a new budget. For details go to Ontario Ministry of Finance

• In the recent Tax Court of Canada case of Burleigh (2004 TCC 197), the TCC said that an individual’s loss that was not reported in his income tax return in the year incurred was deductible in a later year. Therefore an individual is entitled to a loss deduction for a previously unreported loss, subject to carryover time limitations.

• Draft technical amendments to the Income Tax Act, released on February 27, 2004 provide CRA (the Canadian Income Tax department) with the ability to reallocate amounts to a non-competition or other restrictive covenant. Last fall, the Department of Finance released proposals whereby non-competition and other restrictive covenants could be fully taxable, thus reversing the former tax advantage, based on case law, which was available in certain circumstances.

• The deadline for filing personal Canadian income tax returns is April 30.  If you have a balance owing and fail to file you will be charged a late filing penalty, so you should file your return by the due date even if you are unable to pay the balance owing.

• Child support payments made pursuant to an agreement entered into after April 30, 1997 are not deductible by the payor or taxable to the recipient for Canadian income tax purposes. Consider consulting a Canadian tax law firm for assistance.

• In the recent Federal Court Trial Division case of MNR v. HSBC BANK OF CANADA 2004 FC 467 the court held that CRA (the Canadian income tax department) had priority over the interest of a secured creditor that realized on its security at the time that a tax debtor owed source deductions.

• Draft technical amendments to the Income Tax Act, released on February 27, 2004  provide CRA (the Canadian Income Tax department) with the ability to reallocate amounts to a non-competition or other restrictive covenant. Last fall, the Department of Finance released proposals whereby non-competition and other restrictive covenants could be fully taxable, thus reversing the former tax advantage, based on case law, that was available in certain circumstances.

• The 2004 Federal Budget was released today. For details go to Finance Canada February 23, 2004.

• In Gifford v The Queen 2004 SCC 15 the Supreme Court of Canada ruled that in circumstances where interest is not a payment “on account of capital”, it may be deducted as long as it meets the other requirements for deductibility set out in the Canadian Income Tax Act and the deduction is not precluded by some other section of the Act.

• There appears to be a new CRA (the Canadian income tax department) administrative policy with respect to the voluntary disclosure program, relating to ‘‘No Name’’ disclosures. A No Name disclosure is not a valid disclosure until such time as the taxpayer is named. If a No Name disclosure is made and an enforcement action is taken before the taxpayer’s name is disclosed to the CRA, the disclosure will not be treated as a voluntary disclosure, even if the person’s name is disclosed within 90 days of the filing of the No Name disclosure.

• As a result of the changes to the rules relating to taxable automobile benefits, the Canada Revenue Agency (the Canadian income tax department) has indicated that they will become more stringent in requiring automobile logs to document business versus personal use of automobiles.

• The recent Klotz decision was the first determination by the Tax Court of Canada of a case involving an art donation tax shelter.  The Court found in favour of the taxpayer that the art work acquired and then donated to a charity was personal use property, and that penalties were not appropriate.  The Court found in favour of CCRA (the Canadian income tax department) on the issue of valuation, rejecting the valuation of the taxpayer’s art appraiser and limiting the donation amount to the actual cash spent.

•  In the case of Boucher v. The Queen, 2004 FCA 46, the Federal Court of Appeal held that penalties can be applied for unreported income even if the unreported income is offset by losses of previous years.

• In the case of Boucher v. The Queen, 2004 FCA 47, the Federal Court of Appeal held that disputes regarding whether source deductions were withheld on behalf of a taxpayer need to be adjudicated in the Federal Court of Canada rather than the Tax Court.

• On December 12, 2003, the Canada Customs and Revenue Agency (CCRA) (the Canadian tax authority) became the Canada Revenue Agency (CRA). However, until it’s officially modified by an act of Parliament, CCRA remains the only name that can be used on documents of a legal or contractual nature.

• In Airport Auto (2003 GTC 899-105), CCRA (the Canadian Income Tax Agency) attempted to force a purchaser to pay GST again after the vendor did not remit the tax. The court dismissed CCRA’s argument and held that, based on simple agency law, the payment of the tax to a vendor as the Crown’s agent extinguishes the payer’s liability to pay the tax in the absence of fraud or collusion or explicit statutory language to the contrary; any other outcome would be “ludicrous.”

• Certain extended cab pick-up trucks and SUV’s may not be subject to the Canadian income tax rules limiting capital cost allowance (tax depreciation) or to the employee benefit rules.

• If you dispose of capital assets and provide financing to the purchaser, you are entitled to a reasonable reserve for Canadian Income Tax purposes in computing your capital gain.  The maximum amount of the reserve is 20%, meaning the capital gain has to be recognized over 5 years.

• The merger of an existing operating corporation with a shell corporation is sometimes undertaken solely for the purpose of triggering a new year end.  CCRA (the Canadian income tax department) views this type of transaction to be a misuse of the Act and the general anti-avoidance rule (GAAR) would apply.

• On December 5, 2003 the Minister of Finance made a press release with respect to Canadian income tax shelters.  The press release is available at http://www.fin.gc.ca/news03/03-061e.html.  If you enter into a tax shelter transaction after December 5, 2003 6:00 PM EST make sure that the shelter has not been adversely affected by the new rules.

• Tax shelters are transactions structured in such a way as to provide a tax benefit in excess of the cash investment. For the first time in 2003 there is a tax shelter that has insurance from Lloyd’s that will pay any taxes, interest or penalties arising as a result of a reassessment by CCRA (the Canadian income tax department).

• A private Canadian corporation that has at least 50% Canadian shareholders is entitled to a lower rate of taxation on its active income of up to $200,000. If non-residents of Canada own more than 50% of the shares the corporation loses its entitlement to this lower rate of tax.

• If CCRA (the Canadian income tax department) serves you with a formal written demand for information or returns you must comply or risk prosecution under the Income Tax Act.

• A business owner who pays service providers as independent contractors rather than as employees runs the risk of being assessed for penalties and interest if CCRA (the Canadian income tax department) finds that the individuals were in fact employees.

• After a Canadian taxpayer has filed a Notice of Objection an Appeals Officer is assigned to the file. The Appeals Officer is mandated to look at the file from an objective point of view to try to come to a fair (in accordance with the Income Tax Act) resolution of the dispute.

• Once CCRA (the tax department) commences a criminal investigation of a taxpayer they must act in accordance with the Canadian Charter of Rights and Freedoms.

• It is important to consider income taxation when creating a will to ensure that you properly allocate your estate among your beneficiaries on a post tax basis.

• If you have missed the deadline to file a Notice of Objection to a Canadian Income Tax assessment you can apply for an extension of time. However there are strict time limits for the application and there must have been a valid reason to have missed the deadline. We are  Toronto, Ontario tax lawyers but can assist in any Canadian province.

• If you have made a mistake in filing your Canadian income tax return you should file a Notice of Objection, if you are within the allowable time period, to protect your rights. We are  Toronto, Ontario taxation lawyers but can assist in any Canadian province.

• In certain limited cases when you wind up a subsidiary into a parent, for Canadian income tax purposes you can receive an increase, or bump, in the cost base of the shares of the parent.

• American citizens with Canadian Registered Retirement Savings Plans (RRSP) who have not elected under the Canada - US Income Tax Treaty to defer tax on income earned by the RRSP have until October 15, 2003 to file an amended US return with the IRS claiming the treaty exemption.

• The reimbursement of legal fees incurred to establish a right to a retiring allowance or salary in lieu of notice is included in income but there is a corresponding deduction.

• The Ontario Ministry of Finance has recently issued a ruling that subscription fees paid for the right to access certain online databases are not subject to retail sales tax. An application for a refund of taxes paid can be submitted. The policy of CCRA (the Canadian income tax department) is that pre-judgment interest on an award of damages for wrongful dismissal is not taxable.

• If you have not filed Canadian income tax returns for a number of years there is no reason to be worried about severe penalties. CCRA (the Canadian income tax department) has a policy designed to encourage taxpayers to come forward and make a voluntary disclosure about unfilled tax returns, known as voluntary disclosure or tax amnesty. They will not charge any penalties, just the normal interest due. We are  Toronto, Ontario, Canada income tax lawyers who have assisted numerous taxpayers with voluntary disclosures, and can assist in any Canadian province.

•  A taxpayer who suffers from severe physical or mental impairment is entitled to a tax credit for Canadian income tax. A form T2201 must be filled out by a physician and submitted to the tax department.

• CCRA (the Canadian income tax department) has released a proposed guidelines dealing with charities and political activities. The guidelines can be viewed and commented on at the CCRA charities web site .

• CCRA (the Canadian income tax department) is aggressively auditing taxpayers who purchase art at a discounted wholesale price and soon afterwards donate it to a charity at an increased retail value.

• If CCRA (the Canadian income tax department) believes that a taxpayer may dispose of assets and it may not be able to collect amounts owing to it, it can apply to a court without notice to the taxpayer for a “jeopardy order” allowing it to take collection action at the same time as it issues an assessment.

• The Federal Court of Appeal has stated in the June 2003 Benoit decision that denied exemption from all taxation to certain native groups based on a treaty exemption that native oral histories must be given proper weight in evaluating them as evidence.

• June 15 is the deadline to file Canadian personal income tax returns for individuals with self employment income.

• If you fail to keep proper books and records CCRA (the Canadian income tax department) may do a net worth assessment, which looks at the increase in your assets over time and assesses income tax on that increase.   We are  Canadian  taxation lawyers with experience in handling net worth assessments, and can assist in any Canadian province.

• The Province of Ontario is in the midst of a crackdown on Ontario corporations that have not filed corporate income tax returns or exempt from filing declarations. Failure to respond, even where there are no taxes owing, may result in penalties including revocation of the corporate charter.

• CCRA (the Canadian income tax department) has extensive powers of enforcement to ensure that taxpayers comply with the Income Tax Act. These include the power to inspect and the power to require a person to produce information or documents.

• Tax planning is an ongoing process. Having just filed your 2002 Canadian income tax returns, now is the time to start planning for 2003.

• If you are grossly negligent in failing to report income on your Canadian income tax return you can be assessed a penalty equal to 50% of the tax owing.

• April 30 is the deadline for individual taxpayers (except for those who are self employed) to file their T1 personal Canadian income tax returns. The return should be filed even if there is an unpaid balance of taxes owing in order to avoid the late filing penalty.

• Ontario has released a new budget. For details go to Ontario Ministry of Finance

• An amalgamation is the combination of 2 or more existing corporations into one. Amalgamations can generally take place without any adverse income tax consequences.

• Canada has entered into an extensive series of Income Tax Treaties designed to prevent double taxation. If you have foreign source income be sure to review the relevant treaty.

• In the recent Manrell decision the Federal Court of Appeal confirmed that payments received for a non-competition covenant as part of the sale of shares are non-taxable. This is a confirmation of the court’s decision made in 2000 in the Fortino case.

• Investing in a labour sponsored investment fund through your RRSP will give you a 15% tax credit in Ontario, in addition to the RRSP deduction.

• The Supreme Court of Canada has just decided in the Markevich decision that CCRA can’t collect funds owing to it if has failed to take enforcement action within the times set out in provincial and federal limitation periods.

• The Supreme Court of Canada held in the Jarvis decision that where the purpose of a tax inquiry is the determination of a penal liability, CCRA auditors must warn the taxpayer in order to avoid infringing the Canadian Charter of Rights.

• The Tax Court of Canada held in a recent case that part of the cost of installing hardwood floors as required for the health of a severely asthmatic child on the advice of a physician are deductible for Canadian Income Taxation purposes.

• The latest Federal Budget was released today. for details go to Finance Canada February 18, 2003

• You can hold a maximum of 30% foreign content in your RRSP.

• As a result of the Supreme Court of Canada decision in 65302 British Columbia Limited vs. The Queen, CCRA now recognizes that most fines or penalties can be deducted (or capitalized) for Canadian income tax purposes.

• An owner/manager of a corporation will have to include as a taxable benefit for Canadian income tax purposes the personal use of corporate property and most loans received. Certain specific loans, such as housing loans, may not have to be taxed.

• Losses incurred in an RRSP cannot be deducted against other income for Canadian Income Tax purposes.

• An owner/manager of a corporation will have to include as a taxable benefit for Canadian income tax purposes the personal use of corporate property and possibly any loans received.

• CCRA (the tax department) has issued a statement allowing an employee to attend an employer provided party that is generally available to all employees as long as the cost is reasonable (up to $100 per person is their guideline) without having to report a taxable benefit for Canadian income tax purposes.

• The tax department (CCRA)’s policy is that employers are allowed to give two non-cash gifts a year to employees without the employee having to include the gifts in income for Canadian income tax purposes provided that the gifts total less than $500.

• An employee who earns sales commissions and incurs sales related expenses is permitted to deduct those expenses, including related reasonable automobile expenses, in computing income for Canadian Income Tax purposes. The employer must provide the sales rep with a completed form T2200.

• The Canadian Income Tax Act has “stop loss” rules that limit a taxpayer’s ability to claim losses in certain specific situations.

• A non-arm's length disposition of capital property such as a rental property, for example a transfer to a child, is deemed to take place at fair market value for Canadian Income Tax purposes. If you transfer property that has appreciated in value you will have to report a capital gain of fair market value less cost.

• If you appeal a Canadian income tax dispute with CCRA (the tax department) to the Tax Court of Canada and lose, a further appeal to the Federal Court of Appeal is available. We are  Toronto income tax lawyers who act on behalf of taxpayers in tax litigation.

• The Supreme Court of Canada has just determined that section 232 of the Income Tax Act, which sets out a procedure for potentially privileged client documents to be seized from a lawyer’s office, is unconstitutional.

• If separated or divorced parents have joint custody of a child, only one of them may claim the equivalent to married credit under the Canadian Income Tax Act. If they cannot agree on who will claim the exemption, neither may claim it.

• Canadian residents are required to report worldwide income from all sources for Canadian Income Tax purposes. If you fail to do this, or if you choose an offshore structure that violates the intention or spirit of the Canadian Income Tax Act, you could face a battle with the Canada Customs and Revenue Agency, and if you lose you will be subject to interest and penalties. We are  a Toronto  income tax law firm who can advise taxpayers  in any Canadian province and assist non-residents immigrating to Canada.

• You are generally entitled to receive a tax credit on your Canadian Income tax return for the amount of foreign withholding tax paid on amounts received from other countries. In effect CCRA recognizes the foreign tax that you have paid as a reduction of your Canadian income tax liability.

• The "kiddie tax" applies to certain income received by a trust from a related business where minors are beneficiaries of the trust. If a family trust is established for the benefit of a spouse or children who have reached age 18 in the year, the kiddie tax won't apply on income taxed in the hands of these beneficiaries.

• Disability insurance receipts will be free of Canadian income tax only if an employee has paid the insurance premiums personally, or if the premiums for all employees were paid by the employer, and included as a taxable benefit of each employee. If the employer pays the premiums and they are not treated as a taxable benefit for all employees, then any disability insurance benefits will be taxable to the individual recipient.

• If you disagree with the tax department' income tax assessment you need to file a Notice of Objection to protect your rights. We are  income taxation lawyers in Toronto who act on behalf of taxpayers in tax litigation including filing a Notice of Objection for individuals or corporations.

• Changing the use of a capital property from personal to business or vice versa gives rise to a deemed disposition for Canadian Income Tax purposes.

• Interest on money borrowed for investment purposes is deductible for Canadian Income Tax purposes for as long as you own the investment or a replacement investment. Once you dispose of the investment the interest ceases to be deductible.

• The latest Ontario budget has delayed scheduled income tax cuts by one year.

• If you formally appeal a Canadian Income Tax assessment by filing a Notice of Objection, CCRA (the Tax Department) is obliged to suspend collection action until the appeal is settled. No such end to collection action occurs with a GST appeal. We are an income tax law firm in Toronto, Ontario who act on behalf of taxpayers in tax litigation including filing a Notice of Objection for individuals or corporations.

• The Supreme Court of Canada has just released two cases rejecting the “Reasonable Expectation of Profit” test and confirming that tax motivated transactions are not prohibited.

• If you are leaving the country and want to determine your tax status, the Canada Customs and Revenue Agency provides form NR73 Determination of Residency Status (Leaving Canada) if you want to obtain an official determination. This is essentially a questionnaire in which you provide details of your residential ties or lack of them. To become a non-resident of Canada you must divest yourself of as many residential ties as possible. Proper pre-departure planning is essential.

• The Home Buyers’ Plan allows a first time homebuyer to withdraw up to $20,000 from an RRSP to buy or build a principal residence. The funds can be repaid over 15 years.

• Transactions in stock options are treated in the same way as stocks for Canadian income tax purposes. In most cases they will give rise to a capital gain or loss.

• As a general rule, the receipt of a stock option in a Canadian corporation will not have any Canadian income tax consequences while the exercise of the stock option will be a taxable event.

• If you earn income from your principal residence, for example from renting a room, your principal residence will still be exempt from Canadian income tax on any capital gain rising on disposition provided the income is incidental to your use of the property, you make no structural changes to the property and you don’t claim capital cost allowance (depreciation) on the property.

• All amounts that you incur as current expenses related to the business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated. If your business never earns a profit the deductions may be challenged on the basis that you have no reasonable expectation of profit.

• If you owe money to the tax department and can't pay the full amount, file your Canadian income tax return on time to avoid the late filing penalty and be sure to negotiate an acceptable payment arrangement with them so that they don't seize any of your assets. We are  Canadian taxation lawyers in Toronto who act on behalf of taxpayers in negotiating with the Canadian tax department.

• If you fail to file Canadian income tax returns the tax department may arbitrarily assess you and you have the burden of disproving the arbitrary assessment. We are  a Toronto taxation law firm who act on behalf of taxpayers in challenging the Canadian taxation department when they make arbitrary assessments..

• When buying or selling the assets of a business be sure to allocate the purchase price among the different asset types, as this will determine the values for Canadian income tax purposes.

• The Ontario Court of Appeal has confirmed in the Juliar case that the principle of rectification, obtaining a court order to retroactively correct a written agreement that does not properly record what the parties had intended, is applicable to transactions with Canadian Income Tax implications.

• If you operate a business from home you are entitled to deduct the cost of your home office for Canadian Income Tax purposes only if a separate part of your home is used to carry out the business.

• An amalgamation under the Canadian Income Tax has the effect of combining 2 or more corporations into a new corporation with no adverse tax consequences to the shareholders or the combining corporations.

• In the 1999 Canadian Income tax case of McFadyen v. The Queen, the taxpayer moved to Japan with his wife, not knowing when and if he would return. He stored his furniture and appliances in Canada and maintained two bank accounts in Canada, owned two houses which he rented out, maintained his membership with a professional association in Ontario, rented a safety deposit box, and maintained an RRSP, credit card and Ontario driver's licence. The Tax Court of Canada concluded that these ties were significant enough to make him ordinarily resident in Canada for the years in question.

• A voluntary disclosure, also known as tax amnesty or tax pardon, is a method to allow you to deal with unfilled Canadian income tax or GST returns, or unreported income, without incurring penalties or income tax evasion charges or prosecution. We are  Toronto  taxation  lawyers  with extensive voluntary disclosure experience, can assist in any Canadian province, and can meet on a confidential basis to discuss your personal or corporate situation.

• Prior to 1995, self-employed businessmen and professionals were allowed to report their income for Canadian income tax purposes on a non-calendar year basis. Starting in 1995 they have been required to report their income on a calendar year basis. Taxpayers were permitted to claim a reserve for the additional income. A decision to leave a professional practice, or close down a business, and become an employee can trigger unexpected taxes payable if part of the 1995 reserve is outstanding.

• A director can avoid liability under the Canadian Income Tax Act if he can demonstrate that he exercised the degree or care, diligence and skill necessary to prevent the failure to deduct, withhold or remit that a reasonably prudent person would have exercised in comparable circumstances.

• Starting with the 2001 tax year, same sex couples can make spousal RRSP contributions for Canadian income tax purposes and can make tax free RRSP rollovers in the same way that opposite sex couples can.

• In order to become a non-resident of Canada for Canadian income tax purposes you must sever most ties with Canada, including your residence. Proper pre-departure planning is essential to avoid future Canadian taxation.

• The Canadian Income Tax Act renders a director jointly and severally liable with his corporation for failure to deduct, withhold or remit income tax, payroll or GST amounts required, along with any related interest or penalty. Legal or accounting fees incurred to challenge a tax assessment are a deductible expense for Canadian income tax purposes.

• Assets of a business, or shares of a corporation, can be transferred on a tax deferred basis by a taxpayer to a corporation by electing under section 85 of the Canadian Income Tax Act. Failure to prepare and file the election can result in a tax liability.

• On death of a Canadian individual there is a deemed disposition of all capital property giving rise to Canadian income taxation on the capital gain. An estate freeze is a way of postponing some of the potential capital gains tax liability.actions, other than RRSP contributions, need to be completed prior to December 31, 2001.

• If you own real estate (other than a principal residence) which has gone up in value since purchase, you have an inherent capital gain that will be taxed when you dispose of the property or die. If you plan to leave the property to your children then gifting it to them before death will trigger the tax. As an alternative you can consider an estate freeze.

• A testamentary trust is entitled to the benefits of marginal tax rates when computing its Canadian income tax liability while all income of an inter-vivos trust is taxed at the top marginal income tax rate.

• Legal fees incurred in respect of a child support application are deductible for Canadian income tax purposes.

• If CCRA (the Tax Department) has challenged any Canadian income tax returns that you have filed, be sure that you keep all original documents related to the year being challenged until the matter is finally settled. In order to claim a Canadian income tax deduction for an allowable business investment loss (ABIL) for money lent to a Canadian Controlled Private Corporation (CCPC), the debt must have been established to have gone bad at the end of the year.

• The Supreme Court of Canada has recently confirmed that it has never held that the economic realities of a situation can be used to recharacterize a taxpayer's bona fide relationships. It has held that, absent a specific provision of the Income Tax Act to the contrary or a finding that they are a sham, the taxpayer's legal relationships must be respected in income tax cases.

• The recent Supreme Court of Canada decision in the income tax case of Singleton confirmed the principal that in determining whether interest is deductible, if a direct link can be drawn between the borrowed money and an eligible use, the interest expense is deductible.

• Most legal fees incurred in family law situations are not deductible for Canadian income tax purposes. The main exception is for fees incurred to enforce a maintenance order. The status of fees incurred to obtain a spousal support order is less clear.

• A corporation is a separate legal entity, so losses that it incurs can't be claimed by it's shareholders. Loans advanced to a corporation by a shareholder may be deductible as an Allowable Business Investment Loss (ABIL).

• Attribution rules don't apply to earned income on investments bought in a child's name with the Child Tax Benefit provided an account was established for the child.

• If you deliberately falsify your Canadian income tax return, or are grossly negligent in preparing it, you may be subject to a penalty of 50% of the additional tax liability.

• If you earn more than $30,000 per annum you are required to register for GST.

• If moving expenses have been incurred by a student to move from school back home either for the summer or permanently, these expenses can generally be deducted for Canadian income tax purposes by the student against income earned at the moved-to location.

• If you run a business, your spouse and children can be paid reasonable salaries which become a business expense that is deductible for Canadian income tax purposes.

• The Canadian income taxation of child support payments changed as of May 1, 1997. If you amend a written support agreement made before that date the tax treatments of payments which were deductible to the payor and taxable to the recipient can change.

• If you transfer money to a minor child earns and it earns capital gains instead of interest or dividends, the capital gain would be reported on your child's tax return, not on yours, thereby reducing the family’s overall Canadian income tax liability.

• Offshore income earned by a Canadian resident is fully taxable in Canada and must be reported for Canadian income tax purposes. Failure to do so is tax evasion.

• The use of spousal RRSPs during working years permits the higher income spouse to get the tax benefit of the RRSP income tax deduction, while incurring tax on a lower income when the amounts are withdrawn on retirement.

• If you have income which is not subject to deductions at source you may have to pay quarterly income tax installments. If you fail to pay the installments when due you will be charged interest.

• A loss realized on shares of a small business corporation or debt owed by a small business corporation may give rise to an allowable business investment loss (ABIL), 75% of which is deductible in computing your Canadian income tax liability.

• If you owe money to CCRA (Revenue Canada) and can't pay the full amount be sure to negotiate an acceptable payment arrangement with them so that they don't seize any of your assets.

• If you are the owner of a corporation and pay yourself a salary, you are not eligible for Canadian Employment Insurance as an owner-manager so you should not make any remittance when you complete your personal Income Tax return.

• If you’re incorporating your existing business you will have to carry out a tax free rollover of the assets into the corporation and elect to defer income tax under section 85 of the Canadian Income Tax Act to avoid an immediate tax liability.

• All amounts that you incur as current expenses directly related to your business are deductible for Canadian income tax purposes. Capital expenditures can be depreciated at the prescribed tax depreciation rates. If your business never earns a profit the deductions may be challenged on the basis that you have no reasonable expectation of profit.

• A car allowance is taxed as regular income for Canadian income tax purposes. If you require the car for work and your employer gives you a form T2200 you may be able to deduct travel expenses.

• Interest, dividend and most other payments made to a non-resident of Canada are subject to withholding tax under the Canadian Income Tax Act.

• Reasonable expenses for meals and entertainment incurred for the purpose of earning business income are deductible for Canadian income tax purposes. However, only 50 per cent of these costs are allowed as a deduction for tax purposes. The costs of restaurant gift certificates used for promotion are also subject to this limitation.

• If your liabilities for unpaid Canadian Income Taxes are too high for you to pay you can consider either a formal Proposal under the Bankruptcy and Insolvency Act or going bankrupt.

• When making your calculations to determine your Canadian income tax deductions for RRSP con