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WEEKLY INCOME TAX MINIMIZATION STRATEGIES FOR CANADIAN INDIVIDUALS & CORPORATIONS

Last updated  Sep 17, 2013

Income Splitting Tax Planning - Window Closing On Low Rate Loans

The federal prescribed interest rate for income tax for the fourth quarter of 

2013 will increase to 2%. As the rate is presently 1%, a tax planning 

opportunity exists provided all planning is in place prior to October 1, 2013. If 

a higher income spouse lends funds to a lower-income spouse and charges 

the prescribed interest rate throughout the period in which the loan is 

outstanding, all income and capital gains, net of the interest paid, is taxed in 

the hands of the lower income spouse. The higher income  spouse who 

made the loan would only include interest based on the prescribed interest 

rate at the time of advancing the loan. A written loan agreement should be 

entered into between the spouses which provides that the interest on the 

loan be paid no later than January 30th of each year, and the interest should 

in fact be paid.  Furthermore, any  loans that may have been entered into 

previously at a higher rate should be repaid and a new written loan 

agreement entered into.


Non-Profit Organizations

A not for profit organization is required to file an annual Canadian tax return. 

If the non-profit organization earned profit and made more than what the 

organization "reasonably needs" to operate, the organization will lose its tax-

exempt status.

CRA Targeting Middle Income Taxpayers

CRA (the Canadian Income Tax department) has recently focused on 

middle income Canadian taxpayers. CRA conducted cross-country pilot 

projects to help develop techniques for fighting  the underground economy, 

auditing , for example waitresses in St. Catharines, Ont., “curbersiders,” 

unlicensed dealers who sell used vehicles for cash in Burnaby, B.C., and 

general taxpayers in British Columbia’s Peace River region, and in northern 

British Columbia and the Yukon, pilot car drivers, who guide oversized and 

overloaded trucks on remote road, mobile first aiders, who provide 

paramedic services at job locations, and hot shot couriers who deliver time-

sensitive materials to worksites.

Electronic Suppression of Sales Software Sanctions

Electronic suppression of sales (ESS) software (also commonly known as 

“zapper” software) has been used by some businesses to hide their sales 

to evade the payment of GST/HST and income taxes. The 2013 Federal 

Budget proposes new administrative monetary penalties and criminal 

offences under the Excise Tax Act and the Income Tax Act. There are 

penalties for use, possession and manufacture or sale of ESS software as 

well as criminal offences resulting in jail.

GST/HST on Self Supply of New Home

If a commercial builder of a home rents it out or moves in or allows a family 

member to move in then GST/HST has to be paid in the same way it would 

be on the original sale of a new home.  There is an exception for someone 

building a home for themselves for personal reasons.  A voluntary 

disclosure before CRA audits will avoid penalties and may allow for an 

interest reduction. 

Revised Form T1135 for Offshore Property

CRA (the Canadian tax department) will revise Form T1135 to require 

Canadian taxpayers to provide more detailed information regarding each 

specified foreign property owned, including:

  • The name of the specific foreign institution or other entity holding funds outside of Canada;
  • The specific country to which the property relates; and
  • The foreign income generated from the property.

The revised Form T1135 will be required to be used for the 2013 and 

subsequent taxation years.

Extended Reassessment Period For Offshore Assets

The 2013 budget proposes to extend the normal reassessment period of a 

taxpayer by three years if the taxpayer has failed to report income from a 

specified foreign property on their annual income tax return, and the Form 

T1135 was not filed on time by the taxpayer, or a specified foreign property 

was not identified, or was improperly identified on the Form T1135. The 

measure will apply to the 2013 and subsequent taxation year.

Voluntary disclosure program effective

In the CRA's 2011-2012 fiscal year, the Canada Revenue Agency 

processed more than 13,600 voluntary disclosures identifying over $863 

million in previously unreported income and $310 million in federal tax. Over 

3,500 of those VDP applications were related to offshore accounts involving 

$309 million in unreported income and $72 million in federal tax.

Corporate Attribution

Corporate attribution applies where an individual has transferred or lent 

property to a corporation, if one of the main purposes of the transfer or loan 

can reasonably be considered to be to reduce the income of the transferor 

and to benefit, directly or indirectly, a minor such as a child or niece or 

nephew or a spouse who is resident in Canada.  In that case the transferor 

will be deemed to have received a deemed interest benefit equal to the fair 

market value of the property received on the transfer (shares, debt, or rights 

thereto) at the prescribed interest rate, minus any interest or dividends 

actually paid in the year to the transferor.

Basis for GAAR Assessment

The Tax Court of Canada in the case of Birchcliff Energy Ltd. v The Queen, 

(Docket: 2012-1087(IT)G) has granted a motion by the taxpayer demanding 

that the Canada Revenue Agency (CRA) disclose the tax policy that the 

CRA relied upon in reassessing the taxpayer under the general anti-

avoidance rule (GAAR) in section 245 of the Income Tax Act. This decision 

sets an important precedent and will assist taxpayers involved in GAAR 

litigation in understanding and challenging the case against them.

Gross Negligence Penalties for Unreported Income

The Tax Court of Canada has stated that gross negligence penalties cannot 

be imposed just because the amount of taxes is large. In the decision 

of THANGAVADIVELU MURUGESU v. HMQ (TCC) 2006-3767(IT)G Justice 

D'Arcy  stated, in respect of CRA’s evidence that “it appears to me that she 

based her decision to levy the gross negligence penalties primarily on the 

magnitude of the unreported income. This in my view is not a sufficient fact, 

in and of itself, to justify the imposition of the gross negligence penalties”.

Offshore Account Tax Prosecutions

The Canada Revenue Agency (CRA) said that in the six years to March 31, 

2012, its investigations have resulted in the conviction of 44 people for 

offences related to money and other assets held offshore.  Filing a voluntary 

disclosure (tax amnesty application) before being investigated by CRA will 

prevent prosecution and penalties.

Canadian Tax Filing Deadline

The due date for 2012 Canadian income tax returns (T1) is April 30, 2013, 

unless you have self employment income.  If you have not filed some tax 

returns in the past you should submit a voluntary disclosure (tax amnesty 

application) for the past years before submitting your 2012 T1.  This will 

eliminate penalties and may provide an interest reduction.

Offshore Tax Haven Names Leak

A leak of offshore financial information obtained by the International

Consortium of Investigative Journalists was based on a hard drive mailed to 

them. The data covered more than 120,000 offshore companies and private 

trusts in the Cook Islands and other offshore havens. The data originated in 

10 offshore jurisdictions, including Singapore, the British Virgin Islands (BVI) 

in the Caribbean and the Cook Islands in the Pacific. More than 400 

Canadians are included in the leaked records.  The Canada Revenue 

Agency has issued a press release urging Canadians to correct their tax 

affairs by way of a voluntary disclosure.

2013 Canadian Budget Creates Stop International Tax Evasion Program

The 2013 federal budget has set up the Stop International Tax Evasion

Program under which CRA will pay rewards of up to 15% of the federal tax

collected to individuals with knowledge of major international tax

non-compliance when they provide information to the CRA that leads to the

collection of outstanding federal taxes in excess of $100,000.  Submission of

a voluntary disclosure before reporting by a third party will prevent

prosecution and penalties.

Automobile Taxable Benefit Rate

The general prescribed rate used to determine the taxable benefit relating to

the personal portion of automobile operating expenses paid by employers will

increase to $0.27 per kilometer in 2013. For taxpayers employed principally

in selling or leasing automobiles, the prescribed rate is $0.24 per kilometre.

Income Tax Treaty Signed Between Canada and Hong Kong

In Agreement between the Government of Canada and the Government of 

the Hong Kong Special Administrative Region of the People’s Republic of 

China for the avoidance of double taxation and the prevention of fiscal 

evasion with respect to taxes on income was signed on November 11, 2012,

in Hong Kong. The Agreement limits the rate of withholding tax to 5% for 

dividends paid between companies, to 15% for dividends paid in all other 

cases, and to 10% for payments of interest and royalties. The Agreement 

also exempts from withholding tax certain payments of interest.

Deduction of Travel Costs as Medical Expense

The Tax Court of Canada in the case of Jordan v. The Queen has ruled that 

a husband who spent several months travelling 120 kilometres almost every

day to help his wife, is entitled to deduct the cost of that travel. The case

involved a taxpayer in Weyburn, Saskatchewan whose wife suffered a brain

aneurysm and had to be moved to a hospital and then long-term care facility

in Regina. The husband travelled almost daily to assist in her recovery,

taking The judge remarked that: "The evidence in this case leaves no doubt

that Ms. Jordan was required to receive medical treatment in Regina for a

protracted length of time and that Mr. Jordan's daily presence contributed

significantly to her recovery.  The Income Tax Act (s. 118.2 (2) (h)) provides

that medical expenses may be claimed for travel expenses for one person to

aid in the recovery of a spouse.”

Automobile Allowances

The limit under the Canadian Income Tax Act on tax-exempt car allowances

paid by employers to employees will increase to $0.54 per kilometre for the

first 5,000 kilometres driven and $0.48 for each additional kilometre as of Jan

1, 2013.

Automobile Taxable Benefit Rate

The general prescribed rate used to determine the taxable benefit relating to

the personal portion of automobile operating expenses paid by employers will

increase to $0.27 per kilometre. For taxpayers employed principally in selling

or leasing automobiles, the prescribed rate is $0.24 per kilometre.

Gross Negligence Penalties for Unreported Income

In the Tax Court of Canada decision of THANGAVADIVELU MURUGESU v.

HMQ (TCC) 2006-3767(IT)G Justice D'Arcy  stated, in respect of CRA’s

evidence that “it appears to me that she based her decision to levy the gross

negligence penalties primarily on the magnitude of the unreported income.

This in my view is not a sufficient fact, in and of itself, to justify the imposition

of the gross negligence penalties.”

Tax Free Savings Account Contribution Limit Increased

As of Jan 1, 2013 the annual contribution limit to the Canadian Tax Free
 

Savings Account (TFSA) has increased from $5,000 to $5,500. 

OFFSHORE BANK ACCOUNTS

Standard Chartered Trust Company in Jersey (Channel Islands) has been

advising its clients that they have to report addresses and social insurance

numbers of Canadian taxpayers.  A voluntary disclosure (tax amnesty

application) can avoid penalties and prosecution and may result in a

reduction of interest

Employer Paid Accidental Death and Dismemberment Insurance and Critical Illness Premiums Now Taxable Benefit

Premiums paid by employers for Accidental Death and Dismemberment (AD&D) insurance and Critical Illness (CI) Insurance that are presently non-taxable benefits to the employee become a taxable benefit as of January 1, 2013 and are to be included in the employee's income for the year in which the premiums are paid.

IRS Pays $38 million to whistleblower

The US Internal Revenue Service has awarded an anonymous whistleblower $38 million for information leading to the recovery of between $127 million and $254 million in corporate taxes, The program awards between 15% and 30% of the taxes recovered by the IRS.

Mandatory e-filing for Tax Preparers

Starting with the 2012 tax year all Canadian tax preparers will have to e-file returns for their clients or face a fine.

Evidence in Tax Court

In Newmont Canada Corporation v. Canada the Federal Court of Appeal reversed the decision of the Tax Court of Canada disallowing interest expense. The Federal Court ruled that there was no evidence on which to impugn the witness’ evidence, so that the Judge committed a reviewable error in rejecting the evidence for the reasons that he gave. The general rule is that once a taxpayer’s tax lawyer has presented a prima facie case rebutting the CRA’s assumptions, CRA cannot succeed without adducing additional evidence or otherwise undermining that prima facie taxpayer case.

Purchase of Luxury goods for Children Deductible as Salary

The Tax Court in Bruno v. The Queen allowed the taxpayer to deduct as salary paid to her children luxury goods purchased on behalf of the children. Her tax lawyer presented evidence of the work and hours of the children. However only 50% of the amounts claimed were allowed because the taxpayer did not have proper records of the purchases.

Cost Award in Tax Court

In the Tax Court of Canada case of Dickie v The Queen 2008-2808(IT)G the court awarded the taxpayer 60% of its costs paid to its Canadian tax lawyer because CRA did not concede an issue that had been decided by the Supreme Court of Canada thereby lengthening the trial and causing additional costs to the taxpayer.

Native income earned on reserve

The Tax Court of Canada ruled in Dickie v The Queen2008-2808(IT)G that a business run by a status Indian on a reserve is exempt from taxation by virtue of paragraph 87(1)(b) of the Indian Act and paragraph 81(1)(a) of theIncome Tax Act even though the services provided by the business were provided to non-natives off reserve.

No Attribution on Fair Market Value purchase by trust

The Federal Court of Appeal decision in The Queen v Sommerer 2012 FCA 207 establishes the principle that the attribution rules in subsection 75(2) of the Canadian Income Tax Act do not apply where the trust has acquired property for fair market value.

Leveraged Donation Decision

The Tax Court of Canada in KATHRYN KOSSOW v. HER MAJESTY THE QUEEN, 2012TCC325 affirmed the decision of Marechaux that an interest free loan to make a donation is a benefit that vititates the donation, so that no tax credit is available.

Canadians with US Gambling Income

Canadians who win money in a US casino are subject to a 30% withholding tax, unless the winnings are from Blackjack, Baccarat, Craps, Roulette, or Big-6 Wheel They can file a US non resident return, 1040NR, and deduct any gambling losses incurred, to obtain a refund of some of those withheld taxes.

New Rules for Deducting Farm Losses

In The Queen v. Craig, 2012 SCC 43, decided in August 2012, the Supreme Court of Canada (SCC) overruled its previous decision inMoldowan v. The Queen that has established the rules for deducting farm losses for the past 35 years. The Court ruled that subsection 31(1) of the Canadian Income Tax Act requires an analysis of the capital invested in farming and a second source of income, the income from each of the sources, the time spent on the two sources and the taxpayer’s ordinary mode of living, farming history, and future intentions and expectations. If these factors show that the taxpayer places significant emphasis on both farming and non-farming, such a combination can constitute a chief source of income and avoid the application of the loss deduction limitation of 31(1).

Reporting Tax Fraud

CRA, the Canadian income tax agency, has a policy of investigating any tips about tax fraud or unreported income. If you have knowledge of tax evasion and wish to report it contact the Investigation Division of the Canada Revenue Agency.

Shareholder Loans to Students

Corporations can give loans to the students who must include the loans in income (if there are no bona fide repayment terms, the loan is included in income in the year it occurs). Repaying the loan in later years generates a deduction in that year.

INTEREST PAID TO STATUS INDIANS

The Supreme Court of Canada recently ruled on two cases dealing with the taxation of interest income earned by Status Indians from financial institutions located on reserves. In Bastien Estate v. Canada(2011 SCC 38) and Dubé v. Canada (2011 SCC 39) the Supreme Court ruled that interest income was “personal property of an Indian situated on a reserve.” Under section 87 of the Indian Act, “personal property of an Indian situated on a reserve” is exempt from taxation.

The deductibility of interest paid to an RRSP

CRA has provided a ruling confirming that interest paid on money borrowed from an RRSP to repay money previously borrowed from an arm’s length bank to finance the purchase of rental properties would be deductible to the taxpayer as long as the rental properties continue to be held by the taxpayer for the purpose of earning income from a business or property.


IRS announces new simple offshore amnesty

The U.S. Internal Revenue Service (IRS) announced details of a new tax amnesty program for non-US residents that will cancel possible penalties for certain “low compliance risk” US taxpayers who voluntarily report to the IRS. It is applicable to US citizens who live in Canada or in other countries. US individuals must submit three years of back tax returns, six years of bank reporting forms ( Report of Foreign Bank and Financial Accounts, or FBARs) and a signed letter explaining why they haven’t filed. It applies to individuals who have “simple” returns and owe less than $1,500 a year in taxes, based on the past three tax years. There are also special “streamlined” procedures for reporting certain foreign retirement accountant, including specifically Canadian Registered Retirement Savings Accounts (RRSPs). Individuals will be allowed to retroactively elect to defer income in those accounts.

Changes to Health Spending Accounts (HSA)

Canada Revenue Agency recently announced that it will be changing its administrative policy that permits employees to redirect a portion of their bonus to acquire additional flex credits in an HSA. As of 2013, CRA will consider the allocation of a bonus to an employee’s HSA to purchase additional flex credits to be an “allocation of forgone cash remuneration” and, therefore, the amount so allocated should be taxed in the year as employment income.

Self employed tax return filing deadline

The deadline for Canadian with self employment income to file their returns is June 15. If you do not file by that date you will incur late filing penalties.

Canadian Charity Fined

CRA, the Canadian tax department, fined 2 Canadian registered charities, The Richmond Hill Hindu Temple and the Hindu Mission of Mississauga over funds they sent to non-qualified donees. A total of $440,000 in penalties were levied for funds paid to the Tamils Rehabilitation Organization, described as part of the support network of the Liberation Tigers of Tamil Eelam.

Shareholder Loans

Shareholders often try to offset amounts owing to them in one account with balances due from them in other accounts. The courts have been very consistent in requiring corporate resolutions to net balances in different accounts and rejecting journal entry adjustments put through by accountants when not supported by resolutions or other documentation.

Jail Sentence for Tax Evasion and Counselling Fraud

Russell Anthony Porisky was convicted of evading paying more than $200,000 in income taxes and counselled hundreds of others to do the same and was sentenced to 4½ years in prison.

He was convicted in January of operating a school called Paradigm Education, which counselled its students to be tax cheats by not filing tax returns.

He was found guilty of income-tax evasion, failing to collect goods and services taxes and counselling to commit fraud.

Porisky told the judge he hadn't paid any taxes because he believed in a scheme under which a citizen can avoid paying taxes if they declare themselves to be "natural persons." This scheme has been repeatedly rejected by the courts.

CRA to stand behind advice to business

Canada’s new Revenue Minister, Gail Shea said that in future, when the Canada Revenue Agency gives a business written advice, it will honour that information even if it turns out to be wrong.

And businesses that register for on-line accounts with the CRA will have a right to expect answers to their questions in writing. The main condition appears to be that the new rules will apply only if the business making the inquiry has provided the CRA staff person making the response with all the relevant information.

Rectification Order

In McPeake v. Canada (2012 BCSC 132), the taxpayer was reassessed by the CRA based on a trust deed that was incorrectly drafted without consideration of the attribution rule in subsection 75(2) of the Canadian Income Tax Act. The taxpayer was able to correct this problem by obtaining a rectification order from the BC court. The scope of the order was broader than a mere correction of inadvertent drafting mistakes; consequently, the case may have expanded the scope of rectification to cover corrections of tax-planning errors. The CRA has not appealed the decision.

CRA non-filer program

The CRA program that finds "non-filers" and "non-registrants" employs 700 of the CRA's 39,000 employees. The program's budget is $39 million – less than one per cent of the CRA's overall $4.5-billion budget.

E-file T1 Personal income tax returns

Electronically filed returns are generally quicker and easier to prepare and are less prone to arithmetic errors. The processing time of e-filed returns is substantially shorter than paper returns. If you are getting a tax refund, you can expect it within two weeks if you file electronically (as opposed to six to eight weeks for a paper return).

CRA Search Warrants

In R. v. Porisky, a case where the accused were de-taxers who made arguments about "natural persons" not having to pay tax, the Court held that the CRA's practice to use s. 487 of the Criminal Code to obtain search warrants in tax evasion investigations, rather than Income Tax Act s. 231.3 and Excise Tax Act s. 290, which give taxpayers somewhat more protection, is permitted. Failing to use search warrants authorized under taxation statutes does not constitute a breach of Charter section 8 which provides for freedom from unreasonable search and seizure.


T1135 Late Filing Penalties

The Tax Court of Canada applied a rare case of judge-made due diligence defence in vacating a late filing penalty under subsection 162(7) with respect to a T1135 foreign asset declaration in the case of Douglas v The Queen 2012 TCC 73. Mr. Douglas owed no tax so he late filed his T1 return along with his T1135. CRA imposed the maximum penalty of $2,500 for the late filed T1135. The judge found that the taxpayer he was diligent in his compliance efforts and he acted reasonably, and competently.

Automobile Expenses

An employee who uses his car for work related duties can deduct car expenses incurred if they are not reimbursed, or if he receives a taxable car allowance.

Income Tax Reassessment within 10 years

The Canada Revenue Agency (CRA) has the ability to reassess a taxpayer within 10 years if the taxpayer consents under subsection 152(4.2) of the Income Tax Act.

TAX PROTESTER JAILED

Manitoba chiropractor Rosalie Chobotar was sentenced to six months in jail plus a $162,513 fine, equal to 100% of the taxes not paid. She took the position that she did not have to pay income tax on earnings.

No tax on proceeds from Ponzi scheme

In Johnson (2011 TCC 540, released November 24, 2011), the TCC concluded that gains realized by an investor in a Ponzi scheme were not taxable because there was no source of income. As a result, the taxpayer did not have to pay tax on almost one-half of her profit from another's crime.

Supreme Court Upholds GAAR Decision in Copthorne Transaction

The Supreme Court of Canada (SCC) affirmed that the general anti-avoidance rule (GAAR) applies to the series of transactions undertaken by the taxpayer and related parties, the result of which preserved $67 million of paid up capital (PUC). The court held that there was a tax benefit in this case since had the amalgamation been a vertical amalgamation the PUC of the shares would have been cancelled. And that the sale of shares undertaken as part of the series of transactions was not primarily undertaken for a bona fide non-tax purpose.

Canada Pension Plan changes

As of January 1, 2012 people between the ages of 60 and 65 who currently collect CPP benefits will have to resume contributions to the Canada Pension Plan if they continue to earn employment income. Employers will be required to withhold and match CPP contributions from these employees. Self-employed individuals will be assessed CPP as part of their annual personal income tax filings.

IRS guidelines for non-US residents

The US Internal Revenue Service issued guidance on December 13th, 2011, for those US persons (US citizens and green card holders) living outside the US who are not in full compliance with their US tax and foreign bank account (FBAR) filings. US taxpayers who owe no US tax will not be subject to tax return penalties. However FBAR penalties may be waived only in the case of a violation that the IRS determines was due to reasonable cause.

Cruise Ship Employees

Canadian citizens who live and work on cruise ships may still be fully taxable in Canada especially if they are not resident in another country. By filing a voluntary disclosure (tax amnesty application) Canadian cruise ship employees can avoid penalties and often obtain an interest reduction.

Canadian Snowbird Taxation

If you spend the winter in the US you may be required to file a US tax return and to pay US tax. The details of possible US taxation depends on whether you are a resident alien or non-resident alien for US tax purposes. A resident alien normally pays US tax on worldwide income. Non-resident aliens pay US tax only on US source income (subject to exceptions under the Canada-US tax treaty). State and city income taxes may be payable as well.

To be considered a resident alien, you must meet the substantial presence test which can be met in any given year if you were in the US for more than 183 days in the year or if you were in the US for more than 31 days in the current year and the total number of days spent in the US in the current year and in the two immediately preceding years total at least 183 days.

Conviction Upheld

The Ontario Court of Appeal upheld the conviction in Jack Klundert, v. Her Majesty the Queen, 2011 ONCA 646 but varied the sentence. The defendant was convicted of tax evasion for not declaring his income on the belief that was unconstitutional for the federal government to impose and collect income tax.

VDP to apply Bozzer Decision

We have just been advised by CRA officials that the voluntary disclosure program will now apply the decision in Bozzer v The Queen et al, 2011 FCA 186 to provide interest relief for the 10 year period immediately preceding the VD application regardless of the year in which the tax debt arose. This is a change from their previous policy of providing no interest relief for liabilities arising for the time period more than 10 years prior to the VD application. In other words a liability for 2001or older will now be eligible for interest relief for the most recent 10 years.

IRS Reporting about US Citizens Resident in Canada

Starting in 2013, the IRS will require foreign financial institutions, including Canadian banks, brokers, insurers to disclose all accounts held by U.S. citizens and green-card holders. Banks and customers who fail to provide the information are exposed to penalties on all of their U.S. income. Canadian residents with unreported assets or income should consider making a voluntary disclosure to avoid penalties and prosecution.

AVOIDING PROBATE ON RRSP

An RSP can be transferred directly by way of a beneficiary designation clause in your plan application form. This allows the assets in your RSP to bypass your estate and be paid directly to the named beneficiary. The main advantage of utilizing the beneficiary designation is that probate taxes are avoided (in provinces where the tax applies) on the transfer of your RSP assets.

RRSP Taxation on Death

If the designated beneficiary of your RSP is your surviving spouse or common law partner, then the RSP funds received by the surviving Partner qualifies as a "refund of premium", which is eligible for special tax treatment. The surviving Partner can transfer the refund of premium to an RSP or RIF in his or her own name thereby continuing the tax deferral.

Deductible Legal Fees by Canadian Employees

The decision of the Tax Court of Canada in Chagnon v The Queen, 2011 TCC 268 confirms that paragraph 8(1)(b) should be interpreted as extending to legal expenses incurred by an employee in order to retain salary already paid when that employee is faced with litigation seeking to reclaim such amount.

Donative Intent for Gifts

On July 26, 2011 the Ontario Court of Appeal released reasons in McNamee v. McNamee, [2011 ONCA 533]. The Court ruled that a transfer of property by way of gift may be motivated by commercial purposes provided the transfer is gratuitous. It also clarified that in assessing whether a transfer is gratuitous the test is whether the donee provided consideration, not whether the donor received a benefit. The third issue was the requirement that a donee accept the gift, and the court said that while acceptance of a gift requires a general understanding of the transaction it did not, on the facts of the case, require Mr. McNamee to understand the precise terms and conditions attached to his gift. Finally, the Court also said, in obiter, that if the transfer was not a valid gift, it would not have been a valid transfer of any sort and the shares would have remained in the hands of the transferor.

Fiscal Arbitrators Reassessments

We are representing a number of Canadian taxpayers have been reassessed by CRA for losses or expenses carried back to prior years pursuant to a tax refund strategy suggested by Fiscal Arbitrators. These loss carrybacks do not appear to have been valid and taxpayers are being charged gross negligence penalties and interest.

CRA Obtains Order for Municipal Records

The Canada Revenue Agency, CRA, obtained a court order requiring municipalities in Quebec to provide records of all municipal contracts awarded. They will then audit recipients of funds to ensure that all revenue has been reported. Any person or corporation who has not reported all of their income can file a voluntary disclosure (tax amnesty application) prior to being investigated by CRA. This will avoid prosecution and penalties.

Canadian Corporate Income Tax Filings

As of tax years ending after 2009 most corporations with gross revenues in excess of $1 million will be required to efile their federal T2 income tax returns.

SPOUSAL RRSP

Withdrawals from a spousal RSP are subject to the three year attribution rule. If, at the time the plan holder / annuitant withdraws funds from a spousal plan, there has been a contribution by their spouse or common-law partner ("Partner") to any of the annuitant's spousal plan(s) in the year of withdrawal or the previous two calendar years, it is the contributing Partner, and not the annuitant, who will be taxed on the withdrawal, up to the amount contributed to all spousal plans within that three-year period.

Credit Suisse Employees charged

In late February 2011 a US federal grand jury in Virginia charged four bank wealth advisors who had been with Credit Suisse (1 of whom is still there) with aiding and abetting US citizens to dodge taxes. It is alleged that the bankers created thousands of offshore accounts with a combined value of $3 billion.

Tax Assessments

Canadian taxpayers will soon receive notices of Assessment for their 2010 income tax filings. If there is a problem with the assessment it is important to file a Notice of Objection within 90 days to challenge the assessment. Otherwise CRA may take collection action.

Enforcement Action for Purposes of Voluntary Disclosure

The Federal Court in Amour International Mines D'Or Ltée v The Attorney General of Canada, 2010 FC 1070 noted that an internal entry of the CRA stating an intention to audit a transaction is not an enforcement measure against the taxpayer.

2011 Canadian Federal Budget

The Honourable James Flaherty, PC., M.P., Minister of Finance released the budget today.  It is available at http://www.budget.gc.ca/2011/home-accueil-eng.html.

IRS Voluntary Disclosure Initiative

The US Internal Revenue Service recently announced its 2011 Offshore Voluntary Disclosure Initiative (OVDI) designed to allow U.S. taxpayers with undisclosed income from offshore accounts or entities one more opportunity to become current with their tax obligations. The deadline to come into full compliance with the OVDI is August 31, 2011.

IRS TO PROSECUTE OFFSHORE BANK ACCOUNT HOLDERS

According to Internal Revenue Service officials, every single UBS client who concealed account data is prone to criminal prosecution, repayments and penalties. In case the suspects previously obtained leniency as per the Voluntary Disclosure Practice initiated by the Internal Revenue Service in 2009 when nearly 15,000 Americans came forward, it means that they will avoid charges.

Appeal Court VDP Decision for Taxpayers

The Federal Court found for the taxpayer in Amour International Mines D'Or Ltée v The Attorney General of Canada, 2010 FC 1070. The taxpayer submitted a Canadian voluntary disclosure after realizing that it failed to remit Part XIII tax withholdings on dividends paid to non-residents. The CRA rejected the VDP application on the basis that it was not voluntary since the tax authorities had already taken steps internally to start a tax audit, and had made an information request to a third party who was an indirect shareholder of the taxpayer. The Federal Court found for the taxpayer on the basis that the CRA had not established the relationship between the information requested from the third party and the subject of the voluntary disclosure.

Registered Disability Savings Plan

The Registered Disability Savings Plan (RDSP) is intended to assist eligible Canadians with disabilities in saving for their long-term financial security. The government will contribute to the RDSP in the form of the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) for a total annual benefit of up to $4,500.

CRA does not use e-mail

CRA (The Canada Revenue Agency) does not communicate with Canadian taxpayers by e-mail. If you receive an e-mail purporting to be from CRA it is a spoof and is attempting to obtain confidential information or to plant malicious software on your computer. Delete it without opening any attachments.

Inter-Vivos Trust Audits

The CRA plans to audit inter vivos trusts. Their main targets are trusts established to facilitate income-splitting with lower income spouses and children. The CRA will primarily focus on three issues

  1. Has the trust issued promissory notes to beneficiaries? Trust beneficiaries are frequently paid through the issuance of a promissory note. In certain circumstances, these notes may be viewed as being legally unenforceable, which could result in unintended and adverse tax consequences for the trust and/or beneficiaries.
  2. Has the trust deducted any amounts withdrawn by trustees for their own use? The CRA may challenge the deduction to the trust or assess a taxable benefit to the trustees (usually the parents).

Are proper accounting records, trustee minutes and the original settlement property readily available? The CRA may disallow expenses or beneficiary allocations that cannot be supported.

GST OR HST TO BE CHARGED?

The rate at which to charge GST or HST is mainly governed by place of supply rule under GST/HST. According to the rules GST/HST should be applied on taxable items at the rate applicable to the place of supply of the taxable items. But, determining the place of supply differs according to the type of item sold. For instance, if a warehouse is sold in Ontario (which charges HST) to a resident of another HST province the Ontario rate would apply. In contrast, if a Newfoundlander buys digital music over the internet from a company in Ontario the rate of HST in Newfoundland would apply. However if the consumer lives in a province that only charges GST (such as Alberta) then GST is charged instead of HST.

UBS OFFSHORE BANK ACCOUNTS

The IRS recently withdrew its Miami federal court summons seeking identities of suspected U.S. tax dodgers at UBS in Sw265 Americitzerland, having receiving more than 4,000 names as required under an August 2009 agreement with UBS and the Swiss government.

 

The I.R.S. said that more than 15,000 Americans with unreported accounts at various offshore banks, some holding hundreds of millions of dollars, had come forward during a voluntary disclosure period that ended in October 2009 and an additional 3,000 with accounts at various banks had come forward since then taking the total disclosures over the period up to 20,000.

UBS avoided criminal prosecution in 2009 by paying USD 780 million, by admitting to charges that it helped Americans evade federal income taxes from 2000 to 2007 and by handing over account data on about 265 Americans.

Credit Suisse Canada Appeals Order to Release Records

In October 2010, Canada Revenue Agency auditors obtained a judicial order for Credit Suisse Canada,, to provide all of its archived records in respect of private banking offices operated in Canada until 1998. The order was based on information from a Canadian resident who told CRA auditors he was encouraged by his investment adviser to hide his savings from CRA through a Credit Suisse office in Vancouver.

 

The bank filed an application to nullify the order, arguing among other things that it is "inordinately broad." No date has yet been set for a federal court judge to hear the case.

No Change to CRA VD Policy

CRA has decided not to change its policy that all years have to be included in a Canadian voluntary disclosure.

Vehicle Expense Deduction

CRA recently announced a new policy regarding the type of records that must be kept to substantiate a deduction for vehicle expenses, or GST/HST input tax credits, where a vehicle is used partly for business and partly for personal purposes. Previously, CRA required a detailed record to be kept for each vehicle of all kilometres driven throughout the year. The new method involves establishing business use of a vehicle in a base year, then keeping detailed records for only a three-month period in each subsequent year and extrapolating the results (provided subsequent years' business usage aligns broadly with usage in the base year).

VDP Enforcement Action

In the case of Livaditis v. Canada Revenue Agency, 2010 FC 950 the Federal Court of Canada has confirmed that contact to a corporation of which an individual is a shareholder and where the contact will likely result in the information that was subsequently disclosed by the taxpayer will constitute an enforcement action that invalidates a voluntary disclosure.

GST/HST Input Tax Credits Denied

In Comtronic Computer Inc. v. The Queen following an audit, it was determined that invoices issued by five suppliers contained GST registration numbers that, while validly issued, had been issued to persons other than the suppliers in question. As a result, the taxpayer's claims for input tax credits ("ITCs"), for GST of approximately $500,000 paid to these suppliers, were denied. The taxpayer was also assessed a 6% penalty. The taxpayer's appeals to the Tax Court of Canada and the Federal Court of Appeal were denied on the basis that the requirements to claim an ITC required the use of the GST registration number assigned to the particular supplier.

Car Expense Logbook

The Canada Revenue Agency has introduced a simplified logbook for motor vehicle expense deductions. Business owners who use the logbook to record business travel for one full year can then use a three-month sample logbook to extrapolate use for the year, providing usage is within the same range (10%) of the base year.

Disability Tax Credit

The disability amount tax credit can be claimed for a Canadian resident dependent (including spouse, parent, grandparent, child, grandchild, or sibling) provided another person is not already claiming the disability amount or any other non-refundable tax credit (other than medical) for the disabled person.  A form T2201 has to be submitted for any new application.

Receipts to Support Tax Deductions

 In the Tax Court of Canada decision Rotondi v The Queen the judge accepted oral testimony and allowed the taxpayer to deduct expenses for which he did not have supporting receipts, based on the Supreme Court of Canada decision of Hickman Motors Ltd. vs. Canada, [1997] 2 S.C.R. 335.

 

Will tax planning

Multiple testamentary trusts (a trust set up in a will) can be a helpful Canadian income tax planning tool since each one is taxed as a separate taxpayer.

 

Judicial Review of Voluntary Disclosure

In the case of Poon v. Her Majesty the Queen, 2009 FC 432, our firm was able to successfully argue in the Federal Court of Canada that the denial of a voluntary disclosure due to an enforcement action was not justified.

 

Scientific Research & Experimental Development Tax Credits

The Canadian Government has mandated Export Development Canada (EDC) to begin underwriting bank loans to exporters that receive research and development tax credits through the SR&ED program. The loans will be delivered primarily through chartered banks although other lenders may also participate if they meet EDC criteria.

The loans will only be available to companies that meet three conditions: First, the company is an exporter. Second, it must expect to receive their SR&ED benefit in the form of a cash refund. Finally, the company must have a history of successful SR&ED claims over at least the last two years.

 

Tax Prosecution

In the British Columbia Provincial Court income tax evasion case of case The Queen v Loosdrecht  convictions had been entered against the appellant in respect to four counts under s. 239(1)(d) of the Income Tax Act. The total tax evaded during the 4-year period in issue was $98,211.36. The total undeclared income earned before deductions was $758,228.18. He was sentenced to new custodial time of 14 months and fines were set at 100 percent of the amount of tax evaded.

 

Charitable Donations

The federal tax credit for donations is available in two stages. A low-rate credit is available on the first $200 of donations made in the year and a high-rate credit is available on the remainder. Spouses and common-law partners can claim donations with respect to one another—therefore, it makes sense for only one spouse to claim all of the family donations. A tax saving results because the low-rate credit is only used once.

 

Swiss Bank Accounts  

Canadian Revenue Minister Jean-Pierre Blackburn recently announced 36 Canadian clients of UBS AG had contacted the Canada Revenue Agency to voluntarily disclose income they previously failed to report.

Revenue Canada, eager to clamp down on tax evasion by offshore Swiss bank account holders, has met with UBS lawyers to try to compel the bank to reveal its Canadian account holders who may have failed to report offshore income to the CRA.

GST/HST Claims in Bankruptcy  

In the case of Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny the Supreme Court of Canada held that in the case of a bankruptcy GST/QST debts rank as ordinary unsecured creditor claims

General Anti-Avoidance Rule (GAAR)

The Federal Court of Appeal has unanimously reversed the Tax Court of Canada's General Anti-Avoidance Rule decision inLehigh Cement Limited (2010 FCA 124). The FCA stressed that the burden of proof is on the Canada Revenue Agency (CRA) to establish the exemption's purpose and to establish that allowing the exemption to the taxpayer would be a misuse of that provision because it would achieve an outcome that the provision is intended to prevent or is not intended to permit. The Appeal Court noted that the taxpayer was entitled to the benefit of any doubt as to whether the transaction resulted in a misuse of the particular provision. The court concluded that the CRA cannot discharge its burden merely by asserting that the transaction was not foreseen or that it exploited a previously unnoticed legislative gap: the CRA must establish through evidence and reasoned argument that the impugned transaction's result was inconsistent with the exemption's purpose.

New Voluntary Disclosure (VD or Tax Amnesty) Rules

It appears that the Canadian tax department, CRA, is set to announce new rules limiting income inclusions for taxpayers file a VDP application to 10 years.  Note that this new policy has not yet been formally announced.  The tax amnesty program applies to Canadian taxpayers who come forward on a voluntary basis for unreported income (including offshore or internet income) or unfilled income tax returns.

Tax-free savings account (TFSA)

The government recently issued a statement confirming that, for the 2009 taxation year, it will consider waiving tax on excess contributions to a tax-free savings account (TFSA) in any case where a taxpayer genuinely misunderstood the operation of the TFSA rules.

On-line advertising revenue 

If you have a blog or website and charge for links, advertising or reviews, the income you receive is fully taxable and must be reported on your Canadian income tax returns.  The best accounting practice is to send an invoice to your customer.   If you bill more than $30,000 in any one calendar year you must register for GST/HST and charge it to your Canadian (but not foreign) customers.  

In June 2010 the Swiss Parliament approved a tax treaty with the US with respect to UBS.  The approval means that the bank can finally complete handing over to the IRS client data of suspected income tax evaders who had unreported income in offshore bank accounts.

Swiss Parliament rejected a deal to hand over data to the IRS on wealthy Americans suspected of evading income taxes on unreported offshore income with the help of the Swiss bank UBS, a move that could bring the bank a step closer to indictment in the US.

Increased late filing penalties under subsection 162(2) of the Canadian Income Tax Act are applied under the following circumstances:

1) It is the second or further time the taxpayer has failed to file a return on time;
2) The taxpayer has been assessed the late filing penalty under 162(1) for an earlier failure to file in any of the three preceding years; and
3) CRA has issued a demand to file the tax return in question under 150(2)

Eligible dividends are dividends paid from a corporation's General Rate Income Pool (GRIP). In simple terms, a corporation's GRIP is the accumulation of after-tax corporate income that has been taxed at the general corporate tax rate. Generally, this means active corporate income that is not eligible for the small business deduction (SBD) or that is in excess of the SBD (i.e., in excess of $500,000).

The March 2010 Canadian budget amended the capital gains taxation rules in a way that will especially benefit foreign venture capitalists by excluding certain shares of Canadian controlled private corporations from the definition of Taxable Canadian Property, thereby eliminating the need for section 116 clearance certificates on capital gains in these cases.

CRA (The Canada Revenue Agency) does not communicate with Canadian taxpayers by e-mail. If you receive an e-mail purporting to be from CRA it is a spoof and is attempting to obtain confidential information or to plant malicious software on your computer. Delete it without opening any attachments.

If you own shares in a foreign affiliated corporation, or made transfers or loans to a foreign trust, or received distributions from or became indebted to a foreign trust, you are required to file information forms T1141 and T1142 along with your personal T1 tax return. There are penalties for failure to file. A voluntary disclosure can be made to avoid the penalties.

The Federal Court has confirmed the requirement that a taxpayer must be aware of an enforcement action in order for the enforcement action to disqualify a voluntary disclosure (tax amnesty application). At paragraphs 25 and 26 of L’Heureux v. Canada (Attorney General) [2006] F.C.J. No. 1479, the Federal Court states that the Minister must determine whether the taxpayer was aware of the audit or enforcement action.

A testamentary trust (a trust set up in a will) has Canadian tax benefits since a testamentary trust is taxed as an individual taxpayer.

The Canada Revenue Agency (the Canadian income tax agency, "CRA") is asking a court to force RBC Dominion Securities Inc  to disclose a list of names of Canadians who may have evaded Canadian income taxes by hiding wealth in Liechtenstein by setting up foundations at LGT Treuhand in Liechtenstein that were managed through accounts at an RBCDS.  A voluntary disclosure (tax amnesty application) may  avoid prosecution in those cases.

Bradley Birkenfeld, a former Swiss banker with UBS AG is thought to be co-operating with the Canada Revenue Agency to help identify Canadians with Swiss bank accounts who may not have reported offshore income.  A voluntary disclosure (tax amnesty application) can avoid prosecution in those cases.

Ambrose Dapaah, a Canadian tax return preparer, was sentenced to more than 4 years in jail after pleading guilty to fraud for falsifying more than $21 million of Canadian charitable Donations. He owned ADD Accounting Services and was the president of CanAfrica International Foundation.

A tax structured last will and testament minimizes taxes owing on death of the testator.

When setting up an estate plan the entire estate is examined, and the last will and testament is drafted to minimize overall tax liability.  Insurance may be purchased and an estate freeze is often carried out.

The purpose of estate planning is to minimize taxes on death. A key component is often an estate freeze.

The Canada Revenue Agency (the Canadian income tax agency, "CRA") has announced that it is approaching Swiss banks for information about Canadian offshore bank account holders.  Owners of offshore accounts can avoid prosecution and penalties and often obtain an interest reduction by making a voluntary disclosure (tax amnesty application).

Payment of a bonus from a corporation is subject to source deductions.  If the corporation fails to deduct and remit taxes it will be subject to penalties and interest.

If you have an offshore bank account with UBS or any Swiss bank or in any other country and have not declared your income you can avoid prosecution and penalties and often obtain an interest reduction by making a voluntary disclosure (tax amnesty application).

 

If you miss the 90 day time period to file a Notice of Objection to a tax assessment, you have 1 year to apply for an extension of time. If you don’t you have no more appeal rights.

 

If you disagree with an income tax assessment you have 90 days to file a Notice of Objection. If you miss that deadline you have no further rights to appeal without the consent of the Canada Revenue Agency.

 

The Canada Revenue Agency (the Canadian income tax agency, "CRA") legal department issued a directive to voluntary disclosure offices that they are not to issue letters with any comfort statement regarding eligibility of taxpayers for no names voluntary disclosure. There has been no formal announcement of this policy.

 

The Canada Revenue Agency (the Canadian income tax department, "CRA") has broad powers to require the production of documents and information including the right to compel the production of “third party information” under section 231.2 of the Income Tax Act. The recent decision in eBay Canada Limited et al v MNR 2008 FCA 348 demonstrates that taxpayers are not afforded much protection under subsection 231.2(3) should the Minister of National Revenue decide to conduct an “audit project” targeted at a specific group of taxpayers, such as eBay Powersellers.

 

The Canada Revenue Agency (the Canadian income tax department, "CRA") has received details of Canadians with bank accounts in the United Kingdom including England and Northern Ireland and is investigating to see if those Canadians have declared their interest income. Canadians who have not reported their offshore income may still be eligible for the voluntary disclosure program (tax amnesty or VDP) to avoid prosecution and penalties.

 

eBay Canada has lost its appeal in the Federal Court of Canada against the Canada Revenue Agency (the Canadian income tax department, "CRA") in eBay Canada Limited et al v MNR 2008 FCA 348 and is required to release sales details of eBay Powersellers to CRA. Powersellers who have not reported their online income may still be eligible for the voluntary disclosure (tax amnesty) program to avoid prosecution and penalties.

 

Income Tax Technical News No. 37 was released February 15, 2008 and amended the rules for computing safe income for purposes of subsection 55(2) of the Canadian Income Tax Act.

 

In the B.C. Provincial Court case of R v Lindsay [2008] B.C.J. No. 1337 Mr. Lindsay was found guilty of failing to file Canadian  income tax returns even though he argued he was not a “person” as defined in the Income Tax Act of Canada.

 

A proponent of the view that taxation has no basis in law, also known as de-taxers, was recently jailed in Ontario for 60 days for failure to file tax returns.

 

In the Manitoba Court of Appeal  case of  Therrien v The Queen  the application for leave to appeal summary convictions for Canadian  income tax evasion and the making of false or deceptive statements in tax returns, together with the sentence imposed in the amount of a fine of $50,000, was denied. 

 

After a year of grace, commencing April 1, 2008, the Canada Revenue Agency (the Canadian income tax department, "CRA")  is now ready to apply an indirect penalty to incorporated non-profit organizations which have not filed their corporate tax returns. Failure by these entities to file T2 returns by their due dates for the taxation years ending April 1, 2008, and forward will result in a compliance refund hold on their refunds or rebates.

 

In Landrus v. The Queen, 2008 TCC 274, the Tax Court ofCanada held that the general anti-avoidance rule (GAAR) did not apply to a series of transactions whereby a terminal loss was triggered on the sale of assets.

 

Once you reach the age of 50 start thinking about withdrawing funds from your RRSP using a RRIF meltdown strategy, which offsets the tax inclusion from the RRIF withdrawal with an equal amount of deductible interest.

 

The Canadian Federal Court of Appeal has upheld a lower court ruling and ordered eBay Canada Ltd. to comply with a request from the Canada Revenue Agency to produce the names, addresses, phone numbers, e-mail addresses as well as gross sales figures for all Canadian eBay PowerSellers.

 

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 inSudbrack (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.

 

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 ofCarrier 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 athttp://www.fin.gc.ca/budtoce/2006/budliste.htm.

 

If you missed the April 30th 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 ofScavuzzo 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 Actprovides 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. InUpper 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 tohttp://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 ofVasiliki 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 websitehttp://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 11th, 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.
  • 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.
  • 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 contributions, remember that certain deductions, such as net losses from rental properties or employment-related expenses including union dues or traveling expenses will reduce your "earned income" which reduces your RRSP contribution limit for 2001. Also excluded from "earned income" are certain types of income including interest, dividends, capital gains, and most pension income.
  • To make changes to previously filed personal Canadian income tax returns, individuals should not file an amended tax return. Canada Customs and Revenue Agency (CCRA) prefers that individual taxpayers who wish make changes to returns, use form T1-ADJ (Adjustment Request), available at local tax services offices or on the CCRA Web site.
  • There are no immediate Canadian income tax consequences as a result of the transfer of capital property to former spouses where the transfer arises from divorce or separation settlements.
  • All amounts received as a consequence of termination of employment, even if received as damages, are fully taxable for Canadian income tax purposes in the year received. However, a portion of the payment may be eligible for transfer to an RRSP.
  • Hair transplant costs paid to a doctor will generally qualify as medical expenses and will give rise to tax credit for Canadian Income Tax purposes. However only medical expenses in excess of 3% of income will be eligible for the tax credit.
  • If a relative wins a lottery and decides to share the winnings with his family, the person who receives the gift from the family member will not have to pay tax on what he receives since there is no gift tax in Canada. Any amounts arising from any source, including lottery winnings, can be gifted to any person without Canadian tax implications.
  • New Canadian income tax rules provide for a tax-free rollover of capital gains on disposition of shares of certain active Canadian corporations where the proceeds are used to invest in shares of another active Canadian corporation.
  • Individuals with grown children who own their own homes or with no children should consider donating an interest in a personal residence to a charity. If the donor wishes to continue to have use of the property for the remainder of his or her lifetime, a residual interest in the property could be gifted to the charity currently without the use of a trust. The donor will receive an income tax receipt for the value of the residual interest transferred. Provided that the home is a principal residence, there will be no taxable capital gain 
  • If you owe money on account of unpaid Canadian Income Taxes you will be contacted by a Canada Customs and Revenue Agency collections officer. If you are unable to make satisfactory payment arrangements your salary may be garnished or your back account seized. No court authorization is required for these collection actions. As tax lawyers in Canada we can assist taxpayers in dealing with CRA.
  • The October 17, 2000 mini-budget reduced the capital gains inclusion rate for Canadian income tax purposes from 66 2/3% to 50% effective immediately.
  • A recent Federal Court - Trial Division decision decided that Article XXVI A of the Canada - U.S. Income Tax Convention offends subsection 15(1) of the Charter of Rights and Freedoms. The article in question provides for co-operation between the Canadian and U.S. tax authorities for the purpose of collecting taxes owing.
  • Canada Customs and Revenue Agency (CCRA) recently changed its position relating to the determination of the adjusted cost base (ACB) for Canadian income tax purposes for shares acquired under employee stock option agreements and then immediately sold. CCRA will accept identification of specific securities acquired under the option agreement as being the securities disposed of by the employee, where it is obvious that the securities sold are the ones that were acquired under the agreement. As a result, only the ACB of the securities acquired under the agreement would be used in determining the gain or loss on that particular sale.
  • An Ottawa Superior Court judge has ruled that retired Ottawa school teacher Thomas Kennedy is not exempt from Canada’s Income Tax Act. Kennedy argued unsuccessfully that the Income Tax Act applies only to corporations and not to natural persons, that income tax is voluntary, and that the form requiring his employer to withhold amounts to cover tax is not valid. The arguments rejected by the court were essentially the same as claims made by anti-tax campaigners who say they know of lawful ways for individuals to exempt themselves from income tax.
  • New voluntary disclosure rules have just been announced by the Canada Customs and Revenue Agency. A taxpayer who makes a voluntary disclosure of a Canadian income tax liability will not be charged penalties. The new policies also now allow for a cancellation of interest in some cases.
  • The increase in Registered Retirement Savings Plan (RRSP) foreign content from 20% to 25% proposed in the February 28, 2000 budget has now been implemented.
  • If you’re immigrating to Canada, it may be to your advantage to sell investments with accrued losses before you become a Canadian resident. Otherwise you will probably not be able to utilize the foreign capital loss to offset other gains after you arrive in Canada and any gains that accrue on the investments after immigration will be taxable in Canada when you dispose of them. We are  tax lawyers in Ontario and can provide assistance.
  • If you own property in the U.S., your estate may have to pay U.S. estate tax on the property after your death. The U.S. imposes its estate tax on all assets owned by Canadians that it considers to be U.S. property, which includes real property such as vacation homes and may include other items such as furniture. In addition, shares in U.S. corporations and U.S. Government Savings Bonds are considered U.S. property even if the certificates are kept in Canada.
  • If you're thinking of immigrating to Canada you should know that your income earned anywhere in the world would become subject to Canadian income tax once you establish residence in Canada. We are Ontario tax lawyers and can provide assistance.
  • From a Canadian income tax perspective, you don’t have to make a trip to the altar to be considered married, since the meaning of spouse includes a common law spouse. This could affect the amount of your GST credit and other credits, and restrict your ability to claim the equivalent -to-married credit for a dependent family member.
  • If you turn 69 this year you'll have to decide what to do with your RRSP before the end of this year. If you wish to have some control over the investments, you should purchase a registered retirement income fund (RRIF). If you'd rather have a steady monthly income, consider purchasing an annuity.
  • If you earn more than your spouse, one way to transfer funds to him or her for investment without having the investment income subject to Canadian income tax in your hands is to directly pay your spouse's tax liability, including tax installments that come due during the year. Funds that your spouse would otherwise use to pay income taxes can be invested and any income earned would be taxed at your spouse's lower tax rate.
  • There are no estate or gift taxes in Canada, so gifts may be given with no tax implications. The attribution rules may, however, apply in certain circumstances to cause the income to be taxed in the hands of the gift giver. A taxable capital gain can also arise on a gift.
  • If you are self employed and work out of your home and move to a new home more than 40 kilometres away, a recent Tax Court decision means that you may be able to deduct your moving expenses for Canadian income tax purposes in the same way as an employee who moves to take a new job or an employment transfer.
  • All amounts which 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.
  • You can extract income from your corporation in one of 2 ways. You can take a salary or bonus, which is deductible to your corporation. Or you can declare a dividend out of after tax profits.
  • For a home based corporation to write off rent related expenses you have to charge "rent" to your corporation. The amount is taxable to you, but will be offset by the equivalent amount which you have paid such as utilities or property taxes.
  • Tuition fees deductible for Canadian income tax purposes include fees paid to attend a Canadian university or college; fees for courses taken to obtain or improve occupational skills at an institution approved by the Minister of Human Resources Development (if you're 16 years or older); fees paid for full-time attendance at most universities outside of Canada if the course is more than 13 consecutive weeks long and leads to a degree; fees paid to post-secondary institutions in the United States if you lived in Canada near the border and commute to the university or college.
  • The February 28, 2000 Federal budget reduced the rate of inclusion of capital gains for computing Canadian income tax from 75% to 66 2/3% effective from the budget date.
  • An Ontario Superior Court judge has ruled that a class action suit brought by a taxpayer against Revenue Canada can proceed to an application to certification. This ruling, if not successfully appealed, means that class actions may be brought against Revenue Canada by taxpayers.
  • The purchase price paid for a domain name (URL) may not be immediately deductible for Canadian income tax purposes. It may constitute an eligible capital expenditure (ECE) in which case only 75% of the purchase price can be deducted at a rate of 7% per annum.
  • When making your calculations to determine your Canadian income tax deductions for RRSP contributions, remember that certain deductions, such as net losses from rental properties or employment-related expenses including union dues or traveling expenses will reduce your "earned income" which reduces your RRSP contribution limit for 2000. Also excluded from "earned income" are certain types of income including interest, dividends, capital gains, and most pension income.
  • Post-budget consultation has led the Department of Finance to reconsider the application of the proposed civil penalties to third parties. Revenue Canada will continue to consult with private sector professionals as it acquires experience with these new measures. The new culpable-conduct standard is intended to ensure that civil penalties apply only to third-party advisers who make or participate in making a false statement, and--unlike the budget's proposed gross negligence test--will prevent an honest error of judgment or an honest difference of opinion from attracting penalties. It is also specified that a penalty is not levied solely because the third party relied in good faith on information provided by another person, for example, to prepare or file that person's tax return. Explanatory notes contain specific examples of the rules' application. Revenue Canada indicates that it will assess such penalties only after a Head Office review. Several court decisions on income splitting and the use of management service family trusts and partnerships raised concerns over leakage in tax revenue. The 1999 Canadian federal income tax budget curtailed income splitting with minors via taxable dividends paid on private company shares and business income earned by management partnerships that provide administrative and other services to related businesses. Draft legislation was recently released.
  • To maximize the $500,000 capital gains exemption from Canadian income tax on sale of qualifying small business shares available to every individual, consider having your spouse invest in the corporation to multiply the availability of the exemption.
  • If you’re creating a stock option in your Canadian corporation for a shareholder, be sure to grant the same rights to all of the other shareholders of the same class. Otherwise, the stock option will be considered to be a taxable benefit for Canadian income tax purposes to the shareholder.RRSP’s are normally available to be seized by your creditors in satisfaction of your debts. If liability issues are of concern to you consider a life insurance RRSP which is exempt from seizure by your creditors.
  • A class action, Deanne Ho-A-Shoo, was recently commenced against the federal government in the Ontario Superior Court, seeking recovery of interest paid under section 160 of the Canadian Income Tax Act. Section 160 allows Revenue Canada to pursue family members and others who receive property without paying fair market value(FMV), from a person who owes tax at the time of the transfer. In the past Revenue Canada has sought to recover not only the value of the property, but also interest on that amount. In the 1998 Algoa Trust case, the Court held that interest could not be assessed on a section 160 liability based on the FMV of the property transferred, but Revenue has not taken steps to pay back interest collected improperly.
  • In two recent technical interpretations, Revenue concedes that legal fees relating to child support orders under the Divorce Act are deductible for Canadian income tax purposes.
  • An allowable business investment loss (ABIL) may be claimed as a Canadian income tax deduction on a non-interest bearing loan to a Canadian controlled private corporation if there are other reasons for the loan such as dividends or management fees. This principal has been affirmed by the Federal court of Appeal in the Byram decision.
    • A new taxation year for Canadian income tax purposes is deemed to have started when a change in control of a corporation takes place. If your corporation is about to undergo a change in control it will shorten the carryforward period of your unused losses and cause their expiry. It may be possible to devise a mutually beneficial tax plan with the purchaser by billing before the sale for services to be rendered after the change in control in order to generate income to absorb the unused losses before they expire.

     

    • If you have invested money with a private Canadian corporation carrying on an active business, including your own corporation, and the debt becomes uncollectible you can deduct 75% of the loss as an allowable business investment loss (ABIL) in computing your personal Canadian income tax liability.

     

    • Repayable income tax-free RRSP withdrawals can now finance full-time training or education for a taxpayer or spouse. Students in full-time training or post-secondary education or their spouses may withdraw up to $10,000 per year from their RRSPs over a four-year period, as long as the total amount does not exceed $20,000. The amount withdrawn from the RRSP must be repaid in equal instalments over 10 years or it will be included in income for Canadian income tax purposes.

     

    • If you're being temporarily transferred due to your employment and receive a housing allowance to pay for your lodgings while you're away, the allowance will normally be considered a taxable benefit for Canadian income tax purposes. However, the allowance will not be included in your taxable income if it is for board and lodging at, and transportation to, a temporary work site that is more than 80 km from your home or a "remote work site" that is remote from any established community. To qualify your regular home must be available for your occupancy. If you rent it out for the duration of your posting the allowance will be subject to income tax.

     

    • If your company owns or leases an aircraft for business purposes and it makes a flight for the primary purpose of providing free or subsidized travel for the personal benefit of an employee or shareholder, a taxable benefit for Canadian income tax purposes will result for the employee or shareholder. The amount of the income tax benefit is usually computed as the cost of a regular first class ticket to the same destination.

     

    • If you are a Canadian citizen with a US greencard and both a US and Canadian residence, electing to pay Canadian income tax  under the Canada-US income tax treaty may jeapordize your greencard status.

     

    • Revenue Canada has announced a change in its policy on employer payment of professional membership fees. Employers can pay such fees on behalf of employees, without triggering a taxable benefit for Canadian income tax purposes, if the employer is the primary beneficiary of the payment. Revenue Canada's previous policy was that such payments were a taxable benefit unless the employee's membership was a condition of employment.

     

    • Repayable Canadian income tax free RRSP withdrawals can now finance full-time training or education for a taxpayer or spouse.

     

    • The child care expenses you can deduct on your Canadian income tax return include more than day care costs and the nanny's salary. Also deductible are fees for certain baby-sitting expenses, day camps, boarding schools and summer camps.

    • Taxpayers who sue for wrongful dismissal, including damages for mental distress and other non-financial matters, should try to ensure that the original statement of claim, and minutes of settlement include a detailed breakdown of the settlement's components to demonstrate that some of the settlement is not subject to Canadian income tax.
    • If you’re an employee and you expect to receive a large Canadian income tax refund for 1998 because you’ll have substantial deductions to claim, you may be able to obtain some of that refund early by arranging for your employer to reduce the amount of tax withheld from your future pay cheques. 
    • If you're planning to contribute to a Registered Education Savings Plan (RESP) for your child to take advantage of the new Canada Education Savings Grant (CESG) program, your child will need a Social Insurance Number (SIN) before the RESP plan administrator can apply for the CESG.

     

    • If you're self-employed, you may be allowed to deduct from your Canadian income tax return the costs of attending up to two conventions in a year in connection with your business or profession.

     

    • If you spend more than 183 days a year living in the United States (with a portion of your time in the U.S. in the previous two years counting towards this total) you could be deemed a U.S. resident for tax purposes and be required to file a U.S. income tax return, however the Canada-US tax treaty may provide you with some relief.
    • Parking provided to employees may constitute a taxable benefit to the employee, requiring an inclusion on their Canadian income tax return. The taxable amount is the fair market value of the parking less any amount the employee pays for the space. If fair market value can't be determined, such as parking in a mall, no taxable benefit results. 

     

    • Name your estate rather than a charity as an RRSP or RRIF beneficiary otherwise no tax credit will be available to offset the Canadian income tax your estate will have to pay for the amount of the donation. By leaving instructions in your will that the money should be transferred to one or more named charities you will ensure that your estate gets the benefit of the tax credit for your donation.

     

    • If you own your own company and you are retiring to leave it for others to carry on, you can arrange for the company to pay you a reasonable retiring allowance which will be deductible to the company, and you may be able to transfer all or a portion of the allowance to your RRSP and claim the tax deduction.

     

    • If you're planning to move out of Canada and you'll be selling your house, try to make the sale while you're still a Canadian resident. That way, you'll still be able to claim the principal residence exemption and avoid paying tax on the capital gain that will arise.

     

    • If you make a spousal RRSP contribtion instead of a regular one, the funds you contribute may be safe from attack by future creditors.
    • Certain employer-paid training courses may no longer be taxable benefits for employees, thanks to a recent Revenue Canada policy change. New guidelines say that training taken primarily for the employer's benefit is not taxable, even if it leads to a degree, diploma, or certificate. A taxable benefit still arises if the training is primarily for the employee's benefit. 
    • If you drive an expensive company-owned car, especially if  it's older than three years, the amount of the associated  taxable benefit may make it more economical for you to buy the car from your employer and arrange for an offsetting increase in pay because your taxable benefit is based on the car's original cost and not its current value.

     

    • If you're immigrating to Canada, your world income will become subject to Canadian tax once you establish Canadian residence. Any foreign-source income you receive after becoming a Canadian resident will be subject to Canadian tax, although any foreign tax paid on this income may be eligible for a foreign tax credit in Canada. 
    • If you're immigrating to Canada it is often advantageous to sell investments with accrued losses before coming to Canada since you will be unlikely to be able to use the foreign capital loss to offset other gains after you arrive in Canada, while gains that accrue on the investment after immigration will be taxable in Canada upon disposition.
    • As a result of the recent Ontario budget, small Ontario corporations will be entitled to a new 20% refundable tax credit based on qualifying Ontario labour expenditures incurred after June 30, 1998 to create interactive digital media products.
    • RRSP and RRIF donations from estates can be transferred to a charity without incurring any tax and can be claimed by your estate for a tax credit of up to 100% of your income in that year.
    • If you reside outside of Canada for part of the year but you continue to file your Canadian tax return as a Canadian resident, you are not obliged to pay non-resident withholding taxes on the income from your Canadian investments.
    • If you are planning to sell all or a part of your business try to structure the sale to be eligible for the small business capital gains exemption available for the sale of shares of a qualifying small business corporation.
    • If you are setting up a new business, start-up losses incurred by a corporation will not be personally deductible. If you anticipate start-up losses, and liability is not a concern, consider starting your business as a sole proprietorship or partnership and only incorporate once you become profitable. 
    • If you are thinking of buying a house, you should be aware that the Home Buyers Plan allows qualified taxpayers to use up to $20,000 from their RRSP when buying a home. To qualify, neither you nor your spouse may have owned a home in the last five years. 
    • When drafting your will you can carry out income splitting for your beneficiaries by setting up multiple testamentary trusts. 
    • When commencing or settling a law suit consider whether payments can be deductible, if you are the defendant, or non-taxable if you are the plaintiff. 
    • If you have been charged interest or penalties for late tax payments caused by reasons out of your control you can apply to have them waived under Revenue Canada's "Fairness" doctrine. 
    • If you have have failed to file income tax returns for several years there are no special problems with Revenue Canada or rules to follow. Just prepare and file the returns in the usual way.  
    • Revenue Canada has a policy that if you make a voluntary disclosure about unreported income they will not penalize you. However you must approach them before any investigation is commenced.
    • If you carry out research and development, including software development, you may qualify for an income tax credit by filing the appropriate form with Revenue Canada.
    • Non-residents with Canadian resident children should leave property to an offshore trust for their children, rather than directly to the Canadian resident child. 
    • If you are planning to immigrate to Canada, consider having a trust settled on your behalf before you become a Canadian resident

     

    Disclaimer:
    "This article provides information of a general nature only. It may no longer be current. It does not provide legal advice nor should it be relied upon. If you have specific legal questions you should consult a lawyer."

     

 

 

David J.Rotfleisch,C.A., J.D.
Tax And Business Lawyer,

David J. Rotfleisch, C.A., J.D.
Rotfleisch & Samulovitch Professional Corporation
Barristers & Solicitors
2822 Danforth Avenue
Toronto, Ontario
M4C 1M1, PH :- 416-367-4222 Fax 416-367-8649

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