Web Tips

March 21, 2017

SMALL BUSINESS DEDUCTION (SBD) – REQUIREMENT TO CLAIM?

In a June 20, 2016 French Technical Interpretation (2016-0648481E5, Labarre, Sylvie), CRA confirmed that a corporation eligible to claim the SBD under Subsection 125(1) is not obligated to claim the deduction.

In some cases, a company may prefer to enhance the General Rate Income Pool by forgoing the SBD claim, enabling the corporation to pay out eligible dividends.

For further information see VTN Monthly Tax Update Seminar, Issue No. 421


March 14, 2017

EMPLOYEE BENEFITS – NEW FOLIO

On July 7, 2016, Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment, was introduced to replace and cancel Interpretation Bulletin IT-470R(Consolidated), Employees’ Fringe Benefits, along with a portion of a few other publications. New information in the Folio include, among others:

For further information see VTN Monthly Tax Update Seminar, Issue No. 421


March 7, 2017

TIMING OF MAIL DEEMED RECEIVED BY CRA

Any mail, other than the remittance of an amount withheld or deducted (most often, a source deduction), or a payment by a corporation, sent by first class mail or its equivalent, is deemed to be received by CRA the day it was sent (Subsection 248(7)).

Though Canada Post no longer provides first class mail, CRA has acknowledged that Canada Post “letter mail” would be considered equivalent. In addition, CRA has acknowledged in the same Roundtable Question and IT-433R, Paragraph 4, that an “item entrusted to a courier service for prompt delivery is considered equivalent to first class mail”.

For further information see VTN Monthly Tax Update Seminar, Issue No. 420


February 28, 2017

LIFE IN THE TAX LANE- March 2017 (Episode 22)

Sources (linked)

  1. Principal Residence Exemption
  2. Fraud Refund Scam
  3. Mutual Fund Taxation
  4. Investment Management Fees
  5. Eservices at the CRA

Sponsors (linked)

Video Tax News would like to thank our sponsors for their generous support in bringing “Life in the Tax Lane- March 2017” to our esteemed audience of Canadian financial professionals.

TaxCycle | TaxTips.ca | Monthly Tax Update

Please note Video Tax News does not research and cannot endorse/guarantee any of our sponsors and their services.

To learn more about getting involved as a sponsor with Life in the Tax Lane, please send inquiries to info@videotax.com.


February 21, 2017

AUDIO AND VIDEO RECORDINGS OF FEDERAL GOVERNMENT COMMITTEES

The Government of Canada hosts a website, www.parl.gc.ca/Committees/en/Home, which provides a wealth of information on the various Committees, and Subcommittees, such as the Standing Committee on Finance.

Not only does the website provide details on future and past meetings, members and ongoing work, but it also provides the ability to view the meetings and access the meeting minutes. To access the videos and meeting minutes, users should select the appropriate Committee, then select the requisite area of interest (e.g., Bill C-15, Budget Implementation Act). A listing of meetings and supporting links will appear, such as the option to watch a recording of the meeting and view the meeting minutes.

For further information see VTN Monthly Tax Update Seminar, Issue No. 420


February 14, 2017

SECTION 84.1 – NON-ARM’S LENGTH TRANSACTIONS?

In a June 14, 2016 French Tax Court of Canada case (Poulin et al. vs. H.M.Q., 2013-2554(IT)G, 2013-2555(IT)G), at issue was whether the taxpayers, P and T, who disposed of their shares in the Corporation, were acting at arm’s length such that the proceeds of sale would constitute a deemed dividend under Section 84.1 rather than a capital gain.

The sales were in the context of a reorganization to implement the departure of P and the integration of H into the company. Simply,

The Minister took the position the P and TCo, and T and HCo acted in concert and, therefore, were deemed not to have been acting at arm’s length (Paragraph 251(1)(c)). As such, they were subject to a deemed dividend under Section 84.1.

Taxpayer P wins
The Court found that P and TCo did not act in concert, but were acting at arm’s length. In this case there was a major conflict between P and T; it was in the interest of the Corporation that one of them leave. P and T reached an agreement after difficult negotiations. P wanted to sell his shares for the best price and terms.

The Court also noted, however, that the fact that P and T organized the transaction so that P could benefit from CGE does not in and of itself demonstrate that the parties did not act at arm’s length.

Taxpayer T loses
On the other hand, the Court found that T and HCo acted in concert without separate interests. The transaction was undertaken to provide a tax benefit for T, with HCo simply accommodating T’s wishes. The transaction did not reflect normal commercial relations between parties acting in their own interest.

For further information see VTN Monthly Tax Update Seminar, Issue No. 420


February 7, 2017

UNREASONABLE BUSINESS LOSSES

In a June 8, 2016 Federal Court of Appeal case (Peach vs. H.M.Q., A- 406-14), at issue was whether the Tax Court was correct in denying the taxpayer’s rental and business losses for the 2009 and 2010 taxation years.

Taxpayer wins, in part
The Federal Court found that the Tax Court erred in globally denying the expenses of the business under Section 67. The Court should have considered each particular expense and the explanation for them. Unreasonable expenses can be eliminated or reduced to make them reasonable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 420


January 31, 2017

BAD DEBT EXPENSE – COLLECTION ACTION

In a September 1, 2015 Tax Court of Canada case (L’univers Gym Fitness Inc. vs. H.M.Q., 2014- 2465(GST)I), at issue was whether the taxpayer, who operated a fitness centre, could claim a deduction of $5,078 in computing net tax for GST/HST purposes on account of bad debts (Subsection 231(1) of the Excise Tax Act).

When customers of the fitness facility failed to make payments to the business, access to the defaulting customers was denied by deactivating the magnetic chip entrance cards and following up with phone calls to the customers. However, no letter or notice of default was sent out to the customer. According to the taxpayer’s accountant, this was normal procedure in the industry to recover defaulted payments.

Editors’ Comment
For GST/HST purposes the debt must actually be considered to be bad, as compared to “doubtful” for income tax purposes.

For further information see VTN Monthly Tax Update Seminar, Issue No. 419


January 25, 2017

LIFE IN THE TAX LANE- February 2017 (EPISODE 21)

Sources (linked)

  1. U.S. – Trump Proposals 
  2. Defacto Director
  3. Employment Expenses – Cell Phone And Data Plan
  4. GST/HST Compliance Letters
  5. Online Services – What's New For Tax Preparers? 

Sponsors (linked)

Video Tax News would like to thank our sponsors for their generous support in bringing “Life in the Tax Lane- February 2017” to our esteemed audience of Canadian financial professionals.

TaxCycle | TaxTips.ca | Personal Tax Update 2016

Please note Video Tax News does not research and cannot endorse/guarantee any of our sponsors and their services.

To learn more about getting involved as a sponsor with Life in the Tax Lane, please send inquiries to info@videotax.com.


January 24, 2017

DONATION RECEIPTS – NON-CASH GIFTS

In a May 25, 2016 Tax Court of Canada case (Shahbazi vs. H.M.Q., 2015-5085(IT)I), it was determined that non-cash donations of household items valued at $20,000 in 2006 and $15,000 in 2007 were denied on the basis of inadequate donation receipts. Receipts were provided with assessed amounts, however, they failed to contain a description of the property donated.

For further information see VTN Monthly Tax Update Seminar, Issue No. 419


January 17, 2017

ELECTION TO TREAT EXCESSIVE ELIGIBLE DIVIDEND AS AN ORDINARY DIVIDEND

In a May 13, 2016 Technical Interpretation (2016-0626371E5, Verlinden, Nicole), CRA opined that an election to treat an excessive eligible dividend designation (EEDD) as an ordinary dividend (Subsection 185.1(2)) must be made in respect of each eligible dividend paid in the year. In addition, the election only permits the corporation to elect up to the amount of the EEDD in respect of each eligible dividend paid.

Currently, there is no prescribed form or manner for making this election. Therefore, administrative guidance is provided on the CRA website.

For further information see VTN Monthly Tax Update Seminar, Issue No. 419


January 10, 2017

PARTNERSHIP OR COST-SHARING ARRANGEMENT (CSA)

The 2016 Federal Budget proposed to extend the specified Partnership income rules in an attempt to curb the multiplication of the small business deduction. This change may potentially affect the business structures of many professionals. As a result, many professionals, or other businesses, may consider reorganizing to avoid being a Partnership.

Whether or not a Partnership exists is fact-specific, prioritizing substance over form, and does not depend on how the parties characterize their relationship. Parties cannot contract out of being a Partnership if a Partnership exists in fact. A Written Agreement is not necessary to form a Partnership at law, however, as practitioners know, the resolution of disputes with CRA will be based on evidence; as such, agreements should be drafted with the desired relationship in mind.

Partnerships are governed by provincial law, however, in most jurisdictions, a Partnership requires a business, carried on in common, with a view to profit. Those looking to avoid being deemed a Partnership should look at their individual circumstances in light of case law and their provincial Partnership Act. There are many indicia of a Partnership (the contribution to a common undertaking, a joint property interest, or a mutual right of control), but, in particular, most Partnership legislation deems the sharing of profits “proof, in the absence of evidence to the contrary, that that person is a Partner in the business.”

For further information see VTN Monthly Tax Update Seminar, Issue No. 419


January 3, 2017

EMPLOYEE VERSUS INDEPENDENT CONTRACTOR (IC) – POST-DOCTORAL FELLOWS (PDF)

On April 13, 2016, CRA added a discussion of whether PDFs are employees, outlining numerous relevant factors differentiating employment from IC status, including:

CRA also sets out a number of factors they consider neutral or inconclusive, including:


December 28, 2016

LIFE IN THE TAX LANE- JANUARY 2017 (EPISODE 20)

Sources (linked)

  1. Taxable  Benefit – Family Ski Pass - Source 1 and Source 2
  2. T5008 Duplicate Slips – New Administrative Policy
  3. Filing a T4a - Source 1 and Source 2
  4. Qualified Disability Trusts (QDTs) - Source 1Source 2 and Source 3
  5. Rollover of a Registered Pension Plan
  6. Eligible Dependent Credit – What is a Support Amount? 

Sponsors (linked)

Video Tax News would like to thank our sponsors for their generous support in bringing “Life in the Tax Lane- January 2017” to our esteemed audience of Canadian financial professionals.

TaxCycle | TaxTips.ca | Personal Tax Update 2016

Please note Video Tax News does not research and cannot endorse/guarantee any of our sponsors and their services.

To learn more about getting involved as a sponsor with Life in the Tax Lane, please send inquiries to info@videotax.com.


December 20, 2016

MOVING EXPENSES FOLIO

On April 5, 2016, CRA cancelled Interpretation Bulletin IT-178R3, Moving Expenses, and replaced it with Folio S1-F3-C4, Moving Expenses. Some additions to the Folio that were not previously in the IT include:


December 13, 2016

CCA – ELECTRIC VEHICLE CHARGING STATIONS

In an April 26, 2016, CRA Release,“What’s New for Corporations 2016”, the following was noted:


December 6, 2016

PROFESSIONAL FEES – VOLUNTARY DISCLOSURE

In a January 21, 2016 Technical Interpretation (2016- 0625731C6, Grondin, Yves), CRA noted that the cost to make a Voluntary Disclosure is not deductible under Paragraph 60(o). However, where income is earned from a business, the cost to make a Voluntary Disclosure may be deductible pursuant to Paragraph 20(1)(cc).

From the point in which CRA informs the taxpayer that it accepts the Voluntary Disclosure and that it will revise the income or tax liability under the program, professional fees incurred to assert the claim will generally be allowed pursuant to Paragraph 60(o).

For further information see VTN Monthly Tax Update Seminar, Issue No. 418


November 30, 2016

LIFE IN THE TAX LANE- DECEMBER 2016 (EPISODE 19)

Sources (linked)

  1. Mandatory Tip Calculation – Quebec
  2. Finance Committee Report
  3. Small Business Deduction (SBD) Multiplication – Associated Corporations –Video Tax News’ Small Business Deduction Video and Bill C-29
  4. RRSP Overcontributions – T1-Ovp
  5. Salary To Spouse
  6. U.S. Voluntary Disclosure Program

Sponsors (linked)

Video Tax News would like to thank our sponsors for their generous support in bringing “Life in the Tax Lane- December 2016” to our esteemed audience of Canadian financial professionals.

TaxCycle | TaxTips.ca | Personal Tax Update 2016

Please note Video Tax News does not research and cannot endorse/guarantee any of our sponsors and their services.

To learn more about getting involved as a sponsor with Life in the Tax Lane, please send inquiries to info@videotax.com.


November 29, 2016

EMPLOYMENT EXPENSES – REQUIRED BY CONTRACT

A March 4, 2016 Federal Court of Appeal case (Urquhart vs. H.M.Q., A-56-15) addressed the deductibility of employment expenses incurred by a car salesman. The Tax Court denied all employment expenses as the expenses were not required under the employment contract.

Taxpayer wins, in part
The Court opined that when determining whether an expense is required under the contract of employment, as required for an expense to be deductible (Paragraph 8(1)(f)), the contract should be reviewed objectively to determine whether it was implied that the employee would be required to incur costs to earn commission income.

The taxpayer’s evidence of invoices and charge backs demonstrate a mutual understanding that expenses to deliver the cars to the taxpayer’s dealership and purchasing of accessories that were to be included on the car were required. Without incurring these expenses, the taxpayer could not deliver the product that the dealership had agreed to deliver to the client. These expenses were allowed.

The Court then reviewed expenses incurred to build client relations. Although these expenses helped to produce income, they were not required under the contract. Without such a requirement, they were not deductible.

For further information see VTN Monthly Tax Update Seminar, Issue No. 418


November 22, 2016

TAX TIP! NEW TRUST RULES AND ELIGIBLE CAPITAL PROPERTY

Curious about new rules related to graduated rate estates? How about planning related selling goodwill from the corporation before year-end? Watch Frank Lavitt of Taylor McCaffrey LLP discuss these issues.


November 15, 2016

TRAVEL INFORMATION – GOVERNMENT INFORMATION AND ADVISORIES

The Government of Canada provides online travel information at www.travel.gc.ca to over 220 nations worldwide. It provides country-by-country information and advice on security, entry and exit information, health, laws and culture, natural disasters and climate, and assistance while travelling in the respective countries.

For further information see VTN Monthly Tax Update Seminar, Issue No. 415


November 8, 2016

CRA RELEASES

April 6, 2016 – CRA released a Tax Tip highlighting what to do if taxpayers have uncashed cheques. They note that Government of Canada cheques never expire and can be cashed at any time, cheques for deceased taxpayers should be deposited into the Estate or returned to CRA, and, CRA can issue replacement cheques if the original was lost, destroyed, stolen or missing.

For further information see VTN Monthly Tax Update Seminar, Issue No. 417


October 31, 2016

WATCH! MAJOR TAX CHANGES FOR MANY SMALL BUSINESSES (16 min)

There are major tax changes impacting many small businesses that you need to know about.

Watch Hugh Neilson FCPA, FCA, TEP, Joseph Devaney CPA, CA and Caitlin Butler CPA, CA discuss Bill C-29 and the changes to Small Business Deductions.

Sources (linked)

  1. http://www.parl.gc.ca/LegisInfo/BillDetails.aspx?Language=E&Mode=1&billId=8519336

Video Tax News permits and encourages sharing this video. Use the following link to share this important video - https://vimeo.com/189665527

To learn more, register for the "Small Business Deduction: What You Need To Know" Online Course. Click here for the details.


October 26, 2016

LIFE IN THE TAX LANE- NOVEMBER 2016 (EPISODE 18)

Sources (linked)

  1. Principal Residence Exemption – Changes: Source 1, Source 2 and Source 3 
  2. Uber Search Warrants – Quebec
  3. Information Provided in an Audit
  4. Pre-Budget Consultations: Source 1 and Source 2 
  5. Intercorporate Dividends

October 25, 2016

CRA REPORT TO PARLIAMENT

In early 2016, CRA released its 2014-2015 Annual Report to Parliament. The Report includes the following selected statistics and comments:

For further information see VTN Monthly Tax Update Seminar, Issue No. 417


October 18, 2016

ASSOCIATION – MINOR OBTAINING AGE OF MAJORITY

In a December 8, 2015 French Technical Interpretation (2015- 0610921E5, Labarre, Sylvie, CPA, CA), CRA commented on whether association would apply to a situation where the controlling shareholder turns 18 years of age in the corporation’s fiscal year.

In the situation where the child does not manage the business, CRA opined that Subsection 256(1.3) would apply in the corporate fiscal year where the age of 18 is obtained because the child would have been under 18 at some point in that fiscal year. Being associated at any time in the year means the consequences of association apply for the entire fiscal year.

For further information see VTN Monthly Tax Update Seminar, Issue No. 417


October 11, 2016

CREDIT CARD COMPARISONS

Rate Hub provides an array of calculators and tools at www.ratehub.ca/credit-cards to help individuals and businesses select the most appropriate credit card for their needs.

In particular, it quantifies the dollar value of benefits (such as sign-up bonuses and annual spend rewards) as well as considers annual fees. This tracking can be fine-tuned by inputting an individual’s or business’ different types of spending (such as groceries, gas, travel, etc.). Beyond the strict dollar value of reward programs and costs, the service compares ancillary benefits such as travel and baggage insurance offered.

For further information see VTN Monthly Tax Update Seminar, Issue No. 416


October 4, 2016

PROCEEDS RECEIVED FROM A SUPPLIER LOYALTY CONTRACT

In a February 16, 2016 Technical Interpretation (2015-0618601E5, Posadovsky, T.), CRA commented on the treatment of proceeds received under a loyalty contract with a major supplier. The taxpayer received a substantial lump sum payment for entering the contract. If the contract was breached within 5 years, the entire payment would be repaid. If the contract was breached in the 10 subsequent years, damages payable would be prorated based on the remaining number of years.

CRA opined that the payment was for a restrictive covenant (Subsection 56.4(1)), as the agreement “appears to affect, in any way whatever, the acquisition or provision of property or services”, so the payment would be income when received or receivable (Subsection 56.4(2)). In the event the contract was not a restrictive covenant, CRA indicated it would be an inducement payment (Paragraph 12(1)(x)) taxed on the same basis.

CRA noted that there is no provision for a reserve related to either form of income, therefore, the income could not be deferred for income tax purposes (Paragraph 18(1)(e)) despite the fact that, for accounting purposes, it would be reported as revenue over the term of the contract.

For further information see VTN Monthly Tax Update Seminar, Issue No. 416


September 26, 2016

LIFE IN THE TAX LANE- October 2016 (Episode 17)

Sources (linked)


September 20, 2016

LIFE INTEREST TRUST

Curious about the changes to Life Interest Trusts? Watch William Fowlis, QC, FCPA, FCA, TEP of Miller Thomson LLP discuss.

For further information, Click here


September 13, 2016

INDEPENDENT CONTRACTOR (IC) VS. EMPLOYEE – TRUCKER

In a December 31, 2015 Tax Court of Canada case (Big Bird Trucking Inc. vs. H.M.Q., 2015-1041(EI), 2015-1051(CPP)), at issue was whether truck drivers hired by the taxpayer were employees or ICs, and, therefore, subject to CPP and EI withholdings.

The taxpayer clearly intended to hire the drivers as ICs.

The Court put little weight into the Agreement reflecting the driver’s intentions.

The Court then looked to the well-established test as follows:

Although the traditional factors were not as helpful as they sometimes are, the Court found on the balance, the factors favoured IC status: the drivers were in the business of providing services.

For further information see VTN Monthly Tax Update Seminar, Issue No. 416


September 6, 2016

ALLOWABLE BUSINESS INVESTMENT LOSS (ABIL) – BANKRUPTCY

In a November 16, 2015 French Tax Court of Canada case (Delisle vs. H.M.Q., 2013-1829(IT)I), at issue was whether the taxpayer was entitled to claim an ABIL of $21,457 representing 50% of the outstanding debt owed to him by his spouse’s company in 2007. In 2006, the company’s creditors accepted a proposal under the Bankruptcy and Insolvency Act.

In this case, the company’s creditors accepted a bankruptcy proposal in 2006, effectively releasing the company from the debts and obligations owed to its unsecured creditors. As such, the outstanding debt to the taxpayer was written off and ceased to exist at this time, in 2006. At the end of 2007, no debt was owed to the taxpayer.

As Subsection 50(1) requires that the debt must be outstanding at the end of the tax year, the Court found that the taxpayer was not entitled to claim the ABIL in 2007 (as the debt was not outstanding as at December 31, 2007).

For further information see VTN Monthly Tax Update Seminar, Issue No. 413


August 29, 2016

LIFE IN THE TAX LANE- September 2016 (Episode 16)

Sources (linked)

  1. Change in Legal Title
  2. Joint Tenancy - Sale of Property
  3. Books and Records - Church Envelopes
  4. Mutual Fund Corporations - Switch Funds
  5. Lifestyle/Real Estate Audits - Source 1 and Source 2
  6. BC - Foreign Ownership
  7. Foreign Tax Credits – Support

August 23, 2016

CAPITAL DIVIDEND ACCOUNT – ECOLOGICAL GIFTS

In a December 3, 2015 French Technical Interpretation (2015-0613761E5, Seguin, Marc), CRA discussed the effect of an eligible ecological property gift (Paragraph 110.1(1)(d)) by a corporation on its capital dividend account (CDA).

When such a gift is made, the taxable capital gain pursuant to Paragraph 38(a.2)(i) is deemed to be $0, therefore, the addition to the CDA would be the full amount of the gain.

For further information see VTN Monthly Tax Update Seminar, Issue No. 414


August 16, 2016

DISALLOWED INTERCORPORATE MANAGEMENT FEES

In an October 9, 2015 French Technical Interpretation (2015- 0595671C6, Deslandes, Nancy), CRA noted that when the deductibility of an intercompany management fee is denied, CRA generally accepts the adjustment of the income of the recipient company to reduce the amount if:

To make the adjustment, the beneficiary company must send a written request to CRA and demonstrate that it paid, or has agreed to pay, the equivalent of the amount that was denied.

That said, in certain cases, CRA may not apply this general position if, for example, there is an abuse or deliberate overstatement of fees.

For further information see VTN Monthly Tax Update Seminar, Issue No. 414


August 9, 2016

COLLABORATIVE DIVORCE PROCESS

An introduction to the Collaborative Divorce Process whereby proceedings are completed with a team of Registered Collaborative Professionals rather than a Judge. Interview with Agnes Leung, CPA CA, CBV, RCP

For further information, Click here


August 2, 2016

SCIENTIFIC RESEARCH & EXPERIMENTAL DEVELOPMENT (SR&ED) – ADAPTED INFORMATION SYSTEM

In an October 27, 2015 Tax Court of Canada case (Acsis EHR Inc. vs. H.M.Q., 2012- 4645(IT)G), at issue was whether the taxpayer could claim SR&ED expenditures in the amount of $278,104 and $269,690 for the years 2005 and 2006, which corresponded to $125,858 and $113,573 of Investment Tax Credits.

Taxpayer wins
The Court found that the documentary evidence, coupled with oral testimonies, supported the finding that the taxpayer engaged in systemic investigations and undertook tests to resolve the technological uncertainties. The taxpayer identified problems with the project, developed its objectives, formulated hypotheses and testing scenarios, and modified or re-developed its approach in response to the results it obtained.

The Court also noted that although the taxpayer did not retain detailed records, its approach was similar to the scientific method in that uncertainties and objectives were identified, and hypotheses, trials and testing were formulated.

For further information see VTN Monthly Tax Update Seminar, Issue No. 414


July 28, 2016

LIFE IN THE TAX LANE- August 2016 (Episode 15)

Sources (linked)

  1. Travel Allowances
  2. Business or Personal Venture?
  3. Input Tax Credits – Start-up Phase
  4. Shareholder Benefits
  5. Mail Strike – Timely filed Documents?​
  6. Retroactive Registration for GST/HST

July 26, 2016

2016 CHARITABLE DONATION TAX CREDITS

Since the advent of personal tax credits, individuals have been entitled to a Federal credit at the lowest personal tax rate (presently 15%) for the first $200 of donations claimed in a year and at the highest Federal rate (historically 29%) on any excess.

The Draft Legislation released on December 7, 2015 (see VTN 413(1)) proposes to increase the highest personal tax rate to 33% and also to change the credit for charitable donations in excess of $200, both effective in 2016. The credit for donations in excess of $200 will be increased to 33%, but only to the extent the individual has taxable income subject to the new 33% personal tax rate (income over $200,000 for 2016).

Only gifts made after 2015 will qualify for the enhanced credit, so donations made in 2015 or prior years and carried forward will not generate this enhanced credit.

For further information see VTN Monthly Tax Update Seminar, Issue No. 413


July 19, 2016

U.S. CITIZENS – NON-COMPLIANCE RISKS LOSING PASSPORT

On December 4, 2015, U.S. President Barack Obama signed an extensive Highway Construction Bill into law. Included in the Bill were changes impacting the issuance of passports, discussed in a December 14, 2015 article (Beginning January 1, 2016: File your US tax return or risk losing your US passport, by Kevin Kirkpatrick JD, MBA). Commencing January 1, 2016, the State Department will be able to deny or revoke passports to U.S. citizens meeting one of the two following criteria:

For further information see VTN Monthly Tax Update Seminar, Issue No. 413


July 12, 2016

POLITICAL ACTIVITIES REVIEW – OVER

The Minister of National Revenue Diane Lebouthillier has announced the winding down of the review by CRA of registered charities political activities. Throughout the project, 30 audits were completed, 5 resulted in revoked registration but were based primarily on factors beyond their involvement in political activities. The 24 audits underway at the time of the announcement on January 20, 2016, will continue, but no other entities will be reviewed under this project.

For further information see VTN Monthly Tax Update Seminar, Issue No. 415


July 5, 2016

TRAVEL INFORMATION – GOVERNMENT INFORMATION AND ADVISORIES

The Government of Canada provides online travel information at www.travel.gc.ca to over 220 nations worldwide. It provides country-by-country information and advice on security, entry and exit information, health, laws and culture, natural disasters and climate, and assistance while travelling in the respective countries.

It addition, it publishes travel advisories for Canadians travelling and living abroad. These advisories are updated nearly daily. The website also notes that if the country an individual is visiting is subject to a travel advisory, travel health insurance or trip cancellation insurance may be affected.

For further information see VTN Monthly Tax Update Seminar, Issue No. 415


June 27, 2016

LIFE IN THE TAX LANE- July 2016 (Episode 14)

Sources (linked)

  1. CRA Electronic Services for Businesses
  2. Small Business Deduction – Campgrounds
  3. In-Trust Accounts – Children
  4. CRA Information Requirements
  5. CRA Overpayment – CCTB and GST/HST​

June 21, 2016

VOLUNTARY DISCLOSURES - CURRENT STATE OF AFFAIRS

Watch Paul K. Grower BA (Hons), LLB and Joseph R. Devaney CPA, CA discuss the 4 conditions for Voluntary Disclosures.

For further information, Click here

Want to learn more from Paul? Register for the Lunch and Learn course Tax Disputes.


June 14, 2016

REQUIREMENT TO PROVIDE ACCOUNTING INFORMATION TO CRA

In an October 30, 2015 Federal Court case (M.N.R. vs. Amdoc Canadian Managed Services Inc., T-1018-15), the Minister applied for an Order (Section 231.7) requiring the taxpayer to provide the Minister with any access, assistance, information and documents available under Section 231.1 with respect to a transfer pricing audit, domestic audit, and a foreign accrual property income audit.

CRA issued 16 queries to the taxpayer. The taxpayer did not respond to three queries, explaining that the information was not within its possession, power or control.

Taxpayer wins
The Court noted that the taxpayer did not possess nor have the power to acquire the information requested by the Minister, even if it existed elsewhere. The Tax Act does not contemplate the creation of records where they do not exist; that which does not exist cannot be produced.

For further information see VTN Monthly Tax Update Seminar, Issue No. 412


June 7, 2016

COMBINED AUDITS OF OWNER-MANAGED COMPANIES

In a June 18, 2015 Technical Interpretation (2015-0572151C6, Bogdan, John), CRA was asked about the perceived increase in requests of personal financial information of the shareholders of Canadian corporations selected for audit. Further, questions were asked with respect to information that is requested in relation to the shareholder’s spouse, children or other related parties. In some situations, the shareholders are asked to essentially complete statements of net worth.

CRA noted that the personal information from the shareholder and related parties is requested to ensure that business transactions are reported within the business and not in personal accounts. It was noted that internal controls and the segregation of duties are generally weak for such organizations. Therefore, indirect tests of income may be used to ensure the completeness of income reported. Indirect tests may include:

For further information see VTN Monthly Tax Update Seminar, Issue No. 412


June 1, 2016

CANADIAN TAX FOUNDATION – PRAIRIE PROVINCES 2016 CONFERENCE: DISPUTE RESOLUTION

Can CRA appeals make an assessment worse? Watch Paul Grower, BA (Hons), LL.B discuss insights from his panel at the Prairie Provinces 2016 Tax Conference.




June 1, 2016

CANADIAN TAX FOUNDATION – PRAIRIE PROVINCES 2016 CONFERENCE: FOREIGN EXCHANGE GAINS

Need to calculate foreign exchange gains and losses for tax purposes? Watch Jon Gilbert, LL.B discuss a few key points from his presentation at the Prairie Provinces 2016 Tax Conference.




May 27, 2016

LIFE IN THE TAX LANE- June 2016 (Episode 13)

Sources (linked)

  1. Discussions with CRA – Caution!
  2. Employment Expenses: Source 1 and Source 2
  3. German Social Security Pensions​
  4. Principal Residence Exemption – Multigenerational Homes​
  5. Principal Residence Exemption – Renting to a Child​
  6. Partnerships – Notice of Redetermination Receipt​
  7. U.S. Limited Liability Limited Partnerships – A Ticking Time Bomb?​

May 24, 2016

PRIVATE HEALTH SERVICES PLAN (PHSP)

In an August 18, 2015 Technical Interpretation (2015-0581431E5, Underhill, Cynthia), CRA confirmed that in most cases a deduction for PHSP premiums paid for a sole proprietor (subject to the limitation in Section 20.01) can be made, even if the spouse of that sole proprietor is also a sole proprietor and deducts an amount in respect of premiums for another PHSP that covers the same individuals.

For further information see VTN Monthly Tax Update Seminar, Issue No. 412


May 17, 2016

CRA ISSUED WARRANTS: ACCOUNTANT'S 5 "R" ACTION PLAN

Getting issued a warrant from the CRA can be stressful. Watch Paul K. Grower BA (Hons), LLB and Joseph R. Devaney CPA, CA discuss the 5 "Rs" for accountants to follow if this happens.



These are the five “R”s that will get you through it:

  1. Relax – try to – lots of pressure and stress
  2. Respond – review warrant / call counsel
  3. Remember – who / what / where / why?
  4. Recognize – privilege and protect it
    • You cannot assert privilege over it “all”.
    • But, if in doubt – assert (CRA should seal the docs).
  5. Report – to client and counsel ASAP.

Want to learn more from Paul? Register for the Lunch and Learn course Tax Disputes.


May 10, 2016

CHILD CARE EXPENSES – CAREGIVER IMMIGRATION

In an August 14, 2015 Technical Interpretation (2015-0580291E5, Dubis, Robert) CRA noted that costs incurred to hire a child care worker would be eligible child care expenses. Such costs include fees to an immigration lawyer and to Service Canada to obtain a labour market opinion, advertising expenses, placement agency fees, and mandatory registration fees.

For further information see VTN Monthly Tax Update Seminar, Issue No. 412


May 6, 2016

LIFE IN THE TAX LANE- May 2016 (Episode 12)

Sources (linked)

  1. CRA Report to Parliament
  2. Budget 2016 – Small Business Deduction (SBD) Restrictions
  3. International – Information on Panamanian Accounts Hacked & Mandatory Disclosure of Tax Strategy Online - Source 1 and Source 2
  4. Medical Expenses
  5. Stock Option Proposed Changes Dropped
  6. Provincial Budgets – Alberta and Newfoundland and Labrador

April 26, 2016

ELEMENTARY AND SECONDARY SCHOOL SCHOLARSHIPS

In a September 8, 2015 Technical Interpretation (2015-0584221E5, El-Kadi, Randa)), CRA reiterated their position that a private school must issue T4A Slips for scholarships it awards, even when they are fully exempt from tax under Subsection 56(3).

For further information see VTN Monthly Tax Update Seminar, Issue No. 411


April 19, 2016

LIABILITY OF DIRECTOR’S SPOUSE

An April 16, 2015 Tax Court of Canada case (Benaroch vs. H.M.Q., 2012-4385(GST)G) addressed a series of transfers of tax liabilities. The taxpayer’s spouse (Mrs. A), the Director of a Corporation, had been previously assessed $67,424 for the Corporation’s unremitted GST/HST. Mrs. A transferred cash and other assets to her spouse (Mr. A), resulting in CRA assessing Mr. A for the GST/HST owed by his spouse (Section 325 of the Excise Tax Act (ETA)).

Taxpayer wins
Assessing a Director for unremitted GST/HST requires CRA to first execute a Writ of Seizure and Sale against the corporation, and have this Writ returned unsatisfied (ETA Paragraph 323(2)(a)). CRA was not able to prove this. As a result, the Mrs. A did not owe taxes under the ETA. Therefore, there was no liability to transfer to Mr. A.

For further information see VTN Monthly Tax Update Seminar, Issue No. 411


April 12, 2016

LETTERS OF INTENT (LOI)

In a July 7, 2015 Technical Interpretation (2014-0552711E5, Bordeleau, Francis), CRA was asked whether a LOI to purchase a corporation could result in deemed control pursuant to Paragraph 251(5)(b), for the purposes of:

CRA first noted that this deeming provision does not deem any person to cease control of the corporation. The provision only widens the notion of control.

CRA then summarized the manner in which they would assess whether a specific LOI would result in the application of Paragraph 251(5)(b), noting that this would first require determining whether the LOI is a legal contract between the parties, which is a question of fact and contract law on which CRA could not comment.

Assuming the LOI is a legal contract, Paragraph 251(5)(b) would apply if it provides an absolute or contingent right, whether immediate or at some time in the future, to:

(a) acquire shares of the corporation;
(b) cause shares held by other shareholders to be redeemed, acquired or cancelled by the corporation;
(c) control the voting rights of shares of the corporation; or,
(d) reduce voting rights held by other shareholders.

Where the ability to exercise a right set out above is contingent on the death, bankruptcy or permanent disability of an individual, that right is not considered under this provision. Otherwise, the holder of the right is deemed to be in the same position to control the corporation as if the rights had been exercised.

For further information see VTN Monthly Tax Update Seminar, Issue No. 411


April 5, 2016

PERSONAL TRUST – BENEFICIARY CONTRIBUTIONS

In a July 30, 2015 Technical Interpretation (2015-0596841E5, Kohnen, Phillip, 613-670-8916), CRA was asked whether voluntary contributions of capital to a Trust by its beneficiaries, in the same proportion as their fixed income and capital interests in the Trust, would cause it to lose its status as a Personal Trust.

CRA noted that the definition of a Personal Trust (Subsection 248(1)) requires that no beneficial interest was acquired for consideration payable to the Trust, or anyone else who has made a contribution to the Trust. CRA indicated that the additional contributions of capital to the Trust would cause it to lose its status as a Personal Trust.

For further information see VTN Monthly Tax Update Seminar, Issue No. 410


March 29, 2016

LIFE IN THE TAX LANE- April 2016 (Episode 11)

Sources (linked)

  1. Registered Education Savings Plan (RESP)
    1. www.taxtips.ca/resp/respwithdrawals.htm
    2. RESP Bulletin No. 1R1
    3. January 27, 2016 Technical Interpretation (2015-0583031I7, Podor, K.)
  2. Independent Contractor vs. Employee – Trucker
    1. Tax Court of Canada case (Big Bird Trucking Inc. vs. H.M.Q., 2015-1041(EI), 2015-1051(CPP))
  3. Gross Negligence – Reliance On a Bookkeeper
    1. Tax Court of Canada case (Raymond et al. vs. H.M.Q., 2015-146(IT)I, 2015-1106(IT)I, 2015-158(GST)I)
  4. Employee Travel Expenses – Long Commutes
    1. October 30, 2015 Technical Interpretation (2015-0599631E5, Ryer, A.)
  5. Insurable Earnings – Related Employee
    1. Tax Court of Canada case (Lalande vs. H.M.Q., 2015-207(EI))

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March 29, 2016

CRA EMPLOYEE AS AN EXPERT WITNESS IN SR&ED CASE

In a January 12, 2015 Tax Court of Canada case (HLP Solution Inc. vs. H.M.Q., 2012-671(IT)I), a research and technology advisor (RTA), employed by CRA, was not permitted to testify as an expert witness in the case of a disputed scientific research & experimental development investment tax credit case. The Court noted that the RTA lacked the impartiality to testify. The Court also noted that expert witnesses do not need to be independent but should be impartial.

For further information see VTN Monthly Tax Update Seminar, Issue No. 410


March 15, 2016

PARTNERSHIP INFORMATION RETURNS

Watch Jon D. Gilbert, LL.B of Felesky Flynn LLP discuss the Partnership Information Returns.



Click here for the source documentation.


March 8, 2016

COORDINATING WITH FINANCIAL PLANNERS - FAQs

Watch Jason Watt, CD, CLU®, RHU™ of Business Career College Corp. discuss the Coordinating with Financial Planners - FAQs.



AREAS OF FREQUENT QUESTIONS BY FINANCIAL PLANNERS (linked)

  1. Principal Residence Exemption ( Principal Residence Folio ) as it relates to:
    1. Multiple properties (eg. cottage and house)
    2. US Property (as in the most recent Tax Lane)
    3. Farm Residence (the home quarter or whatever slang gets applied)
  2. Farm Rollovers between spouses and to the kids.
  3. Incorrect assumptions around taxation at death. As an example, a lot of people don’t realize that spousal rollovers of capital property are available any time, not just at death.
  4. US Persons and their Canadian tax situations. Complicating factors include filing of tax returns; use of TFSA, RESP, and RDSP.
  5. Private Health Services Plans / Health Spending Accounts: keeping them compliant and what rules apply and don’t apply. A lot of the information around these is based on Circulars and Interpretations that accountants will typically have access to and benefits brokers may not have access to.
  6. Active and Passive assets in the corporation, and the overall use of the LCGE – CRA and Business Career College
  7. Attribution rules. One may fall offside fairly easily with the attribution rules, whether it’s informal trusts for kids, or gifting shares of the business to the spouse.

February 29, 2016

LIFE IN THE TAX LANE- March 2016 (Episode 10)

Sources (linked)

  1. Future Changes in CPP Benefits and Premiums?
  2. Principal Residence – Foreign Vacation Property - Income Tax Folio S1-F3-C2, Principal Residence, Paragraph 2.74.
  3. U.S. High Net Worth Purchases- Source 1 and Source 2
  4. Employment Insurance Benefits – While Working But Not Being Paid - Federal Court Judicial Review (Pattamestrige Perera vs. H.M.Q., T-1148-15)
  5. Home Accessibility Tax Credit - August 10, 2015 Technical Interpretation (2015-0598591M4, El-Kadi, Randa)
  6. Political Activities Review – Over
  7. Stock Options – Changes Coming? Source 1 and Source 2
  8. CRA Collection Policies- Information Circular 98-1R5, Tax Collection Policies
  9. Form T1135 – Jointly Held Property- February 3, 2015 Technical Interpretation (2015-0610641C6, Agarwal, Lata)
  10. Contest- Enter to win a “Tax Ninja” T-shirt.  Tweet your idea of what it takes to be a Tax Ninja and include #lifeinthetaxlane. Draw will be held 3/17/2016

February 23, 2016

SELF-CONTAINED DOMESTIC ESTABLISHMENT (SCDE)

In a March 2, 2015 Technical Interpretation (2014-0527281E5, Dagenais, Anne) , CRA clarified that even if the individual does not own or lease the property but is responsible for it and pays expenses on a regular basis, the location may be a SCDE. Where the payments are random or irregular, it will not be a SCDE.

For further information see VTN Monthly Tax Update Seminar, Issue No. 409


February 16, 2016

HOME BUYERS’ PROGRAM (HBP) – QUALIFYING HOME

In a June 22, 2015 Technical Interpretation (2015-0574271E5, El-Kadi, Randa), CRA confirmed that the definition of a “Qualifying Home” (Subsection 146.01(1)) is clear that the residence must be located in Canada. CRA referred concerns about the related tax policy to the Department of Finance.

For further information see VTN Monthly Tax Update Seminar, Issue No. 410


February 9, 2016

GST/HST ON UNREPORTED INCOME

In a July 22, 2015 Tax Court of Canada case (9259-9893 Quebec Inc. vs. H.M.Q., 2014-1352(GST)I), the taxpayer was unsuccessful in Appealing CRA’s GST assessment based on the taxpayer’s unreported business income. CRA examined the cash bank deposits to determine the unreported revenue.

For further information see VTN Monthly Tax Update Seminar, Issue No. 409


February 2, 2016

SECTION 55 CHANGES

Watch Jeremy J. Herbert, MBA, LL.B of Felesky Flynn LLP discuss the Section 55 Changes.



Click here for the source documentation.


January 25, 2016

Life in the Tax Lane – February 2016 (Episode 9)

Watch this 10-minute rapid-fire discussion of select recent developments in the wonderful world of Canadian tax by the Video Tax News Team.



Sources (linked)


January 19, 2016

SELF-CONTAINED DOMESTIC ESTABLISHMENT (SCDE)

In a March 2, 2015 Technical Interpretation (2014-0527281E5, Dagenais, Anne) , CRA clarified that even if the individual does not own or lease the property but is responsible for it and pays expenses on a regular basis, the location may be a SCDE. Where the payments are random or irregular, it will not be a SCDE.

For further information see VTN Monthly Tax Update Seminar, Issue No. 409


January 12, 2016

FINES AND PENALTIES

On July 10, 2015, CRA released Income Tax Folio S4-F2-C1: Deductibility of Fines and Penalties replacing Interpretation Bulletin IT-104R3. Among other matters, the Folio addresses Section 67.6 in detail, a provision which was only pending when the Interpretation Bulletin was last updated. That provision denies a deduction for any fine or penalty imposed under federal, provincial, municipal or foreign law, except for prescribed penalties. At present, the only prescribed penalty is a 1⁄2 of 1% per month penalty on duties, penalties and interest imposed under Paragraph 110.1(1)(a) of the Excise Tax Act.

CRA noted that “fine” and “penalty” are not defined terms, and the legislation imposing the charge would be expected to identify it as a fine or a penalty. CRA noted that Section 67.6 does not restrict deductions for penalties under private contracts, or interest charges on penalties, although other provisions could restrict their deductibility (such as Paragraph 18(1)(t) which prevents deduction of interest imposed under the Income Tax Act).

For further information see VTN Monthly Tax Update Seminar, Issue No. 409


December 30, 2015

Life in the Tax Lane – January 2016 (Episode 8)

Watch this 10-minute rapid-fire discussion of select recent developments in the wonderful world of Canadian tax by the Video Tax News Team.



Sources (linked)


December 29, 2015

INTERGENERATIONAL WEALTH PRESERVATION

In a June 18, 2015 National Post article (How to Keep Your Kids from Blowing the Family Fortune, Chris Taylor, Reuters), discussed were some rates of Family Estate losses from one generation to the next and strategies to preserve it.

The author interviewed some specialists and reviewed some surveys to note the following:

For further information see VTN Monthly Tax Update Seminar, Issue No. 408


December 22, 2015

SCIENTIFIC RESEARCH & EXPERIMENTAL DEVELOPMENT (SR&ED) – DOCUMENTATION

In a June 8, 2015 Tax Court of Canada case (Highweb & Page Group Inc. vs. H.M.Q., 2014-1703(IT)I), at issue was whether the taxpayer was eligible to claim SR&ED tax credits in respect of work done to make the taxpayer’s product more consistent with commercial web-based platforms.

Taxpayer loses
The Court noted that although there may well have been some incremental technological uncertainties and advancements, the scant documentary evidence prepared by the taxpayer was not sufficient to show the technological investigation/experiment to prove or disprove the hypotheses.

For further information see VTN Monthly Tax Update Seminar, Issue No. 408


December 15, 2015

BLOGGER’S BUSINESS LOSSES

In a June 19, 2015 Tax Court of Canada case (Berger vs. H.M.Q., 2014-4251(IT)I), at issue was whether the taxpayer could claim business losses incurred for the 2011 and 2012 years. During these years, the taxpayer started and operated a sports blog with the intention of selling advertising on the blog, which he did in 2012. The taxpayer incurred expenses which were primarily comprised of travelling expenses to attend the teams’ away games. Prior to 2011 the taxpayer was employed as a sports journalist at a radio station.

Taxpayer wins
The Court found that the taxpayer was carrying on a business and, therefore, was entitled to deduct losses in 2011 and 2012. The Court examined the taxpayer’s “businesslike” behaviour including:

For further information see VTN Monthly Tax Update Seminar, Issue No. 408


December 8, 2015

PROFESSIONAL MEMBERSHIP DUES

In a March 5, 2015 Technical Interpretation (2014-0530691E5, Baltkois, Thomas), CRA noted that Subparagraph 8(1)(i)(i) provides a deduction in computing income from an employment for annual professional membership dues, the payment of which is necessary to maintain a professional status recognized by statute. Generally, the deduction is only allowed to the extent that the professional membership dues reasonably relate to the individual’s employment income.

For further information see VTN Monthly Tax Update Seminar, Issue No. 407


November 27, 2015

Life in the Tax Lane – December 2015 (Episode 7)

Watch this 10-minute rapid-fire discussion of select recent developments in the wonderful world of Canadian tax by the Video Tax News Team.


Sources (linked)


November 24, 2015

REQUIREMENT TO PREPARE T4 SLIPS

In a May 7, 2015 Tax Court of Canada case (7547978 Canada Inc. vs. H.M.Q., 2013-2929(IT)I), CRA successfully argued that the workers were employees, and, the T4A Slips issued by the payer should really have been T4 Slips. CRA penalized the payer under Subsection 162(7) for failing to file T4 Slips for the workers.

For further information see VTN Monthly Tax Update Seminar, Issue No. 407


November 17, 2015

RENTAL OF EXCESS PARKING SPOTS

In a February 3, 2015 Technical Interpretation (2014-0542791E5, Townsend, A.), CRA discussed whether the rental of excess parking spots by an NPO affordable housing provider would make the Organization ineligible for the Paragraph 149(1)(l) exemption from Part I tax.

The Courts have determined that a profit can be earned as long as it is incidental and arises from activities directly connected to the not-for- profit objectives. CRA noted that, in this case, the direct connection test would likely not be met, however, such a determination is fact based. Factors which may change the determination include:

Lots of information with excellent reference book.

Winnipeg 2013