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August 24, 2010
APPRENTICESHIP GRANTS
Apprenticeship Incentive Grant (AIG)
The AIG is a taxable grant of $1,000 per year up to a maximum of $2,000 per person, available to registered apprentices once they have successfully completed their first or second year/level (or equivalent) of an Apprenticeship Program in one of the Red Seal Trades. There is a deadline to apply.

For further information see VTN Monthly Tax Update Seminar, Issue No. 345.
August 17, 2010
CRA RELEASES (www.cra.gc.ca)
March 29, 2010 - CRA notes that in 2009, 58% of all individual income tax returns were filed electronically, meaning that they were either transmitted electronically over the Internet using NETFILE, over the telephone using TELEFILE, or through the services of a tax preparer via EFILE. 33% were filed by individuals themselves.

For further information see VTN Monthly Tax Update Seminar, Issue No. 345.
August 10, 2010
JAIL TERM
In a February 2, 2010 Ontario Court of Appeal case (Riccardo DiGiuseppe vs. H.M.Q., Docket: C48514), the Court upheld the six-year imprisonment term and the fine of $3.5 million for fraudulently defrauding the Crown with respect to income tax and GST owing of $3.5 million.

For further information see VTN Monthly Tax Update Seminar, Issue No. 344.
August 03, 2010
PRIVATE HEALTH SERVICES PLAN (PHSP)
In a February 17, 2010 Technical Interpretation (2009-0351581E5, Ferrari, Rob), CRA notes that where expenses of a PHSP would not qualify as medical expenses, the Plan would not qualify as a PHSP.

For further information see VTN Monthly Tax Update Seminar, Issue No. 344.
July 27, 2010
STANDBY CHARGE
In a January 29, 2010 External Technical Interpretation (2009-0350541E5, Leung, Henry), CRA notes that where a taxpayer has been leasing a vehicle, and at the end of the lease acquires the vehicle, the standby charge after the acquisition of the lease will be based on the true consideration paid for the vehicle if the amount paid is not grossly deviant from the fair market value of the automobile at the time of purchase.

For further information see VTN Monthly Tax Update Seminar, Issue No. 344.
July 20, 2010
FINANCE RELEASES (www.fin.gc.ca)
February 26, 2010, 2010-016 - announces amendments to the Income Tax Act to create a new type of taxable trust, an Employee Life and Health Trust (ELHT). (Section 144.1)

Specifically, an ELHT is defined as a Trust established by an employer that provides designated employee benefits such as group sickness or accident insurance benefits, private health service plan benefits, or group-term life insurance benefits for employees, or former employees, through a plan of insurance (including a self-funded plan of insurance).

For further information see VTN Monthly Tax Update Seminar, Issue No. 344.
July 13, 2010
FINANCE RELEASE
February 25, 2010, 2010-014 - announces changes to the Harmonized Sales Tax (HST) place of supply rules which specify whether, and at what rate, suppliers must charge the provincial component of the HST on their supplies of taxable property and services in Canada.

For further information see VTN Monthly Tax Update Seminar, Issue No. 344.
July 06, 2010
RETIRING PARTNER
In a December 18, 2009 External Technical Interpretation (2009-0313121E5, Allaire, Luci), CRA concluded that payments received from a Partnership by a Retiring Partner would generally be capital if the intention of the parties was to compensate for goodwill. However, if the intention was a distribution of profits of the Partnership, the payments would be income.

For further information see VTN Monthly Tax Update Seminar, Issue No. 343.
June 29, 2010
STRUCTURED SETTLEMENT
In a 2009 Advance Tax Ruling (2009-0342011R3), CRA Ruled that the payments under an annuity contract to the Plaintiff will not be taxable in the hands of the recipient as it meets the terms of a structured settlement as set out in Paragraph 5 of Interpretation Bulletin IT365R2.

For further information see VTN Monthly Tax Update Seminar, Issue No. 343.
June 22, 2010
TAX-FREE SAVINGS ACCOUNT (TFSA) RETURN 2009
CRA have issued Return RC243 to be used by individuals who are subject to tax with respect to excess TFSA contributions, non-resident contributions, non-qualified investments, prohibited investments, and TFSA advantages.

For further information see VTN Monthly Tax Update Seminar, Issue No. 343.
June 15, 2010
RECTIFICATION
In a June 29, 2009 rectification case (Stone’s Jewellery Ltd. and Arora et al and Attorney General of Canada, 2009 ABQB 656, Docket: 09 01-04362), the Court of Queen’s Bench of Alberta declared void ab initio some transfers of land such that major reassessments by CRA against the taxpayers will disappear.

For further information see VTN Monthly Tax Update Seminar, Issue No. 342.
June 07, 2010
HORSE RACING OPERATIONS
In a December 17, 2009 Tax Court of Canada case (Craig vs. H.M.Q., 2007-3040(IT)G), the Court allowed the taxpayer a full deduction for horse race operation losses.

For further information see VTN Monthly Tax Update Seminar, Issue No. 342.
June 01, 2010
NURSING HOME
Paragraph 118.2(2)(d) provides a medical expense for full-time care in a nursing home if the patient has been certified by a medical practitioner to lack normal mental or physical capacity, and in the foreseeable future will continue to be dependent on others.

For further information see VTN Monthly Tax Update Seminar, Issue No. 342.
May 25, 2010
WHOLLY DEPENDENT PERSON TAX CREDIT
In a November 26, 2009 Internal Technical Interpretation (2009-0327551I7, Meunier, Pierre-Luc), CRA notes that where Mr. B and Mrs. A are separated and do not have other partners and they had two children (X and Y) and both taxpayers have a shared custody of the two children and no child support is paid, each parent may claim the wholly dependent credit for either Child X or Child Y, provided only one parent claims the credit in respect of a particular child.

For further information see VTN Monthly Tax Update Seminar, Issue No. 342.
May 18, 2010
VOLUNTEER COMPENSATION
In a December 1, 2009 External Technical Interpretation (2009-0323331E5, White, Brenda), CRA notes that when the consideration paid to a volunteer is significantly less than what it would have had to pay to have the same duties performed by a regular employee or independent contractor, the nominal compensation will have no income tax implications.

For further information see VTN Monthly Tax Update Seminar, Issue No. 341.
May 11, 2010
RENTAL INCOME
In an August 12, 2009 Tax Court of Canada case (Henkels vs. H.M.Q., 2009-260(IT)I), the Court permitted the taxpayer to deduct 50% of expenses such as utilities, security, gardening and snow removal even though the square footage of her house which was rented out was only 35%.

For further information see VTN Monthly Tax Update Seminar, Issue No. 341.
May 04, 2010
PAYMENT FOR IN-HOME CARE OF DISABLED PERSONS
In a November 13, 2009 External Technical Interpretation (2009-0310441E5, Ferguson, Rita, 1-519-645-5261), CRA notes that for Social Assistance Payments to be exempted from tax under Paragraph 81(1)(h) they must meet all the criteria. Therefore, if the payments are not ordinarily made on the basis of a means, needs or income test, they would not be exempt under Paragraph 81(1)(h).

For further information see VTN Monthly Tax Update Seminar, Issue No. 341.
April 27, 2010
MEDICAL EXPENSES - DRUGS
In a November 23, 2009 Tax Court of Canada case (Tall vs. H.M.Q., A-47-09), the Court rejected the taxpayer’s argument that medical expenses claimed under Paragraph 118.2(2)(n) (drugs) do not have to be “recorded by a pharmacist”. In this case, the taxpayer was a Buddhist whose religious beliefs led him to avoid ingesting pharmaceutical products.

For further information see VTN Monthly Tax Update Seminar, Issue No. 341.
April 16, 2010
SPLITTING PENSION INCOME
In a November 4, 2009 External Technical Interpretation (2009-0337451E5, Ayotte, Catherine), Mrs. A died in June of that year and Mr. A was receiving a pension. CRA concluded that Mr. A could split annuity payments from the Registered Pension Plan with the spouse within the limits in Section 60.03.

For further information see VTN Monthly Tax Update Seminar, Issue No. 341.
April 13, 2010
RRSP OVER-CONTRIBUTION
Subsection 204.1(2.1) of the ITA notes that where an individual has contributed a cumulative excess amount in respect of an RRSP, the individual shall pay a tax equal to 1% of that excess per month.

For further information see VTN Monthly Tax Update Seminar, Issue No. 340.
April 06, 2010
REORGANIZATION
In an October, 2009 Advance Income Tax Ruling (2009-0325051R3), CRA Ruled that a Partner of a Professional Partnership that creates a Professional Corporation through which its professional services will be provided to the Partnership will generally be eligible for the Small Business Deduction if certain conditions are met. See the Ruling for details.

For further information see VTN Monthly Tax Update Seminar, Issue No. 340.
March 30, 2010
SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (SR&ED)
In an October 14, 2009 Tax Court of Canada case (1373744 Ontario Inc. o/a One Source Metal vs. H.M.Q., 2008-3566(IT)I), CRA denied the claim for the 2005 SR&ED on the basis that the claim was not made by the due date (18 months after the year-end – March 31, 2007).

For further information see VTN Monthly Tax Update Seminar, Issue No. 340.
March 23, 2010
CRA RELEASES (www.cra.gc.ca)
November 10, 2009 - It will be mandatory for corporations with gross revenues exceeding $1 million to file their T2 Corporate Returns via the Internet for taxation years that end after 2009. However, penalties will only be applied to tax years ending after 2010. For more information see www.cra.gc.ca/corporation-internet.

For further information see VTN Monthly Tax Update Seminar, Issue No. 340.
March 16, 2010
RESTRICTIVE COVENANT
CRA describes the proposed Restrictive Covenant rules on their website and includes a proposed election for Restrictive Covenants. Just search “restrictive covenants” on the CRA website (www.cra.gc.ca).

For further information see VTN Monthly Tax Update Seminar, Issue No. 339.
March 09, 2010
POINT OF SALE (POS)/COMPUTER SYSTEMS - CAPITAL COST ALLOWANCE (CCA) CLASS
In a July 13, 2009 External Technical Interpretation (2009-0311501E5, Rafuse, Charles), CRA notes that general-purpose electronic data processing equipment and systems software acquired after March 18, 2007 is included in Class 50 with a 55% CCA rate and, if acquired after January 27, 2009 and before February, 2011 is included in Class 52 which provides for a temporary 100% CCA rate. (Class 45 (45%) applies from March 22, 2004 to March 18, 2007)

For further information see VTN Monthly Tax Update Seminar, Issue No. 339.
March 02, 2010
SCHOLARSHIP/FREE TUITION
In a September 1, 2009 External Technical Interpretation (2009- 0312451E5, Cooke, Michael), CRA notes that as a result of several recent Court Decisions (i.e., DiMaria, Bartley and Okonski), CRA reviewed its existing policies in Interpretation Bulletin IT470R and IT75R4 with respect to the provision of scholarships, bursaries and tuition benefits.

As a result, CRA now accepts that where an arm’s length employer provides a post-secondary scholarship, bursary or free tuition to family members of an employee under a scholarship program, the amount will be included in the student’s income under Paragraph 56(1)(n) of the Income Tax Act and not the employee’s income under Paragraph 6(1)(a) regardless of the criteria used to award the particular amount.

If the student is eligible to claim the education tax credit under Subsection 118.6(2) of the Act, the entire amount may be exempt from tax pursuant to Subsection 56(3).

For further information see VTN Monthly Tax Update Seminar, Issue No. 339.
February 23, 2010
CRA RELEASES (www.cra.gc.ca)
Taxpayers can now send payments to CRA from their accounts at participating financial institutions using the new My Payment Service. This credits CRA accounts at once for payment transfers through a secure link with Canadian financial institutions who offer Interac Online payment service, such as BMO, Scotiabank, TD Canada Trust, and RBC Royal Bank.

For further information see VTN Monthly Tax Update Seminar, Issue No. 339.
February 16, 2010
CRA RELEASES (www.cra.gc.ca)
October 13, 2009 - CRA notes that you can use My Business Account to transfer payments and credits within your GST/HST, corporation income tax, Excise Tax, etcetera. “Transfer Payment” also allows you to transfer amounts from one interim period to another or, pay an amount owing by selecting the “transfer payment” option under “Account balance and activities”, submitting and confirming the details.

For further information see VTN Monthly Tax Update Seminar, Issue No. 339.
February 02, 2010
VOLUNTARY DISCLOSURE
In a March 24, 2009 Tax Court of Canada case (Mazzariol et al vs. H.M.Q., 2007-2783(GST)I), the taxpayer made a Voluntary Disclosure for income tax purposes but, did not make a Voluntary Disclosure for GST purposes. Therefore, CRA successfully assessed penalties and interest with respect to the GST.

For further information see VTN Monthly Tax Update Seminar, Issue No. 338.
January 26, 2010
HOME RENOVATION TAX CREDIT (HRTC)
In an August 11, 2009 External Technical Interpretation (2009-0309181E5, Mahenbran, Anandavally), CRA notes that expenditures incurred in respect of common areas of a condominium paid out from a reserve fund and/or special assessment cash call will qualify for the HRTC as long as the expenditures incurred by the condominium corporation are eligible expenditures made in respect of eligible dwellings.

For further information see VTN Monthly Tax Update Seminar, Issue No. 338.
January 19, 2010
UBS
It was noted in the September 3, 2009 issue of the Globe and Mail (page B3) that CRA spokeswoman Caitlin Workman said that Canadian government officials have asked representatives of Swiss Bank UBS AG for details of Canadians who might be account holders and that they will make every effort to gain the information by pursuing further meetings with UBS.

For further information see VTN Monthly Tax Update Seminar, Issue No. 338.
January 12, 2010
FINANCE RELEASES (www.fin.gc.ca)
August 29, 2009, 2009-080 - Canada signed its first Tax Information Exchange Agreement (TIEA) with the Kingdom of the Netherlands in respect of the Netherlands Antilles for exchanging information relating to the domestic tax laws of each party.

For further information see VTN Monthly Tax Update Seminar, Issue No. 338.
January 05, 2010
FEDERAL GOVERNMENT EMPLOYEE - CONTACT INFORMATION
You can search for an employee within the Federal Government by visiting the Government Electronic Directory Services. It lists the names, titles, telephone numbers, fax numbers and mailing addresses of departmental employees. http://sage-geds.tpsgc-pwgsc.gc.ca

This website seems to work well and is quite straight forward.

For further information see VTN Monthly Tax Update Seminar, Issue No. 337.
December 29, 2009
PART X.1 TAX
In a July 7, 2009 Tax Court of Canada case (Lennox vs. H.M.Q., 2007-1096(IT)I), the Court agreed with CRA that the penalty for an over-contribution on an RRSP under Subsection 204.1(2.1) is mandatory. However, CRA has the discretion to waive the tax under certain circumstances. (Subsection 204.1(4))

For further information see VTN Monthly Tax Update Seminar, Issue No. 337.
December 22, 2009
CHILDREN’S FITNESS TAX CREDIT (CFTC) - SEPARATION
In a July 2, 2009 Technical Interpretation (2009-0319911I7, Boyle, Andrea), CRA notes that the eligibility to claim the CFTC does not depend on whether the child resides with the parent. Therefore, in a relationship breakdown situation, generally either parent can claim the CFTC.

For further information see VTN Monthly Tax Update Seminar, Issue No. 337.
December 15, 2009
EMPLOYEE VS. INDEPENDENT CONTRACTOR
In an April 29, 2009 Federal Court of Appeal case (NCJ Educational Services Limited vs. M.N.R., Docket: A-291-08), the Federal Court confirmed the Tax Court decision that the twenty tutors a year working for the Appellant were employees, not independent contractors. The Appellant provided educational services, such as tutoring. There were no written contracts between the Appellant and its tutors. Tutors were paid an hourly wage. They incurred no expenses, except their disbursements in coming to work.

For further information see VTN Monthly Tax Update Seminar, Issue No. 337.
December 08, 2009
PRIVATE HEALTH SERVICES PLAN (PHSP)
In a June 29, 2009 External Technical Interpretation (2008-0299611E5, Landry, Isabelle), CRA notes that where an employer extends to former employees benefits which are otherwise non-taxable to current employees under a PHSP (Subparagraph 6(1)(a)(i)), the benefits will also be not taxable to the former employees.

For further information see VTN Monthly Tax Update Seminar, Issue No. 337.

December 01, 2009
CRA RELEASES (www.cra.gc.ca)
August 11, 2009 - Non-Resident Telereply Telephone Service.

By calling 1-866-971-4644 you can report your nil remittance of non-resident withholding tax. This is available from 6 A.M. to 9 P.M., Eastern Time to Canadian payers, agents, and the authorized representatives for a non-resident account that has a nil remittance.

For further information see VTN Monthly Tax Update Seminar, Issue No. 337.
November 10, 2009
EASEMENT OR RIGHT OF WAY
In a June 4, 2009 External Technical Interpretation (2009-0312701E5, Lanzer, Tom), CRA notes that if the property to which the easement or right of way pertains meets the definition of “qualified farm property” the landowner may be entitled to the capital gains deduction under Subsection 110.6(2) in respect of the taxable capital gain on the easement or right of way.

For further information see VTN Monthly Tax Update Seminar, Issue No. 336.
November 03, 2009
EMPLOYER-PROVIDED FREE TUITION PROGRAM
In a June 11, 2009 Tax Court of Canada case (Kaushik vs. H.M.Q., 2007-1585(IT)I), CRA conceded that there is no taxable benefit with respect to the free tuition program costing $4,000 per year provided by the employer (University of Guelph) to the employee. This result is based on previous jurisprudence in the H.M.Q. vs. Dimaria case (2008 FCA 390).

For further information see VTN Monthly Tax Update Seminar, Issue No. 336.
October 27, 2009
SETTLEMENT FOR HUMAN RIGHTS VIOLATION
In a May 8, 2009 External Technical Interpretation (2008-0273721E5, Fron, Steve), CRA notes that where a complaint involving a human rights violation by an employer is settled out of Court, a reasonable amount in respect of general damages would not be included in the employee’s income. A reasonable amount is influenced by the maximum amount that can be awarded under the applicable Human Rights Legislation and the evidence presented in the case.

For further information see VTN Monthly Tax Update Seminar, Issue No. 336.
October 20, 2009
SUPERFICIAL LOSSES
In a January 22, 2008 External Technical Interpretation (2008-0299661E5, Harding, Wayne), CRA notes that Subparagraph 40(2)(g)(i) provides that a taxpayer’s loss from the disposition of property is nil to the extent that it is a “superficial loss”.

This applies if the taxpayer sells a security which is then purchased or repurchased by a Trust governed by the taxpayer’s RRSP, RRIF or TFSA within the period of thirty days before or thirty days after the disposition.

For further information see VTN Monthly Tax Update Seminar, Issue No. 335.
October 13, 2009
CHARITABLE DONATIONS
In an April 30, 2009 External Technical Interpretation (2008-0290311E5, Danis, Sylvie), CRA notes that proposed Subsections 248(30) to (32) allow for the recognition of a donation for tax purposes even where a benefit will be provided to the donor. The eligible amount of the gift is the excess of the fair market value of the property transferred to a qualified donee over the amount of the advantage provided to a donor. (Subsection 248(31)

For further information see VTN Monthly Tax Update Seminar, Issue No. 335.
October 06, 2009
EMPLOYEE BENEFITS - DISCOUNT ON HOME UPGRADES
In a May 5, 2009 Internal Technical Interpretation (2009-0316531I7, Sigouin, Renee), CRA notes that a taxable benefit arises when an employer in the construction industry sells a house from its inventory to an employee and the employee receives a discount on the installed upgrades relating to that house.

For further information see VTN Monthly Tax Update Seminar, Issue No. 335.
September 29, 2009
MEDICAL EXPENSES - OUT-OF-COUNTRY
In a May 19, 2009 External Technical Interpretation (2009-0319341E5, Ferrari, Rob), CRA note that the cost of stem cell therapy which is not available in Canada will likely qualify as a medical expense including payments to medical practitioners and hospitals and the transportation and travel expenses for the patient and, where an individual has been certified as being incapable of travelling alone, for an accompanying individual.

For further information see VTN Monthly Tax Update Seminar, Issue No. 335.
September 22, 2009
MEDICAL EXPENSE - AIR CONDITIONER
In an April 27, 2009 External Technical Interpretation (2009-0314751E5, Gibbons, Jim), CRA notes that a taxpayer may claim the cost of installing a central air conditioner as a medical expense providing that the tests in Paragraph 118.2(2)(m) and Regulation 5700(c.3) are met.

In particular, the taxpayer needs a prescription from his/her doctor which indicates that he/she needs an air conditioner to help cope with an ailment which is both severe and chronic. Also, Paragraph 5700(c.3) limits the medical expense claim for an air conditioner to the lesser of $1,000 and 50% of its cost.

For further information see VTN Monthly Tax Update Seminar, Issue No. 335.
September 15, 2009
TREATY-PROTECTED PROPERTY
New Form T2062C is used where a Canadian purchases “Treaty-Protected Property” from a non-resident and the purchaser wants to reduce the potential for the withholding liability. (Subsections 116(5.01) and (5.02))

For further information see VTN Monthly Tax Update Seminar, Issue No. 334.
September 08, 2009
RECTIFICATION - CAPITAL DIVIDEND ACCOUNT ERROR
In an April 20, 2009 Ontario Superior Court of Justice case (Winclare Management Services Ltd. et al vs. AG, Docket: 09-CV-00370756), a $1,314,000 capital dividend account (CDA) dividend was declared on June 30, 2005 to the sole shareholder. CRA advised that the CDA was only $736,052 as a result of an accounting error. A committee of officials of the CRA considered the situation and concluded that the taxpayer should be entitled to relief from the Section 184 penalty tax of 75% of the excess (proposed to be 60% after 1999). However, a Rectification Order would have to be obtained through the Courts.

The Court accepted the unopposed Rectification Order with respect to changing the CDA dividend from $1,314,000 to $736,052.

For further information see VTN Monthly Tax Update Seminar, Issue No. 334.
September 01, 2009
RC4110
CRA’s Guide RC4110 discusses employee vs. self-employed status including:

Step 1 - CRA asks the worker and payer what their intents were when they entered into the working arrangement. For example, intent may be found in a written agreement. Workers and payers can set up their affairs as they see fit however, they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the service performed.

Step 2 - CRA asks the worker and the payer questions related to the working relationship as to whether the intent of the parties is reflected in the facts. Questions relate to the level of control the payer has over the worker, whether or not the worker provides the tools and equipment, whether the worker can subcontract the work or hire assistants, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, the worker’s opportunity for profit and loss, and any other relevant factors, such as written contracts.

For further information see VTN Monthly Tax Update Seminar, Issue No. 334.

August 25, 2009
CRA RELEASES (www.cra.gc.ca)
May 12, 2009 - CRA notes that in the context of a breakdown of a marriage or a relationship, it is often difficult to obtain marital status and living arrangement information in support of the benefit recipient’s claim for the Canada Child Tax Benefit (CCTB). Therefore, CRA will now let the benefit recipient submit two letters from independent third parties to show that they live at a residential address different from their former spouse so that the incomes do not have to be combined for CCTB purposes.

For further information see VTN Monthly Tax Update Seminar, Issue No. 334.
August 18, 2009
FILING DEADLINES
In a March 3, 2009 update to the CRA website (Google “T5 Information Return (Due Date)”), CRA notes that if the Due Date for a return falls on a Saturday, Sunday or statutory holiday, the Information Return is due on the next business day. It also notes that provinces and territories have their own unique holidays. Therefore, Due Dates may be affected depending on where you reside. For a list of public holidays, see www.cra.gc.ca/duedates.

For further information see VTN Monthly Tax Update Seminar, Issue No. 333.
August 07, 2009
SWISS BANK ACCOUNTS
The Swiss Banking Corporation (UBS) appears to have solicited and funneled an estimated $5.6 billion from Canadians into offshore bank accounts. CRA has refused to confirm or deny the launching of an investigation into the UBS activities in Canada but it has informally noted that a Canadian investigation has begun.

For further information see VTN Monthly Tax Update Seminar, Issue No. 333.
August 04, 2009
APPLICATION FOR DISBURSEMENT QUOTA RELIEF
In a March 20, 2009 CRA Release (CPC-029, Policy Commentary - Application for Disbursement Quota Relief) - CRA clarified its policy regarding requests for disbursement quota relief including:

1. where the charity has disbursed all available income;
2. where the charity is doing everything in its power to meet its disbursement quota; and
3. where there are no available excesses.

For further information see VTN Monthly Tax Update Seminar, Issue No. 333.
July 28, 2009
NON-BUSINESS FOREIGN TAX CREDIT
In a March 12, 2009 Tax Court of Canada case (Shindle vs. H.M.Q., 2008-2676(IT)I), the Court permitted a foreign tax credit for amounts withheld from the taxpayer’s pay for state and city taxes even though actual tax returns for the state and the cities were not filed.

For further information see VTN Monthly Tax Update Seminar, Issue No. 333.
July 21, 2009
SOURCE DOCUMENTS FOR DEPRECIABLE ASSETS
Information Circular 78-10R4 (Paragraph 29) notes that documentation relating to long-term transactions such as investments and other capital and depreciable property should be maintained until six years after the year in which such a transaction could enter into any calculation for income tax purposes.

For further information see VTN Monthly Tax Update Seminar, Issue No. 332.
July 14, 2009
DEDUCTIBILITY OF LEGAL FEES AND PENALTIES
In a February 20, 2009 External Technical Interpretation (2008-0294701E5, Cooke, Michael), CRA note that legal fees to defend the employer’s negligence relating to an accident which caused the death of an individual would likely be deductible. (see Interpretation Bulletin IT99R5)

For further information see VTN Monthly Tax Update Seminar, Issue No. 332.
July 07, 2009
ELIGIBLE DIVIDEND DESIGNATIONS
CRA February 10, 2009 External Technical Interpretation (2009-0309111E5, Snell, Sandra) notes that they will not allow a written notification on T3 and T5 Slips as sufficient notification pursuant to Subsection 89(14) of the Income Tax Act for the payment of eligible dividends for the 2008 and subsequent years.

For further information see VTN Monthly Tax Update Seminar, Issue No. 332.
June 30, 2009
EDUCATION INSTITUTIONS OUTSIDE CANADA
CRA Guide RC190 provides information to educational institutions outside Canada with respect to completing tax credit forms for education and tuition costs and the completion of Forms TL11A, TL11C and TL11D.

For further information see VTN Monthly Tax Update Seminar, Issue No. 332.
June 23, 2009
EXTENDED CABS
In an April 30, 2008 French Tax Court of Canada case (Betcher vs. H.M.Q., 2004-1295(GST)G), the Court found that the 1999 Chevrolet Silverado 1500L5 extended cab, short-bed (exterior carrying box) was not an “automobile” because it was used exclusively in commercial activities. Therefore, there were no restrictions on the GST Input Tax Credit. (Subsection 123(1) of the Excise Tax Act)

For further information see VTN Monthly Tax Update Seminar, Issue No. 331.
June 16, 2009
LEGAL FEES PAID TO REMOVE A LIEN FROM A PROPERTY
In a January 6, 2009 External Technical Interpretation (2008-0290441E5, Rafuse, Charles), CRA notes that legal fees paid to remove a lien from a property to facilitate its sale may be added to the adjusted cost base (ACB) of the property in calculating the capital gain or loss.

For further information see VTN Monthly Tax Update Seminar, Issue No. 331.
June 09, 2009
HAIRSTYLIST
In a January 9, 2009 External Technical Interpretation (2008-0291191E5, Sigouin, Renee), CRA notes that a hairstylist may deduct the cost of supplies consumed in her employment. (Subparagraph 8(1)(i)(iii))

For further information see VTN Monthly Tax Update Seminar, Issue No. 331.
June 02, 2009
HUMAN RIGHTS CODE AWARDS
In a 2008 Advance Income Tax Ruling (2008-0292081R3), CRA noted that amounts paid by an employer to employees pursuant to an arbitration award for breach of the employees’ rights under the Human Rights Code are not taxable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 331.
May 26, 2009
CANCELLATION OR WAIVER OF PENALTIES AND/OR INTEREST
In January, 2009, CRA released GST/HST Memoranda Series 16.3 which discusses cancellation or waiver of penalties and/or interest. The Release discusses the ten-year rolling window for taxpayer relief requests, what are extraordinary circumstances, the inability to pay or financial hardship, factors to be considered when waiving or cancelling penalties and/or interest, refund interest, wash transactions, and the due diligence defence.

For further information see VTN Monthly Tax Update Seminar, Issue No. 330.
May 12, 2009
DEATH - QUALIFIED SMALL BUSINESS CORPORATION (QSBC)
Paragraph 110.6(14)(g) of the Income Tax Act extends the definition of “qualified small business corporation share” to include shares which were qualified at any time in the twelve-months preceding the taxpayer’s death.

For further information see VTN Monthly Tax Update Seminar, Issue No. 330.
May 05, 2009
REPLACEMENT PROPERTY
In an October 27, 2008 Internal Technical Interpretation (2008-0288341I7, Rafuse, Charles), CRA notes that where one quarter of farmland close to an urban area is sold and replaced by three quarters of farmland in more remote areas, the three quarters of farmland may be considered to be a “replacement property” for the one quarter, if there is a correlation or a causal relationship between the disposition and the acquisition.

For further information see VTN Monthly Tax Update Seminar, Issue No. 330.
April 28, 2009
AUTOMOBILE - STANDBY CHARGE
In a January 5, 2009 Tax Court of Canada case (Martin et al vs. H.M.Q., 2007-2808(IT)I), the Court agreed with CRA’s assessment of a standby charge and an operating benefit with respect to the personal use of an extended cab (F150) on the basis that it was an “automobile” because it was not used “all or substantially all” of the time to transport goods, passengers or equipment.

The facts that the taxpayer did not have a personal automobile and there was no log, were strong indications that this test was not met.

For further information see VTN Monthly Tax Update Seminar, Issue No. 330.
April 21, 2009
TAXABLE BENEFIT - DISCOUNT
In a November 12, 2008 Tax Court of Canada case (Schutz et al vs. H.M.Q., 2004-4147(IT)G), the taxpayers were employed as supervisors at a boarding school and were required to reside on the school premises under the terms of their employment. The taxable fair market value of the accommodation provided to the various employees was discounted by 25% to 80%, depending on the circumstances, because of the inconvenience of residing at the place of work.

This 22-page Court case provides information on the discount on taxable benefits for lodging where there are other factors that reduce the value.

For further information see VTN Monthly Tax Update Seminar, Issue No. 329.
April 14, 2009
EMPLOYER-PROVIDED PARKING
In a November 17, 2008 External Technical Interpretation (2008-0288491E5, Cooke, Michael), CRA notes that as a general guideline, if an employee is required to use his/her automobile three or more days on a weekly basis for employment-related travel and requires a parking space for this purpose, the parking space would not be a taxable benefit.

For further information see VTN Monthly Tax Update Seminar, Issue No. 329.
April 07, 2009
EMPLOYEE VS. INDEPENDENT CONTRACTOR
In three Federal Court of Appeal cases (Care Nursing Agency Ltd. vs. M.N.R., A-441-07, October 29, 2008; Kilbride vs. H.M.Q., A-540-07, October 29, 2008; and Stawicki vs. M.N.R., A-195-06, November 10, 2008), the Federal Court confirmed the Tax Court decision that in all three cases the workers were employees of the payor, not independent contractors, and the payor was required to remit Employment Insurance and Canada Pension Plan. Also, the workers were not allowed to deduct business expenses.

For further information see VTN Monthly Tax Update Seminar, Issue No. 329.
March 31, 2009
CANADA CHILD TAX BENEFIT (CCTB)
It is often difficult to determine who is the “eligible individual” for purposes of receiving the CCTB in marriage breakdown situations.

In an October 21, 2008 Tax Court of Canada case (Sanderson vs. H.M.Q. et al, 2007-137(IT)I), the Court concluded that the “eligible individual” (Section 122.6 - the person who primarily fulfills the responsibility for the care and upbringing of the child) was, in this case, two-thirds of the year the father and one-third, the mother.

For further information see VTN Monthly Tax Update Seminar, Issue No. 329.
March 24, 2009
SHAREHOLDER AGREEMENTS
Paragraph 251(5)(b) notes that where a person has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to acquire shares of a corporation, they shall be deemed to be in the same position in relation to the control of the corporation as if the person owned the shares at that time. (CRA’s Income Tax Technical News No. 38)

For further information see VTN Monthly Tax Update Seminar, Issue No. 328.
March 17, 2009
GROUP SICKNESS AND ACCIDENT INSURANCE PLAN
In an October 17, 2008 External Technical Interpretation (2008-0278501E5, Cooke, Michael), CRA notes that generally speaking, an employee must include in income the total of all amounts received in the year that were payable on a periodic basis as benefits under a Group Wage Loss Replacement Plan in which the employer has made a contribution. (Paragraph 6(1)(f))

However, this income inclusion is reduced by contributions made by the employee to the particular Plan before the end of the year.

For further information see VTN Monthly Tax Update Seminar, Issue No. 328.
March 10, 2009
PASTORAL AGENTS WITHIN THE ROMAN CATHOLIC CHURCH
In a June 27, 2008 Tax Court of Canada case (Lefebvre et al vs. H.M.Q., 2007-1075(IT)I), the Court allowed the pastoral agents to receive a residence deduction as a clergy person under Paragraph 8(1)(c), up to their remuneration from the clergy employment. (See IT141R: Clergy Residence Deduction)

For further information see VTN Monthly Tax Update Seminar, Issue No. 328.
March 03, 2009
U.S. CITIZENS AND RESIDENTS OWNING CANADIAN MUTUAL FUNDS
If the U.S. citizen/U.S. resident (including a Green Card holder) owns a Canadian or another non-U.S. Mutual Fund Trust, the person must file IRS Form 3520. This Form is complicated and may require you to submit information that is not readily available from the Mutual Fund Trust.

Significant penalties for non-compliance may be applied. Specialized U.S. expertise will likely be needed.

For further information see VTN Monthly Tax Update Seminar, Issue No. 327.
February 24, 2009
VALUE OF VOTING NON-PARTICIPATING SHARES
CRA’s Income Tax Technical News No. 38 (September 22, 2008) notes that when they value different classes of shares in a company, they generally determine the “en bloc” fair market value and then allocate the value to each class in isolation.

For further information see VTN Monthly Tax Update Seminar, Issue No. 327.
February 17, 2009
DEATH - PENSION SPLITTING
In a September 17, 2008 External Technical Interpretation (2008-0275731E5, LaBarre, Sylvie), CRA notes that the deceased person’s spouse may complete Form T1032 to elect to split eligible pension income with the deceased person. The split-pension amount may not exceed 50% of the “eligible pension income” of the pensioner multiplied by the months married in the year divided by twelve.

For further information see VTN Monthly Tax Update Seminar, Issue No. 327.
February 10, 2009
DEDUCTIBILITY OF INTEREST AND PENALTIES RELATED TO GST/HST
CRA’s Income Tax Technical News No. 38 (September 22, 2008) notes that Paragraph 18(1)(t) now provides no deduction in respect of any amount paid or payable as interest under Part IX of the Excise Tax Act (ETA) for taxation years beginning April, 2007 or later.

For further information see VTN Monthly Tax Update Seminar, Issue No. 327.
February 03, 2009
DISABILITY TAX CREDIT TRANSFER
If a disabled person does not need to claim the Disability Tax Credit (DTC) to reduce his/her tax payable to nil, the unutilized portion may be transferred to a spouse or common-law partner or to another supporting person.

For further information see VTN Monthly Tax Update Seminar, Issue No. 327.
January 20, 2009
FORM T1261 - CRA INDIVIDUAL TAX NUMBER (ITN) FOR NON-RESIDENTS
CRA notes in a 2008 Technical Interpretation (2008-0275871C6, Thomson, Sherry, that Form T1261 is used to obtain an ITN which is a 9-digit number issued to individuals who need an identification number but who are not eligible to obtain a Social Insurance Number.

For further information see VTN Monthly Tax Update Seminar, Issue No. 326.
January 13, 2009
PROVINCIAL TAXES
A corporation must allocate taxable income to a province in which it has a permanent establishment (P.E.). Therefore, if a corporation does not have a P.E. in a province, it should not have any income tax or capital tax liability to that province. (Regulation 400(2))

For further information see VTN Monthly Tax Update Seminar, Issue No. 326.
January 06, 2009
CRA RELEASES (www.cra.gc.ca)
CRA is warning taxpayers to beware of a scam where Canadians are receiving a letter fraudulently identified as coming from the CRA and asking for personal information. See http://www.cra-arc.gc.ca/alert/index.html for a version of the letter.

The letter claims that there is “insufficient information” in the individual’s tax return and, to receive “claims”, they will have to provide additional information including information on bank accounts and passports.

For further information see VTN Monthly Tax Update Seminar, Issue No. 326.
December 02, 2008
MARITAL STATUS CHANGE
CRA notes that when a taxpayer files Form RC65 (Marital Status Change) he/she may be eligible for additional Canada Child Tax Benefits (CCTB) and/or Goods and Services Tax Credit payments.

Upon receipt of the Form, CRA will recalculate the benefits based on the number of children under 18 years of age the taxpayer has in his/her care, the province or territory of residence, and your family net income.

For further information see VTN Monthly Tax Update Seminar, Issue No. 325.
November 25, 2008
PRIVATE HEALTH SERVICES PLAN (PHSP)
In a July 8, 2008 External Technical Interpretation (2008-0273771E5), CRA note that a corporate employer may self-administer a PHSP. CRA’s position is in Paragraph 7 of IT339R2.

For further information see VTN Monthly Tax Update Seminar, Issue No. 325.
November 18, 2008
SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (SR&ED)
In a July 18, 2008 CRA Release (Changes to Scientific Research and Experimental Development Tax Incentives as a Result of the 2008 Federal Budget), CRA notes that Claimants can earn SR&ED investment tax credits (ITCs) on permissible salary or wages for SR&ED work performed outside Canada after February 25, 2008.

For further information see VTN Monthly Tax Update Seminar, Issue No. 325.
November 12, 2008
INVESTMENT INCOME
In a December 6, 2007 Tax Court of Canada case (Gros-Louis vs. H.M.Q., 2003-4543(IT)G), the Court found that investment income earned by an Indian from a Credit Union situated on the Reserve was not tax-exempt. The income-generating activities and the connecting factors of the Credit Union are not situated on the Reserve.

For further information see VTN Monthly Tax Update Seminar, Issue No. 324.
November 04, 2008
NOTICE OF ASSESSMENT
In a January 30, 2008 Tax Court of Canada case (741290 Ontario Inc. vs. H.M.Q., 2008 TCC 55), the Court found that CRA did not provide evidence to show that a Notice of Assessment had been mailed. Therefore, CRA’s contention that the taxpayer’s Notice of Objection was past the limitation period was not accepted.

For further information see VTN Monthly Tax Update Seminar, Issue No. 324.
October 28, 2008
SMALL BUSINESS DEDUCTION
In a 2007 Advance Income Tax Ruling (2007-0245931R3), CRA Ruled that where a Partner of a Professional Partnership creates a professional corporation through which professional services are provided to the Partnership, the professional corporation will generally be eligible for the small business deduction, if certain conditions are met.

For further information see VTN Monthly Tax Update Seminar, Issue No. 324.
October 21, 2008
HEALTH CARE SPENDING ACCOUNT (HCSA)
In a 7-page Advance Income Tax Ruling (2007-0257631R3), CRA Ruled that Health Care Spending credits which are linked to a bonus the employee may receive would not result in employment income to the employee. This is because the allocation of the credits under a Private Health Services Plan, as defined in Subsection 248(1), meets the administrative guidelines in IT339R2 and IT529.

For further information see VTN Monthly Tax Update Seminar, Issue No. 324.

October 14, 2008
CANADA CHILD TAX BENEFIT (CCTB)
In a March 6, 2008 Tax Court of Canada case (Grimard vs. H.M.Q., 2007-3518(IT)I), the Court found that where the father obtained a special access right for the summer period (i.e., 41 days of a total of 61 days) the father, not the mother, was the parent who primarily fulfilled the care and upbringing of the child for July and August and, therefore, the father is entitled to the CCTB for that period. (Section 122.6)

For further information see VTN Monthly Tax Update Seminar, Issue No. 324.
October 07, 2008
DIRECTOR LIABILITY
In a French February 11, 2005 Tax Court of Canada case (Stasieczek vs. H.M.Q., 2003-2893(GST)I), the taxpayers were found not to be liable for the unremitted GST/HST at the time the company became bankrupt on the basis that they signed a document resigning their directorships more than two years before CRA assessed them in 2002. Therefore, the two-year statute of limitations was applied.

For further information see VTN Monthly Tax Update Seminar, Issue No. 323.
September 30, 2008
GOLF CLUB MEMBERSHIP FEES
In a May 15, 2008 Tax Court of Canada case (Rachfalowski vs. H.M.Q., 2007-4239(IT)I), the golf club membership provided for the employee by Canada Life was not considered to be a taxable benefit by the Court which accepted the taxpayer’s assertion that he did not want the golf club membership. He asked for the cash equivalent and was refused and he tried to decline the membership outright but was persuaded not to do so because he would stand out and look like a maverick and would not fit into the corporate culture.

The taxpayer only used the club a few times for entertaining clients and on a couple of occasions took his wife to dinner there.

For further information see VTN Monthly Tax Update Seminar, Issue No. 323.
September 23, 2008
FITNESS TAX CREDIT
The Fitness Tax Credit is a non-refundable tax credit on eligible amounts of up to $500 paid to register a child under the age of 16 in an “eligible program of physical activity”.

In a May 7, 2008 Technical Interpretation (2007-0248651M4, Shields, Renee), CRA notes that bowling meets the physical requirements in the Regulations.

For further information see VTN Monthly Tax Update Seminar, Issue No. 323.
September 16, 2008
COMMON-LAW RELATIONSHIPS
In a May 23, 2008 Tax Court of Canada case (Harrison vs. H.M.Q., 2006-303(IT)G), CRA successfully disallowed the taxpayer’s claim for the Canada Child Tax Benefit on the basis that he was in a common-law relationship and the common-law partner’s income was high enough to disqualify the claim.

For further information see VTN Monthly Tax Update Seminar, Issue No. 323.
September 16, 2008
COMMON-LAW RELATIONSHIPS
In a May 23, 2008 Tax Court of Canada case (Harrison vs. H.M.Q., 2006-303(IT)G), CRA successfully disallowed the taxpayer’s claim for the Canada Child Tax Benefit on the basis that he was in a common-law relationship and the common-law partner’s income was high enough to disqualify the claim.

For further information see VTN Monthly Tax Update Seminar, Issue No. 323.
September 16, 2008
COMMON-LAW RELATIONSHIPS
In a May 23, 2008 Tax Court of Canada case (Harrison vs. H.M.Q., 2006-303(IT)G), CRA successfully disallowed the taxpayer’s claim for the Canada Child Tax Benefit on the basis that he was in a common-law relationship and the common-law partner’s income was high enough to disqualify the claim.

For further information see VTN Monthly Tax Update Seminar, Issue No. 323.
September 02, 2008
EXTENDED CAB
In an April 30, 2008 Tax Court of Canada case (Betcher vs. H.M.Q., 2004-1295(GST)G), the taxpayer operated a grain farming operation in Manitoba when he acquired a 1999 Silverado Extended Cab 4x4 truck for $39,614 plus 7% GST of $2,773. CRA reduced the Input Tax Credit claim of $2,773 on the basis that this was a passenger vehicle with a tax cost of $30,000.

Taxpayer Wins!

The Court concluded that the extended cab was used all, or substantially all, of the time to transport goods, passengers or equipment and was excluded from the definition of passenger vehicle. Therefore, the taxpayer was entitled to the GST Input Tax Credits on the full purchase price of the extended cab.

For further information see VTN Monthly Tax Update Seminar, Issue No. 322.
August 26, 2008
NOTICE TO PROVIDE INFORMATION
Subsection 231.2(1) permits CRA to compel the production of information that CRA considers necessary to fulfill its mandate.

eBay Loses

In an April 17, 2008 Federal Court of Appeal case (eBay Canada Limited and eBay CS Vancouver Inc. vs. M.N.R., A-105-08), the Court dismissed eBay’s motion to stay the execution of a Judgment which authorized the Minister of National Revenue to require eBay, under Subsection 231.2(3), to provide information to CRA about PowerSellers whose eBay registration indicates a Canadian address.

For further information see VTN Monthly Tax Update Seminar, Issue No. 322.
August 19, 2008
PARKING
In a May 7, 2008 CRA Release entitled “Parking”, CRA notes that providing parking to an employee is usually a taxable benefit unless:

• a business operates from a shopping centre or industrial park where parking is available to both employees and non-employees;

• an employer provides scramble parking (there are fewer spaces than there are employees who require parking and the spaces are available on a first-come, first-served basis);

• an employer provides parking to employees for business purposes and the employees regularly have to use the automobile to perform their employment duties; or

• an employee has a disability.

For further information see VTN Monthly Tax Update Seminar, Issue No. 322.

August 12, 2008
FINANCE RELEASES (www.fin.gc.ca)
May 8, 2008 - In this Release, and the related Question and Answer Release, Finance notes improvements to Life Income Funds (LIFs) and Locked-In RRSPs including:

(i) All individuals 55 or older will be entitled to a one-time conversion of up to 50% of federally regulated LIFs into a tax-deferred savings vehicle with no maximum withdrawal limit.

The LIF funds are first transferred into a new type of locked-in retirement account call a Restricted Life Income Fund (RLIF). Within 60 days of the creation of the RLIF, up to 50% of the funds may be transferred to a tax-deferred savings vehicle - either an RRSP or RRIF.

(ii) Individuals 55 or older with total holdings in federally regulated LIFs of up to $22,450 may wind-up their LIFs or convert to a tax-deferred savings vehicle with no maximum withdrawal limit, such as an RRIF or RRSP.

(iii) All individuals facing financial hardship (e.g., low income, high disability or medical related costs) may withdraw up to $22,450 a year.

For further information see VTN Monthly Tax Update Seminar, Issue No. 322.
August 05, 2008
GIFT OF A LIFE INSURANCE POLICY
In a February 25, 2008 External Technical Interpretation (2008-0267091E5, Lambert, Michel), CRA note that Paragraphs 40 and 41 of Information Circular 89-3 lists the factors to be considered in valuing a life insurance policy for donation purposes.

The donee can take into account the fair market value of the life insurance policy at the time of the gift where the fair market value exceeds the cash surrender value. Subsection 148(9) defines the term “value” for purposes of Section 148.

For further information see VTN Monthly Tax Update Seminar, Issue No. 321.
July 29, 2008
CHILD SUPPORT ARREARS
In a January 22, 2007 Tax Court of Canada case (Chabot vs. H.M.Q., 2006-805(IT)I), the Court found that the payment for arrears of child support is deductible as the 2002 arrears Order stemmed from an Order that was created on October 25, 1993, and, therefore, before April, 1997 - the date after which child support ordered payments were not deductible/nor taxable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 321.
July 22, 2008
CRA RELEASES (www.cra.gc.ca)
CRA issued Publication T4068-1, 2007 Supplement to the 2006 T4068 - Guide to the T5013 Partnership Information Return. This Supplement includes what’s new for 2007 and corrections to the 2006 Guide.

The Supplement confirms CRA’s administrative policy that a partnership with five partners or fewer throughout the whole fiscal period does not have to file a T5013 Partnership Information Return if:

• none of the Partners is another Partnership; and
• it did not invest in flow-through shares of a principal business corporation.

The Supplement also notes that this administrative policy is under review and could be changed in future years.

For further information see VTN Monthly Tax Update Seminar, Issue No. 321.
July 15, 2008
SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (SR&ED)
In a February, 2008 13-page Guide T4052 (an Introduction to the SR&ED Program), CRA discusses what is eligible, investment tax credits, services available to claimants such as the first time claimant service, pre-claim project service review, and account executive service.

Also discussed are applications for the SR&ED tax incentives and guidelines for resolving concerns. It also mentions additional SR&ED reference material, contacts and investment tax credit rates. (Also see CRA Guide T4088)

For further information see VTN Monthly Tax Update Seminar, Issue No. 320.
July 02, 2008
PASSENGER VEHICLE - TAXABLE BENEFIT
Where an employer leases a vehicle which is made available to an employee, the standby charge taxable benefit is based on the annual rental amounts plus any lump-sum terminal charge which may be payable in the year. However, in a Technical Interpretation (2007-0258991C6, Harkin, Shaun), CRA notes that the lump-sum terminal charge at the lease end may be allocated over the previous years by amending past years T4s. (See Form T4130 - “Lump-Sum Lease Payments” and CRA Document 2005-0143231E5)

For further information see VTN Monthly Tax Update Seminar, Issue No. 320.
June 24, 2008
MEDICAL EXPENSE - HEARING AID
In a February 6, 2008 External Technical Interpretation (2007-0247031E5, Moore, Gwen), CRA notes that Paragraph 118.2(2)(i) permits certain medical devices as medical expenses including “an aid to hearing”. CRA notes that the cost of an extended warranty for a hearing aid would qualify.

For further information see VTN Monthly Tax Update Seminar, Issue No. 320.
June 17, 2008
CRA RELEASES (www.cra.gc.ca)
CRA has commenced investigations into 100 wealthy Canadians whose names appear on a list of account holders at a tax haven bank in Liechtenstein. The records were originally taken from an employee of LTG Group who has been charged with fraud. The Government of Germany paid $6.3 million for the list and it became available to Canada through its membership in the OECD’s Aggressive Tax Planning Working Group.

Taxpayers may make a formal complaint with respect to CRA service after an attempt has been made to resolve the matter with the CRA employee/supervisor. For more information see www.cra-arc.gc.ca/complaints. We understand that CRA staff are ready to handle complaints. (Form RC4420)

For further information see VTN Monthly Tax Update Seminar, Issue No. 320.
June 03, 2008
PROGRAMS AND BENEFITS FOR THOSE WITH DISABILITIES
Looking for programs for those with Disabilities?

Programs and benefits available for those with disabilities can be found by going to the website, www.canadabenefits.gc.ca. This Government of Canada website lists numerous provincial and federal programs and can be searched according to alphabetical order, program popularity, and programs provided by federal or provincial governments.

For further information see VTN Monthly Tax Update Seminar, Issue No. 319.
May 27, 2008
CONTRA INTEREST
Subsection 161(2.2) of the Income Tax Act permits a taxpayer to “offset” interest earned on early or overpaid instalments against interest owing on late or insufficient instalments in the same year. Therefore, as long as the interest rate remains the same for the four quarters of the year, paying the full amount of instalments at the midpoint of the year should result in no instalment interest being assessed by CRA.

For further information see VTN Monthly Tax Update Seminar, Issue No. 319.
May 20, 2008
OVERSEAS EMPLOYMENT TAX CREDIT (OETC)
In a January 4, 2008 External Technical Interpretation (2007-0262351E5, Seidel, Art), CRA notes that to qualify for the OETC an individual must be employed by a specified employer (generally, a resident of Canada) in connection with a contract related to exploration for or exploitation of petroleum, natural gas, minerals or other similar resources, or any construction, installation, agricultural or engineering project or with respect to an activity performed under a contract with the United Nations.

For further information see VTN Monthly Tax Update Seminar, Issue No. 319.

May 13, 2008
COMMON-LAW PARTNERS
In a January 24, 2008 Tax Court of Canada case (Hendricken vs. H.M.Q., 2006-2889(IT)I), the taxpayer was successfully reassessed for recovery of the Goods and Services Tax Credit (GSTC) and the Canada Child Tax Benefit (CCTB) on the basis that the taxpayer was in a common-law relationship and the income of her common-law partner should have been taken into account. As well, amounts claimed for child care expenses and for a wholly dependent person were disallowed.

For further information see VTN Monthly Tax Update Seminar, Issue No. 319.
May 06, 2008
RECORD RETENTION
The Excise Tax Act requires that a business maintain adequate books and records in Canada. However, a taxpayer may seek approval from CRA to have all or part of the records retained outside Canada - for example, in the outsourcing of the accounting documents. (See GST/HST Memoranda Series 15.1)

For further information see VTN Monthly Tax Update Seminar, Issue No. 318.
April 29, 2008
MEDICAL EXPENSES - RENOVATIONS
In a November 9, 2007 External Technical Interpretation (2007-0251071E5, Riddell, Amanda, LL.B,), CRA notes that Paragraph 118.2(2)(l.2) includes as a medical expense renovations or alterations to a dwelling of a individual who lacks normal physical development or has a severe and prolonged mobility impairment, to enable the individual to gain access to, or to be mobile or functional within, the dwelling, provided that the alteration would not typically be expected to increase the value of the dwelling and would not normally be incurred by a person who has normal physical development or does not have a mobility impairment.

For further information see VTN Monthly Tax Update Seminar, Issue No. 318.
April 22, 2008
WARNING
In a November 29, 2007 Release, CRA warned investors about questionable RRSP and RRIF tax-free withdrawal schemes. To date, CRA has reassessed over 3,100 taxpayers, commenced audits on another 1,800 taxpayers and, audits on other arrangements are about to begin.

For further information see VTN Monthly Tax Update Seminar, Issue No. 317.
April 15, 2008
SUPPORT PAYMENTS
In November, 2007, CRA released 14-page Guide P102 (Support Payments, including Form T1158) which discusses the tax rules in a marriage breakdown including pre- and post-April 1997 agreements with respect to child support, spousal support, registering the Order with CRA, the change in marital status in the year, deducting and reporting alimony/child support payments, third party payments, payments to and from non-residents, and deductions from your pay.

For further information see VTN Monthly Tax Update Seminar, Issue No. 317.
April 08, 2008
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN (SERP)
An employer may provide a SERP to employees for retirement benefits in excess of those under registered retirement plans. To avoid the Salary Deferral Arrangement rules (SDA) which would immediately tax the employee, the SERP should be a pension type plan. (Paragraph 56(1)(w))

For further information see VTN Monthly Tax Update Seminar, Issue No. 317.
April 01, 2008
EQUIVALENT-TO-SPOUSE CREDITS - RESIDENT DEPENDANT
In an August 30, 2007 Tax Court of Canada case (Teeluck vs. H.M.Q., 2006-3560(IT)I), the taxpayer was disallowed an equivalent-to-spouse credit because the dependant father did not live with the taxpayer in the taxpayer’s establishment as is required under Subparagraph 118(1)(b)(ii).

For further information see VTN Monthly Tax Update Seminar, Issue No. 317.
March 25, 2008
CRA RELEASES (www.cra.gc.ca)
November 21, 2007 - Email Fraud Alert - CRA warns that numerous individuals are receiving emails that are falsely identified as coming from the Canada Revenue Agency (CRA) confirming the registration of a complaint case. This email is not from the CRA.

The web links within the fraudulent email contain harmful software. If you receive this email, you should delete it. The Release includes a sample of the fraudulent email. The email directs the reader to download a copy of their complaint from “weblink”. Do not do this!

For further information see VTN Monthly Tax Update Seminar, Issue No. 317.
March 18, 2008
INTERVIVOS ROLLOVER OF FARM PROPERTY TO CHILDREN
Subsection 73(3) permits a taxpayer to transfer, on a tax deferred basis, farm property to a child. The “rollover” is important, even if the capital gain exemption would otherwise be available, because this taxable capital gain is included in net income, even though it is deducted in computing taxable income. This affects income sensitive items such as Old Age Security clawbacks, age credit clawbacks, Guaranteed Income Supplements, etc.

For further information see VTN Monthly Tax Update Seminar, Issue No. 316.
March 11, 2008
EMPLOYEE VS. INDEPENDENT CONTRACTOR
In an October 24, 2007 Federal Court of Appeal case (1536378 Ontario Limited et al vs. M.N.R., A-36-07), the Court confirmed the Tax Court decision that certain pet groomers were employees not independent contractors.

For further information see VTN Monthly Tax Update Seminar, Issue No. 316.
March 04, 2008
CRA RELEASES (http://www.cra.gc.ca)
November 2, 2007 - The maximum Canada Pension Plan (CPP) pensionable earnings for 2008 is $44,900 ($43,700 in 2007). The maximum self-employed contributions for 2008 are $4,099 ($3,980 in 2007). The maximum employer/employee contribution for 2008 is $2,049 ($1,990 in 2007).

For a CPP calculator under various scenarios see Canadian Retirement Income Calculator (do a Google search).

For further information see VTN Monthly Tax Update Seminar, Issue No. 316.
February 26, 2008
NATURAL PERSONS
CRA’s response to a comment that a “natural person” does not have to pay tax and does not have to provide a social insurance number (SIN) to an employer is included in a September 17, 2007 External Technical Interpretation (2007-0234531E5, Shields, Renee), which notes that:

1. Subsection 2(1) of the Income Tax Act requires every person resident in Canada to pay income tax - this includes individuals, corporations and Trusts. A “natural person” is defined as a human being... and this is caught by the Income Tax Act.

2. Failure to provide a SIN subjects the person to a penalty of $100 per failure under Subsection 162(6). Failure of an employer to make a reasonable effort to acquire a SIN may also be subject to a penalty of $100 for each failure.

For further information see VTN Monthly Tax Update Seminar, Issue No. 315.
February 19, 2008
POLITICAL ACTIVITIES
On September 24, 2007, Canada Revenue Agency again warned charities that there are limitations on certain types of political activities. (See CPS-022)

Partisan political activities are those that involve direct or indirect support of, or opposition to, any political party or candidate for public office. Registered charities are prohibited from partisan political activity.

For further information see VTN Monthly Tax Update Seminar, Issue No. 315.

February 12, 2008
REFUNDABLE DIVIDEND TAX ON HAND (RDTOH)
A corporation may pay “an eligible dividend” and still receive the 33 1/3% refund of RDTOH. As the tax rate on “eligible dividends” is significantly less than this 33 1/3%, having General Rate Income Pool income and investment income in the same corporation permits the RDTOH to be refunded through the payment of “eligible dividends”.

For example, if INVESTCO owns the shares of OPCO such that OPCO pays “eligible dividends” to INVESTCO, these could then be flowed out to the INVESTCO shareholders as “eligible dividends” with the side benefit of receiving a refund of RDTOH.

For further information see VTN Monthly Tax Update Seminar, Issue No. 315.

February 05, 2008
STUDENTS
Some claims that may be made by students include:

(i) tuition and ancillary fee tax credit (Section 118.5),

(ii) a textbook credit of $65 per month in school (Subsection 118.6(2.1)),

(iii) an education amount of $400 per month (Subsection 118.6(2)).
If the student cannot use the tuition, education and textbook amounts, these can be transferred to a parent or grandparent up to $5,000. Amounts not used by the student and not transferred may be carried forward and used by the student in a subsequent year.

Also, the student may claim a public transit pass credit. If the student is under age nineteen, the unclaimed amount may be claimed by the parent.

For further information see VTN Monthly Tax Update Seminar, Issue No. 315.
January 29, 2008
TRANSFER PRICING – ADVANCE PRICING ARRANGEMENT
In a June 29, 2007 CRA Release (TPM10 - Advance Pricing Arrangement (APA) Rollback), CRA notes that under an APA, CRA will confirm the appropriate transfer pricing methodology on a specific cross-border non-arm’s length transaction for specified tax years. Many APAs require the Canadian competent authority to obtain approval from the other foreign country.

This Release notes that CRA may expand the period of an APA to cover transactions in previous tax years which are not yet statute-barred.

The details are discussed in this Release.

For further information see VTN Monthly Tax Update Seminar, Issue No. 314.
January 22, 2008
GOLF CLUB MEMBERSHIP
In an August 10, 2007 CRA Interpretation (2007-0226111I7, McCarthy, Kathryn), CRA notes that the cost of a golf club membership provided to a employee is generally a taxable benefit even though the dues or fees are not deductible to the employer because of Paragraph 18(1)(l).

However, if the employer and employee can establish that the membership is primarily (more than 50%) for the employer’s advantage, no taxable employment benefit will arise. This could apply to employees in public relations or those who network with and entertain clients where it can be demonstrated that such work primarily benefits the employer.

For further information see VTN Monthly Tax Update Seminar, Issue No. 314.
January 15, 2008
PUBLIC TRANSIT TAX CREDIT
In an August 8, 2007 Technical Interpretation (2007-0244091M4), CRA notes that a transportation pass with a privately owned company could also qualify for the public transit tax credit if it meets the other tests including return-trip transportation services offered to the general public for a period of at least five days per week by means of bus, ferry, subway, train or tram.

However, public commuter transit services offered in commuter vans would likely not qualify.

For further information see VTN Monthly Tax Update Seminar, Issue No. 314.

January 08, 2008
FOREIGN EXCHANGE RATE
In an August 8, 2007 Technical Interpretation (2007-0242861M4, Thomson, Sherry), CRA notes that the United States pension and investment income earned by the taxpayer may be converted into Canadian dollars by using the exchange rate that was in effect on the date the foreign income was received or, the Bank of Canada annual average exchange rate, as a convenience. These rates are posted on the CRA’s website at
www.cra.gc.ca/tax/individuals/faq/exchange_rate-e.html.

For further information see VTN Monthly Tax Update Seminar, Issue No. 314.
January 02, 2008
TAX CREDIT FOR CHILDREN
The March 19, 2007 Federal Budget provides a $2,000 non-refundable tax credit for parents of a child under 18 years of age in 2007. This has been included in the Form TD1, Personal Tax Credits Return.

This tax credit will be calculated at the lowest personal income tax rate (i.e., 15.0% in 2007).

For the year of the birth, adoption or death of a child, the full credit will be claimable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 314.
December 24, 2007
CANADA PENSION PLAN (CPP) COLLECTED EARLY
To qualify for CPP early the person must be at least age 60 and either have stopped working or earned less than the current monthly maximum CPP benefit ($864) in the month the pension begins and the prior month.

When taking CPP early the amounts are reduced by one-half of 1% per month. For example, by taking the CPP five years early the CPP payments would be 30% less than that which would have been received at age 65 (6% per year times 5 years = 30%).

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.
December 18, 2007
REQUIREMENT FOR A COPY OF THE WILL UPON FILING THE TERMINAL PERSONAL TAX RETURN
In a 2007 Interpretation (2007-0237141M4, Humenuk, Annemarie), CRA notes that Publication T4011, Preparing Returns for Deceased Persons, states that when filing the final tax return for a deceased individual, CRA requests a copy of the Death Certificate and the Will to verify that the individual submitting the return is the deceased individual’s legal representative. A partial copy of the Will is not sufficient for this purpose.

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.
December 11, 2007
NEW TESTS FOR DESIGNATION OF CHARITIES
In a July 11, 2007 CRA Registered Charities Release, CRA notes that the Charities Directorate is now applying the “control test”, rather than the “contribution test”, in its review of applications for registration and re-designation. Applications for re-designation can be made retroactively for taxation years that begin after 1999.

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.
December 04, 2007
INVESTMENT TAX CREDIT CARRYFORWARD
In a December 22, 2006 Federal Court of Appeal case (H.M.Q. vs. Papiers Cascades Cabano Inc., Docket: A-410-05), the Court found that an investment tax credit carryforward from a statute-barred year could be changed in the year it is claimed, assuming that that year is not statute-barred. Therefore, CRA’s appeal was allowed.

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.

November 27, 2007
CAPITAL GAIN ROLLOVER
Section 44.1 provides a capital gain deferral of up to $2 million when an individual sells shares of an eligible small business corporation and then invests in shares of another eligible small business corporation (replacement shares).

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.
November 20, 2007
August, 2007 - Nine-page Guide RC4117
“Tax Refund for Business Travel to Canada” notes that effective April 1, 2007, a GST/HST refund is no longer available on short-term accommodation in Canada unless the accommodation started before April 1, 2007 or was purchased under a written agreement entered into before September 25, 2006. A refund is still available for GST/HST paid on eligible tour packages. (GST 510)

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.
November 13, 2007
CRA RELEASES (www.cra.gc.ca)
August 13, 2007 - CRA Warning: Participating in tax shelter gifting arrangements is likely to result in a tax bill!

Taxpayers should be aware that CRA plans to audit all tax shelter gifting arrangements. Every audit completed to date has resulted in a reassessment of tax, plus interest. In many cases the CRA has denied the “gift” completely. Penalties will be considered, especially where an investor was audited and reassessed for previously participating in a gifting arrangement.

For further information see VTN Monthly Tax Update Seminar, Issue No. 313.
November 06, 2007
CORPORATE PARTNER - CAPITAL DIVIDEND ACCOUNT (CDA)
In a June 18, 2007 External Technical Interpretation (2006-0215001E5, Cameron, Al), CRA noted that where a partnership has an April 30 year-end and a Corporation is a Partner, but has a different year-end, the Corporation would include its share of the income of the Partnership in its income for its taxation year that includes the end of the Partnership’s fiscal period.

For further information see VTN Monthly Tax Update Seminar, Issue No. 312.
October 30, 2007
PROVINCE OF RESIDENCE
In a June 14, 2007 Tax Court of Canada case (McKim vs. H.M.Q., 2006-2538(IT)I)), the taxpayer filed as a resident of Newfoundland and CRA reassessed as a resident of Ontario.

When the taxpayer appealled, the Tax Court determined that it did not have jurisdiction to deal with the issue. The case should be brought before the Trial Division of the Supreme Court of Newfoundland.

For further information see VTN Monthly Tax Update Seminar, Issue No. 312.
October 23, 2007
MEDICAL EXPENSE - TRAVEL INSURANCE
In a June 7, 2007 External Technical Interpretation (2007-0229901E5, Nelson, Allan, 1-613-443-7253), CRA notes that in some cases the cost to acquire certain medical travel insurance policies can qualify as a medical expense if they are paid as a premium, contribution or other consideration to a Private Health Services Plan (PHSP). (IT339R2, Paragraph 3, IT519R2, Paragraph 64, Paragraph 118.2(2)(q))

For further information see VTN Monthly Tax Update Seminar, Issue No. 312.
October 16, 2007
CHILD SUPPORT
In an April 19, 2007 Tax Court of Canada case (Allison Clement vs. H.M.Q., 2005-4348(IT)I), the taxpayer was receiving $1,000 per month child support payments pursuant to a separation in 1996. In November, 2002, the parties signed an affidavit agreeing to reduce the monthly child support to $800 per month. This affidavit constituted a Written Agreement.

The Court found that this triggered a “Commencement Day”. Therefore, the child support amounts became non-taxable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 311.

October 09, 2007
CAPITAL COST ALLOWANCE - PRINTERS
In a May 10, 2007 Technical Interpretation (2005-0163331I7, Lewis, Shelley), CRA notes that smaller and medium-sized multi-functional printers which were generally leased by small and medium businesses would be Class 45 assets. These printers are attached to and used as part of a LAN so they are considered ancillary to general-purpose electronic data processing equipment.

For further information see VTN Monthly Tax Update Seminar, Issue No. 311.
October 02, 2007
TRANSIT PASS CREDIT
In a May 23, 2007 Technical Interpretation (2007-0232661M4, Harkin, Shaun, 1-416-957-9229), CRA noted that a transportation pass to travel via a commuter van or car for a fee will not qualify for the transit pass credit as they are not “by means of bus, ferry, subway, train or tram”. (Subsection 118.02(1))

For further information see VTN Monthly Tax Update Seminar, Issue No. 311.
September 25, 2007
TAX SHELTERS
Subsection 237.1(6) prohibits a taxpayer from claiming a deduction for a tax shelter unless prescribed Form T5004 is filed.

For further information see VTN Monthly Tax Update Seminar, Issue No. 311.
September 18, 2007
CRA RELEASES (www.cra.gc.ca)
June 4, 2007 - The Fairness Provisions which are used to 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 will now be referred to as the Taxpayer Relief Provisions - not the Fairness Provisions. (Information Circular 07-1)

For further information see VTN Monthly Tax Update Seminar, Issue No. 311.
August 28, 2007
REASONABLENESS OF BONUS
In a 2006 Advance Income Tax Ruling (2006-0201601R3), CRA Ruled that a bonus paid out of the proceeds of disposition of business property, including goodwill, will, under these circumstances, be reasonable and deductible.

For further information see VTN Monthly Tax Update Seminar, Issue No. 310.
August 21, 2007
BUSINESS EXPENSES
In a May 8, 2007 Tax Court of Canada case (LeBlanc vs. H.M.Q., 2006-1306(IT)I), CRA disallowed many of the unsupported business expenses with respect to a real estate business in 2000.

The taxpayer noted that in the 1996 and 1997 years a settlement had been made with the CRA Justice lawyer “on the Court House steps” to permit 85% capital cost allowance on the automobile, 38% property taxes, and other settlements. The taxpayer argued that these settlements were also to apply to future years pursuant to a discussion with CRA.

Taxpayer Loses - Kind Of
The Court did not accept this. However, it did permit a pro-rata portion of the expenses on a rough and ready basis as it was likely that the expenses were incurred.

For example, 25% of the vehicle expenses, 50% of the office expenses, 38% of the utilities, and 100% of the cell phone and pager claims were allowed.

For further information see VTN Monthly Tax Update Seminar, Issue No. 310.

August 14, 2007
MEDICAL EXPENSES - MEDICINAL, NUTRITIONAL AND HERBAL SUPPLEMENTS
In an April 30, 2007 Tax Court of Canada case (Breger vs. H.M.Q., 2006-378(IT)I), the taxpayer acquired medicinal, nutritional and herbal supplements, as prescribed by a medical doctor and recorded by a pharmacist, as required under Section 21 of the Quebec Pharmacy Act.

CRA disallowed the medical expenses on the basis that they could have been acquired over-the-counter and were not listed as prescription drugs in any of the Schedules to the Quebec Pharmacy Act.

Taxpayer Wins!
Because Section 21 of the Quebec Pharmacy Act requires a pharmacist to keep a record for each patient in respect of whom a prescription is filled, this meets the requirements in Paragraph 118.2(2)(n) that it be prescribed by a medical practitioner or dentist and recorded by a pharmacist.

For further information see VTN Monthly Tax Update Seminar, Issue No. 310.
August 07, 2007
WITHHOLDING TAX ON FEES PAID TO NON-RESIDENTS
In a January 31, 2007 Tax Court of Canada case (Weyerhaeuser Company Limited vs. H.M.Q., 2004-520(IT)G), the Court reviewed Regulation 105(1) which required the Appellant to withhold 15% of the fees paid to various non-resident persons for business services rendered in Canada.

This 15% is an installment to be applied against the non-resident’s actual tax liability. If the actual tax liability is less, the difference will be refunded.

A number of issues were discussed including amounts paid for time travelling to Canada were not “income earned in Canada” and, therefore, not subject to withholding tax. However, amounts paid for time spent while travelling in Canada are “income earned in Canada” subject to the withholding tax.

Caution should be exercised in this area. When in doubt - withhold.

For further information see VTN Monthly Tax Update Seminar, Issue No. 309.
July 31, 2007
BOOKKEEPER ERROR
In a March 9, 2007 External Technical Interpretation (2007-0224101E5, Cooke, Michael), CRA agreed that where an honest bookkeeping error incorrectly recorded $100,000 in cash received by a corporation as a credit to the shareholder loan account, even though it should have been a credit to sales, CRA would reassess the $100,000 as unreported income but would not assess the shareholder for a benefit under Subsection 15(1). This assumes the shareholder had never received any portion of the $100,000 and a correcting journal entry to debit the shareholder loan account by $100,000 and credit retained earnings is made.

For further information see VTN Monthly Tax Update Seminar, Issue No. 309.
July 24, 2007
SITE INVESTIGATION COSTS
In a March 28, 2007 Tax Court of Canada case (Parker Brothers Textile Mills Limited vs. H.M.Q., 2004-4482(IT)G), the Court permitted a deduction under Paragraph 20(1)(dd) for consulting fees with respect to a site investigation on a plant that the taxpayer required to be built for its occupation even though the taxpayer was merely the tenant of the building, not the owner and builder of it. (See IT350R: Investigation of Site)

For further information see VTN Monthly Tax Update Seminar, Issue No. 309.
July 17, 2007
FINANCING FEES FOR RETURN OF CAPITAL
In a March 14, 2007 External Technical Interpretation (2005-0161661E5, Tremblay, Claude), CRA confirmed that financing fees incurred for the return of capital will be deductible under Paragraph 20(1)(e). (See IT533, Paragraphs 22 to 26)

For further information see VTN Monthly Tax Update Seminar, Issue No. 309.
July 10, 2007
CLASSIFYING NEW CAPITAL ASSETS
If you have a client who has purchased several new capital items during the year and you are trying to classify them, try Google’s “define” feature. Simply go to google.com and type the following in the search box:

define: (insert item name)

Google will then provide you with a listing of definitions from online sources along with examples.

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.
July 10, 2007
CLASSIFYING NEW CAPITAL ASSETS
If you have a client who has purchased several new capital items during the year and you are trying to classify them, try Google’s “define” feature. Simply go to google.com and type the following in the search box:

define: (insert item name)

Google will then provide you with a listing of definitions from online sources along with examples.

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.
July 10, 2007
CLASSIFYING NEW CAPITAL ASSETS
If you have a client who has purchased several new capital items during the year and you are trying to classify them, try Google’s “define” feature. Simply go to google.com and type the following in the search box:

define: (insert item name)

Google will then provide you with a listing of definitions from online sources along with examples.

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.
July 03, 2007
COLLECTIONS POLICIES
On December 3, 2006, CRA released Information Circular 98-1R2 which gives an overview of the Collections Policies of CRA. The Circular discusses payments, collection and enforcement, Fairness Provisions, disagreements, acceptance of security, legal action to collect, collection restrictions, objections and appeals, repayment of disputed amounts, refunds applied to other debts, special provisions, amounts owing by Estates of deceased persons, Trust funds, and customs.

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.
June 26, 2007
PRIVATE HEALTH SERVICES PLAN (PHSP)
In a February 15, 2007 External Technical Interpretation (2006-0217631E5, Tiu, Dominic), CRA notes that Section 20.01 allows individual business proprietors, and partners to deduct premiums payable under a PHSP in respect of the individual and family members living with the individual, within certain dollar limits. (Subsection 20.01(2)) This limit is generally $1,500 per individual aged 18 years or over and $750 for other members of the individual’s household.

This includes related taxes (RST, GST and Premium Tax).

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.

June 19, 2007
LUMP-SUM PAYMENTS IN LIEU OF FUTURE LONG-TERM BENEFITS
In a January 4, 2007 External Technical Interpretation (2006-0217191E5, Tiu, Dominic, 1-613-957-8961), CRA notes that the Supreme Court of Canada (SCC) found in Tsiaprailis (2005) DTC 5119 that amounts received from any settlement attributable to the disposition of the employee’s entitlements to future benefits under a Disability Insurance Plan is a non-taxable payment on account of capital.

However, any portion of the amounts received attributable to an employee’s entitlement to any arrears are included in computing income under Paragraph 6(1)(f).

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.
June 12, 2007
PRESCRIBED ANNUITY CONTRACT (PAC)
A PAC pays a monthly annuity for life, a portion of which is a return of capital and the balance is taxable income. The taxable income will be pension income eligible for the $2,000 pension credit and, the proposed splitting of pension income in 2007, if the person is aged 65 or older. (Paragraphs 12.2(1)(b), 60(a), 56(1)(d) and Subsections 118(7) - “Pension Income” - (a)(vi) and 12(11))

For further information see VTN Monthly Tax Update Seminar, Issue No. 308.
June 05, 2007
ARREARS PAYMENT
In a January 22, 2007 Tax Court of Canada case (Chabot vs. H.M.Q., 2006-805(IT)I), the taxpayer paid $3,250 for arrears owed with respect to alimony.

Taxpayer Wins!

The Court permitted this arrears payment as a deduction.

For further information see VTN Monthly Tax Update Seminar, Issue No. 307.
May 29, 2007
FOREIGN CURRENCY GAINS AND LOSSES
In a December 2006 Release (2006-0215491C6, Laurikainen, Olli), CRA noted that the timing of the recognition of foreign currency gains and losses depends on whether the foreign currency deposit is on capital or revenue account.

On capital property, the gain or loss would not be recognized until the foreign currency is converted to another currency or expended for some other purpose.

Deposits on revenue account are recorded on an annual basis in accordance with GAAP.

For further information see VTN Monthly Tax Update Seminar, Issue No. 307.
May 22, 2007
MEAL REIMBURSEMENT
In a January 16, 2007 External Technical Interpretation (2006-0187761E5, Bertram, Joy), CRA notes that Subparagraph 6(1)(b)(vii) permits an employer to pay a tax-free allowance for travel expenses (including meals) to an employee who is travelling away from the municipality where the employment ordinarily occurs. This exception also applies to reimbursements.

For further information see VTN Monthly Tax Update Seminar, Issue No. 307.
May 15, 2007
STUDENTS
In a January 14, 2007 External Technical Interpretation (2006-0187471E5, Bertram, Joy), CRA notes that a non-taxable bursary encompasses almost any form of financial assistance paid to a student to enable the student to pursue his/her education. For the 2006 year, a full exemption is available for certain bursaries and scholarships however, the payer is still required to file a T4A Information Return. (Subsection 56(3))

For further information see VTN Monthly Tax Update Seminar, Issue No. 307.
May 08, 2007
MEDICAL EXPENSES - DRUGS
In a January 15, 2007 External Technical Interpretation (2006-0212201E5, Tiu, Dominic), CRA notes that Paragraph 118.2(2)(n) includes certain drugs, medicaments or other preparations prescribed by a medical practitioner or dentist and recorded by a pharmacist. (Ray vs. H.M.Q. 2004 DTC 6028) Generally, provincial laws prohibit a pharmacist from dispensing certain medications without a medical prescription. They describe the records that a pharmacist is required to keep.

For further information see VTN Monthly Tax Update Seminar, Issue No. 307.
May 01, 2007
LUMP SUM RETROACTIVE PENSION PAYMENT
In a November 3, 2006 Technical Interpretation (2006-0192051I7, Bouffard, Danielle, 1-613-590-2155), CRA note that a lump sum pension payment paid after the death of the taxpayer, due to a previous miscalculation, is a “right or thing” as described in IT-212R3, Paragraph 15.

For further information see VTN Monthly Tax Update Seminar, Issue No. 306.
April 24, 2007
2003 CRA REASSESSMENT - CANADA LIFE
For information on the 2003 proposed CRA Reassessment related to Canada Life shares see www.canadalife.com and click on “Canada” and then on “Canada Life share transaction”.

For further information see VTN Monthly Tax Update Seminar, Issue No. 306.
April 17, 2007
DISABILITY TAX CREDIT (DTC)
Celiac Disease

In a December 1, 2006 Tax Court of Canada case (Kash vs. H.M.Q., 2006-1122(IT)I), the Court noted that persons with Celiac Disease were entitled to a DTC until 2002. For 2003 and subsequent years, Subparagraph 118.4(1)(e)(ii) was amended to prohibit a DTC for this type of disability. Instead, Paragraph 118.2(2)(r) permits the cost of gluten-free food products as a medical expense.

For further information see VTN Monthly Tax Update Seminar, Issue No. 306.
April 10, 2007
CHARITABLE DONATION SCHEMES
In a February 9, 2006 Federal Court of Appeal case (Nassar et al vs. H.M.Q., A-487-0), the Federal Court upheld the Tax Court decision that denied the Appellant’s charitable donation credits claimed because the donations were not truly for the amount appearing on the receipts. Also, the gross negligence penalties applied under Subsection 163(2) were upheld by the Federal Court of Appeal.

For further information see VTN Monthly Tax Update Seminar, Issue No. 305.
April 03, 2007
LEGAL FEES
In a November 27, 2006 External Technical Interpretation (2006-0208471E5, Rafuse, Charles, 1-613-957-8967), CRA notes that legal costs incurred to obtain spousal support under the Divorce Act, or under applicable provincial legislation in a Separation Agreement, are incurred to enforce a pre-existing right to support. Consequently, these legal costs are deductible pursuant to the comments in Paragraph 18 of IT-99R5 (Consolidated).

CRA also accepts that legal costs of seeking to obtain an increase in support or to receive child support under the Federal Child Support Guidelines are also deductible because of the pre-existing right.

For further information see VTN Monthly Tax Update Seminar, Issue No. 305.

March 27, 2007
HOME OFFICE
In a May, 2006 CRA Roundtable Discussion between CRA and the Institute of Chartered Accountants of Alberta, CRA noted in Questions 27 and 28 that they would not necessarily follow the decisions in Vanka (2001) 4 CTC 2832 and Hemond (2003) CCI 705 which held that “meeting clients, customers or patients” could be done through telephone meetings. (Subsection 18(12))

For further information see VTN Monthly Tax Update Seminar, Issue No. 305.
March 20, 2007
CONSTRUCTION REPORTING
Regulation 238 of the Income Tax Act requires construction contractors to report payments to subcontractors in the course of “construction activities” (along with the subcontractor’s Business Number or Social Insurance Number) on Form T5018 on either a calendar or fiscal period basis within six months after the end of the reporting period to which it pertains.

For further information see VTN Monthly Tax Update Seminar, Issue No. 305.
March 13, 2007
TRANSIT PASS CREDIT
In an October 3, 2006 Technical Interpretation (2006-0204321M4, Hewlett, Randy, 1-613-957-2049), CRA notes that the pass must provide the individual with the right to use public commuter transit services of a qualified Canadian transit organization on an unlimited number of occasions and on any day on which the public commuter transit services are offered during an uninterrupted period of at least twenty-eight days.

For further information see VTN Monthly Tax Update Seminar, Issue No. 305.
March 06, 2007
GERMAN SOCIAL SECURITY BENEFITS
For information on the taxation of Social Security Pensions received from Germany beginning in 2005, see www.cra.gc.ca/tax/nonresidents/notices/germany2005-e.html or see www.cra.gc.ca and search “Germany”.

This Release includes detailed examples of the phase in from 50% taxable to 100% taxable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 306.
February 27, 2007
NET WORTH ASSESSMENT
In an October 27, 2006 Tax Court of Canada case (West vs. H.M.Q., 2006-314(IT)I), CRA assessed the taxpayer on a net worth basis for additional incomes of $18,916, $20,815, $29,098 and $20,866 for the years 1999 to 2002 plus gross negligence penalties.

Taxpayer Wins!
CRA’s method of calculating the net worth based on Statistics Canada approximations regarding dental care, donations and reading material do not correspond in any way to the reality of the Appellant’s lifestyle. These examples are typical of the inapplicability of the Statistics Canada norms to estimate the Appellant’s net worth. Accordingly, the Court rejected entirely the amounts attributed to each of the Appellant’s taxation years using this method.

Further, the Court was satisfied that the little funding the taxpayer had was given to him, or provided in kind, by other law-abiding taxpayers.

For further information see VTN Monthly Tax Update Seminar, Issue No. 304.
February 20, 2007
ESTATE FREEZE OF AN ESTATE
In a 2006 Advance Income Tax Ruling (2004-0089251R3), Mr. A died leaving shares of OPCO in a Spousal Trust for his spouse. The Spousal Trust Trustees were concerned with future capital gains upon the death of the spouse. Therefore, they proposed that the OPCO shares owned by the Spousal Trust be transferred to a new company (NEWCO) in return for preferred shares of NEWCO. A Family Trust would subscribe for the NEWCO common shares. Therefore, any increase in the value of OPCO would be attributed to the Family Trust - not to the Estate.

CRA Ruled positively that the Spousal Trust would retain its status and the General Anti-Avoidance Rules would not apply.

For further information see VTN Monthly Tax Update Seminar, Issue No. 304.
February 13, 2007
ALLOWABLE BUSINESS INVESTMENT LOSS (ABIL)
In an October 12, 2006 Tax Court of Canada case (Jodoin vs. H.M.Q., 2006-946(IT)I), the taxpayer made loans to her corporation of $85,332 and claimed an ABIL of $42,666 on her 2004 income tax return.

CRA took the position that the company could not repay the amount at December 31, 2003 and, therefore, the amount should have been claimed at that time, not 2004.

Taxpayer Wins!
The taxpayer successfully argued that the amount must be claimed in 2004 because the required election under Subsection 50(1) was made in 2004, not in 2003. Without an election, the ABIL does not apply.

The Court noted that in a previous case, Harris vs. M.N.R. (2005 DTC 1179), the taxpayer’s failure to make a Subsection 50(1) election was fatal to a claim for an ABIL. The words in Subsection 50(1) create a necessary condition precedent to the deduction.

For further information see VTN Monthly Tax Update Seminar, Issue No. 304.
February 06, 2007
MOBILE HOMES - CLASS 10
In an October 18, 2006 Tax Court of Canada case (Lansdowne Equity Ventures Ltd. vs. H.M.Q., 2005-322(IT)G), Judge Bell found that the 1,100 mobile homes leased as residential dwelling units by the taxpayer are Class 10 assets, rather than Class 1 assets as reassessed by CRA. Class 10 refers to property not included in any other class that is a trailer...

The Court concluded that these “mobile homes” are, in the ordinary sense of the word, “trailers”. They are not “buildings” or “structures”.

For further information see VTN Monthly Tax Update Seminar, Issue No. 304.
January 30, 2007
DEDUCTIONS
In an October 17, 2006 Tax Court of Canada case (Sauve vs. H.M.Q., 2003-3609(IT)I), the Court found that the $22,000 claim for office rent and $35,000 for an assistant or substitute were not allowed because the employee was not required, either in writing or as an unwritten condition of employment, to incur these expenses. This is a requisite of the Act.

For further information see VTN Monthly Tax Update Seminar, Issue No. 304.
January 23, 2007
TRANSPORT EMPLOYEES
October 26, 2006 - CRA announced that the Simplified Method, available to transport employees who do not keep receipts, of deducting $15.00 per meal to a maximum of three meals per day ($45.00 per day) will be replaced effective January 1, 2006 with $17.00 per meal to a maximum of three meals per day for a total of $51.00 per day.

Transport employees travelling in the United States may use the rate of U.S. $17.00 per meal converted to Canadian dollars.

This Simplified Method is offered to transport employees such as long-distance truckers and bus drivers so that they do not have to keep receipts for meals. The employee must still maintain a log of their trip to verify that they were eligible to claim meal expenses. Transport employees have the option of keeping receipts and claiming actual meal expenses.

CRA notes that the Income Tax Act allows a deduction of 50% of either the flat rate or actual cost for eligible meals.

For further information see VTN Monthly Tax Update Seminar, Issue No. 304.
January 16, 2007
REFUNDS AND REBATES
The May 2, 2006 Federal Budget notes that income tax and GST/HST refunds will only be paid to a person if all returns under the Excise Tax Act, the Income Tax Act, the Excise Act and the Air Travellers Security Charge Act have been filed. This takes effect as of April 1, 2007. (ITA 164(2.01); ETA 229(2) and 263.02)

For further information see VTN Monthly Tax Update Seminar, Issue No. 303.
January 09, 2007
RRSP - $ U.S. CASH OPTIONS
In a July 20, 2006 External Technical Interpretation (2005-0158531E5, Harding, Wayne), CRA notes that an RRSP can hold $ U.S. cash. (IT-320R3, Paragraph 14)

Also, after February 27, 2004, an option or similar right is a qualified investment for an RRSP if it is listed on a prescribed stock exchange and is in respect of property which is a qualified investment for an RRSP.

For further information see VTN Monthly Tax Update Seminar, Issue No. 303.
January 02, 2007
DAMAGE PAYMENTS
In an October 17, 2006 Tax Court of Canada case (Valley Equipment Limited vs. H.M.Q., 2006 TCC 510), the Court found that the damages received in respect of the wrongful cancellation of John Deere Ltd. dealer agreements should be shown as proceeds of disposition of the right to be a John Deere dealer. Therefore, there is capital gain treatment in the hands of the taxpayer.

For further information see VTN Monthly Tax Update Seminar, Issue No. 303.
December 26, 2006
PRIVATE HEALTH SERVICES PLAN (PHSP)
In an August 24, 2006, External Technical Interpretation (2006-0186741E5, Tiu, Dominic), CRA notes that a Plan that entitles employees, on termination, to compensation for their unused Health Care Expense Account would not be considered a PHSP.

For further information see VTN Monthly Tax Update Seminar, Issue No. 303.
December 19, 2006
EMPLOYMENT BENEFITS
The October 18, 2006 issue of the National Post (Page WK11) listed the top one hundred employers for 2006. Some of the more common employment benefits given to employees include: fitness facilities, memberships to fitness clubs, maternity/paternity top-up of salaries, tuition subsidies, scholarship programs for employees’ children, health care spending accounts, private pension plan contributions, referral bonuses, on-site daycare facilities, and discounts on the firm’s products.

For further information see VTN Monthly Tax Update Seminar, Issue No. 303.
December 12, 2006
GENERAL RATE INCOME POOL (GRIP)
The GRIP carryforward balance for the years 2001 to 2005 consists of the sum of 63% of the active business income in excess of the federal annual business limit minus taxable dividends paid in the period. (Subsection 89(7))

Most of the proposals in the June 29, 2006 Release were unchanged; however, there was one change in the calculation of the GRIP carryforward on October 16, 2006. If an operating company had active business income in excess of the annual business limit in the period and paid a dividend to the holding company, this will now be included in the GRIP carryforward of the holding company.

For further information see VTN Monthly Tax Update Seminar, Issue No. 303.
December 05, 2006
CHILD SUPPORT
In an August 24, 2006 Tax Court of Canada case (Partridge vs. H.M.Q., 2004-4647(IT)I), Mr. Partridge paid child support pursuant to a 1993 Ontario Court Divorce Judgment of $650 per month per child.

On August 31, 1998, the Appellant and former Spouse signed an Agreement varying the child support payable to $500 per month in compliance with the Child Support Guidelines.

Taxpayer Loses
The Court noted that this August 31, 1998 Agreement occurred after May, 1997 and, therefore, changed the status of the child support payments from deductible/taxable to non-deductible/non-taxable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 302.
November 28, 2006
PRIVATE FOUNDATION
In a June 27, 2006 Internal Technical Interpretation (2006-0167421I7, Goulet, Guy), CRA note that Paragraph 149.1(4)(a) could result in the revocation of its charitable status if it acquires a limited partnership interest because it is now considered to be carrying on a business. (Fredette vs. H.M.Q., 2001 DTC 621, and Trustee of Robinson vs. H.M.Q., 1998 DTC 6065)

For further information see VTN Monthly Tax Update Seminar, Issue No. 301.
November 21, 2006
EMPLOYEE VS. SHAREHOLDER CAPACITY
In a May 9, 2006 CRA Interpretation (2006-0174121C6, Hewlett, Randy), CRA notes that when an individual is the only employee and shareholder of a corporation, this does not necessarily mean a benefit is received “qua shareholder”. CRA agrees that a pragmatic approach is warranted.

For further information see VTN Monthly Tax Update Seminar, Issue No. 301.
November 14, 2006
BUILDING DEMOLITION COSTS
In a June 5, 2006 Internal Technical Interpretation (2006-0167321I7, Fitzgerald, Tim), CRA notes that the tax treatment of demolition costs, whether on income or capital account, depends on the circumstances.

If the facts are such that an old building that was used by a taxpayer for a long time to earn income is demolished to build a new one, the cost of demolition is not considered to be part of the capital cost of the new building (unless the taxpayer so desires), but may be deducted as an expense in the year. (IT-285R2, Paragraph 11)

For further information see VTN Monthly Tax Update Seminar, Issue No. 301.
November 07, 2006
EMPLOYMENT INSURANCE (EI)
In an English translation of a January 22, 2004 French Federal Court of Appeal case (Denis vs. M.N.R., A-369-03), the Court concluded that the salary paid to the common-law spouse of the owner of the corporation was not EI insurable as there was a relationship of subordination between the employee and the payer under Subsections 5(2) and (3) of the Employment Insurance Act.

Unlike the other employees, the Appellant was receiving salary advances. The Appellant’s working conditions were not the same as those for arm’s length employees.

For further information see VTN Monthly Tax Update Seminar, Issue No. 301.
October 31, 2006
LEGAL EXPENSES
In an August 11, 2006 External Technical Interpretation (2006-0176951E5, LeBlanc, Jonathan), CRA notes that Paragraph 8(1)(b) permits a deduction in computing income from employment for legal expenses paid in the year to collect, or to establish a right to, employment income.

Therefore, should the income that would be received from a disability claim be taxable under Paragraph 6(1)(f), legal expenses incurred would be deductible under Paragraph 8(1)(b).

For further information see VTN Monthly Tax Update Seminar, Issue No. 301.
October 24, 2006
DENTISTS
Most dental services are “exempt” supplies. Therefore, purchases related thereto are not eligible for Input Tax Credits. However, cosmetic dental services (GST rate) and sales and installation of artificial teeth and orthodontic appliances (zero-rated) are eligible for Input Tax Credits on purchases related thereto.

For further information see VTN Monthly Tax Update Seminar, Issue No. 300.
October 17, 2006
LABOUR-SPONSORED FUND (LSF) TAX CREDIT
In a May 3, 2006 External Technical Interpretation (2006-0178491E5, Albert, Roberta), CRA note that where a contributor makes a contribution (other than approved LSF shares) to a Spousal RRSP and the RRSP Trust then acquires LSF shares, either spouse may claim the Labour-Sponsored Funds Tax Credit. However, there can be no splitting of the credit as only one individual can claim a credit under Section 127.4.

For further information see VTN Monthly Tax Update Seminar, Issue No. 300.
October 10, 2006
TRAINING COSTS
In a June 1, 2006 External Technical Interpretation (2006-0172701E5, Lewis, Shelley), CRA notes that professional development or training taken for the maintenance or upgrading of employment-related skills will be considered to primarily benefit the employer and not give rise to a taxable benefit.

For further information see VTN Monthly Tax Update Seminar, Issue No. 300.
October 03, 2006
EXPORTS
Most exported services are subject to a GST rate of 0%. Therefore, no GST is payable, however, the taxpayer may claim Input Tax Credits as the supplies are zero-rated, not tax exempt. (Section 7 of Part V of Schedule VI of the Excise Tax Act)

For further information see VTN Monthly Tax Update Seminar, Issue No. 299.
September 26, 2006
DONATION OF LIFE INSURANCE POLICY TO A CHARITY
In a May 17, 2006 External Technical Interpretation (2006-0168591E5, Vethanayagam, Manjula), CRA notes that where a policyholder makes a gift of a life insurance policy, the charitable gift is equal to the value of the policy (i.e., the amount by which the cash surrender value of the policy at the time of the absolute assignment exceeds any policy loan outstanding) and any accumulated dividends and interest, which are also assigned at that time. If the policy has no value, there is no charitable gift when it is transferred but, donations of subsequent premium amounts will qualify as charitable gifts. (See IT-244R3, Paragraph 2 and 3)

For further information see VTN Monthly Tax Update Seminar, Issue No. 299.
September 19, 2006
BONUSES
In a 2006 Advance Income Tax Ruling (2006-0168701R3), CRA Ruled that the proceeds from the sale of “eligible capital property” may be paid to shareholder/managers resident in Canada to reduce the corporation’s income to a nominal amount.

For further information see VTN Monthly Tax Update Seminar, Issue No. 299.
September 12, 2006
SPECIAL WORKSITE
In a May 25, 2006 External Technical Interpretation (2005-0164991E5, Fitzgerald, Tim), CRA notes that if the special worksite or remote work location exclusion applies to an employee, transportation benefits or allowances in respect of expenses incurred for travel between the employee’s principal place of residence and the special worksite or remote work location are excluded from employment income.

For further information see VTN Monthly Tax Update Seminar, Issue No. 299.
September 05, 2006
NURSING HOME AND ATTENDANT CARE MEDICAL EXPENSES
In a May 25, 2006 Internal Technical Interpretation (2006-0172181I7, Erskine, Eliza), CRA notes that a patient may claim nursing home fees under Paragraph 118.2(2)(b) of the Income Tax Act and her son may claim his costs of her companion as a medical expense for attendant care up to $10,000 under Paragraph 118.2(2)(b.1). There is nothing in the Income Tax Act that prevents claims from being made under both Paragraphs 118.2(2)(b) and (b.1).

For further information see VTN Monthly Tax Update Seminar, Issue No. 299.
August 29, 2006
MEDICAL EXPENSES
In a 36-page Tax Court of Canada case (Ali et al vs. H.M.Q., 2003-2720(IT)I), the Court concluded that the approximately $10,000 per year spent on vitamins, herbs and minerals recommended by a naturopath because of the taxpayer’s fibromyalgia syndrome are not eligible medical expenses because they do not meet the requirements of Paragraph 118.2(2)(n) that they be “recorded by a pharmacist”. This does not violate the taxpayer’s rights under the Canadian Charter of Rights and Freedoms.

For further information see VTN Monthly Tax Update Seminar, Issue No. 299.
August 22, 2006
U.S. REAL ESTATE SALES BY CANADIANS
Canadians that sell U.S. real estate at a profit will be subject to U.S. Federal and, perhaps, U.S. State tax.

For individuals the graduated rate of taxes will not exceed 15% except for very large profits (25% on recaptured depreciation) if you owned the property for more than one year. If not, the Federal tax rate is graduated subject to a maximum of 35%.

From the proceeds of disposition you are entitled to deduct your cost base which includes any permanent improvements. You also may deduct sale expenses such as real estate taxes, interest, insurance and maintenance.

For further information see VTN Monthly Tax Update Seminar, Issue No. 298.
August 15, 2006
CHILD SUPPORT
In a February 14, 2006 Tax Court of Canada case (Elcich vs. H.M.Q., 2005-3069(IT)I), Mr. Elcich was ordered by the Court to pay $425 per week to his former common-law spouse for the support of herself and the child in a post-April, 1997 Court Order.

Child support made pursuant to a post-April, 1997 Order is not deductible. Child Support means any amount that is not identified in the Agreement or Order... as being solely for the support of a recipient who is a spouse or common-law partner... Therefore, where one payment is made for both the former spouse and the child, the entire payment is considered to be a child support amount and not deductible.

The Judge, therefore, found that the amounts were not deductible even though he was sympathetic to the taxpayer’s argument of the unfairness of the situation.

For further information see VTN Monthly Tax Update Seminar, Issue No. 298.
August 08, 2006
MOVING EXPENSES AS A MEDICAL EXPENSE TAX CREDIT
In an April 11, 2006 External Technical Interpretation (2006-0167391E5, Maley, Robin), CRA notes that Paragraph 118.2(2)(l.5) permits “reasonable moving expenses” as a medical expense tax credit for a person who lacks normal physical development or has a severe and prolonged mobility impairment, where the move is to a dwelling that is more accessible by that person or in which the person is more mobile or functional.

This may apply to a person who has to move because they have Multiple Sclerosis if the new dwelling is more accessible or you are more mobile or functional within the new dwelling. (See IT-178R3, Paragraphs 12 to 17.) The total moving expenses that can be claimed as medical expenses under this Paragraph cannot exceed $2,000.

For further information see VTN Monthly Tax Update Seminar, Issue No. 298.
August 01, 2006
LONG-TERM DISABILITY LUMP-SUM PAYMENT
In an April 7, 2006 External Technical Interpretation (2005-0160551E5, Green, Darlene, 1-613-957-2082), CRA notes that lump-sum settlements attributable to Long-Term Disability (LTD) Payments in arrears and accruing to the date of settlement are taxable under Paragraph 6(1)(f).

However, a lump-sum payment in lieu of future LTD benefits where the payment can reasonably be considered to be proceeds of disposition of an interest in an insurance policy are not taxable either under Paragraph 6(1)(f) or as a capital gain under Subparagraph 39(1)(a)(iii).

For further information see VTN Monthly Tax Update Seminar, Issue No. 298.
July 25, 2006
GST/HST WEB REGISTRY
As part of their obligations under the GST/HST, Registrants are required to ensure that Input Tax Credits are claimed only where suppliers are registered for GST/HST. Previously, the sole means available to verify this was to contact Canada Revenue Agency.

The February 23, 2005 Federal Budget proposed a publicly accessible web-based GST/HST Registry. This has now been activated and the link is:

https://www.businessregistration-inscriptionentreprise.gc.ca/ebci/brom/registry/registryPrompt_en.jsp

For further information see VTN Monthly Tax Update Seminar, Issue No. 297.
July 18, 2006
VOLUNTARY DISCLOSURE PROGRAM (VDP)
Effective April 1, 2006, the responsibility for the management of the VDP within CRA is transferred from Appeals to the Disclosures and Enforcement Directorate of Compliance Programs within CRA.

The VDP policies, procedures and guidelines are not changing as a result of the transfer from Appeals to Compliance Programs. Furthermore, CRA notes that it is committed to the on-going enhancement of the Program, such as revisions to update the VDP Information Circular. The VDP will continue as a distinct program within Compliance Programs.

For further information see VTN Monthly Tax Update Seminar, Issue No. 297.
July 11, 2006
SHARE SALE
In a December 1, 2005 French Tax Court of Canada case (Laplante vs. H.M.Q., 2004-3217(IT)I), the taxpayer was a mechanic who had hundreds of share sales in a year, often selling shortly after buying. The taxpayer had losses and therefore deducted these as business losses against employment income. CRA reassessed on the basis that they were capital losses.

Taxpayer Wins!

The Court found that these were business losses on the basis that the shares were speculative in nature and acquired in the business of buying and selling stocks.

The losses in the years 2000, 2001 and 2002 were $16,393, $24,703 and$2,435.

For further information see VTN Monthly Tax Update Seminar, Issue No. 297.
July 04, 2006
EMPLOYEE VS. INDEPENDENT CONTRACTOR
In a March 2, 2006 Federal Court of Appeal case (The Royal Winnipeg Ballet (RWB) vs. M.N.R., A-443-04), the Court found that dancers with the RWB are independent contractors - not employees. This overturns the previous decision of the Tax Court of Canada.

For further information see VTN Monthly Tax Update Seminar, Issue No. 297.
June 27, 2006
LUMP-SUM PAYMENT
Section 110.2 and Form T1198 provide a limited type of retroactive averaging of taxes on qualifying lump-sum income exceeding $3,000.

In a March 14, 2006 External Technical Interpretation (2006-0166891E5), CRA noted that a lump-sum payment made by a former employer to retirees in relation to pension benefits of prior years, may be considered a qualifying amount under Section 110.2. The former employer was under no legal obligation to pay the lump-sum amounts.

For further information see VTN Monthly Tax Update Seminar, Issue No. 297.
June 20, 2006
CROSS-BORDER INCOME TAX COLLECTION
The Canada-United States Tax Convention includes Article XXVI-A which undertakes each country to assist the other county in the collection of taxes. Therefore, if a person owes Canadian tax and moves to the United States, Canada may ask the Internal Revenue Service to assist them in collecting the taxes and, vice versa.

For further information see VTN Monthly Tax Update Seminar, Issue No. 296.
June 13, 2006
REQUIREMENT TO FILE INCOME TAX RETURNS WITHIN THREE YEARS
In a February 16, 2006 Tax Court of Canada case (715476 Alberta Ltd. vs. H.M.Q., 2005-1898(IT)I), the taxpayer applied for a refund of tax deducted on patronage dividends in 1998, 1999 and 2000 of $1,443, $3,476 and $2,927.

Unfortunately, these returns were not filed within three years of December 31 of the year in question. Therefore, CRA was not required to refund the amounts. (Subsection 164(1))

For further information see VTN Monthly Tax Update Seminar, Issue No. 296.
June 06, 2006
BULLION AS A QUALIFIED INVESTMENT
In a December 5, 2005 External Technical Interpretation (2005-0157491E5, Kohnen, Phil), CRA notes that new Regulations 4900(1)(t), (u) and (v) were passed on August 31, 2005 and permit investments in gold and silver bullion coins, bars and certificates for RRSPs and other deferred income plans after February 22, 2005 if certain conditions are met.

For further information see VTN Monthly Tax Update Seminar, Issue No. 296.
May 30, 2006
HOUSING LOAN
In a February 20, 2006 External Technical Interpretation (2005-0159061E5), CRA note that where a corporation loans funds to a 50% shareholder to acquire a home for $400,000, this would normally be considered to be a loan in the person’s capacity as a shareholder, rather than as a employee, even if there are bona fide arrangements for payment and prescribed interest rates were charged. Therefore, the loan would normally be income under Subsection 15(2).

For further information see VTN Monthly Tax Update Seminar, Issue No. 296.
May 23, 2006
MEDICAL EXPENSE - STAIR LIFT
In a February 15, 2006 External Technical Interpretation (2005-0163161E5, Maley, Robin), CRA notes that a stair lift installed for a “dependent” child with multiple sclerosis is a medical expense under Paragraph 118.2(2)(l.2) - a renovation or alteration to enable the patient to gain access, to or to be mobile or functional within, the dwelling.

For further information see VTN Monthly Tax Update Seminar, Issue No. 296.
May 16, 2006
CROSSING THE BORDER WITH $10,000 OR MORE
Under new legislation, a person has to report to Canada Border Services Agency (CBSA) amounts equal to or greater than Can. $10,000 or its equivalent in a foreign currency, that you are bringing into or taking out of Canada by completing Form E677, Cross-Border Currency or Monetary Instruments Report - Individual.

If the currency or monetary instruments are not your own, you must complete Form E667.

If you are sending $10,000 or more into or out of Canada through the mail, you must complete Form E667.

For further information see VTN Monthly Tax Update Seminar, Issue No. 295.
May 09, 2006
LUMP-SUM SETTLEMENT OF FUTURE DISABILITY BENEFITS
In a January 30, 2006 External Technical Interpretation (2005-0159331E5, Green, Darlene, 1-613-957-2082), CRA notes that where an individual receives a lump-sum payment in lieu of future benefits that would have been otherwise paid under an employer long-term disability plan and the payment can reasonably be considered to be proceeds of disposition of an interest in an insurance policy under Subparagraph 39(1)(a)(iii), it is CRA’s view that the proceeds are not taxable under Paragraph 6(1)(f) (income) or under Subparagraph 39(1)(a)(iii) (a capital gain).

For further information see VTN Monthly Tax Update Seminar, Issue No. 295.
May 02, 2006
CHILD CARE EXPENSES - GRANDPARENTS’ CLAIM
In a February 3, 2006 External Technical Interpretation (2005-0147101E5, Rafuse, Charles, 1-613-957-8967), CRA notes that an “eligible child” may be a grandchild that is dependent on support by the grandparent.

The child’s parent could be the “supporting person” where the parent resided with the grandparent thereby permitting either grandparent to claim otherwise eligible child care expenses assuming that the grandparent has the required “earned income”. (Subsection 63(3))

For further information see VTN Monthly Tax Update Seminar, Issue No. 295.
April 25, 2006
CRA RELEASES
November 28, 2005 - CRA announces changes to the taxation of Social Security Pensions received from Germany by a resident of Canada - beginning in 2005. (See www.cra.gc.ca and search "Germany".)

Under the 2005 rules, only 50% of the benefits covered by Subparagraph 3(c) of Article 18 of the Canada-Germany Tax Convention will be taxable. This applies to persons who are receiving a pension, or who will start receiving a pension for the first time in the year 2005. This Release had a number of examples and tables showing the tax effects.

For further information see VTN Monthly Tax Update Seminar, Issue No. 295.
April 17, 2006
RRSP OVER-CONTRIBUTION
Most taxpayers know that an RRSP must be matured by December 31 of the year in which the annuitant turns age 69.

It may make sense to make an RRSP contribution in that year (say, 2006), before maturing the RRSP, equal to the contribution room available (see 2005 assessment notice) plus the contribution room for 2007 because of “earned income” in 2006. For example, if the person has $100,000 of earned income in 2006, he/she could make an extra $18,000 RRSP contribution in, say, December, 2006, prior to maturing the RRSP.

Therefore, there would be an excess contribution for the month of December, 2006 but, the 1% per month penalty would end next month as you’d be entitled to make the deduction in January, 2007. The penalty would be $160 (1% times $18,000 minus $2,000 - a $2,000 over-contribution may be made without penalty).

The taxpayer will be able to deduct the $18,000 in 2007.

For further information see VTN Monthly Tax Update Seminar, Issue No. 294.
April 11, 2006
MARRIAGE BREAKDOWN
SUPPORT PAYMENTS

In December, 2005, CRA released 11-page Guide P102 - Support Payments.

The Guide reviews the tax rules on support payments, registering your Order or Agreement, source deduction adjustments, specific purpose payments, payments to and from non-residents, and reporting requirements.

For further information see VTN Monthly Tax Update Seminar, Issue No. 294.
April 04, 2006
PRIVATE HEALTH SERVICES PLAN (PHSP)
In a November 24, 2005 External Technical Interpretation (2005-0126211E5, McCarthy, Kathryn), CRA notes that a PHSP may carryforward unused eligible medical expenses for up to twelve months.

For further information see VTN Monthly Tax Update Seminar, Issue No. 294.
March 28, 2006
DISABILITY TAX CREDIT
In a December 14, 2005 French Tax Court of Canada case (Droin vs. H.M.Q., 2005-1622(IT)I), the taxpayer was permitted a Disability Tax Credit on the basis that his left arm was atrophied and not functional.

For further information see VTN Monthly Tax Update Seminar, Issue No. 294.
March 21, 2006
CRA RELEASES
December, 2005 - Guide RC4110 includes seven pages on being an employee or self-employed.

The Guide notes that workers and payers can set up their affairs as they see fit. However, the status they have chosen must be reflected in the actual terms and conditions of the engagement.

CRA looks at factors such as control, tools and equipment, ability to subcontract the work or hire assistants, financial risk, responsibility for investment and opportunity for profit.

Also, CRA considers the intent of the parties. A contract for services indicates a business relationship.

For further information see VTN Monthly Tax Update Seminar, Issue No. 294.
March 14, 2006
DIRECTOR LIABILITY
In a November 22, 2005 Tax Court of Canada case (Corkum vs. H.M.Q., 2003-2845(GST)G), the taxpayer was assessed with personal liability for unremitted GST.

Taxpayer Wins!
The Court noted that the taxpayer had resigned as a director on April 21, 1997 well over two years before the date of the June 3, 2002 assessment. Therefore, the assessment was statute-barred.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
March 07, 2006
SECTION 216 ELECTION
When a non-resident receives rental income from real property in Canada, the payor, such as the tenant or a property manager, has to withhold non-resident tax at the rate of 25% on the gross rents paid or credited to the non-resident - subject to a reduced rate under a Tax Treaty.

However, the non-resident may chose to file a Section 216 tax return to report the rental income on a net basis. This return must be sent to CRA within two years from the end of the year in which the rental income was paid or credited.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
February 28, 2006
ARREARS
In a November 1, 2005 Tax Court of Canada case (Afriat vs. H.M.Q., 2005-2157(IT)I), the taxpayer was in arrears on spousal and child support and made a lump-sum payment of $25,000 which released him from any past and future obligations arising from the arrears.

Taxpayer Loses
The Court found that this was a capital payment in settlement of all amounts payable. It is not deductible.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
February 21, 2006
REMUNERATION PAID OUT OF INCOME ON A SALE OF BUSINESS ASSETS
In a 2005 Advance Income Tax Ruling (ATR2005-0146031R3), a family owned corporation sold the majority of its business assets and had business gains, capital gains and recapture. Bonuses are intended to be paid to Shareholders A and C who were active in the day-to-day management of the business and directors and officers of the corporation.

CRA Ruled that Section 67 would not prohibit the deduction on the basis of reasonableness.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
February 14, 2006
BUSINESS LOSS ON THE SALE OF PUBLICLY TRADED SHARES
In a December 1, 2005 Tax Court of Canada case (Laplante vs. H.M.Q., 2004-3217(IT)I), the Appellant was a mechanic in 2000, 2001 and 2002 when he incurred losses on the sale of publicly traded shares. This six-page French decision allowed the taxpayer’s appeal to have the losses reported as business losses.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
February 07, 2006
AUTOMOBILE BENEFITS
Employer-owned automobiles made available to employees require reporting of a taxable benefit on the T4 for the standby charge and the operating benefit. This may be a complicated calculation. For example, if the personal kilometres are less than 20,000 and the automobile is used more than 50% for business, the standby charge and operating benefit are reduced accordingly.

CRA provides a valuable online tool to calculate taxable benefits at www.cra.ga.ca/autobenefits-calculator. Also see Interpretation Bulletin IT-63R5.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
January 31, 2006
EMPLOYER-PROVIDED ACCOMMODATIONS
In a November 15, 2005 External Technical Interpretation (2005-0149391E5, McCarthy, Kathryn), CRA agreed that where the employer provides an apartment for the employee at a special worksite, this is not a taxable benefit. In this case, the employee also maintained a residence away from the special site and was required by the employer to be away from his residence three days a week at the special worksite.

For further information see VTN Monthly Tax Update Seminar, Issue No. 293.
January 24, 2006
TREASURY BOARD NON-TAXABLE TRAVEL ALLOWANCES
Effective October 1, 2005, the Treasury Board increased non-taxable travelling allowances by 5 cents per kilometre.

For details see website http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/TBM_113/menu-travel-voyage_e.asp.

For further information see VTN Monthly Tax Update Seminar, Issue No. 291.
January 17, 2006
CANADIAN EXPLORATION EXPENSE
In a January 26, 2005 Tax Court of Canada case (McLarty vs. H.M.Q., 97-3628(IT)G), the taxpayer was a joint venture participant in a seismic data base fund. The purchase price was $100,000 - $15,000 in cash and $85,000 by way of a limited-recourse promissory note. It was found that the seismic data did qualify as Canadian exploration expenses eligible for a 100% tax deduction. (Subsection 66.1(6))

For further information see VTN Monthly Tax Update Seminar, Issue No. 291.
January 10, 2006
CORPORATE INTERNET FILING
A corporation may qualify to file their T2 Return over the Internet by supplying the business number, the corporation’s assigned Web Access Code or EFILE On-Line Number and password, and the path and name of the file containing the electronic corporation income tax return.

It will take a minute or two to load and CRA will do a preliminary check of the T2 Return. If it meets basic requirements, you will receive a Confirmation Number.

For further information see VTN Monthly Tax Update Seminar, Issue No. 290.
January 03, 2006
CPP/EI
On June 24, 2005, CRA released details regarding Subsection 9(2) of the Canada Pension Plan (CPP) and Section 82.1 of the Employment Insurance Act (EIA) which notes that a successor employer can consider an employee’s employment to be continuous as a result of the formation or dissolution of a corporation, or the acquisition of all or part of a business. (Effective January 1, 2004)

For further information see VTN Monthly Tax Update Seminar, Issue No. 290.
December 27, 2005
DISABILITY TAX CREDIT (DTC) - RHEUMATOID ARTHRITIS
In a July 7, 2005 Tax Court of Canada case (Mehra vs. H.M.Q., 2004-4745(IT)I), the Court permitted a DTC for a taxpayer with a number of health problems including:

(i) Rheumatoid Arthritis which restricted her from performing her daily functions;

(ii) severe diabetes; and

(iii)a psoriasis skin disorder.

For further information see VTN Monthly Tax Update Seminar, Issue No. 290.
December 20, 2005
ADOPTION EXPENSE TAX CREDIT
New Section 118.01 provides a tax credit for eligible adoption expenses to a maximum of $10,000 during the adoption period commencing in 2005.

Eligible adoption expenses include fees paid to an adoption agency licensed by a Provincial or Territorial Government; court, legal and administrative expenses related to an Adoption Order; travel and living expenses for the child and the adoptive parents; document translation fees; mandatory fees paid to a foreign institution and; any other reasonable expenses required by a Provincial or Territorial Government or adoption agency licensed by a Provincial or Territorial Government.

For further information see VTN Monthly Tax Update Seminar, Issue No. 290.
December 13, 2005
DISABILITY SUPPORTS DEDUCTION (DSD)
Section 64 of the Income Tax Act permits a DSD for expenses incurred to enable the taxpayer to work, to attend secondary school, or to attend a designated educational institution if it has not been claimed as a medical expense. (Section 118.2) This applies to persons with a certified mental or physical impairment. (Section 118.3)

For further information see VTN Monthly Tax Update Seminar, Issue No. 290.
December 06, 2005
CRA RELEASES (www.cra.gc.ca)
September, 2005 - Nine-page Guide RC4290 discusses Refunds for small business Scientific Research and Development (SR&ED) and notes that each year CRA receives SR&ED claims from over 11,000 companies - 75% of which are smaller companies - ranging from $20,000 to $2 million. The Guide discusses which type of work and expenditures qualify, how to make a claim, the processing of the claim, and related matters including links to Provincial SR&ED programs.

For further information see VTN Monthly Tax Update Seminar, Issue No. 290.
November 29, 2005
NOTICE OF OBJECTION
CRA discuss in Guide RC4067 the duties of the Appeals Officer including explaining to the taxpayer the basis of the assessments, making available all relevant documentation, considering any taxpayer proposal to resolve the disputed assessment, contacting the CRA auditor if necessary to understand the facts behind the assessment, advise the taxpayer of any discussions with the auditor and provide copies of the records of these discussions, and invite the CRA auditor, if appropriate, to attend meetings - if the taxpayer agrees.

For further information see VTN Monthly Tax Update Seminar, Issue No. 289.
November 22, 2005
HOUSING LOAN FOR SHAREHOLDER/EMPLOYEE
Subsection 15(2.4) of the Income Tax Act permits a corporation to make a loan to an employee without that amount being included in income by the employee if certain criteria are met such as the loan is used to acquire a dwelling and there are reasonable repayment terms and the loan is in the person’s capacity as an employee.

In a July 14, 2005 External Technical Interpretation (2005-0140571E5, Hewlett, Randy, 1-613-941-7239), the only issue was whether the loan was in the individual’s capacity of employee or shareholder.

CRA again concluded that it is a question of fact but they did note that where the person is the sole shareholder and only employee of a corporation this does not necessarily mean that the loan is received in the person’s capacity as a shareholder.

For further information see VTN Monthly Tax Update Seminar, Issue No. 289.
November 15, 2005
RESTRICTIVE COVENANTS
On July 18, 2005, the Department of Finance introduced amendments to the proposed rules in respect of a “restrictive covenant”. Most of these amendments are of a relieving nature such as addressing the disposition of an interest in a holding company. However, the rules continue to have a very broad definition of “restrictive covenant” which is not limited to non-compete arrangements.

For further information see VTN Monthly Tax Update Seminar, Issue No. 289.
November 08, 2005
MEDICAL EXPENSE - MEDICATIONS
In a July 29, 2005 Tax Court of Canada case (Rasler vs. H.M.Q., 2005-226(IT)I), the taxpayer purchased “over-the-counter” medications, as advised by his doctor, with respect to throat cancer.

These expenditures were denied as a medical expense under Paragraph 118.2(2)(n) - they were not “recorded by a pharmacist”.

For further information see VTN Monthly Tax Update Seminar, Issue No. 289.
November 01, 2005
CRA RELEASES (www.cra.gc.ca)
CRA revised its administrative position relating to taxable benefits where a single-purpose corporation holds U.S. real estate for acquisitions after January 1, 2005.

Additional transitional relief will be provided for a renovation or addition to a dwelling that was acquired before January 1, 2005, and to a dwelling that was under construction on December 31, 2004.

For further information see VTN Monthly Tax Update Seminar, Issue No. 289.
October 25, 2005
SINGLE-PURPOSE CORPORATION
Income Tax Technical News No. 31R, November 24, 2004, notes that after December 31, 2004, CRA’s administrative practice not to assess a taxable benefit under Subsection 15(1) of the Income Tax Act where the taxpayer is the shareholder of a single-purpose corporation that has been established to hold U.S.-based real property where a person acquires shares of a single-purpose corporation will not apply unless such share acquisition is the result of the death of the individual’s spouse or common-law partner.

For further information see VTN Monthly Tax Update Seminar, Issue No. 288.
October 18, 2005
NON-ARM’S LENGTH TRANSFER
Subsection 160(1) holds a non-arm’s length transferee liable for taxes owed by the transferor up to the amount of the property transferred minus the consideration paid. For example, if the transferor owes income tax and transfers the house to the spouse, the spouse becomes jointly and severally liable for the transferor’s unpaid income tax up to the value of the property received minus the consideration paid.

For further information see VTN Monthly Tax Update Seminar, Issue No. 288.
October 11, 2005
DONATION THROUGH THE WILL
Subsection 118.1(5) permits a donation made through the Will to be claimed on the Terminal Return of the deceased taxpayer. CRA usually considers that a gift by the Will of a specific percentage of the residue will be eligible.

For further information see VTN Monthly Tax Update Seminar, Issue No. 288.
October 04, 2005
INTERNET FEES
In a May 30, 2005 Internal Technical Interpretation (2005-0130431I7, Rafuse, Charles, 1-613-957-8967), CRA notes that internet connection fees paid by a self-employed person to earn income are not specifically denied under the Income Tax Act. However, if the fees are related to a home office, and they contain varying degrees of personal and business elements, a reasonable pro-ration must be made.

See CRA Internal Technical Interpretation (2003-0022747) for CRA’s comments with respect to an employee’s restrictions on deducting internet connection fees.

For further information see VTN Monthly Tax Update Seminar, Issue No. 287.
September 27, 2005
MOVING EXPENSES
Paragraph 62(3)(g) permits a moving expense deduction for interest, property taxes, insurance premiums and the cost of heating and utilities in respect of the old residence, up to $5,000 for the period throughout which the old residence is neither occupied by the taxpayer or any person who resided with the taxpayer and is not rented out. Also, reasonable efforts must be made to sell the old residence.

For further information see VTN Monthly Tax Update Seminar, Issue No. 287.
September 20, 2005
CONTRACTOR REPORTING
Regulation 238(2) requires persons that have paid or credited amounts in respect of construction activities to make a T5018 Information Return if the person’s business income is derived primarily from construction activities.

In an April 14, 2005 Internal Technical Interpretation (2004-0081371I7, Majerus, Luisa), CRA notes that where a corporation carries on construction activities and pays an amount in respect of goods or services rendered in the course of construction, the corporation is required to make an Information Return Form T5018.

For further information see VTN Monthly Tax Update Seminar, Issue No. 286.
September 13, 2005
SPECIAL WORKSITE
Subsection 6(6) excludes from income allowances for board, lodging and transportation paid to employees at temporary special worksites. (Interpretation Bulletin IT-91R4, Paragraphs 5 and 6)

For further information see VTN Monthly Tax Update Seminar, Issue No. 286.
September 06, 2005
OVERSEAS EMPLOYMENT TAX CREDIT
Section 122.3 permits a Canadian resident employee to receive an income tax credit if employed throughout at least six consecutive months with a specified employer for the performance of services outside Canada in connection with a contract related to, among other things, engineering activities.

For further information see VTN Monthly Tax Update Seminar, Issue No. 286.

August 30, 2005
MEDICAL EXPENSES - PERSONAL CARE HOMES
In a May 5, 2005 External Technical Interpretation (2005-0113121E5, Majerus, Luisa), CRA note that if an individual is certified as suffering from a physical or mental handicap and, as a result, receives care, or the care and training, at a particular place, which has the required equipment, facilities or specially trained personnel the expenditures may qualify as a medical expense under Paragraph 118.2(2)(e).

For further information see VTN Monthly Tax Update Seminar, Issue No. 286.
August 23, 2005
CHILD TAX BENEFITS
In 1993, the Child Tax Benefit (CTB) replaced the Family Allowance and Child Tax Credits. CTB payments are made to the parent who primarily fulfills the care and upbringing of the child under age eighteen - usually the mother.

However, in a July 22, 2004 Tax Court of Canada case (Hoang vs. H.M.Q., 2003-2961(IT)I), the Court found that the father was the primary caregiver and, therefore, was entitled to the CTB. The daughter was living primarily with the father while she attended high school in Montreal. (Also see CRA Guide T4114 and Section 122.6.)

For further information see VTN Monthly Tax Update Seminar, Issue No. 286.
August 16, 2005
GST
VENDOR DOES NOT REMIT GST

In a January, 2004 issue of the Bottom Line (Page 20), Louise Summerhill reviewed the Excise Tax Act case (Airport Auto Ltd. vs. H.M.Q.) whereby Airport bought vehicles and paid GST to the vendor but the vendor did not remit the GST to CRA. CRA argued that the purchaser must then remit the GST for which they claimed an input tax credit.

The Court concluded that this is ludicrous because the vendor is acting as the agent of CRA and as long as the purchaser can prove that they have paid the GST then there is “no amount payable” and CRA’s argument under Paragraph 296(1)(b) of the Excise Tax Act is not applicable.

For further information see VTN Monthly Tax Update Seminar, Issue No. 285.
August 09, 2005
DIRECTOR LIABILITY
DUE DILIGENCE DEFENCE

In a September 29, 2004 Tax Court of Canada case (MacIsaac vs. H.M.Q., 2003-4156(IT)I), the taxpayer (Son M) was 25 years old when he became involved as a director in his father’s corporation. The father was the patriarchal head of the family unit and Son M was “powerless to do anything” with respect to managing the corporation.

Therefore, Son M avoided personal liability for unremitted GST and source deductions based on the “due diligence defence”.
August 02, 2005
INCOME ALLOCATION TO A PHSP
In an April 4, 2005 External Technical Interpretation (2005-0115681E5, McCarthy, Kathryn), CRA notes that where an employee can reallocate certain employment income to a Private Health Services Plan (PHSP), the amounts allocated will still be included in employment income.

However, where the employment contract expires and is renegotiated to incorporate a decrease in salary and an allocation to a PHSP, the PHSP payments will not be included in the employee’s income.

For further information see VTN Monthly Tax Update Seminar, Issue No. 285.
July 26, 2005
COMPUTER PRINTER
In a February 22, 2005 External Technical Interpretation (2005-0112331E5, Majerus, Luisa, 1-613-957-2138), CRA notes that new Class 45 (45% capital cost allowance rate) includes property purchased after March 22, 2004 that is general-purpose electronic data processing equipment and systems software therefor, including ancillary data processing equipment.

Generally, a printer that is connected to a computer falls into this class.

For further information see VTN Monthly Tax Update Seminar, Issue No. 284.
July 19, 2005
UNRELATED BUSINESS
In a February 22, 2005 External Technical Interpretation (2004-0095001E5, Leigh, Jenie), CRA notes that a charitable organization may be revoked if the organization is carrying on an “unrelated business”. (Paragraph 149.1(2)(a))

For further information see VTN Monthly Tax Update Seminar, Issue No. 284.
July 12, 2005
NON-COMPETITION AGREEMENTS (NCA)
The new income inclusion provisions of Section 56.4 on NCA receipts can be avoided through a joint election on a disposition of an “eligible interest”. (Paragraph 56.4(3)(c))

For further information see VTN Monthly Tax Update Seminar, Issue No. 284.
July 05, 2005
THE LINE 104 PROJECT
CRA has a national project whereby individuals who have reported larger amounts of income as “other employment income” on Line 104 of the Personal Tax Return in the years 2001, 2002 or 2003 must provide details as to what is included in those amounts. If the amounts are “employment income” subject to Canada Pension Plan and T4 requirements, CRA will likely assess the corporation to pay CPP for both the employer and the employee.

For further information see VTN Monthly Tax Update Seminar, Issue No. 283.
June 28, 2005
SECTION 44.1 DEFERRAL
Where an individual sell shares of a qualified small business corporation and uses the proceeds to invest in Treasury shares of another qualified small business corporation there may be a deferral of the capital gain under Section 44.1.

For further information see VTN Monthly Tax Update Seminar, Issue No. 283.
June 21, 2005
PRIVATE HEALTH SERVICE PLAN - COST-PLUS PLAN
In a January 19, 2005 External Technical Interpretation (2003-0030991E5, Harkin, Shaun), CRA notes that it remains our long-standing position that a Cost-Plus Plan could contain the basic elements of insurance and qualify as a PHSP.

For further information see VTN Monthly Tax Update Seminar, Issue No. 283.
June 14, 2005
MOVING EXPENSES
In a February 4, 2005 Tax Court of Canada case (Beaudoin vs. H.M.Q., 2004-3543(IT)I), even though the move occurred seven years after the change of employment location, the Court permitted the moving expense on the basis that the delay in moving was caused by business problems and a lien registered against the Nanaimo property.

For further information see VTN Monthly Tax Update Seminar, Issue No. 283.
June 07, 2005
MEDICAL EXPENSE AT A PLACE - PARAGRAPH 118.2(2)(e)
In a February 10, 2005 Tax Court of Canada case (Lister vs. H.M.Q., 2004-2248(IT)I), the taxpayer was allowed medical expenses for the costs at a Kelowna retirement home (Hawthorn Park) of $21,270, $20,912, and $28,055 for the years 2001, 2002 and 2003 under Paragraph 118.2(2)(e).

For further information see VTN Monthly Tax Update Seminar, Issue No. 283.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a document such as this, a further review should be done by a qualified professional. Although every reasonable effort has been made to ensure the accuracy of the information contained in this document, no individual or organization involved in either the preparation or distribution of this document accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

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