Rental losses - Tax Court denies rental loss for individual who intended to recover costs of rental property, rather than make a profit.

RENTAL PROPERTY – SOURCE OF INCOME?

In an October 24, 2018 Tax Court of Canada case (Hustak vs. H.M.Q., 2017-1119(IT)I), at issue was whether the taxpayer carried on his rental of two properties in a sufficiently commercial manner to constitute a source of income.

Taxpayer loses
While the taxpayer argued that he charged below market rent due to high vacancy rates, to attract tenants, to retain insurance coverage as the insurance company noted that they would not cover the properties if they were vacant, and because the tenants had expressed an interest in purchasing the property, the Court did not accept that he carried on the operation in a sufficiently commercial manner for profit.

Specifically, the taxpayer did not obtain leases with tenants, made no attempt to determine comparable market rent, and did not increase rents over the years despite significant expenses incurred. Also, the taxpayer’s intention was not to make a profit but to simply recover the costs of certain expenses. He did not realize a profit in any of the years in question. Further, he had rented out one of his properties for a portion of the years in question to his niece for less than he had charged to arm’s length tenants.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 445.

SBD Limitations - CRA provides an example to demonstrate when a partner can assign their Specified Partnership Business Limit to a CCPC (where all parties act at arm's length).

SPECIFIED PARTNERSHIP INCOME (SPI) – ASSIGNMENT OF BUSINESS LIMIT

At the October 5, 2018 APFF Round Table, CRA commented on the ability to assign business limit in a fairly complex business structure. CRA’s preliminary response included the diagram below.

The question indicated that each of A, B, C and D act at arm’s length to each other and to ABCD LLP and Serviceco.

CRA first noted that, as Serviceco provides services exclusively to ABCD LLP, and one of its shareholders is a partner, Serviceco is a deemed member of the partnership and will not be eligible to claim the small business deduction in the absence of an assignment of Specified Partnership Business Limit (SPBL) from a partner.

CRA discussed the ability of each partner to assign SPBL to Serviceco (Subsection 125(8)). CRA confirmed that only a partner in ABCD LLP who is also a shareholder of Serviceco can make an assignment, as all partners act at arm’s length with Serviceco. Reviewing each principal’s structure, CRA indicated the following:

(a) As Holdco A and Holdco C were not shareholders of Serviceco, they could not assign any of their SPBL to Serviceco;

(b) As B was both a shareholder of Serviceco and a partner of ABCD LLP, B could assign all or any part of its SPBL to Serviceco; and

(c) As D was not a shareholder of Serviceco, he could not assign any of his SPBL to Serviceco.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 445

Join us for Tax Adventure 2019- Whistler, December 3-5, 2019

Step away from the day-to-day and immerse yourself in 3 solid days of tax updates and excellent conversation with senior public practitioners from across Canada in Whistler, Canada.

Tax Adventure 2019 is a fast-paced and highly detailed course offering hundreds of practical insights and suggestions in a simple and straight-forward manner. 

In addition to the past year’s tax changes and their implications, speakers Caitlin L. Butler CPA, CA, Joseph R. Devaney CPA, CA and Hugh Neilson FCPA, FCA, TEP will also conduct a special discussion on estate planning. 

With consistently high ratings from attendees (4.6/5 by registrants of Tax Adventure 2018), you can rest assured that this session will offer a strong and effective base for the upcoming season of tax planning and compliance.

Discounts available: Early Bird Discount (July 31, 2019)  |  Group Discount (4+ registrants)  |  Discount for Booking accommodation through our recommended provider ($500 by May 31, 2019, $200 by August 31, 2019 OR $60 after August 31, 2019 while supply last).  Some restrictions apply.  Click here to see pricing details.

Watch! QST Changes for Non-Quebec Businesses

Canadian businesses outside of Quebec supplying goods, services or IPP to Quebec consumers?  Rule changes significantly expand the number of businesses required to register for, collect and remit Quebec Sales Tax (QST).  Watch Mitch LaBuick, Indirect Tax Partner, BDO Canada LLP and Caitlin Butler, Video Tax News, discuss these new rules and identify businesses that may be impacted.

Source

• https://www.revenuquebec.ca/en/businesses/consumption-taxes/gsthst-and-qst/special-cases-gsthst-and-qst/suppliers-outside-quebec/  

• https://www.revenuquebec.ca/en/businesses/consumption-taxes/gsthst-and-qst/special-cases-gsthst-and-qst/suppliers-outside-quebec/qst-registrant-suppliers-outside-quebec/

Learn more from Mitch LaBuick! Register for 5 in 55: GST/HST Traps for the Owner-Managed Business and Individual.

Recorded April 15, 2019

This video is for general information purposes only and deals with dynamic, time-sensitive and complex matters that may not apply to particular facts and circumstances. The information provided should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. For more information visit videotax.com/disclaimer. ©Video Tax News Inc. 2019, All Rights Reserved.

New Course! GST/HST Traps for the Owner-Managed Business and Individual | 1-hour | Online

As professionals, we know that complying with the GST/HST rules is not straight forward and can have costly consequences for our clients. Protect yourself and your clients by registering individually (or your whole office) for this 1-hour pre-recorded webinar which discusses the more common GST/HST traps seen in practice for owner-managed businesses and individuals.

Select the time that best suits your needs within the 7-day session to join Mitch LaBuick, Partner, Indirect Tax, BDO Canada and Caitlin Butler, Video Tax News as they discuss five carefully selected key GST/HST traps.