by Marc Weisman of Torkin Manes LLP
The Canada Revenue Agency (the “CRA”) has recently changed its practice of backdating registrations for GST/HST.
A person (i.e., an individual, partnership, trust and corporation) is required to register for GST/HST when that person makes a taxable supply in Canada. A person can ‘voluntarily’ register for GST/HST even if the person does not make a taxable supply in Canada.
by Harold J. Feder of BrazeauSeller LLP
Before anyone’s mind starts to wander, the term “Personal Services Business” is simply a term defined under theIncome Tax Act Canada. Without going into the technical details of the definition, it essentially means a business carried on by a corporation where the services performed by the corporation are provided by an individual who would otherwise be considered an employee of the recipient of the services. The individual in this situation is often referred to as an “incorporated employee”.
In the classic example, an employee of a corporation leaves employment and then starts a corporation to provide services to his or her former employer. The motivation behind this structure is to take advantage of the small business deduction rate for Canadian controlled private corporations and the numerous deductions available to a corporation, as opposed to an employee.
Back nearly thirty (30) years ago, in an effort to curb these arrangements, the Department of Finance enacted legislation to deal with income earned by a personal services business. The effect of the original legislation was to deny the small business deduction as well as the deduction of most ordinary expenses. The result was that the incorporated employee would be taxed at the higher corporate tax rate and would have most expenses disallowed. At the end of the day, this legislation was punitive in that it put the individual in a worse after-tax position than they would have been had they earned the employment income directly.
by Marc Weisman & Alison Ronson of Torkin Manes LLP
Viewers of detective dramas know that accused persons refuse to speak without their lawyer present. A visit from a Canada Revenue Agency (“CRA”) auditor may not be quite as dramatic but the consequences can be drastic. Let’s create our own fictional case to see why.
Imagine a client of mine, who we will call “Bart,” owns all of the shares of a corporation that builds and sells condominiums. Ever since his mother “Marge” kicked his father “Homer” out of the house, Bart has been letting his dad stay in one of the unsold, unoccupied condominiums in his newest development. Since Marge has the family car, Bart also gave Homer a company vehicle to keep.
It seems like an ideal situation for all parties: Bart is doing a good deed for his father, Marge has the house to herself and Homer has a free place to stay and free transportation. Unfortunately, one day the CRA calls Bart to tell him that they will be auditing his corporation. Regrettably, Bart fails to inform me of the upcoming audit.
by Marc Weisman of Torkin Manes LLP
As part of my tax and estates practice, I frequently advise executors on tax and estates matters. The recent decision of the Federal Court of Canada in Rosenberg Estate v. Canada (National Revenue) 2011 DTC 5075 highlights the importance of filing final tax returns on time to avoid penalties to the estate.
This was not a simple estate. Mr. Rosenberg passed away on June 14, 2003 without a Will and therefore without an executor. The court appointed a liquidator (Quebec term for estate trustee) on November 3, 2003. The heirs were in dispute. There was also an undeclared offshore bank account that ultimately resulted in a voluntary disclosure. The liquidator had instructed Mr. Rosenberg’s accountant to prepare and file the terminal return and remit a payment on account of the tax owing. The accountant failed to file the terminal return on time and the liquidator appointed a new accountant. Neither the liquidator nor the accountant had sufficient information to determine the precise amount of tax owing by the filing deadline of the terminal return. Further, the liquidator had to deal with all of the complications of an intestacy and disputes between the heirs.
by Marc Weisman of Torkin Manes LLP
In the last two or three years, the Canada Revenue Agency (“CRA”) has been aggressive in its pursuit of corporate taxpayers and their directors for unremitted payroll withholding taxes and goods and services taxes. As part of our tax practice, we have acted for more than 200 corporate and individual taxpayers in these situations, so we take careful note of court decisions that have a bearing on this field.
In a recent case (Dupont Roofing & Sheet Metal Inc. 2011 DTC 5031), the Federal Court of Canada surprisingly ruled that the CRA is not required to issue a notice of assessment before it enforces collection on unremitted payroll withholding taxes.
by Stevan Novoselac & John Sorensen
In our article, “The CRA is not a Bank – Director’s Liability in an Age of Economic Uncertainty”,1 we strongly warned corporate directors to make sure that source deductions, GST/HST, employee EI premiums and employee CPP contributions are remitted to the Crown and not used as operating funds, regardless of whether the corporation has cash flow problems. This is because a corporation’s failure to remit these amounts makes directors personally liable for the default, if:
By Henry Chong of Gowling Lafleur Henderson LLP
The Canada Revenue Agency (CRA) recently introduced new forms NR301, NR302, and NR303 (collectively the ‘‘NRs’’), which can be completed by a nonresident person, or by a partnership or hybrid entity with nonresident owners, seeking to obtain the benefits of reduced withholding rates on passive income under an income tax treaty. The new forms are part of a change in the CRA’s policy for administering Canada’s nonresident withholding tax regime following the Fifth Protocol to the Canada-U.S. Income Tax Treaty. The new NRs are similar in form to the W-8s in the United States. However, unlike the W-8s, which are part of a regulatory framework for the withholding of taxes in the United States, the NRs were not created by statute or regulation and were not accompanied by any changes to the withholding tax obligations under the Income Tax Act (Canada) (the ‘‘Act’’)1 or regulations. Thus, the purpose of the forms is unclear. They do not appear to have any legal effect other than as a convenient method for setting out and providing the information required to obtain reduced treaty rates under Canada’s withholding tax regime. Whether they evolve into something more may only become apparent with time.
Read the full article: Canada Introduces New Forms to Be Used to Obtain Treaty Benefits, Including by Partnerships and Hybrid Entities
By Marc Weisman of Torkin Manes LLP
The Federal Court of Appeal in Bozzer v. The Queen, 2011 FCA 186 (“Bozzer”), reversing the decision of the Federal Court of Canada (Trial Division), 2010 FC 139, issued a landmark decision on June 2, 2011, changing the landscape for applications for the waiver of interest and penalties under the Tax Act (Canada) (the “ITA”).
The Canada Revenue Agency (the “CRA”) has a policy of “Taxpayer Relief,” under which it may waive interest and penalties in such circumstances as:
By Marc Weisman of Torkin Manes LLP
Partnerships in and of themselves are not required to file tax returns because they are not taxpayers or taxable entities. A partnership’s income is taxable in the hands of the partners, who are required to file tax returns. However, Income Tax Regulation 229 requires all partnerships to file an annual “information return” (Canada Revenue Agency (“CRA”) Form T5013). Until January 1, 2011, by CRA administrative policy, partnerships with fewer than six partners did not have to file partnership information returns unless one of the partners was another partnership.
Accountants and other advisors to partnerships should note the changes to filing requirements for partnership information returns that came into effect on January 1, 2011 for partnerships with fiscal periods ending on or after January 1, 2011.
The new administrative policies require partnerships that carry on business in Canada, or Canadian partnerships with Canadian or foreign operations/investments, to file partnership information returns annually if:
By Eric Koh of Gowling Lafleur Henderson LLP
On July 22, 2011, the Supreme Court of Canada (“SCC”) concurrently released two decisions relating to the taxation of interest income of an Indian from a financial institution located on an Indian reserve. The majority decisions in Bastien Estate v. Canada (“Bastien”)1 and Dube v. Canada (“Dube”) 2 establish and develop an analytical framework for determining whether personal property, both tangible and intangible, is situated on a reserve and exempt from taxation by virtue of section 87 of the Indian Act (the “Exemption”). More importantly, the respective decisions set new precedents in a couple of important areas.
By Eric Koh of Gowling Lafleur Henderson LLP
Introduction
A director of a corporation is personally liable under subsection 323(1) of the Excise Tax Act1 (“ETA”) for the failure of the corporation to remit goods and services tax (“GST”). However, subsection 323(5) imposes a time limit on this liability whereby a director will not be held liable for unremitted GST two or more years after ceasing to be a director. Unfortunately, the Tax Court of Canada’s (“TCC”) decision in Snively v. The Queen 2 (“Snively”) makes it more difficult for an individual to rely on subsection 323(5). Indeed, this decision may have broader ramifications on directors’ liability in general, and beyond the ETA. According to the TCC, an individual may still be a deemed director of a corporation even after formally resigning from that position.
By Cary Heller of Collins Barrow Toronto LLP
On Wednesday, March 16, 2011, the Department of Finance released proposed income tax legislation designed to address three decisions of the Federal Court of Appeal.
Contingent Amounts and Limits on Expenses
In Collins v. The Queen, 2010, FCA 12, the issue was deductibility of interest. In brief, the taxpayers deducted accrued but unpaid interest at the full amount even though they had an existing right to discharge their obligations by electing to pay a significantly lower amount of interest. The Federal Court of Appeal (“FCA”) ruled that it was not the original obligation to pay the interest that was contingent, but that it was each taxpayer’s subsequent decision to exercise the option to pay the lower amount which was contingent. As such, the decision allowed interest payable under the original obligation to be deducted in computing income even though both taxpayers had a right to elect to pay a lower amount.
The draft legislation provides that
Michael Friedman and Ashley Palmer of McMillan LLP
Canada’s income tax system requires taxpayers to self-assess and report their income tax liabilities in respect of each taxation year. Where a taxpayer has previously provided incorrect or incomplete information, or has failed to disclose required information entirely, to the Canada Revenue Agency (CRA), the taxpayer may, under certain circumstances, be permitted to come forward and voluntarily disclose past reporting errors or omissions in exchange for potential penalty (and, in limited circumstances, interest) relief by making an application to the CRA under the federal “Voluntary Disclosures Program” (VDP). This article provides a general overview of the conditions that a taxpayer must satisfy in order to be eligible to make a valid voluntary disclosure.
In Spring our hearts are turned toward love,
Unless we are Accountants.
Our clients’ slips are pouring in
Like coins into a fountain.
Now some old slips we bring back out
From where they were put by.
We sort them out, new slips we add,
and the oldest we then shred.
But these vision, dental, and drug receipts
bring a mix of hope and dread,
For each slip calls a silent cry:
“Line 332 is a cruel place!
A vacant space where all clients face
a question that may horrify:
‘When a year of us is added up,
were you sick enough to qualify?’”
But there is a stream of smiling clients
Who bypass round the Line.
They’re self-employed or a business owner
With a Private Health Services Plan.
It softens the sting of the harsh taxman
And leaves Line 332 to founder.
All health receipts – one hundred percent –
Are a deductible business expense.
Each one of these can
Set up their own Plan
By calling Aquilian!
Click here for a tool that will tell you whether an Aquilian plan will reduce taxes or not: http://bit.ly/PHSP_Tool_Ont
www.aquilian.ca
(647) 333-7229
[Ed. note: Line 332 of Schedule 1 of Canada's personal income tax return provides a very small non-refundable credit only against taxes otherwise owing. For 2010 the first $2,024 of medical expenses are not eligible (so many people aren't "sick enough to qualify") and the credit given for anything over that amount is usually much lower than the taxes on the income used to pay for those medical expenses in the first place. An Aquilian Plan for corporations or the self-employed turns 100% of medical expenses into fully-deductible business expenses.]
by Lidiya Nychyk and Maureen De Lisser, Ernst & Young LLP, Toronto
In two recent technical interpretations, the Canada Revenue Agency (CRA) provided administrative guidance on certain tax aspects of gifts by will, including how to report and value a delayed gift. While the positions expressed may not come as a surprise to tax practitioners, they do provide useful guidance to executors and tax advisors on how to report and claim the charitable donation tax credit on certain gifts made by will.
