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.
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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.
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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:
- financial hardship or inability to pay,
- actions of the CRA such as processing delays or providing incorrect information, and
- extraordinary circumstances such as illness (see Canada Revenue Agency Income Tax Information Circular IC07-1).
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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:
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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.
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By Michael R. Hayward, CA, CPA of Collins Barrow Ottawa LLP
The U.S. Internal Revenue Service (IRS) recently announced a special voluntary disclosure initiative that should be of particular interest to U.S. citizens resident in Canada. According to the IRS press release dated February 8, 2011, the 2011 Offshore Voluntary Disclosure Program (OVDP) is “designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes.” If you are a U.S. citizen resident in Canada, and you have simple banking relationships in Canada such as chequing accounts, savings accounts and RRSPs, you might not think that this program has any relevance to you. After all, you probably don’t consider Canada to be an “offshore” tax haven and you probably have never attempted to “hide” any income from the IRS. However, a closer look at the U.S. income tax filing requirements and foreign bank account disclosure requirements for U.S. citizens living in Canada might reveal that you have unfulfilled obligations with the IRS. If so, it is likely in your best interests to come forward voluntarily, using the 2011 OVDP or one of the IRS’s other voluntary disclosure mechanisms.
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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.
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by Marc Weisman of Torkin Manes LLP
When a taxpayer dies, tax laws dictate that the taxpayer is deemed to have disposed of all his/her capital property at fair market value. This will trigger capital gains (and recaptured depreciation), which are subject to income tax. (Capital property includes shares of private and public companies and real estate.)
However, if the taxpayer leaves the capital property to a spouse (which includes a common-law partner) or a “qualifying spousal trust” in a Will, any accrued capital gains (and recaptured depreciation) on the property will be realized on the death of the surviving spouse or when the spousal trust sells the property. This might provide a significant tax deferral.
What is a “qualifying spousal trust”?
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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
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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.
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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.
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by Stevan Novoselac, John Sorensen and Michelle McBride of Gowling Lafleur Henderson LLP
In a recent decision of the Ontario Superior Court, Lemberg v. Perris,1 Eric and Valerie Lemberg successfully sued their loyal accountant, Michael Perris (“Perris“), for breach of fiduciary duty. Over the course of their almost twenty-year relationship, Perris provided tax and accounting advice to the Lembergs and performed their tax compliance work.
Perris advised the Lembergs to engage in a so-called “art-flip” tax reduction scheme. The Lembergs accepted Perris’ advice and enjoyed their large tax savings. However, they were reassessed by the Canada Revenue Agency (“CRA“) to disallow all of the benefits they received. Subsequently, the Lembergs learned that Perris had received a “secret commission”
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by Douglas J. Powrie and Stephanie Wong of Borden Ladner Gervais LLP
The Canadian courts have recently considered appeals of several cases in which the Crown has invoked the general anti-avoidance rule (GAAR) to challenge tax avoidance transactions. In Lehigh Cement, the Crown was unable to apply the GAAR because it could not meet its burden of establishing the taxpayer’s abusive tax avoidance in the context of planning that had interest paid (free of withholding tax) to an arms-length bank in respect of principal owed to an affiliated corporation. In Collins & Aikman, the Crown was similarly unable to meet its burden in seeking to apply the GAAR to
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