John Loukidelis – Page 87

Notes on a Price Adjustment Clause

The following article will appear in the next edition of the HLA Journal.

Almost every tax-driven reorganization requires the lawyer implementing it to draft a price adjustment clause (a “PAC”). Most lawyers will have their favourite precedent for such a clause, but a lawyer needs to understand the nature and purpose of PACs—and how the CRA interprets them—so that he or she can use them appropriately in the context of any given set of transactions. This article does not purport to be a complete review of the theory and practice of PACs; it is more like a collection of notes on some of the more important features of a PAC precedent.

Requirements

The following article appeared in the latest edition of the HLA Journal.

CRA “requirements” (a “Requirement”) are a form of garnishment for unpaid taxes, and they can be quite troublesome for a business, especially if its systems aren’t what they should be. Businesses are used to acting as tax collectors for the federal and provincial government, of course: businesses withhold and remit amounts from wages and they collect and remit sales taxes. A Requirement, however, applies whenever a business is liable to pay an amount to another person; it is an obligation to act as a tax collector that applies in a broader variet of circumstances, not just when wages are payable, or goods or services are sold.

Safe income

The CRA has released the latest edition of its Income Tax Technical News (number 37). This issue is devoted solely to the question of the effect of non-deductible expenses on the calculation of safe income on hand in light of…

Tax Court Jurisdiction

The Tax Court has said it before, and it will say it again: it has no jurisdiction to hear an appeal from a “nil assessment” (an assessment where no federal taxes are payable) or from an assessment that relates only to Ontario taxes. See Baluyot v. The Queen, 2007 TCC 682.

Eligible dividends

As readers of this blog know, Joe Monaco and I prepared a presentation last spring on eligible dividends. “Eligible dividends” are taxable dividends paid by a corporation resident in Canada after 2005 that are received by a person resident in Canada and that are designated as eligible for the purposes of the Income Tax Act (Canada). An individual who receives an eligible dividend is entitled to claim an enhanced dividend tax credit. As a result, the effective tax rate on an eligible dividend for an individual otherwise subject to tax at the highest marginal rate is only about 25%.

What are the corporate procedures that a Canadian-controlled private corporation (a CCPC) should follow to pay and designate an eligible dividend?

Anchor Pointe

The Supreme Court has dismissed with costs the taxpayer’s application for leave to appeal from the Federal Court of Appeal’s decision in The Queen v. Anchor Pointe Energy Ltd., 2007 FCA 188.

Amalgamation IT corrected

Karen Wilkinson at Deloitte was kind enough to point out to me that the CRA has reversed itself on whether a 116 certificate is necessary when Canadian corporations with non-resident shareholders amalgamate. IT-474R2, issued on December 17, 2007, contained the…

IT-474R3

The CRA recently released Interpretation Bulletin IT-474R3 (“Amalgamations of Canadian Corporations”). One of the big changes relates to the requirement to obtain a certificate under section 116 of the Income Tax Act. Previously, the CRA took the position that a…

Charity suspended

The Tax Court has rejected an application by International Charity Association Network under subsection 188.2(4) of the Income Tax Act (Canada) for a postponement of a suspension “of its authority to issue an official tax receipt for one year beginning…

Corporate information reporting

The Ministry of Government Services has issued a notice to clients that discusses the effect of the single administration of Ontario corporate income taxes (which will be implemented by January 1, 2009) on the process for filing annual corporate returns…

Author: John Loukidelis (page 87)