LPC Notes – Page 83 – Loukidelis PC

The Cottage as a Principal Residence

The following article appeared in the latest edition of the Hamilton Law Association Law Journal.

In many families, the summer cottage is something like an institution. It provides happy memories of lazy days spent on the water and cool nights with only the crickets to disturb one’s sleep. A cottage, however, can also present a tax problem. We are regularly consulted by taxpayers concerned about how their estates will pay the Canada Revenue Agency (the “CRA”) when it comes calling about the cottage after the death of its owner.

Jeopardy

Generally speaking, the CRA cannot collect an income tax debt from a taxpayer while the taxpayer disputes the assessment from which the debt is derived before the Tax Court renders a judgment on the assessment. The CRA, however, can apply to a court for a jeopardy collection order “ex parte” (without the taxpayer having the right to appear to contest the application) that will allow the CRA to proceed to take collection action. The taxpayer can then apply to have the ex parte order set aside. In Alexander (Re), 2008 FC 902, the taxpayer succeeded in having the order overturned by the Federal Court.

Rectification, again

The Niagara region seems to be doing its part to contribute to the law of rectification in the tax context. Juliar v. Canada (Attorney General), 1999 CanLII 15097 (ON S.C.) originated in the peninsula. Now comes QL Hotel Service Limited v. Ontario (Finance), 2008 CanLII 15226 (ON S.C.). In the latter case, one corporation incorporated another and then transferred intangible property to the other for one common share and tangible property for one million Class A Special Shares. The transferor then sold the shares of the transferee to an arm’s length purchaser.

Corporations as Beneficiaries

It is often quite useful to have Holdco own shares of Opco through a trust rather than directly. In general, the other beneficiaries of the trust can still claim the capital gain exemption in respect of a disposition of the shares of Opco, and keeping the redundant assets of Opco to a minimum while deferring tax at the individual shareholder level can be as simple as paying a dividend from Opco that is allocated to Holdco as a beneficiary of the trust.

Criminal investigations

I posted previously on the decision of the Federal Court of Appeal in Canada (Minister of National Revenue) v. Ellingson, 2006 FCA 202, which was decided in light of the Supreme Court of Canada’s decision in R v. Jarvis, [2002] 3 S.C.R. 757, 2002 SCC 73. The Ontario Court of Appeal has now weighed in on the subject in R. v. Tiffin, 2008 ONCA 306. In this case, the Court of Appeal considered a trial court finding that the CRA had abused its audit power in pursuit of a criminal investigation. The Court considered whether the evidence gathered using the audit power should be excluded. Ultimately, in a split decision, the Court decided that a significant portion of the evidence should not be excluded even though the trial judge concluded that the CRA personnel involved had acted in bad faith and dishonestly. The decision is also interesting for the insight it gives into the methods used by the CRA’s “Special Enforcement Program” and the distinction between an investigation and an audit.

Full-time Employees

To avoid being found to carry on a “personal services business” or a “specified investment business” under the Income Tax Act, a corporation must employ “more than five full-time employees”. The CRA, based on several tax court decisions, has stated…

Executors’ fees again

An executor who receives fees for acting as such must include the fees in income, usually as income from an office (employment income). Can this result be avoided if the fees are called a “legacy” in the will that provides for their payment? Not according to Messier v. The Queen, 2008 TCC 349.

Paying dividends

Richard Weber at Taylor Leibow was kind enough to forward to me a CRA technical interpretation (2007-0229311I7) dated June 14, 2007, concerning the payment of dividends. A corporation purported to pay a capital dividend. The necessary election was filed, but the corporation forgot to reflect the dividend in its financial statements, and apparently the dividend was not otherwise paid. The CRA discovered these facts when conducting an audit.

Leaving a Sinking Ship

The following article on resignation as a director of a corporation and directors’ liability under the Income Tax Act (Canada) appeared in the latest edition of the Hamilton Law Association Law Journal.

PC Wind Down

What happens to a professional corporation (a “PC”) when the doctor is no longer in the house?

LPC Notes (page 83)