Corporations – Page 10 – Loukidelis PC

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…

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?

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…

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…

Income-splitting gone wrong

In Demers c. La Reine, 2006 CCI 504, the taxpayer tried to split income with his minor daughters. The Court ruled against the taxpayer, in part because it considered artificial the payment of thousands of dollars of dividends on shares that were issued for only $1.

Classes of shares

As readers of this blog know, the Ontario Business Corporations Act was amended late last year to provide that

The articles [of a Corporation] may provide that two or more classes of shares or two or more series within a class of shares may have the same rights, privileges, restrictions and conditions.

Robin MacKnight, writing in the Canadian Tax Foundation’s Tax for the Owner-Manager in July, pointed out that:

At the 2007 STEP National Conference, the CRA was asked how it would interpret this change in the context of the attribution and income-splitting rules. Not surprisingly, its response was that tax consequences depend on more than just a name, and it would not necessarily recognize a distinction between classes of shares on that basis alone.

Revival

Subsection 227.1(1) of the Income Tax Act (Canada) (the “Act”) permits the CRA to assess a director of a corporation for the corporation’s failure to remit source deductions. Subsection 227.1(4) of the Act, however, provides that

no action … to recover any amount payable by a director of a corporation under subsection [227.1(1)] shall be commenced more than two years after the director last ceased to be a director of that corporation.

What happens if a director, who is otherwise potentially liable under section 227.1, fails to resign, but the corporation of which he is a director dissolves involuntarily and more than two years passes before the CRA issues an assessment under section 227.1?

Section 84.1

The following article on section 84.1 of the Income Tax Act (Canada) appeared in the latest edition of the Hamilton Law Association Law Journal.

1 Accountants will tell you that mistakes involving section 84.1 of the Income Tax Act (Canada) (the “Act”)[1] are at or near the top of the list of reasons why members of that profession must report themselves to their insurers. Of course, clients typically look to their accountants for tax advice, and a lawyer who implements a reorganization further to instructions received from an accountant, and in reliance upon his or her tax expertise, should not be liable for any tax mistakes. But the key word in that last sentence is “should”. A deemed dividend under section 84.1 will be a nasty surprise for a client, and he or she might not be so willing to recognize the division of labour between the lawyer and the accountant after the CRA hands out a reassessment. In any case, if you can recognize some of the section 84.1 danger signs and prevent an error by asking questions, you might earn the undying gratitude of the referring accountant.

Category: Corporations (page 10)