The CRA has taken to posting answers to frequently-asked questions about government goodies (aka Easter eggs hidden in the Income Tax Act). It has posted a useful guide to the new tax-free savings account proposed in the last budget.
RESPs
A number of news outlets are carrying stories today about the private member’s bill on the deductibility of RESP contributions. The bill in question is C-253, and you can find the text of the bill here.
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.
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.
News releases
The CRA issued a couple of news releases yesterday. One of them warned about RSP “scams”, and the other announced that the CRA had issued a notice of suspension to ‘International Charity Association Network.’ The Department of Finance announced today…
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.
The Long Arm of Section 160
Section 160 of the Income Tax Act permits the CRA to assess “at any time” a taxpayer who receives property for inadequate consideration from a non-arm’s length person who, at the time of the transfer, has a liability under that Act. Section 160 gives the CRA very long arms indeed when it is trying to reach into a taxpayer’s pocket, as is shown by Wannan v. The Queen, 2003 FCA 423, 1 C.B.R. (5th) 117, [2004] 1 C.T.C. 326, [2003] D.T.C. 5715.
QSBCS Status
Estate of Edward Reilly v. The Queen, 2007 TCC 404, considers whether shares of a corporation owned by an individual were qualified small business corporation shares (QSBCS) at the time of his death. If the shares had been QSBCS, the individual’s estate would have been entitled to claim the capital gains exemption to eliminate the gain the individual realized on death in respect of the shares.
Subsection 75(2)
The following article on subsection 75(2) of the Income Tax Act (Canada) appeared in the latest edition of the Hamilton Law Association Law Journal.