Tax-News.com: Canada News

Tax-News.com: Canada News

Tax-News.com: Canada NewsTax-News.com: Canada Opposed To New US TariffsTax-News.com: Canadians Weigh Up Tax Options For Funding Media ContentTax-News.com: Sugary Drinks Tax Proposed For Canada's Northwest Territories

http://ftr.fivefilters.org/makefulltextfeed.php?url=https%3A%2F%2Ftaxcases.ca%2Ffull-text-rss%2Fmakefulltextfeed.php%3Furl%3Dfeeds.feedburner.com%252Ftaxnewscanada%26amp%3Bmax%3D5%26amp%3Blinks%3Dpreserve%26amp%3Bexc%3D%26amp%3Bsubmit%3DCreate%2BFeed&max=5 Global tax news, continuously updated through the day. http://www.tax-news.com/news/Canada_Opposed_To_New_US_Tariffs____73431.html http://www.tax-news.com/news/Canada_Opposed_To_New_US_Tariffs____73431.html <h2>by Mike Godfrey, Tax-news.com, Washington</h2> <h3>09 February 2017</h3> <p>Canadian Trade Minister Chrystia Freeland has said that her Government would be “strongly opposed to any imposition of new tariffs between Canada and the United States.”</p> <p>Freeland undertook a two-day visit to Washington, D.C. from February 7 to 8. She met with her counterpart, the new US Secretary of State Rex Tillerson, House Speaker Paul Ryan, and the chairs of the Senate committees on armed services and foreign relations.</p> <p>Speaking to reporters after her meeting with Tillerson, Freeland said: “I did make the point that Canada will have no position on the [US Government’s] tax reform plan or the border adjustment tax idea until it is fully formed and it is a concrete proposal. But I did make clear that we would be strongly opposed to any imposition of new tariffs between Canada and the US, that we felt tariffs on exports would be mutually harmful.”</p> <p>She added that “if such an idea were ever to come into being, Canada would respond appropriately.”</p> <p>US President Donald Trump has promised “massive” tax cuts for American companies. He has however also threatened a “major border tax” of up to 35 percent on imports from US multinational companies that move their production facilities outside the country.</p> <p><strong><a href=”https://blockads.fivefilters.org”></a></strong> <a href=”https://blockads.fivefilters.org/acceptable.html”>(Why?)</a></p> Thu, 09 Feb 2017 00:00:00 +0000 EN text/html http://www.tax-news.com/news/Canada_Opposed_To_New_US_Tariffs____73431.html http://www.tax-news.com/news/Canadians_Weigh_Up_Tax_Options_For_Funding_Media_Content____73418.html http://www.tax-news.com/news/Canadians_Weigh_Up_Tax_Options_For_Funding_Media_Content____73418.html <h2>by Mike Godfrey, Tax-news.com, Washington</h2> <h3>08 February 2017</h3> <p>A majority of Canadians are opposed to the introduction of a new tax on internet and mobile phone bills, according to a new poll for campaign group OpenMedia.</p> <p>The survey asked respondents about the potential for the federal Government to create a new revenue source to support Canadian media content. OpenMedia said that 53 percent of respondents supported the idea, while 20 percent were opposed.</p> <p>When asked for their opinions on specific options for a new revenue source, 70 percent of participants said that they were opposed to the prospect of a new tax on internet and mobile phone bills, with 51 percent saying they were strongly opposed. Only 14 percent supported the idea.</p> <p>However, OpenMedia said that there was more support for the possible extension of the goods and services tax/harmonized sales tax to foreign online companies. 47 percent of respondents said they would support the option if revenues were directed to Canadian content, while 29 percent were opposed to the suggestion.</p> <p>The research was conducted by Innovative Research Group Inc.</p> <p><strong><a href=”https://blockads.fivefilters.org”></a></strong> <a href=”https://blockads.fivefilters.org/acceptable.html”>(Why?)</a></p> Wed, 08 Feb 2017 00:00:00 +0000 EN text/html http://www.tax-news.com/news/Canadians_Weigh_Up_Tax_Options_For_Funding_Media_Content____73418.html http://www.tax-news.com/news/Sugary_Drinks_Tax_Proposed_For_Canadas_Northwest_Territories____73409.html http://www.tax-news.com/news/Sugary_Drinks_Tax_Proposed_For_Canadas_Northwest_Territories____73409.html <h2>by Mike Godfrey, Tax-news.com, Washington</h2> <h3>07 February 2017</h3> <p>Canada’s Northwest Territories will introduce a sugary drinks tax in 2018-19.</p> <p>In his 2017-18 Budget address, Finance Minister Robert McLeod said that the Government intends to introduce the tax in 2018-19 but will “take the time during the upcoming fiscal year to ensure our approach is as effective as possible.”</p> <p>The tax would act as “a price incentive to discourage the consumption of sugary drinks that are linked to health issues such as obesity and diabetes,” he explained.</p> <p>There have previously been calls for a federal tax on sugar-sweetened and artificially-sweetened drinks.</p> <p>In March 2016, the Standing Senate Committee on Social Affairs, Science, and Technology recommended that the Government “assess the options for taxation levers” for reducing consumption of such drinks. In addition, industry body Dietitians of Canada has called for the application of an excise tax of at least 10-20 percent on sugar-sweetened drinks.</p> <p><strong><a href=”https://blockads.fivefilters.org”></a></strong> <a href=”https://blockads.fivefilters.org/acceptable.html”>(Why?)</a></p> Tue, 07 Feb 2017 00:00:00 +0000 EN text/html http://www.tax-news.com/news/Sugary_Drinks_Tax_Proposed_For_Canadas_Northwest_Territories____73409.html

(Why?)

Published at

Tax-News.com: Canada Opposed To New US Tariffs

Tax-News.com: Canada Opposed To New US Tariffs

by Mike Godfrey, Tax-news.com, Washington

09 February 2017

Canadian Trade Minister Chrystia Freeland has said that her Government would be “strongly opposed to any imposition of new tariffs between Canada and the United States.”

Freeland undertook a two-day visit to Washington, D.C. from February 7 to 8. She met with her counterpart, the new US Secretary of State Rex Tillerson, House Speaker Paul Ryan, and the chairs of the Senate committees on armed services and foreign relations.

Speaking to reporters after her meeting with Tillerson, Freeland said: “I did make the point that Canada will have no position on the [US Government’s] tax reform plan or the border adjustment tax idea until it is fully formed and it is a concrete proposal. But I did make clear that we would be strongly opposed to any imposition of new tariffs between Canada and the US, that we felt tariffs on exports would be mutually harmful.”

She added that “if such an idea were ever to come into being, Canada would respond appropriately.”

US President Donald Trump has promised “massive” tax cuts for American companies. He has however also threatened a “major border tax” of up to 35 percent on imports from US multinational companies that move their production facilities outside the country.

(Why?)

Published at Thu, 09 Feb 2017 00:00:00 +0000

Canadians should use TFSAs to invest in small business: MEI

Canadians should use TFSAs to invest in small business: MEI

creative-solutions

Small businesses with fewer than 100 employees account for a whopping 70% of all jobs in the private sector, says Youri Chassin, research director at the Montreal Economic Institute (MEI), in a report that cites government research.

As such, he suggests modifying TFSA rules to allow Canadian investors to invest in small business, instead of restricting them to listed firms. The result would be a win-win, he argues: investors get more choice, and small business gets funding. Further, Canadians would potentially have the option of investing in promising projects in their own communities, with attractive tax-free earnings.

As it stands, small businesses have difficulty getting bank loans, and they pay higher interest rates on the loans they do get. As a result, more than 84% of the heads of start-up enterprises rely on personal financing, namely their own funds or personal loans. Relatively few of them (17.3%) receive financing from friends or relatives.

Read: Is Canadian business confidence on shaky ground?

With nearly 12 million Canadians having TFSAs, the MEI argues these accounts are an untapped source of business investment. In total, TFSAs add up to $151.6 billion, or about $13,000 on average per contributor.

Read: How to work with small investors

Qualifying TFSAs for small business investment

All that’s required is a simple modification of article 204 of the Income Tax Act, “qualified investments,” in order to include shares of small businesses, suggests Chassin. TFSA investments would then enjoy the same regulatory protections as ordinary investments not made through TFSAs.

Further, there’s no need to measure the fair market value of the assets for tax purposes, since the purchase and sale prices of a small business share has no fiscal impact for a TFSA, which has tax-free returns.

In exceptional cases where such a calculation is necessary, Chassin suggests using the same guidelines applied to a family business transfer.

Read: How tax rules disadvantage family business succession

In such a case, “the market value of the company is not determined by financial transactions on the stock market,” says Chassin. “But this in no way prevents equity investments. The rules established in situations in which companies are transferred to a member of the next generation could serve as a default method.”

It’s a relatively easy way to boost business growth, which is a current focus of the federal government, as laid out in the recent report of the economic advisory council.

If the change proved successful, qualified investments for RRSPs could be similarly modified. Certainly, the potential modification to TFSAs can be compared to a previous success in Quebec.

In 1979, the Quebec government set up the Stock Savings Plan, which led to the creation of several of today’s large Quebec businesses, notes Chassin. Similarly, “opening up TFSAs to investments in small businesses not listed on a stock exchange could constitute a minor revolution in the development of a culture of savings in support of entrepreneurship.”

Read the full report here.

(Why?)

Published at Thu, 09 Feb 2017 16:23:40 +0000

Tax-News.com: Canadians Weigh Up Tax Options For Funding Media Content

Tax-News.com: Canadians Weigh Up Tax Options For Funding Media Content

by Mike Godfrey, Tax-news.com, Washington

08 February 2017

A majority of Canadians are opposed to the introduction of a new tax on internet and mobile phone bills, according to a new poll for campaign group OpenMedia.

The survey asked respondents about the potential for the federal Government to create a new revenue source to support Canadian media content. OpenMedia said that 53 percent of respondents supported the idea, while 20 percent were opposed.

When asked for their opinions on specific options for a new revenue source, 70 percent of participants said that they were opposed to the prospect of a new tax on internet and mobile phone bills, with 51 percent saying they were strongly opposed. Only 14 percent supported the idea.

However, OpenMedia said that there was more support for the possible extension of the goods and services tax/harmonized sales tax to foreign online companies. 47 percent of respondents said they would support the option if revenues were directed to Canadian content, while 29 percent were opposed to the suggestion.

The research was conducted by Innovative Research Group Inc.

(Why?)

Published at Wed, 08 Feb 2017 00:00:00 +0000

21% of Canadians use RRSP funds for daily expenses: poll

21% of Canadians use RRSP funds for daily expenses: poll

holiday-shopping-expenses

Between not saving for RRSPs and making early withdrawals, Canadians are in a financial bind.

Only 46% of Canadians plan to contribute to RRSPs this year, reveals part one of a BMO survey, but that figure paints only half of the grim picture.

Part two of the survey reveals that 38% of Canadians have withdrawn RRSP funds this year, before age 71 — an increase of 4% from last year.

It gets worse.

Although purchasing a home remains the top reason Canadians make early withdrawals (30%), other reasons are to pay for living expenses (21%), to pay off debt (18%) or to pay for emergencies (18%).

On average, Canadians have withdrawn $17,213 from their RRSPs this year, an increase of $1,305 from last year.

Read: Why Canadians aren’t contributing to RRSPs

Although 75% are very concerned about the consequences and 73% say they’re familiar with the tax penalties or the rules for repayment under the homebuyers plan, 19% don’t expect to pay the funds back.

The failure to pay back funds is potentially also expressed in the results from a Mackenzie Investments poll. That poll finds a similar percentage of Canadians — 21% — have negative feelings (anxious/worried or confused) 30 days out from the RRSP deadline, which would certainly be expected for those without funds to contribute.

And advisors continue to make a difference, as confirmed in an earlier Mackenzie poll and reaffirmed now, 30 days from the deadline. While only 36% of Canadians say they’re confident heading into RRSP season, that figure jumps to more than 50% for those with advisors.

Read: Navigate RRSP attribution rules

Here’s the national breakdown of Canadians who withdrew funds early:

Region Percentage of Canadians who have made an RRSP withdrawal before age 71 Average amount Canadians have withdrawn from RRSPs Top reason for making an RRSP withdrawal
National 38% $17,213 To buy a home (30%)
Atlantic 48% $25,485 To make a large purchase, other than a home (22%)
Quebec 39% $17,231 To buy a home (23%)
Ontario 35% $16,593 To buy a home (31%)
Prairies 33% $10,546 To pay off debt (27%)
Alberta 41% $12,524 To buy a home (38%)
B.C. 44% $21,538 To buy a home (38%)

The BMO survey was conducted online by Pollara in December 2016, with a sample of 1,500 Canadians. The margin of error is ± 2.5%, 19 times out of 20.

(Why?)

Published at Wed, 08 Feb 2017 19:25:45 +0000

Tax-News.com: Canada Confirms Loss Of Data On 28,000 Taxpayers

Tax-News.com: Canada Confirms Loss Of Data On 28,000 Taxpayers

by Mary Swire, Tax-News.com, Hong Kong

07 February 2017

The Canada Revenue Agency (CRA) has confirmed that a DVD containing encrypted taxpayer information has been lost by a courier service.

The CRA said that the DVD, sent by a registered courier service and destined for the Government of Yukon, contained the tax information of approximately 28,000 taxpayers who were residents of the Yukon Territory in the 2014 tax filing year. It added that the courier service has launched a search to locate the missing DVD, and that the Office of the Privacy Commissioner of Canada has been informed of the incident.

According to the CRA, there is no indication that the data has been accessed or used. It stressed that there are strong security measures in place and that there is a very low risk that taxpayers’ information would be compromised. The encryption module used on the DVD has been approved by the Communications Security Establishment, it said.

The CRA noted that the use of encrypted CDs and DVDs is a common practice when it comes to exchanging information for tax purposes, and that there are stringent requirements for how storage devices and hard copies are handled. It said that an initial internal investigation indicates that CRA personnel complied with government and CRA policies.

The CRA said that although the risk to affected taxpayers is thought to be very low, it will formally notify those concerned. It has set up an information telephone line.

(Why?)

Published at Tue, 07 Feb 2017 00:00:00 +0000

Tax-News.com: Sugary Drinks Tax Proposed For Canada's Northwest Territories

Tax-News.com: Sugary Drinks Tax Proposed For Canada's Northwest Territories

by Mike Godfrey, Tax-news.com, Washington

07 February 2017

Canada’s Northwest Territories will introduce a sugary drinks tax in 2018-19.

In his 2017-18 Budget address, Finance Minister Robert McLeod said that the Government intends to introduce the tax in 2018-19 but will “take the time during the upcoming fiscal year to ensure our approach is as effective as possible.”

The tax would act as “a price incentive to discourage the consumption of sugary drinks that are linked to health issues such as obesity and diabetes,” he explained.

There have previously been calls for a federal tax on sugar-sweetened and artificially-sweetened drinks.

In March 2016, the Standing Senate Committee on Social Affairs, Science, and Technology recommended that the Government “assess the options for taxation levers” for reducing consumption of such drinks. In addition, industry body Dietitians of Canada has called for the application of an excise tax of at least 10-20 percent on sugar-sweetened drinks.

(Why?)

Published at Tue, 07 Feb 2017 00:00:00 +0000

How tax rules disadvantage family business succession

How tax rules disadvantage family business succession

Small-family-business-owners

Many business owners dream of passing their businesses on to their children. But thanks to a specific anti-avoidance tax rule, it’s often more profitable to sell to an outsider.

The federal rule, in section 84.1 of the Income Tax Act, means that “when family goes to buy a business from family members, they’re on a completely different footing than non-family members,” says James Kraft, vice-president and head of business advisory and succession planning at BMO Wealth Management.

If a stranger wants to buy a company, says Kraft, usually the most tax-efficient way to do it is to create a holding company to buy the target company. Profits from the target company can be used to pay off any loans that were required for the purchase, and the sale benefits from the tax regime’s lifetime capital gains exemption.

But, under section 84.1, if a parent sells their corporation to a child or relative’s holding company, the sale is taxed as a dividend instead of a capital gain. “If children go to buy it from parents, if they form a BuyCo, the parents get bad [tax] treatment,” says Kraft. (See “Case Study: a family-run business,” below.)

The federal government says nothing in the tax act prevents a parent from selling the family business directly to a child (without using a BuyCo) and benefiting from the lifetime capital gains exemption. But, says Kraft, if the child doesn’t form a BuyCo, “they have to take the profits of the company out personally, pay personal taxes and then use the profits to pay for the purchase. They have much more significant tax issues than a stranger.”

Why does section 84.1 exist?

“It came in because there are ways to abuse the lifetime capital gains exemption,” says Kraft, which in 2017 is worth $835,716.

A mother could sell her company to her child for the sole purpose of accessing the exemption, and make her child the owner for legal and tax purposes only. “If I can get you $800,000 and use up your capital gains exemption, you’ve got $800,000 to spend tax-free, and you still own your business,” says Kraft. Since that would not be considered a bona fide sale, it would be tax avoidance.

But what if there is a bona fide sale for family estate planning? Unfortunately for family businesses, 84.1 still applies, and there aren’t many ways around it.

“Sometimes we’re lucky that the business can do an estate freeze,” says Kraft. But with most estate freezes, sellers get cash in exchange for shares gradually, and the process can take decades. Further, if the seller needs additional cash before the full transfer is complete, he says, the business can only pay the seller dividends, which are taxed higher than capital gains.

Read: Tread carefully with corporate reorganizations

“You get really frustrated that there’s a good, honest family incurring additional taxes that the neighbours don’t have to because they’re not dealing with family,” says Kraft. “I’ve got a family demanding to use the capital gains exemption. Mom and dad are going to get $1 million each, and it’s going to cost the son $4 million in profits to give it to them. And he’s beside himself, because what looks like his mom and dad saving taxes, the government’s just picking up in the other pocket.”

Kraft’s clients aren’t alone. NDP MP Guy Caron says more than $50 billion in farm assets are set to change hands over the next 10 years, and more than 8,000 family farms have disappeared in the past decade.

Pushing for amendments

“It’s a problem more and more, because farmers, especially, and fishers, are seeing the benefits of being incorporated,” says Caron, who last year introduced private member’s bill C-274 to address section 84.1.

The bill proposes a limited exception to section 84.1 for share transfers from a corporation’s owner to a child or grandchild. Bill C-274 would require the child to own the business for at least five years after the transfer for the exception to apply (unless the buyer dies). Under the bill, the exception would not apply to transactions above $15 million, and CRA could request additional paperwork relevant to the family transfer.

The provision as it stands, Caron says, is causing tough choices for small business owners who have to consider the savings of transferring their corporation to someone outside the family.

“Those people have to consider, ‘Am I going to keep the business, the farm or the fishing boat in the family, at the cost of having a more decent retirement?’” Caron says. “It’s a choice you should not be confronted with.”

Read: Taxes for West Coast Canadians

Caron’s bill has the support of all opposition parties and groups as diverse as the Chicken Farmers of Canada and the Conference for Advanced Life Underwriting (CALU). The opposition parties don’t have the support of the Liberal government as a parliamentary vote on February 8 threatens to defeat the legislation. Caron would need a handful of Liberals to support the bill’s passage, though that would be rare, since most private member’s bills don’t become law.

Grappling with a higher-than-expected federal deficit, the Liberal government argues the provision is really about avoiding abuse.

“Our government is aware of the challenge facing small business owners — including farmers — as more and more of them approach retirement age and wish to leave their businesses to their children,” Annie Donolo, spokesperson for the minister of Finance, says in an emailed statement. “Let’s be clear: nothing currently prevents a parent from selling the family company directly to their child and claiming the lifetime capital gains exemption on the resulting capital gain. The issue at hand isn’t passing on the family business, but rather corporations potentially abusing the tax code to avoid paying their fair share of taxes.”

If enacted, Bill C-274 could “lead to tax planning consequences that could cost the federal treasury up to $1.2 billion per year,” says Donolo, adding that the government will be studying the issue for solutions.

Caron argues the government’s tax revenue claims “make no sense at all.” He says the government’s estimate did not take into account current tax minimization practices for business transfers, and that he has consulted tax lawyers, including at Eric Dufour of Raymond Chabot Grant Thornton, who estimate the bill would cost the government $75 million to $90 million annually.

CALU has its own suggestions on how to change section 84.1:

  1. Limit an exception to 84.1 to children or grandchildren of the transferor.
  2. Require the purchaser or their spouse/partner to be active in the business after the purchase.
  3. Limit the exception to only that portion of the capital gain that can be offset by the shareholder’s capital gains exemption. This would more clearly limit the benefit to owners of smaller businesses, and in turn restrict the tax benefit available to owners of larger businesses.
  4. To ensure the business owner is retiring, require the owner to be of a certain minimum age to access the exemption (e.g., 50 or 55).
  5. Have a specific anti-avoidance rule to prevent abuse of the exception (e.g., a minimum holding period for the shares).
  6. Require the transferor(s) to report, in the year of sale, that they are claiming the exception under section 84.1. This would give CRA the opportunity to review the transaction and ensure a bona fide sale is taking place, and allow tracking of tax expenditures.

“No wants this thing to be a slam dunk,” says Kraft, referring to ways around 84.1. “They really want it to be for scenarios when there’s a full transfer.”

And if C-274 passes and the Department of Finance finds that people are later abusing the exemptions, Kraft says the Income Tax Act is already equipped to handle that.

“The nice thing about abuse is you can always pull out GAAR [the general anti-avoidance rules] and chase them down.”

Read: Choose the right estate freeze

Case study: A family-run business

This following fictional example is courtesy of the Conference for Advanced Life Underwriting (CALU)

Ron Nelson started a plumbing business almost 40 years ago. It was tough in the early years, but the business managed to grow in both good times and bad. His wife, Joanie, joined the business once their children Mike and Tenley were old enough to start day school. As the years passed, Ron successfully bid on larger construction projects. Mike decided to follow in his father’s footsteps, eventually becoming a master plumber in the company. In turn, Tenley graduated with a business degree and joined the company, gradually assuming most of her mom’s responsibilities as office manager.

Now in their mid-60s, Ron and Joanie have told Tenley and Mike that they plan to retire in the next few years and let them take over. The parents simply want enough to retire comfortably, do some travelling and buy a small condo down south. Like most small business owners, they left most of the profits in the company to fund expansion, and only recently paid off their mortgage.

Then the unexpected happened. Tom Welding, the owner of a plumbing business in a neighbouring town, offered to buy Ron out. He offered him $1.5 million with $500,000 up front and the rest over five years. This was more than Ron thought the business was worth, and would erase his money worries. But what about Tenley and Mike?

Ron and Joanie met with the children to discuss this latest development. Ron noted this was a strong offer, and was worried that Tom might buy another local business and become a major rival if they turned him down. The children had thought they would eventually take over the business, but now feared they would be looking for new jobs. Ron agreed to let Tenley and Mike pull together their own offer.

Later that week, Tenley and Mike presented a counter-proposal. Their plan was to incorporate a new company to purchase Ron’s shares for $1.5 million.

However, they could only come up with $100,000 in cash, with the remainder funded by a 10-year loan from Ron. Although not quite as good as Tom’s offer, Ron and Joanie wanted the business to stay in the family. They tentatively agreed, subject to discussions with Sharon, their accountant and business advisor.

The meeting between Ron, Joanie and Sharon took place two days later. She told Ron he still had access to his full capital gains exemption of just over $800,000.

This was a relief, as the cost base and paid-up capital of his shares in the company was nominal.

She then explained that with Tom’s offer, the first $800,000 of sale proceeds would be completely tax-free due to his capital gains exemption. The remaining $700,000 would be a capital gain, of which $350,000 would be included in his income. But this income could be spread out, since most of the sale proceeds would be paid over five years. This would result in that income being taxed at a lower marginal tax rate. She estimated that Tom would net approximately $1.35 million after tax once all the money had been paid out.

Unfortunately, this would not be the case under the children’s offer. Sharon noted there is a special rule in the Income Tax Act, which applies where an individual sells shares in a private corporation to another corporation owned by non-arm’s length persons, such as Ron and Joanie’s children. In this case, the sale proceeds would be treated as dividend income rather than capital gains. For Ron, this meant no access to his capital gains exemption, and no capital gains reserve. Instead of netting $1.35 million after tax, he would only receive approximately $900,000 — a shortfall of $450,000 from Tom’s offer.

Sharon explained that Ron could sell his shares directly to his children, rather than through a corporation, and essentially get the same after-tax result as Tom’s offer. But in this case, the children would need to withdraw the money from the company as taxable dividends, which would mean they’d have less available after tax to repay the loan to Ron. She noted this would likely result in the children needing 15 to 20 years to repay their father, rather than the 10 years they estimated. This would also adversely affect the firm’s cash flow, and put Ron at greater risk in terms of having the children repay the loan.

Why does this happen?
Sharon was referring the rule found in section 84.1 of the Income Tax Act. The rule prevents the withdrawal of corporate surplus on a tax-free basis by using the capital gains exemption on a disposition of shares in a non-arm’s length transfer. When section 84.1 applies, it will either convert a capital gain into a deemed dividend, or reduce the paid-up capital of shares received on the sale transaction.

(Why?)

Published at Mon, 06 Feb 2017 22:12:17 +0000

How much power do powers of attorney really have?

How much power do powers of attorney really have?

Wealth_Inheritance_Papers

Bob has made an appointment to see Maria, a financial advisor. Maria has not met Bob, but his name rings a bell. As it turns out, Bob holds the power of attorney for his Aunt Gertrude. Gertrude has been a longtime client of Maria’s. Bob tells Maria that his aunt has recently been declared incapable of managing her financial affairs and he is her attorney. When they meet, Bob provides Maria with a copy of the PoA.

Bob is anxious to make changes to Gertrude’s portfolio. In addition, he wants to gift some of Gertrude’s funds to himself and his cousins. After all, he tells Maria, “My aunt won’t need the money; she is very comfortable,” pointing out that he and his cousins could really use the money. He also wants to make a gift to Gertrude’s church on her behalf. Maria knows that Gertrude donates to the church each Christmas.

Read: How to make a Power of Attorney ironclad

Bob also wants to change the beneficiary designations on Gertrude’s RRIF. Currently, the beneficiary is Gertrude’s estate, and Bob wants to change it to himself. He explains this is so the funds do not get tied up in the probate process after Gertrude dies.

Bob wants to discuss how these steps will impact Gertrude’s estate plan and taxes. Bob has not provided a copy of Gertrude’s will and Maria has never seen it. Gertrude was always private, so her lack of sharing is not surprising. But Maria is hesitant. Does Bob have the legal ability to take these steps? Can a person acting under a PoA make gifts or change beneficiary designations?

Read: Prepare for client incapacity

Gifting assets

An attorney is a fiduciary for the person who granted the PoA, and fundamentally must act in the person’s best interest. Gifting Gertrude’s funds reduces her assets and would seem contrary to this fundamental duty. However, in most provinces, Bob may be able to make gifts.

The first place to turn is the provincial legislation where the grantor resides. Most provinces provide that in limited circumstances, an attorney such as Bob may make a gift or a loan to the grantor’s friends and relatives, and a gift to a charity.

Usually the legislation only permits gifts where Gertrude’s remaining assets will be sufficient to satisfy her basic needs and where there is evidence she would have made the gift had she been competent. With respect to charitable gifts, usually provincial legislation allows the gift only if Gertrude authorized it in her PoA or if there’s evidence she made similar gifts when capable.

Read: Why clients may need multiple cross-border PoAs

A careful reading of the governing legislation in the particular province is required, however, as there are variations. For instance, in Saskatchewan gifts are limited to $1,000 and the attorney is specifically prevented from making gifts to himself, subject to any specific authority granted in the PoA itself. In Ontario, charitable gifts are limited to 20% of the income of the property of the grantor in any particular year and any maximum set out in the PoA, whichever is lower.

Therefore, before they can proceed, Maria and Bob should review both the PoA and the provincial legislation. They should also review Gertrude’s will to ensure that any gifts would be consistent with her estate plan.

Even if the gift is authorized by the PoA and the legislation, Bob should proceed cautiously. The courts have reviewed gifting by an attorney in several cases:

  • In Westfall v. Kovacec Estate (2001), the Ontario Court of Justice did not authorize the gift. The attorney argued that the gift was small, the attorney really needed the money, the incapable person did not require the money, and that the attorney was likely to eventually inherit. The court, however, said these grounds are no more justifiable than theft. The stated reasons were not consistent with the provincial legislation as there was no evidence the giftor would have made the gift if competent.
  • In Laird v. Mulholland (1998), on the other hand, the Ontario court allowed a $10,000 gift to the attorney and his wife, who were longtime friends of the incapable person. The attorney was able to show that the incapable person often made generous birthday and Christmas gifts to the attorney and his family.

Changing the RRIF beneficiary designation

As far as the RRIF is concerned, Bob appears to be out of luck. The general consensus is that a beneficiary designation on life insurance policies, pensions, RRSPs, RRIFs and TFSAs is a testamentary disposition, and thus cannot be completed by a PoA in any circumstances. That said, British Columbia has softened its rules and allows a PoA to continue an existing designation either on the transfer in of a registered plan from another financial institution, or on transition of one plan type to another. Regardless, the courts have also taken a hard stance against such changes.

Read: Don’t let courts choose who gets dead clients’ RRIFs

Conclusion

Maria and Bob both have to proceed carefully to avoid breaching his duty to his aunt. Failing to review the legislation and the PoA document can lead to liability for both Maria and Bob, and could ruin Bob’s family harmony as relatives question the gifts.

(Why?)

Published at Tue, 07 Feb 2017 11:00:02 +0000

Tax-News.com: CRA's Offshore Informant Program Nets CAD1m

Tax-News.com: CRA's Offshore Informant Program Nets CAD1m

by Mike Godfrey, Tax-news.com, Washington

06 February 2017

The Canada Revenue Agency (CRA) has reassessed more than CAD1m (USD1.07m) in federal tax and foreign reporting penalties as a result of information submitted to the Offshore Tax Informant Program (OTIP).

Replying to parliamentary questions, Revenue Minister Diane Lebouthillier said that as of November 30, 2016, the date to which current figures are available, the OTIP has received 398 written submissions.

Of these, 127 are active submissions. The CRA has entered into more than 20 contracts with informants and is reviewing the remaining submissions. The CRA has not paid any awards to date. Lebouthillier said that, “if the CRA assesses and collects more than CAD100,000 in additional federal tax, the amount of the reward will be between five percent and 15 percent of the federal tax collected, not including interest or penalties.”

Lebouthillier added that of the 271 cases that did not qualify under the OTIP, 94 have been closed and 177 were referred to other areas within the CRA for possible compliance action.

Of the leads received in part through the OTIP, the CRA has completed or is currently conducting audits involving more than 218 taxpayers.

Lebouthillier also explained that, “while the CRA is unable to confirm the amount recovered, to date, the CRA has reassessed more than CAD1m in federal tax and foreign reporting as a result of information submitted to the OTIP. As these are multi-year audits, this represents a small number of the over 218 taxpayers that were or are currently under audit.”

From January 2014 to November 2016, the CRA’s operating costs for the OTIP were CAD1.9m.

The OTIP was launched in January 2014 and enables the CRA to make financial rewards to individuals who provide information related to major international non-compliance if the CRA’s investigation leads to the collection of owed taxes. The CRA will offer an informant a contract leading to an award only if the potential assessment of federal taxes, excluding interest and penalties, exceeds CAD100,000. The payment process begins once CAD100,000 of federal tax relating to the assessments has been collected and all recourse rights associated with the assessments have expired.

Lebouthillier said of the process: “An OTIP analyst will consider the information provided by the informant, evaluate the merits of the case, and make a recommendation about inclusion in the program. If a case is recommended for inclusion in the program, it is referred to an oversight committee of senior management representatives for approval to enter into a contract.”

“Once approved, the informant and the CRA will enter into a contract. A payment can be denied and a contract can be terminated in certain situations. The CRA works to conclude the process as efficiently as possible. However, it may take several years from the date of entering into a contract with the CRA until the additional federal tax is assessed, the taxpayer’s appeal rights have expired, and the amount owing is collected.”

(Why?)

Published at Mon, 06 Feb 2017 00:00:00 +0000