Articles
Articles, blogs, and thought pieces, written by me
More Reasons to Abandon the HST (originally on Lawyer’s Daily)
By Dale Barrett – Managing Lawyer at Barrett Tax Law and Tax Columnist at the Lawyer’s Daily. Originally published by the Lawyer’s Daily. In my first article in this series, I expressed the opinion that the entire Harmonized Sales Tax system and its legal framework are fundamentally flawed. I outlined four of the nine problems with HST to help illustrate why it should be abandoned. Here are the remaining problems. 5. It has opened the door to various HST scams. There are many tax scams that involve the HST. If the HST didn’t exist, neither would any of these scams: The Missing Trader HST Scam: This tax scam has arguably cost the federal government billions of dollars. In this particular scam, organized crime gangs and other fraudsters charge HST on products and services which are legitimately sold to purchasers. These fraudsters, in turn, abscond with the HST and never submit
HST Hurts Economy and Should be Abandoned (originally on Lawyer’s Daily)
By Dale Barrett – Managing Lawyer at Barrett Tax Law and Tax Columnist at the Lawyer’s Daily. Originally published by the Lawyer’s Daily. According to the 2008 federal budget, the Harmonized Sales Tax (HST) was claimed by the federal government to be “the single most important step provinces with retail sales taxes could take to improve the competitiveness of Canadian businesses.” They were wrong. I would argue that instead of making Canadian businesses more competitive, the HST has done exactly the opposite. In fact, it is clear that HST has robbed the Canadian government, the Canadian economy and individual Canadian taxpayers of tens of billions of dollars. In reality, rather than being beneficial the HST has actually worsened the profitability and competitiveness of Canadian businesses and has ruined the lives of many tens of thousands of taxpayers. This is because the entire HST system and its legal framework are fundamentally
CRA Auditors Less Concerned with Correctness than with the Size of Reassessments (originally on Lawyer’s Daily)
By Dale Barrett – Managing Lawyer at Barrett Tax Law and Tax Columnist at the Lawyer’s Daily. Originally published by the Lawyer’s Daily. In any self-reporting or honour system like we have in Canadian taxation, there must be a means by which the state can verify the correctness of information provided. Enter the tax audit – a component of such a system, which is both necessary to encourage taxpayer honesty by deterring cheating, and necessary to uncover inadvertent errors. And one could argue that the first and prime goal of the audit should always be to arrive at the correct outcome; to find the correct amount of tax payable – even if it means making an adjustment in the taxpayer’s favour. In such a system, it should be obvious that auditors shouldn’t have reassessments as their primary motivator – a conclusion which seems to not have been arrived at by
Ombudsman Not Protecting Rights of Taxpayers (originally on Lawyer’s Daily)
Dale Barrett – Managing Partner of Barrett Tax Law This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc. Although not an actual law as it is in the United States, the Taxpayer “Bill of Rights” sets out sixteen rights, eight of which are within the mandate of the Taxpayers’ Ombudsman’s office. In particular, the Ombudsman is charged with “upholding” the rights to: 1. Be treated professionally, courteously, and fairly 2. Complete accurate, clear, and timely information 3. Lodge a service complaint and to be provided with an explanation of the findings 4. Have the costs of compliance taken into account when administering tax legislation 5. Expect the CRA to be accountable 6. Expect the CRA to publish service standards and report annually 7. Expect the CRA to warn you about questionable tax schemes in a timely manner 8. Be represented by a person of your
Beware The Net Worth Audit
Beware The Net Worth Audit (re-published from TheGaap.net) August 1, 2018 Dale Barrett Managing Partner Barrett Tax Law Arguably, the cheapest, fastest, and dirtiest way in which the CRA can audit a taxpayer is by employing the “net worth” method. It throws all principals of good audit practice to the wind and allows the auditor to essentially go freestyle. And it results in reassessments. Lots and lots of huge, unfair reassessments. And no CRA auditor was ever fired for coming back to the office with lots and lots of huge reassessments. Never. And as an auditor, it is better to err on the side of caution. Plus, if the taxpayer disagrees with the reassessment, they can go ahead and object. And if they lose their objection, they can always appeal to the Tax Court of Canada. And so begins the sad story in which much of the cost of
Taxation of a Partnership – The Basics
June 18, 2018 By Vivian Esper Tax Lawyer Barrett Tax Law 1-866-278-8424 416-907-8429 TAXATION OF A PARTNERSHIP – THE BASICS The Canadian common law of all provinces defines a partnership as the relation that subsists between or amongst persons carrying on a business in common with a view of profit. Subsection 102(1) of the Income Tax Act defines a Canadian partnership as a partnership all of the members of which were, at any time in respect of which the expression is relevant, resident in Canada. Under Canadian law, a partnership is not considered a separate legal entity. However, for income tax purposes the partnership is a hybrid. Subsection 96 of the Income Tax Act provides that a partnership is a separate person for the purposes of computing income, but not for the computation of tax. Each partner holds a divided interest in the partnership as opposed to the partnership’s underlying
AON Inc. – Current vs. Capital Expenditures
On September 6, 2017, the Tax Court released its decision of AON Inc. v. Canada 2015-1043 (IT) G ruling on the issue of classification of expenditures (current vs. capital). The Honourable Justice Gaston Jorre confirmed the established legal test used to determine the nature of the expenditures. In summary, Justice Jorre confirmed “enduring benefit” (most recently followed in Rainbow Pipe Line 1999 TCJ No. 604 (GL)) test that considers whether the benefit flowing from the expenditure endures beyond the current fiscal year. Justice Jorre also considered Professor Durnford’s commentary from his 1997 article “The Deductibility of Building Repair and Renovation Costs” as a guide that lists the factors to be considered (acquisition of independent assets vs. repair of an asset, use of new technology, quantum of work, the length of time taken incur the expenditures). In AON, the appellant spent $4 million in expenses over a two-year period to replace
Late Filing Penalties for RRSP Over-Contribution Canceled by Tax Court
On August 31, 2017, the Tax Court of Canada released a judgment Chiang v. The Queen (2016-2715(IT)I where Sommerfeldt J. canceled late filing penalties under section 204.3 and section 162(1) of the ITA.In brief, the appellant, Mr. Chaing, over-contributed to his RRSPs during the period from 2004 through 2013 taxation years. The minister assessed the appellant for the over-contribution and with the late-filing penalties. Sommerfeldt J. confirmed the correctness of the Minister’s calculation of the over-contribution but canceled the penalties because: “Mr. Chiang had conscientiously tracked his RRSP contributions and was genuinely of the view that he had not made any over-contributions to his RRSP. Accordingly, based on his understanding, there was no need to file a return pursuant to paragraph 204.3(1)(a) of the ITA.” [1] Sommerfeldt J allowed the appeal after considering the ruling in La Souveraine[2] that confirmed the relevant legal test applicable to the due diligence defense that Mr.
Cryptocurrency Profits in Canada: Capital Gains vs. Business Income
March 12, 2018 By Dale Barrett Managing Partner Barrett Tax Law 1-866-278-8424 416-907-8429 Cryptocurrency Profits in Canada: Capital Gains vs. Business Income I am asked all the time whether somebody has to pay capital gains tax on their cryptocurrency gains or whether they have to pay business tax. The answer invariably, is “it depends.” It depends on a number of factors. There is no set formula as to determine the exact point at which a gain ceases to be a capital gain and instead is taxed twice as punitively under the banner of income tax. With one set of circumstances a taxpayer can get away with paying capital gains tax. And then without warning, like the tipping of a see-saw, the taxpayer finds that they must start paying business income tax. To provide an analogy that may resonate, crypto trading is taxed by applying the same concepts applicable to the
Tax Treatment of Cryptocurrency Theft and Loss
January 13, 2018 By Dale Barrett Managing Partner Barrett Tax Law 1-866-278-8424 416-907-8429 So, after investing in Bitcoin and Ethereum, the North Koreans hacked one of your cryptocurrency exchanges and you lost a Bitcoin after it had hit $20,000 USD (and you bought the Bitcoin for $1.00). Now what? Nobody can help you get it back, and now it’s time to deal with the Canada Revenue Agency (the “CRA”)! Taxation of Cryptocurrency Profits Cryptocurrency is not really a currency, as far as the CRA is concerned. According to the CRA Views 2013-0514701I7 document, cryptocurrency is characterized as a commodity. “Virtual currencies, such as Bitcoins, are not considered to be a currency issued by a government of a country, such as American dollars. As such, they are generally treated as a commodity for purposes of the Income Tax Act. Therefore, using Bitcoins to purchase goods or services would be treated as a form
