Income Tax Act Subsection 227 Excise Tax Act Subsection 323 Typically in Canada, your debts are your own. However, where corporations are involved that is not always the case. The Canada Revenue Agency (“CRA”) can assess director’s of a corporation for certain kinds of corporate debts. The most common are unpaid source deductions, and GST/HST. There are defenses available to fight the imposition of director’s liability. A director may attempt a due diligence defense which is found in subsection 227.3 of the Income Tax Act. A good Tax Court of Canada example where this defense was attempted can be found Maddin v. The Queen (2014 TCC 277). The due diligence defense essentially argues that appropriate efforts were made to ensure the corporation complies with the law (ie remits properly), and the director’s should not be blamed for what occurred. It is an incredibly difficult argument to make and one should

Deemed Disposition Where there is a change in use of property (real estate), the owner of the property is deemed to have sold the property, and to have immediately re-purchased it. This occurs whether the change in use is from personal use to income producing, or from income producing to personal use. Both the sale, and re-purchase are done at fair market value.   Income Producing a Personal Use When a property changes from incoming producing to personal use, the deemed sale may result in a capital gain. A capital gain is calculated by subtracting the “adjusted cost base” of the property from the fair market value at the time the change in use occurred. The adjusted cost base is essentially the purchase price plus various capital improvements. If there is a partial change of use then the deemed sale will only be for that portion of the property. An example

Income Tax Act Subsection 3(d), 38(c), 39(1)(c), 40(2)(g)(ii), and 50 An allowable business investment loss (“ABIL”) is half of a capital loss, which was incurred on the sale of shares, or a debt of a small business corporation. The importance of receiving and ABIL rather than a capital loss is that an ABIL is deductible against any other source of income, not just capital gains. Justice Bowman created a four-point test used to determine whether the loss is an ABIL. Did the taxpayer invest in shares or debt of a corporation? If the investment is debt, and not owed to a corporation with which the debtor corporation does not deal at arm’s length, has the debt been estab- lished to be bad as required under paragraph 50(1)(a)? If the investment is a share, has the share become worthless in the circumstances referred to in paragraph 50(1)(b), or has it been

Income Tax Act subsection 125(7) A Canadian Controlled Private Corporation’s first $500,000 of active business income is taxed at a much lower rate. This is known as the small business deduction. Active business income is essentially exactly what is sounds like. Active income is typically anything other than investment income, rental income, leasing income, income from a specified investment business or a personal services business. These types of income are usually passive income, and passive income does not qualify for the small business deduction. Rental and leasing income may qualify as active income in certain situations.   CRA Resources IT-73R6 The Small Business Deduction CLICK HERE TO BOOK A CONSULTATION WITH A TAX LAWYER

A Canadian Controlled Private Corporation (or “CCPC”) is a private corporation being controlled by Canadian residents. The definition strictly prohibits public companies from qualifying, and also those run by non-residents. The major benefit of being a CCPC is access to the small business deduction. Another major benefit is that the sale of CCPC shares may qualify for the Lifetime Capital Gains Exemption. Meaning a portion of the capital gain may be tax free to the seller.   CRA Resources IT458R2 ARCHIVED – Canadian-Controlled Private Corporation (it458r2-e.html)   Case law The Queen v MacDonald, 2013 FCA 110 Bioartificial Gel Technologies Inc. v The Queen, 2012 TCC 120 Detailed Case law analysis may be found here: http://ita-annotated.ca/RecentDecisions/category/substantive-provision/ccpc/ CLICK HERE TO BOOK A CONSULTATION WITH A TAX LAWYER

Income Tax Act subsections 74.1(1), 74.2(1), 74.5(2) The rules of attribution come into play when income-producing property is transferred or loaned to a non-arms length party with certain exeptions (directly or indirectly or by means of a trust). The income from the property will be attributed back to the person who originally gave it to the non arms length party. This occurs even if money was transferred and then the non arms length party used that money to purchase an income-producing asset. If capital gains is earned on the property/asset, then those gains will be taxable to the non arms length party. A non-arm’s length party is typically a related minor child under the age of 18, a niece or nephew, or a spouse. Secondary income, that being income earned on the original income (interest for example) will be considered income of the non arms length party. The rules of

Many individuals choose to categorize themselves as an independent contractor (self employed) because of the various tax advantages. The Canada Revenue Agency has its own rules regarding whether a person is in a business relationship (independent contractor), or in an employee-employer relationship. Simply because your contract states you are an independent contractor does not mean the CRA will abide by the terms of your contract.   Court Cases The following court cases have been extremely important in shaping this area of the law: Supreme Court of Canada 671122 Ontario Ltd. vs Sagaz Industries Canada Inc., June 2001; Tax Court of Canada Preddie v. the Queen, March 2004; and Federal Court of Appeal 1392644 Ontario Inc. O/A Connor Homes vs Minister of National Revenue, and 1324455 Ontario Inc. vs Minister of National Revenue March 2013.   Court Opinion The courts look at a number of factors in making the determination as

If you use the same vehicle for business and pleasure, a logbook should be kept to identify the business, and personal use. If you are able to deduct vehicle expenses, then only the business portion can be deducted from income. If a business is providing you with a vehicle, a logbook must be kept to separate the business and personal use. The business must then calculate the taxable benefit to the employee based on the personal use of the vehicle. A log should note the date, destination, reason, and kilometers driven. Make sure to record the odometer at the beginning, and end of the year.   Employees Typically, your first drive of the day is not business related. Your drive to the office, and your drive home from the office is not deductible. If you are driving from the office to a customer’s house, and then back to the office,

Income Tax Act Subsection 110.6(1), 110.6(1.3), 110.6(2) In 2015, the amount increased that a taxpayer can claim for the lifetime capital gains exemption as it relates to qualified farm property. The amount is now $1,000,000. The definition of qualified farm property comes from Subsection 110.6(1) of the Income Tax Act. The farm property must be owned by an individual, the partner (spouse or common law) of the individual, or a family fishing partnership. The farm property could be any of the following: Real or immovable property that was used to farm in Canada by the same individuals that must own the property (found above); Shares of a family farm corporation; An interest in a family farming partnership; or Capital property used by a person or partnership that was used to farm in Canada. The rules pertaining to the shares are two-fold. One regarding their ownership, and the other regarding the

You do not have to report certain amounts in your income, including the following: Any GST/HST credit or Canada child tax benefit payments, as well as those from related provincial and territorial programs; Child assistance payments and the supplement for handicapped children paid by the province of Quebec; Compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident; Most lottery winnings; Most gifts and inheritances; Amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service; Most amounts received from a life insurance policy following someone’s death; Most payments of the type commonly referred to as strike pay you received from your union, even if you perform picketing duties as a requirement of membership; and income earned on any of the above amounts (such as interest you