A very common tax savings is the capital gains deduction that can, subject to various conditions, be utilized upon the realization of a capital gain on the disposition of qualified small business corporation shares. The deduction can shelter up to a lifetime maximum of $750,000 of capital gains. However, very careful planning must be done in most cases in order to ensure that the deduction can be utilized.

My, how time flies! A year ago, Moodys LLP Tax Advisors opened its doors with great expectations and hoping to start the tax world on fire. Well, it certainly has been an interesting year!

The objective of opening Moodys LLP Tax Advisors was simple: to focus on what we do best – tax advisory services – and delegate the rest to other more qualified advisors. The Income Tax Act and related matters (such as cross-border advisory services, estate planning, investment advisory services, etc.) has become such a specialized area that it is difficult to do all services well. Accordingly, we sensed that clients desired high end specialized income tax advice – especially at the private client level (given that such clients tend to have a hard time finding specialized tax advice).

Our July 9, 2008 blog entry on Capital Gains vs. Income highlighted the challenges that taxpayers face when dealing with dispositions of property and the tax treatment thereof. One of the more difficult issues in this area is whether or not a disposition of real estate property could be considered to be on account of income.

As many readers know, Stephen Harper and the Conservatives asked the Governor General to dissolve Parliament on September 7, 2008 and a Federal Election was called for October 14, 2008. While the pundits and the media will be working overtime for the next 34 days, what does this mean for income tax purposes?

As most readers know, Canada’s system of taxation is one that will tax based upon residency. To the extent that you are a resident of Canada, you will generally pay Canadian income tax on your worldwide sources of income. To the extent that you are a non-resident of Canada, only certain types of income (such as Canadian source income or dispositions of taxable Canadian property) will be subject to Canadian income tax. Most of the countries in the world have a similar system of taxation as that in Canada where the primary tax basis is that of residency.

On July 14, 2008, The Department of Finance released a package of proposals to amend the Income Tax Act for various measures. Included in the package was a small amendment that proposes to tinker with the eligible dividend rules.

One of the more common income tax matters that Moodys LLP Tax Advisors advises on is whether or not a disposition (or a proposed disposition) of property will result in a capital gain (half of which is taxable), or will be fully taxed as income. Taxpayers often take for granted that dispositions of property will be treated as capital gains.

On May 22, 2008, the Supreme Court of Canada released its decision in the McLarty matter. The issue before the Court was whether Mr. McLarty’s liability under a promissory note that was owing by him upon the acquisition of a certain oil and gas property was an absolute as opposed to a contingent liability. To the extent that the promissory note was a contingent liability, no deduction would be allowed by Mr. McLarty for such portion of the otherwise oil and gas expense deduction. The other matter before the Court was whether or not McLarty was dealing at arm’s length with the vendor when he acquired the property. To the extent that he was not dealing in an arm’s length fashion with the vendor then the acquisition of such property would be required to be made at fair market value which the CRA had argued was much less than its original acquisition price.

On April 22, 2008, the important decision of Prevost was released by the Tax Court of Canada. The facts in Prevost were quite straightforward:

Yes! It’s over! As a tax practitioner, many people who talk to me during April will often comment that I must be very busy since this is “harvest season”. While there’s no doubt that many tax practioners are often busy in April, Moodys’ practice does not focus on personal tax preparation.

Much of our firm’s day-to-day tax planning and research involves issues surrounding the purchase and sale of businesses. Such purchase and sales will often involve the acquisition and/or granting of a restrictive covenant. In many cases, the granting of the restrictive covenant could be as simple as the vendor agreeing not to compete with the purchaser’s business for a limited period of time in a specified geographical area.

As mentioned in the first blog entry of February 29, 2008, the February 26, 2008 Federal Budget introduced the TFSA. The new TFSAs appear to be similarly modeled after “Roth IRAs” that exist in the US. On the surface, the introduction of this vehicle does not appear to be all that earth shattering. However, upon a closer look, some significant planning may be able to be done.