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The Twelve Days of Tax Christmas

On the first day of Christmas
my true love sent to me:
an Income Tax Act! (In a Pear Tree)

On the second day of Christmas
my true love sent to me:
Two CRA Notice of Reassessments
and an Income Tax Act! (In a Pear Tree)

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Rethinking your firm’s cross-border tax strategy: The impact of Donald Trump’s business tax reform on Canadian entrepreneurs

It is safe to say President-elect Trump ran a presidential campaign that was bold, filled with fiery rhetoric, and sometimes knew no bounds. For example, at the first presidential debate when asked about paying no personal income tax since 1995, the former Celebrity Apprentice host unequivocally responded, “That makes me smart.” For Canadian entrepreneurs thinking about expanding their business into the US, being smart like Trump means understanding the impact an evolving US tax landscape will have on them and their business.

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An update to the small business deduction rules, and some much-needed flowcharts

It has been more than half a year since the Department of Finance announced proposed amendments to the small business deduction (SBD) rules in section 125 of the Income Tax Act (Act) as part of the 2016 Federal Budget. The Canadian tax community has just started to digest the complexity and reach of these amendments. The draft legislation has only passed First Reading in Parliament (as Bill C-29), but in all likelihood, it will eventually be enacted in its current form since Finance has already made a round of revisions to the draft legislation on October 21, 2016.

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So you want to move to Canada?

It seems like every time there is an American election, Google is inundated with search traffic from panicked Americans looking to move to Canada. However, the most recent American election was met with a particularly colossal surge of interest. In fact, the demand was so great that the Government of Canada’s Department of Immigration, Refugees and Citizenship website crashed due to the high volume of visitors.

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Canadians beware… Do accidental US tax inversions apply to you?

Phaedrus, the ancient Athenian aristocrat associated with the philosopher Socrates, was famous for the following quote: “Things are not always as they seem; the first appearance deceives many.” The US inversion tax rules that you may have read about in connection with the Burger King – Tim Horton’s deal or the scuttled Pfizer – Allergan deal reminds me about Phaedrus’ quote… while the rules might appear conceptually simple, the reality is that they are very nasty. Under certain circumstances, the foreign (non-US) acquiring company of the US target is treated as a US domestic corporation for income tax purposes under the US Internal Revenue Code. That means that the parent, which continues to be domiciled and taxed in its place of incorporation, is also taxed in the US. There’s no relief under tax treaties and the host country will most likely not offer any kind of relief through foreign tax credits. Some degree of double taxation is assured.

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Privilege and Marketing Tax Services

Should the legal profession use the existence of privileged communications as a marketing tool? Admittedly, privilege is a powerful right that can protect clients from having their statements or opinions used against them in court. However, not all clients need this protection and many professions (including both lawyers and accountants) are ethically bound by duties of confidentiality. I submit that using privilege as a marketing trump card is ingenuous and, unless privilege is necessary, could sometimes be a disservice to the client.

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A non-retroactive rectification order? Anderson rectifies agreement but not agreed transaction

Taxpayers who erroneously record an agreement in a manner that (per the erroneous documentation) would cause unintended tax consequences to arise may find relief in the equitable remedy of rectification. Rectification is discretionary; when it is awarded, a rectification order is granted by a court on the basis that a document inaccurately reflects the true original agreement of the parties with the order having effect nunc pro tunc (i.e. retrospectively or retroactively) as of the date of the original agreement. The retrospective effect of a rectification order is binding for tax purposes. However, in Anderson v. Benson Trithardt Noren LLP  2015 SKQB 123, affirmed by 2016 SKCA 120, (Anderson) [1] while the Court rectified documents recording a section 85 rollover, the Court refused to declare that its order was retrospectively binding for tax purposes. Confused? Anderson provides both a cautionary tale of the importance of diligently implementing even the most vanilla tax planning and a thought- provoking discussion of rectification in the tax context.

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Significant changes to the Canadian Principal Residence Deduction

Oh, give me a home where the buffalo roam

Where the deer and the antelope play;

Where seldom is heard a discouraging word,

And the sky is not cloudy all day [unless the home is in a Canadian trust]

Many of us are familiar with the above opening words of “Home on the Range” – a classic western folk song that has its roots in the early 1870s. “Home on the Range” is a sentimental song that waxes about the longings and importance of a person’s home. With that in mind, the Department of Finance released a series of measures on October 3, 2016, aimed at “…protecting the financial security of Canadians, supporting the long-term stability of the housing market and improving the integrity and fairness of the tax system, including ensuring the principal residence exemption is available only in appropriate cases.” The measures released included changes to the mortgage default insurance rules for lenders and the announcement of a public consultation to “seek information and feedback on how modifying the distribution of risk in the housing finance framework by introducing a modest level of lender risk sharing for government-backed insured mortgages could enhance the current system.” Details on the public consultation should be available shortly with the release of a public consultation paper by the Department of Finance. With British Columbia recently introducing a new tax on foreign purchasers for the Vancouver area, yesterday’s announcement by the federal government is likely part of a continuing series of overall amendments that Canadian governments will make to ensure the stability of Canada’s housing market. Home on the Range.

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Section 84.1: What brought Poulin and Turgeon to the table?

Section 84.1 of the Income Tax Act (Act), in its current form, was introduced in 1985 (concurrent with the introduction of the capital gains deduction), and the provision has always been a source of heartburn for planners. It is a very broad anti-avoidance rule that tries to prevent surplus from being stripped from corporations as a tax-free capital distribution, rather than a taxable distribution in the form of dividends. In order for section 84.1 to apply, there needs to be a transfer of shares of a corporation by an individual or trust to another corporation with which the individual does not deal at arm’s length, and immediately after the disposition, the purchaser corporation and the corporation whose shares are being transferred are connected. While the Act deems related persons to not deal at arm’s length, it also states that it is a question of fact whether persons who are not related to each other are, at a particular time, dealing with each other at arm’s length. If section 84.1 applies, then the otherwise tax-free return of surplus in the form of capital distributions will be turned into a taxable distribution in the form of dividends.

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U.S. taxation of Australian Superannuation funds: when the Super is NOT so super after all

Retirement and pension funds generally do not make or break national political campaigns. Except, of course, Australian Superannuation funds. Fondly referred to as “Supers” by Australians, proposed reforms to Supers announced by Australian Treasury Secretary, Scott Morrison, in May apparently cast a definitive impact on the Coalition’s lackluster performance in the July 2016 national elections, resulting in a controversial “wafer-thin” majority lead.

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The end of the Small Business Deduction?

On June 13, 2016, the Organisation for Economic Co-operation and Development (OECD) released its Economic Survey of Canada. There were some interesting comments and criticisms about Canada’s overall economy. However, as it relates to small business taxation, the following quote should be noteworthy for Canadian private client tax advisors.

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Think the new small business deduction rules don’t affect you? Think again!

Proposed amendments to the Income Tax Act introduced in the 2016 Federal Budget will significantly alter the Small Business Deduction (SBD) scheme for taxation years that begin following March 21, 2016. An admittedly over-simplification of the complexities of these amendments is that they aim to restrict the multiplication of the SBD in which unassociated corporations provide services to a partnership or corporation a partner or shareholder of which is not arm’s length with the service-providing corporation. A simple example of this is HusbandCo providing services to WifeCo. There has been much discussion, and there is sure to be more, on the application of these amendments to the structures they are intended to effect; however, that is not the subject of this blog.

The breadth of these amendments reaches the most basic of planning and circumstances, and all practitioners should be aware – as we’ll describe in the following two situations.

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