Where he provides information on tax topics in Canada

Dan White

Dan White is a Tax and Business Consultant, focusing mostly on challenging tax issues. Especially on CRA Audit Issues and Problems.

The following article by Vern Krishna, who writes for the Financial Post, give some very good advice on one of the biggest tax problems you can have e.g. a tax search and seizure.

While the article focuses on tax practitioners, it is still completely relevant for small business owners.

Dealing with CRA problems requires expert help. If you are having a problem like this, then email me at dw@911Taxes.com, put “Tax Emergency” in the subject line.

Or call our hotline  905-668-4816

For more information on tax problems and tax solutions go to www.tax-audit-s0lutions.com and or www.danwhite.ca

Dan White

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Dealing with a tax-search warrant

Know the process, and remedies after search and seizure

Vern Krishna, Financial Post  Published: Wednesday, December 02, 2009
Related Topics

Dealing with a tax-search warrant

Know the process, and remedies after search and seizure
Vern Krishna, Financial Post  Published: Wednesday, December 02, 2009
Related Topics

A tax search and seizure of a lawyer’s or accountant’s office can be stressful, but it does not have to be so. What do you do when the taxman arrives with a search warrant and sworn information authorizing the search to look for documents in connection with a criminal tax investigation?

First, take a deep breath and normalize your blood pressure. There are various legal protections available, but you must be calm enough to invoke them.

Both the Income Tax Act and the Criminal Code allow the Minister of Revenue to apply ex parte, or without notice, to a judge for a search warrant to enter into premises and seize documents or things found therein. The minister (officially, it’s a minister of the Crown that seeks the warrant) seeking the warrant must support the application for a warrant with information establishing the facts on which he or she seeks the warrant.

The judge has discretion to issue the warrant. The judge will issue the warrant if the government establishes reasonable grounds that the taxpayer or person being investigated has committed an offence under the Income Tax Act and that documents contained on the premises will be evidence of the offence. This is a fairly low threshold and the tax authorities will likely have enough to get a warrant.

Second, examine the search warrant and any information sworn to determine the scope of the warrant and any limitations that it outlines. At this juncture, you must determine whether the Canada Revenue Agency is investigating a particular client, the professional firm or a third party.

The warrant must be specific and identify the particular offence to which it relates. It must also identify the particular building or premises that it authorizes for search and the person who is the target of the search and is alleged to have committed the particular offence.

If the search warrant pertains to a client, you should obtain instructions immediately from the client and, on his or her instructions, retain legal counsel.

If the client authorizes the search, you can co-operate with the authorities in their investigation, but you should keep a detailed record and notes — preferably in the presence of another person– of all documents that the CRA seizes.

You should co-operate with the tax officials to the extent that you can do so. It is an offence to interfere with, hinder or molest any official or prevent him from doing his authorized duties under the tax statute or the Criminal Code.

Third, claim privilege on all documents at the outset. You can ask for the documents to be sealed and placed in custody under the authority of the Criminal Code or the Income Tax Act.

Once the documents have been seized and are in authorized custody, you have 12 days to apply to the court to determine whether the documents — or any portion thereof — should be disclosed to the tax authorities. You will need to review all of the documents to select the particular ones in respect of which you wish to claim privilege on behalf of your client. Failure to pursue this document review will result in the documents being turned over to the CRA after 14 days.

Read more: http://www.financialpost.com/news-sectors/legal/story.html?id=2292884&p=1#ixzz0YY7goFKX
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The Charter of Rights and Freedoms circumscribes the law in respect of search and seizure warrants. The information cannot be simply a fishing expedition; it must specify the documents or things that the government is looking for. Thus, the tax authorities or police must limit their search and seizure to the documents or things that they specify and believe reasonably support the commission of the offence. Under the “plain view” doctrine, however, the person executing the warrant may also seize any other documents or things that are evidence of any other offence under the law.

There is very little that the taxpayer or his or her legal counsel can do to curtail the execution of a properly obtained and executed warrant. The remedies, if any, lie after the search and seizure.

A judge will determine whether the government can retain the seized materials. The revenue minister is entitled to retain seized materials — and the judge must so order — unless the government waives retention. The taxpayer can, however, through his legal counsel apply to a judge for the return of documents if he can show that the documents will not be required for an investigation or in criminal proceedings. Of course, any documents or things that were improperly seized and outside the scope of the warrant will be returned to the taxpayer.

A tax search and seizure can be traumatic. If handled professionally and politely, it should be less so. The client may panic; the professional must remain calm. The courts are quite zealous in protecting unwarranted state intrusions in matters pertaining to criminal tax evasion charges.

- Prof. Vern Krishna, CM, QC, FCGA, is tax counsel and a mediator and arbitrator at Borden Ladner Gervais and is executive director of the CGA Tax Research Centre at the University of Ottawa.

Read more: http://www.financialpost.com/news-sectors/legal/story.html?id=2292884&p=2#ixzz0YY7WytKX
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I am having fun tracking this subject with all the spin doctoring going on. It is amazing to see how CRA is so effective in their scare tactics.

While I agree, Canadians need to report all their income and prepare their tax returns completely and honestly, I don’t agree that a voluntary disclosure is the right answer.

In most cases, there are much better ways to handle coming clean.

For more information on alternatives to Tax Amnesty / Voluntary Disclosures.

Go to www.tax-audit-solutions.com and www.danwhite.ca

or email dw@911Taxes.com

Dan White

________

here is John Greenwood’s interesting article on what the Minister of Revenue has to say, and what

Steven Kohn, the lawyer for Bradley Birkenfeld, a key whistleblower in the UBS case has to say;

Canada’s tax cheats confess in record numbers

6,798 people holding $1.66-billion in hidden assets come clean with CRA

John Greenwood, Financial Post  Published: Wednesday, December 02, 2009

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A flood of Canadian tax cheats are voluntarily coming forward to disclose hidden assets and offshore accounts in record numbers, says Jean-Pierre Blackburn, the Minister of National Revenue. Reuters A flood of Canadian tax cheats are voluntarily coming forward to disclose hidden assets and offshore accounts in record numbers, says Jean-Pierre Blackburn, the Minister of National Revenue.

A flood of Canadian tax cheats are voluntarily coming forward to disclose hidden assets and offshore accounts in record numbers, says Jean-Pierre Blackburn, the Minister of National Revenue.

As of Wednesday, 6,798 Canadians had come clean to the Canada Revenue Agency since the start of the year, revealing $1.66-billion of assets they had not paid tax on, or about 50% more than in the whole of 2008, Mr. Blackburn said in an interview.

The jump in the numbers is because people are getting the message that “people should pay their taxes” after publicity around a recent string of tax-evasion cases, he said.

“People realized that it’s a question of time before we get them,” he said. “I tell them, we’ll get you, we’ll find you.”

The comments come after tax authorities in the United States announced last month that 14,700 well-heeled Americans had confessed to evading taxes to take advantage of the government’s amnesty program.

The lion’s share of those cases involved hidden offshore accounts with UBS AG, which agreed this year to reveal the names of 4,450 U.S. clients with US$18-billion in hidden assets.

Despite evidence that many well-heeled Canadians also hid money with UBS, only a trickle disclosed the information to the CRA, which has led some observers to complain the government is not doing enough to fight tax evasion.

Indeed, of the nearly 7,000 people who came forward in Canada, only 90 involved UBS cases. The rest involve either different offshore banks or other forms of tax evasion, Mr. Blackburn said.

He said the critics are failing to take into account this country’s overall very strong record on persuading Canadians to pay their taxes, which compares well with the United States where in a typical year very few tax cheats come forward.

Under the law, Canadians can avoid legal penalties and fines if they voluntarily disclose assets they are not paying taxes on and there is no deadline. By doing so, they are liable only for the taxes and accrued interest.

South of the border the laws are a lot tougher and in the case of UBS there is a deadline, with no breaks for people who fail to confess in time. On top of that there are rewards for whistleblowers.

“I think our system is a lot better, more [attractive] for Canadians to use,” said Mr. Blackburn.

Not everyone agrees with that.

A central figure in the UBS case Wednesday slammed the CRA for failing to take tax evasion seriously.

Steven Kohn, the lawyer for Bradley Birkenfeld, a key whistleblower in the UBS case, said the Canadian government needs to put in place laws to protect people who come forward with information about tax evasion and reward those who help the government collect revenue that is owed to it.

“The first issue is, does the Canadian government really want to stop tax evasion, and if they want to stop it we now know the steps that have to be taken to do that?” said Mr. Kohn. “Any government that is not instituting effective whistleblower programs is really turning their back on most effective detection mechanism for fraud.

“Canada does not have good whistleblower protection,” said Mr. Kohn. “It’s kind of remarkable that they’re lagging behind [so many other countries.]”

jgreenwood@nationalpost.com

Read more: http://www.financialpost.com/story.html?id=2295700#ixzz0Ydn0JNRd
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End of year tax reminders

Couple of Tips

The Home Renovation Tax Credit-Remember the feds are basically giving anyone who completes home renovations a 13.5% tax credit on the first $10,000 in expenses as long as they are completed by the end of January 2010. Virtually any true renovation expense is eligible, so long as the the expense is incurred before February 1, 2010.

Purchasing Business Assets- If you are thinking about purchasing office equipment or furniture as a small business owner, if you do it prior to the year end, you will be eligible to take advantage of the depreciation one year earlier.

This is the time to buy Computer equipment as you will be eligible to get a full 100% write-off for both Federal and Quebec purposes. This 100% deduction program actually expires at the end of January 2010, but why not write off the full expense now and reduce your 2009 taxes instead of waiting a full additional year.

If you want more information on this topic, please email danwhite@danwhite.ca

Dan White

 This Bloomberg.com article reinforces the point I am making about swiss banking dangers in respect to doing a voluntary disclosure.

I am bugged over this latest round of CRA propaganda because it is not honest. Can’t we at least expect the Minister of Revenue for Canada to be honest with us?

Why not just be truthful and say, “We are going to do everything we can to nail every ass in Canada for every cent we can get, starting with offshore banking.” Instead he implies  that UBS is going to turn over the names of Canadians who bank in Switzerland.

I am not saying two wrongs make a right, but I am saying it is wrong to mislead Canadians for any reason.

If you read between the lines in what Revenue Minister Jean-Pierre Blackburn says; you will see the following.

Likely if names are released, it will be for amounts over a million dollars. (A swiss frank is worth slightly more than a Canadian dollar).

UBS has refused to turn over names to Canada. Canada is “threatening” that it will sue….. I guess if they actually do launch an action, it could be more believable, that names would be turned over, but I doubt it.

If 88 Canadians who banked in Switzerland came forward and have paid 14.3 million in taxes, that would be an average of $162,500 each. That is quite short of the million threshold that applies is the USA issue.  How many of those 88 were over the one million threshold?

But the most imporant question of all is. “Did those who did the Voluntary Disclosures and up paying less tax than if they had come clean without the disclosure?” What are the real numbers. What is the story behind the aftershocks.?

I have seen in first hand. A voluntary disclosure is often not the way to go.

If you have offshore wealth, be sure to talk to someone who is not selling the Voluntary Disclosure Program, to find out if it really is the right thing for you to do or if it is absolutely the wrong thing to do.

To learn more, go to www.tax-audit-solutions.com and www.danwhite.ca

If you have a serious tax issue, contact me dw@911taxes.com

Dan White

________

Here is the article by Alexandre Deslongchamps

Canada Has Tax Disclosures From 88 UBS Clients, Blackburn Says
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Dec. 2 (Bloomberg) — Eighty-eight Canadian clients of UBS AG have contacted the country’s revenue agency to voluntarily disclose income they previously failed to report, Revenue Minister Jean-Pierre Blackburn said today.

Forty-one of those customers have reached settlements with the Canadian government, reporting C$15 million ($14.3 million) in previously undisclosed income, Blackburn said in an interview today. He didn’t say how much revenue the federal government will recover from the tax adjustments.

Canada has been trying for several months to recoup tax losses caused by citizens who hid assets in UBS accounts. UBS, Switzerland’s largest bank, said in August that it will divulge information on 4,450 accounts to settle a U.S. lawsuit that sought names of clients suspected of evading taxes.

Blackburn said the government is “very firm on this; we want the list of clients and we hope that UBS fully collaborates.” He added that the government will go to court if the discussions don’t yield “tangible results.”

Switzerland said last month it will turn over details of UBS AG accounts held by U.S. residents who had more than 1 million Swiss francs ($1 million) in undeclared assets to the U.S. Internal Revenue Service.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net
Last Updated: December 2, 2009 10:42 EST

Taking losses on rental property is not always a good idea. There is a lot to think about when you start using losses as a plan to reduce your taxes.

To learn more about proper records and what happens when you are audited go to

 www.tax-audit-solutions.com

and

www.danwhite.ca

Here is a good article from Andy Wong.

Andy Wong
Guest columnist
Monday, November 30, 2009

Previous columns

The taxman gets jumpy and may sniff around if you deduct losses from a rental property. Here is a reason why your losses may attract some unwanted attention.

Losses from a rental operation can be applied against other income such as wages. In essence, your rental loss is a tax deduction that nets you a refund and the taxman doesn’t like to hand out refunds unless there is a legitimate reason.

To be fair, the Canada Revenue Agency isn’t out to disallow all rental losses, per se. Rather the agency tries to distinguish between deductible losses from real rental operations and non-deductible losses where the operation involves a strong personal element. For instance, the tax courts have made it quite clear the CRA cannot disallow rental losses from legitimate rental operation. The key considerations are: Why did you buy and rent the property?

Was it a bona fide commercial activity, i.e., to make money, or was it a personal endeavor? If it was a commercial activity, the train stops there and the losses should be deductible.

The tax courts have also agreed losses from rental operations that involve a personal element are non-deductible if the operation isn’t conducted in a business-like manner. And what do ‘personal element’ and ‘business-like manner’ mean?

Say you owned a house with two bedrooms; your parent lives in one and while living in the same house, you rented the other bedroom to your girlfriend. Consequently you claimed rental losses from deducting a percentage of the house expenses against the rented bedroom. Is there a personal element involved? If yes, was the rental operation conducted in a business-like manner? If no, the rental losses are denied.

In Slagado versus the Tax Court of Canada, Nov. 5, 2008, involving the above facts, the judge quickly concluded there was a clear personal element because the taxpayer had rented out his bedroom to his girlfriend and they shared its use. Was the rental conducted in a business-like manner?

The taxpayer had charged annual rent of $1,950 for 2003 and 2004 and claimed rental losses of $5,827 and $3,426 for those years. It turned out his girlfriend didn’t even live in that property during 2003. The judge concluded there wasn’t a business-like arrangement because rent was charged to a non-existent tenant.

The above case is a reckless example of an illegitimate rental operation. The case of Landriault & Bercier versus the Tax Court of Canada, July 29, 2009, is more typical of rental losses that fail the smell test.

The taxpayers, a married couple, lived on the lower floor and rented the upper floor to their son at less than fair market value. They claimed rental losses of $7,523 and $4,836 for 2003 and 2004.

The judge concluded there was a personal element because the tenant was their son. Since the rent was below fair market value and the couple could not expect to make a profit at that rent level, there was no evidence the rental activities were carried out in a business-like manner.

He concluded the operation was a family arrangement to charge minimal rent to help defray the operating costs of the property and he denied their losses.

Andy Wong, CGA, CFP, is a tax consultant at MacKay LLP, Chartered Accountants, in Yellowknife. He can be reached at: andrewwong@yel.mackayllp.ca

If you are being audited; Read This First!
Canada Revenue Agency (CRA) has one objective. Their sole reason for existing is to collect more and more money from Canadians. You are up against a well-oiled machine that is out to get as much booty from you as they possibly can. Don’t think for one second that there will be any kindness or overlooking of things when it comes to audits and collections.

To think that you are dealing with an agency that is set up for any other purpose than to collect revenue in Canada is not only naive, but it is missing the point that CRA’s mandate is to get as much money as they can.

CRA has risen to a new level of sophistication by way of technology. Data mining, snitch lines fed by disgruntled employees and angry X spouses have resulted in a never before numbers of audits.

CRA treats the collection of revenue as serious business, and if you don’t also treat it as serious business, your financial head is on the chopping block. Your savings and assets will be severed from your ownership by a well-orchestrated swing of the tax man’s axe.

There are so many audits going on by the now over seven thousand auditors in Canada, that CRA is six months behind in their case work. That does not mean that they will not get to it, what it does mean is that they will hire more auditors.

And just where are those auditors going to come from? Auditors already trained in the art of extraction of money? If you guessed the BC and Ontario provincial sales tax auditors, you are right. Good by to the PST auditors and Hello HST auditors. Thousands to trained hit men will join the ranks of CRA.

When the new auditors join the ranks of CRA, then the work will be all laid out for the new army of auditors who will speed up the audits.

If you have received that phone call or the letters from CRA telling you that you are going to be audited, then you need to get help before you talk to them.

Call us now at 1-905-668-4816 and tell the operator that this is a tax emergency.

If it is late at night, and you cannot sleep because of the stress this is causing you, and you just found us on the internet, then email us at info@tax-audit-solutions.com and use the word “EMERENCY” in the subject line. If you have just sent that email, you will hear from us first thing in the morning.

If you want to read on for more valuable insight into the workings of our tax regime, then read on;

You may not know that although Canada Revenue Agency is officially part of the
Government of Canada, since December, 2003, CRA has acted as an independent
agency working for the federal government and most of the provinces.
CRA administers most individual and corporate income taxes in Canada. It also
administers the Goods and Services Tax (GST) in all provinces except Quebec,
where Revenu Quebec administers both the QST and GST. In Nova Scotia, New
Brunswick and Newfoundland & Labrador, the GST has been replaced with the
Harmonized Sales Tax (HST) which is administered by CRA. On March 26, 2009, the
Government of Ontario proposed that the Ontario Retail Sales Tax be harmonized
with the GST on July 1, 2010. Although no announcement has been made, it is
likely this harmonized tax will also be administered by CRA.
The introduction of HST will cost Ontario taxpayers billions of dollars over the next
decade by taxing all kinds of essential items, such as heating fuel, gasoline and
everything that is currently PST exempt. If you write your MP and promise that the
next 5 generations of your family will never vote for the party if the bill passes, you
can defeat the HST. If you think your neighbour will look after that, it will pass for
sure. If you want to reduce your future taxes, this is one easy way to do so.
Governments do not enact bills that are wildly unpopular.
CRA has two main responsibilities: to collect taxes and administer tax law. There is
even a separate court, the Tax Court of Canada, to oversee justice with respect to
tax law. Unlike other courts in Canada, at Tax Court, you are considered guilty until
proven innocent.
CRA is a business, and like any business, it has to watch its bottom-line very
carefully. Auditing a taxpayer is expensive and, even though CRA gets its funding
from 10% of our taxes, they won’t waste the time and money required to perform
an audit unless they feel there is a good chance of making a decent return on their
investment.
What does this mean for you? It means that CRA has already pre-determined that
auditing you is a good investment. The auditor’s mandate is to go after you
aggressively to obtain the most money possible. Fairness is not part of the
mandate – maximum profit is the name of their game. If you don’t realize this from
the outset, you are in for a very rough ride.
We know that most taxpayers don’t try to cheat the tax man — it’s too difficult and
risky. However, most taxpayers don’t save all their receipts and keep audit-proof
books.  CRA relies on those statistics to gain leverage when auditing. They’re
hoping that because you have been honest and fair in preparing your tax returns,
that you expect them to return the favour, in kind. As you will discover exploring
this site, that is not likely to happen.
No, this is a battle. CRA has already targeted you and developed a strategy for
winning. You need to recognize that and arm yourself appropriately to prevent your
financial slaughter.
For more information go to www.tax-audit-solutions.com or www.danwhite.ca

Dan White

I do not promote tax evasion, neither offshore or onshore. But for Canadians to go into a Tax Amnesty a.k.a. Voluntary Disclosure, thinking that coming clean by way of a Voluntary Disclosure, is always the best way to go is foolhardy.

So far 90 Canadians have lined up for slaughter. They knowingly committed tax evasion, they lived with it. Now out of fear that they may get caught, come willingly into the spiders webb.

I am not saying that they should not come clean. I am saying that there may be better ways to sleep at night.

Simply Stated. CRA is not having any luck getting the records from the United Bank of Switzerland.

To learn more about voluntary disclosure risks go to www.tax-audit-solutions.com  or www.danwhite.ca

Dan White

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Canada says could sue UBS over list of clients
Wed Dec 2, 2009 4:19pm EST

* Canada won’t say when it would start suing UBS

* 90 UBS clients have voluntarily revealed accounts

OTTAWA, Dec 2 (Reuters) - Canada, which is trying to clamp down on tax evasion, is prepared to take Swiss bank UBS (UBSN.VX) (UBS.N) to court if necessary to compel it to hand over details of Canadians who might be account holders, a government minister said on Wednesday.

Ottawa has been pressing UBS since early September for the names, but has had no success.

National Revenue Minister Jean-Pierre Blackburn said 90 people have voluntarily disclosed their UBS accounts to Ottawa. The government has reached deals with 44 of them, raising an extra C$15.3 million ($14.6 million) in tax revenue in the process.

“We are still discussing with UBS authorities to try to obtain that list of Canadians who are on their list, who have (accounts in) tax havens abroad,” he told reporters.

“It’s not easy. If we realize that it won’t be possible to obtain it, if they just try to obtain time, we will go (to) court to obtain this list.”

Blackburn did not say at what point the government would end the talks with UBS and go to court.

Earlier this year a high-profile U.S. lawsuit against UBS AG prompted the bank to agree to promise to reveal the names of 4,450 client accounts held by Americans.

Offshore private banking involves managing the wealth of rich clients from a foreign location. Some have exploited the system to avoid paying taxes, especially if transactions are carried out in traditional banking secrecy strongholds.

Last month U.S. officials said some 14,700 rich Americans, worried about a crackdown on offshore tax cheats, had turned themselves in under a government amnesty program.

($1=$1.05 Canadian) (Reporting by David Ljunggren; editing by Peter Galloway) ((david.ljunggren@reuters.com; +1 613 235 6745; Reuters Messaging: david.ljunggren.reuters.com@reuters.net))

Why the Income Tax Act is failing us

Do you ever wonder why there are so many tax problems for small business to deal with? The tax problems needing solutions are exponentially related to the number of complications in the Income Tax Act.

We cannot expect that CRA is ever going to allow simplicity, and we know that we need to ask ourselves, “What is it that I can do for a solution to tax problems?”  The answer is simply that we have to keep audit ready books and records. And we need an audit trail whick is exactly what it sounds like…. An audit trail is a paper trail demonstrating that the money was used for legitimate business expenses.

To avoid tax problems and learn more about audit ready bookkeeping, go to www.danwhite.ca  and www.tax-audit-solutions.com

Dan White

———–
Here is the article from the Montreal Gazette
By Kim Brooks November 11, 2009

Canada’s Auditor-General Sheila Fraser.
The Income Tax Act and related regulations run over 2,800 pages long. The legislation is so complex that even highly trained accountants and lawyers get things wrong, miss relevant provisions, and confess that they don’t understand aspects of the rules.
Last week, Auditor General Sheila Fraser included in her report to the House of Commons a chapter on the efforts of the Department of Finance and the Canada Revenue Agency to clarify and clean up at least some of the technical aspects of the Act. Her conclusion: they are failing Canadian taxpayers.

She’s right. But Parliament shares responsibility. The Income Tax Act is Canada’s single most important instrument of domestic economic and social policy. A bill to address technical inadequacies in the enacted legislation has been under discussion since 2002, yet Parliament has failed to act.

There can be no debate about the harm caused by overly complex, outdated tax legislation and unresponsive administrative practices. Businesses incur needless expenses for tax advice to carry out relatively straightforward transactions; low- and middle-income folks fail to access desperately needed programs delivered though the tax system; and taxpayers cannot be confident that they are filing their returns on the basis of the law that applies to them.

The Department of Finance has been working on technical amendments in addition to those reflected in the outstanding bill. As a result, there are over 400 such amendments awaiting enactment. While these measures languish, the Revenue Agency assesses taxpayers as though at least some of the provisions have already been enacted.

The delays and confusion trickle down. The Revenue Agency provides guidance to taxpayers in a variety of written forms. Some of the advice given by the Revenue Agency is out of date and other advice is not in accord with the law. For example, generally speaking, since 2006 student scholarships have been tax free. Yet the Revenue Agency’s interpretation bulletin on the issue still informs readers that only the first $3,000 of scholarship income is exempt.

Another example: Two cases earlier this decade determined that when someone who sells their business receives a payment not to compete with the new owner, that payment should be tax exempt. In an effort to plug this loophole, the Department of Finance proposed legislation that would tax non-competition payments. But those rules remain in draft form. Given that often the Department intends for proposed rules to be effective the date of their announcement, how should the Revenue Agency assess people who receive non-competition payments?
Compounding the problems caused by the complexity of the income tax, when taxpayers and tax advisors ask the Revenue Agency for advice related to their specific circumstances, they often confront long waiting times for responses.

In addition to the time wasted trying to comply with the rules and high fees for legal and accounting advice, tax complexity gives rise to more fundamental problems. Taxpayers may decide that the system is simply too complicated to comply with and fail to file returns, or pay less than they should. These decisions exacerbate the problem of the tax gap – the difference between what the Revenue Agency actually collects and what it would collect if everyone filed their return honestly according to the rules.

Canada is not alone in confronting a pressing need for the simplification of its tax legislation. In her most recent report, the U.S.’s national taxpayer advocate, Nina Olson, identified the complexity of the Internal Revenue Code as the most serious problem facing American taxpayers. In response to the enormous social costs of tax complexity, Australia, New Zealand and the United Kingdom have all launched major tax simplification exercises over the past decade.

The Auditor General is right to chastise the Department of Finance and the Revenue Agency for their failings in keeping Canada’s tax system current. However, the blame does not fall only on those agencies. In fact, they do a lot with surprisingly little. The government should view the Auditor General’s report as a wake up call. The Department of Finance and the Revenue Agency need an infusion of resources. They need to be able to hire and retain the best people to keep Canada’s tax legislation and administrative practices up to date.

But more fundamentally, it is time for Canada to undertake comprehensive income tax reform. Our last major reform effort, a tour de force driven by the work of the internationally regarded Carter Commission, was in 1972. The benefits of simplification are well documented. The integrity of our tax law and the viability of the self-assessment system is at stake.

Kim Brooks is the H. Heward Stikeman Chair in the Law of Taxation at McGill University, Faculty of Law
© Copyright (c) The Montreal Gazette

Regarding the HST and how things shake down for investments.

Personally I think the whole investment industry needs an overhaul, starting with getting rid of the Securities Commissions.

The investment industry is too complicated and there are too many things that can go wrong. There are too many regulations that Canadians have not asked for and there are too many people losing their savings.

Having said that, I agree with Tom Bradley, having any tax on building wealth is wrong.

The solution as I see it is to opt to become an active trader and recover your GST by way of input tax credits.  What this means to me is a whole new business evolution were there is no such thing as passive investors. Investors will need to learn about business and then they won’t have a HST Problem.

In order to emplement the business solutions and to be able to stand up to a CRA audit, you will need to learn how to create audit ready trading records. You will need to set your investing up properly to pass the test of being an active business.

Failing setting up your books and records properly, you will find that CRA can and will be abusive in a tax audit.

To learn more about audit ready accounting, go to www.tax-audit-solutions.com or go to www.danwhite.ca  or go to www.blog.danwhite.ca

Read on to see what Tom has to say about how HST is going to effect passive investors.

Dan White

__________
HST will hurt investors and their nest eggs

Protesters on the front lawn of the B.C. Legislature before the Throne Speech in Victoria, Aug. 25.

Protesters on the front lawn of the B.C. Legislature before the Throne Speech in Victoria, Aug. 25. GLOBE AND MAIL

Tom Bradley explains how Ontario and B.C.’s new HST isn’t helpful for investors

Tom Bradley

Published on Friday, Nov. 27, 2009 4:29PM EST Last updated on Saturday, Nov. 28, 2009 3:46AM EST

Note to reader: I have an axe to grind. I own and operate a low-cost mutual fund company – and I’m hopping mad about the HST.

The impact of Ontario and British Columbia’s harmonized sales tax will be negative for investors. No matter who you want to blame – the government or the investment industry – there is no getting around the fact that resulting higher all-in fees, compounded over a long investment horizon, add up to real dollars. For a long-term investor, it will be the difference between an Audi and a Taurus, or golfing in Florida versus watching the Battle of the Blades on CBC.

There are compelling arguments and precedent for not further taxing Canadian’s retirement capital, but unfortunately they’ve fallen on deaf ears because of bad timing and the wrong messenger.

The timing relates to budget deficits. From what the insiders have told me, bureaucrats have been sympathetic to the investment issues around HST, but the response from a higher authority has been clear and consistent: “This is going to happen because we need the money. Focus on implementation and we’ll talk about the inequities later.” Recessions are a bad time for rational arguments and good policy.

As for the messenger, Joanne De Laurentiis and her team at the Investment Funds Institute of Canada (IFIC) have done a good job of laying out the arguments why the HST is bad for Canadian investors. But IFIC is an organization whose membership is made up of too many firms that charge world-leading fees, and have been reluctant to share the benefits of their scale with clients. IFIC’s association with Bay Street’s fat cats has hurt its credibility when arguing against HST.

The banks, which represent tens of millions of investors, have been surprisingly mute on the issue. They have huge mutual fund operations that attract HST, but most of their other investment and savings products are tax exempt. Their silence may be the result of their conflicted position, but it may also be because the impact of the HST is hard to figure out. As is often the case with tax policy, the legislation will significantly change the wealth management landscape, and not for the better.

Canada’s regulatory patchwork, cut up by geography, product type and ancient history, has already inadvertently shaped how investment products are designed and sold. Structured products, for example, fall between the regulatory cracks and have been given freer rein to make marketing claims and obscure their fees and risks. A whole industry has been built around this regulatory arbitrage (playing one off against the other).

The HST will distort the industry more broadly, however, because some financial services are HST-able, while others are not (Note: The tax experts I consulted with are cringing at the simplification). The relative competitiveness of every product on the shelf will be affected, some good, some bad. The inequity lies in situations where there are products that are indistinguishable as to their objectives, risks and underlying investments that sit on opposite sides of the HST line.

Let me give you the early betting line on how it will play out, for both providers and clients.

Short-term vehicles like GICs and high-interest savings accounts will continue to be tax exempt. Money market and short-term bond funds on the other hand are taxable. Their attractiveness relative to banking products has always ebbed and flowed, depending on interest rates and the banks’ funding requirements. But the tax will tilt the balance toward the deposit-taking institutions. Because investors have options when it comes to their savings needs, they will not be hurt in this case.

Facilitating a transaction is exempt from tax, so any form of service that charges a commission, as opposed to a management fee, will fare better. Hiring an adviser to select and buy individual securities won’t incur tax, but getting professional help in another form – by buying a mutual fund – will.

The unfortunate consequence of different tax treatment for commissions versus fees is the likely reversal of a trend that has seen clients shifting to fee-based accounts. These accounts, which charge fees based on assets as opposed to transaction activity, better align the interests of advisers and clients. To be clear, the adviser is being paid for advice in both cases, whether it be a taxable fee or tax-exempt commission.

Structured products are not subject to HST. Compared to mutual and pooled funds, they will become more competitive. Again, for the client, any shift in this direction will be a step backwards. Structured “anything” is more expensive, complex and poorly understood. Firms selling exchange-traded funds (ETFs) have argued against HST on behalf of their clients, but from a competitive standpoint, they are huge winners in the HST realignment. Taxes on ETFs will go up, but due to their low fees, it won’t be much. The fee gap between ETFs and conventional funds will widen.

I’m mad because this additional tax on Canadians’ retirement goes against one of our country’s, and dare I say our government’s, highest priorities – getting Canadians to invest more for retirement. It hammers individuals who are investing on their own, and puts them at a bigger disadvantage compared with members of company pension plans. And its urgent and sloppy implementation negates years of efforts by the industry and regulators to improve how financial services are delivered.

The following case, points out how important it is do do the Tax Audit Solutions kind of bookkeeping. Audit Ready Books are prepared so the business owner or an auditor can completely understand the ebb and flow of money through cards, banks and cash payments. To avoid tax problems, audit ready bookkeeping is the answer.

To learn more about audit ready bookkeeping go to www.tax-audit-solutions.com and www.danwhite.ca

The story below is an interesting read.

Dan White

___________

Courtroom gasps over accused fraudster’s credit card debt
Published Friday November 27th, 2009

JEFF DUCHARME
TELEGRAPH-JOURNAL

SAINT JOHN – Linda Marie Burton and her husband Andrew had a combined yearly income of $80,000, but in 2006 paid $229,389 on four credit cards. The numbers brought a gasp from the public gallery and caused some jury members to shake their heads.

Mary Ellen Saunders/Telegraph-Journal
Linda Marie Burton, accused of ripping off the owner of Sharp’s Corner Drug Store in Sussex, leaves a Saint John courthouse earlier in her trial.

From 2003 to 2007, they paid at least $708,822 on the four credit cards, according to an RCMP investigator.

Burton is on trial accused of defrauding her former employer Beverly Sharp of $250,000 from 2003 to 2007. For 21 years, she worked as a clerk and bookkeeper at Sharp’s Corner Drug Store in Sussex.

Const. Mark Simon of the Hampton RCMP conducted the investigation and dug through thousands of cheques and invoices.

Crown prosecutor Patrick Wilbur asked Simon if the businesses could be providing the additional revenue.

“The business didn’t appear to be doing well,” said Simon, admitting he had no specific figures. “They didn’t appear to be generating a lot of money.”

At the heart of the trial are a number of invoices that were for work done on Burton’s properties and then doctored so they appeared to be work done on Sharp’s properties.

Defence attorney Patrick Hurley went on the attack saying all the numbers showed was that a “tremendous” amount of money had been paid on the accounts.

“What you’re leaving out is there may be another explanation,” Hurley said to the Mountie.

The records, countered Wilbur, came from the Canada Revenue Agency and tracked “legitimate” income.

Earlier in the day Sharp was recalled to the stand.

Under steady questioning by the defence, Sharp steadfastly denied a wedge had been driven between him and his brother over money. The brothers are co-owners of the store.

According to defence lawyer Hurley, in July 2007 Beverly Sharp had an emotional meeting with his former bookkeeper Linda Burton – a meeting that Sharp said never happened.

According to the defence, Sharp put his arm around Burton during the meeting and told her she was a great person and whatever happened, it was beyond his control. His eyes, said Hurley, then began to fill with tears as he told Burton he was too old and too weak to fight with his brother Harold Sharp anymore.

“I never put my arm around her and said that,” the 78-year-old Sharp said.

Flipping through a large black binder crammed with copies of invoices and cheques, Hurley told the court the changes to the invoices were made at Sharp’s request so he could claim the expenses on his income tax.

In 2007, the Canada Revenue Agency questioned the amount of the expenses and launched an audit.

The audit and other financial questions raised by Harold Sharp led to the fight between the two brothers, Hurley suggested.

Wilbur asked Beverly Sharp if he and his brother were battling over money.

“No. I have enough of my own money,” Sharp said.

On Wednesday, Sharp testified that he was leaving the store to his employees upon his death. His brother confirmed the handover in his testimony later in the day.

The 80-year-old Harold Sharp owns 48 per cent of the drug store. He said he first noticed the discrepancies in 2005. A store that normally produced a $200,000 profit a year had none that year. Harold Sharp then fired the accountant, hired another one and then when he was presented the evidence against Burton in 2007, he fired her too.

“I gave her an extra five or six weeks pay and kicked her out,” Harold Sharp said.

Getting Audited by CRA is no laughing matter. If handled improperly, you could find yourself in a lot of trouble. Criminal charges, Reassessments, CRA collections, and bankruptcy happens to those who don’t understand the seriousness of getting things fixed now.

It does not matter what your problem is; Tax Audit Solutions is the absolute best value proposition on the market when it comes to handling tax problems.

It does not matter what your problem is because we have seen and handled them all. We can get you out of the Tax Tempest and back on track with your life. In most cases can do so without any serious penalties or criminal prosecution.
Having said that we can help you, the sooner we get started the less it will cost you and the less trouble you will have. There are strict deadlines for certain actions against the agency. Don’t wait until it is too late.

Don’t even think about trying to handle your tax problem on your own. CRA (A.K.A. Canada Revenue Agency) is not your friend. You cannot trust them, especially what they say on the phone. They will set you up and bowl you down. You won’t even see the ball coming until it is too late.

The job of the CRA is to get as much taxes, penalties and interest from you as they possibly can. They are trained professional economic hit men when it comes to collecting your money and if you don’t get good help, you will be road kill.

CRA likes to achieve compliance by fear, so as a way to accomplish this objective CRA as a regular routine, files criminal charges against everyday people, just for not filing their tax returns.

CRA’s aggressive collection tactics push thousands of people into bankruptcy.

CRA charges penalties and interest on tax debts which often triples in approximately three years.

The agency can seize assets, garnishee wages, put liens on homes, contact your clients, your family, your tenants, your boss and they regularly freeze bank accounts.

In order to fight CRA, you need professionals in your corner. You need someone who has been in the arena and has won their medals of valor.  Fighting CRA requires some who is not worried what can happen to them personally if they irk the Dark Forces.

Aside from a professional representative in your corner, you need an accounting expert who is familiar with tax law and who clearly knows how to put your records together in a way to avoid having expenses disallowed, and so that they don’t trigger new questions from CRA and possibly an even greater debt problem than you already have.

Surviving an attack by the tax man is more about accounting, the rules and the game, rather than about the law. But knowing tax law is important too. The tax law while very complicated is not usually a big deal when dealing with CRA, the big deal is knowing how to construct records in such a way that the law protects the legitimate business deductions and that money that should not be taxable, does not become a sudden tax surprise.

Normally a tax problems narrows down to a few issues and how good the documentation is to support the taxpayer’s position. That is where Tax Audit Solutions is King of the Industry. No one does their job the way we do. We are very proud of how we create rock solid records with the right business statements and the right audit trails.

CRA cannot rail road us. Regardless of what type of tax problem you have, and we do handle them all, we will package arguments, your books and your records in a rock solid audit ready format.

While we are getting your books and records in proper shape, we will push CRA back into their corner. We don’t let them bully us into giving them an opening to disallow genuine expenses.

We ensure your Taxpayer rights and your Charter rights are respected.

You are under a tax attack and you need to understand that you are just one of thousands of Canadians every year who are under a financial siege from CRA. There are solutions to stop the tax trouble turmoil, but most accountants and lawyers are hesitant to rigorously defend you and have reasons to avoid a war on themselves by the tax man. Even lawyers fear being audited. When lawyers get audited they come to companies like Tax Audit Solutions.

A CRA attack is often more than a family can handle and hiring help is usually difficult for someone who cannot even pay their existing tax burden, let alone three time the original tax debt. Often, the worst problem is tax arrears, penalties and interest which often is more than the original debt.

You need to understand that no one wants to be behind in their taxes any more than you do. If a citizen does not pay their own taxes, it is likely they simply don’t have the money. I don’t know anyone with the money in the bank to pay their taxes who does not pay them. And the $64,000 question is, “if you cannot pay the tax how can you possibly pay the penalties and interest?”
I do know and understand how it feels to be under an assault by a government agency. I get emergency CRA calls from citizens across Canada, people in tears, people terrorized, unable to sleep at night, depressed to the point of their life being in tatters. We help them all.

Experiencing an aggressive audit is a case of being in serious trouble before it is determined whether you have done anything wrong or not. Allegations and CRA Assessments alone can ruin a business and its owner.

You can understand why people feel helpless when they don’t even know where to turn for help. Canadians need to know where and who to turn to in times of trouble.

This is no small issue. This is an assault on Canadian citizens who are already in trouble and unable to defend themselves. If they are lucky, they can pay our fees. We guarantee that we will save you more money in taxes than what our fees are.

Check out our Happy Clients and discover the sometimes astonishing turnarounds we have been able to achieve.

If you would like to share your own experiences, I would love to hear from you. In fact, I am always interested in feedback from customers, prospects, site visitors, or anyone with information regarding CRA and taxation. The more information we gather, the better a resource Tax Audit Solutions and this site becomes. You can email me at dw@911Taxes.com.

For more information and testimonials, go to www.danwhite.ca and www.tax-audit-solutions.com

Dan White

 Cartoonist Donato, wins his day in court.

It is too bad that so many Canadians just fold from the pressure of CRA tax abuse. Andy fights and wins.

Congratulations Mr. Donato!

If you know anyone who has these kind of tax problems, send them to www.tax-audit-solution.com where they can get affordable help.

Dan White

The following article appeared in the Globe and Mail and was written by Paul Waldie

Paul Waldie

From Thursday’s Globe and Mail Published on Thursday, Nov. 26, 2009 12:00AM EST Last updated on Thursday, Nov. 26, 2009 10:29AM EST

Andy Donato has been skewering politicians, bureaucrats and public figures for nearly 40 years in his editorial cartoons in the Sun newspaper chain. But for the past seven years, Mr. Donato has been waging a personal battle with the government, and federal tax officials in particular.

The dispute centres around 710 cartoons Mr. Donato donated to Touro College in New York and Ontario’s Brock University in 1999 and 2001. The contributions were valued at close to $500,000 in total and Mr. Donato claimed a charitable tax credit on his taxes.

In 2002, officials from the Canada Revenue Agency went after him.

First, the CRA disallowed some of the credits, alleging Mr. Donato improperly made some of the donations through his wife. When Mr. Donato resolved that issue through the courts, the CRA took him to task again, alleging he owed capital gains taxes on the gifts. At one point, the CRA was seeking more than $100,000.

Mr. Donato fought back. He filed a tax appeal and took the case to the Tax Court of Canada. In a ruling made public this week, the court dismissed the bulk of the CRA’s case.

“It was almost like a persecution,” Mr. Donato said yesterday from his home in Toronto. “What bothered me was I was the only cartoonist in the country that they went after. [Several other] cartoonists have been donating to universities for years, and getting tax receipts, and they haven’t been touched. I was the only one they went after and that pissed me off. … They just kept up. They wouldn’t let up.”

Mr. Donato said he was particularly upset because he had planned to make more donations to universities but stopped because of the dispute. He has been especially proud of the gift to Brock because the university uses his work in several courses, including art classes and political science studies.

“I wanted to keep donating to Brock because they put them to good use,” he said, noting that he has donated cartoons to other universities, including Ryerson University, and to the National Archives of Canada.

“Now that this is over, I’m going to look into it again because I really would like to donate to universities rather than the archives. The archives have a huge collection of mine now.”

He has also cautioned other cartoonists about his plight. “I gave them a warning about what not to do,” he said. This case “has got to haunt every cartoonist.”

Mr. Donato has been drawing editorial cartoons for nearly 50 years and has won numerous awards. He started at the Toronto Telegram in 1961 after working as a layout artist at Eaton’s department store. When that paper closed in 1971, he helped launch the Toronto Sun. He took a buyout from the Sun in 1997 but continues to draw for the chain, with his trademark bird signature, under a contract that pays him roughly $400 per piece.

He said many editorial cartoonists began donating their work years ago because there is virtually no market for the drawings after they have been published. “You don’t sell any,” he said. “The odd time, you get a request for one. The first time you draw a politician, they want the cartoon and that’s it. They sit around, what are you going to do with them?”

When asked if the CRA might have gone after him because he has been too hard on politicians, Mr. Donato laughed and said: “I don’t think I’ve been that bad.”

His contract with the Sun expires next year but he hopes to renew it and keep going. For how long? “As long as I can,” he said. “There’s so much going on.”

I am going on a bit of a rant here…

Holy Stink Batman! CRA is in a cover up and are in danger of a huge embarrassment!

So… Project Jade…. CRA does not us to even know the name…. and CRA appears to be breaking the law by improperly conducting audits…. and we don’t have information that shows CRA actually has the names of tax evaders who are coming out of the dark and doing voluntary disclosures.

What I wonder about is…. how is it ok for the government of Canada to break the law while chasing law breakers… is this not the pot calling the kettle black? Should our government not be above lies, misrepresentations, and breaking the law of the land. Should they not need to respect the Canadian Charter of Rights?

Canadians are getting fed up with this attitude of CRA that they are above the law and that Canadians are just a bunch of tax evaders and need to be punished.

This is not about taxation, this is about crime and punishment. In this case both sides are muddied.

Canadians are getting mad as hell, and there will be a bit blow up in the coming year.

It is going too be a roller coaster.

To find out more about what you can do to keep out of hot water and tax problems, go to www.danwhite.ca and www.tax-audit-solutions.com

I love the article written by Diane Frances of the Financial Post.

Dan White

_________
Probing the Liechtenstein connection

What is the CRA’s Project Jade, Senator wonders

Diane Francis, Financial Post  Published: Tuesday, November 24, 2009

Story tools presented by

Christian Hartmann, Reuters Files

What is “Project Jade”? That’s what Canadian Senator Percy Downe would like to know. So would Canada’s taxpayers.

In December 2008, Senator Downe made a request, under Ottawa’s Access to Information Act, about possible tax evasion by Canadians in Liechtenstein. That was after stories broke in the international media that a whistleblower in that secrecy and tax haven had sold information to various tax departments in the United States, Australia and others about their tax evaders.

When asked in the House of Commons, the Canadian government’s reply was that Canada does not pay for such information.

Senator Downe made his request for information to make sure that even if the Canada Revenue Agency (CRA) doesn’t pay, they were getting the information anyway and investigating to determine if tax evasion was being committed.

It appears they were probing last year. But the Senator said the information was delayed in getting to him, is scant on detail and out of date. He has complained and made another request for information.

“Given their failure to trumpet the successful recovery of money owed to Canada, I can only conclude that the failure to answer questions on this topic means they have sat on their arse and are trying to recover only after you and others started to give media coverage to tax evasion,” wrote the Senator this week.

The Senator’s request asked for:

-The number of Canadians identified as having undeclared accounts in Liechtenstein.

-The number of Canadians with Liechtenstein accounts who have voluntarily disclosed with the CRA and also the number who have settled with tax authorities.

-The number of Canadians with Liechtenstein accounts who have been charged with tax evasion.

-The amount of money that CRA has recovered as a result of investigating these undeclared bank accounts in Liechtenstein.

The CRA disclosed to the Senator, in internal briefing notes, that it estimates about $100-million in Liechtenstein bank accounts relate to Canadian citizens and that the “CRA anticipates that it will reassess approximately $17-million in taxes, interest and penalties as a result of its examinations.”

An email exchange, included in the package, discusses how Canada won’t join a media advisory with the United States, U.K. and others, due to the use of the word “investigate.” A memo to an MP for media response purposely softens the language to “examination” instead of “investigations.”

Senator Downe said the documents he was sent are out of date, due to delays in the government’s response, which were blamed on “complexities.” But the nugget was the blacking out of the name of the CRA project, except in one instance where it was missed and referred to as “Project Jade.”

“I have sent another request and filed a complaint with the access to information office. They may be able to generate more information,” Senator Downe wrote in a recent letter sent from his Charlottetown office.

The Senator is not satisfied. “A number of items caught my attention. [How they] refused to use the stronger language in the media and is this an indication of their passive attitude on prosecution? What is Project Jade, which they forgot to block out in one spot?” he said.

“Why did they refuse to release information, using the personal safety of employees as the reason? If they were active on this file, why are they not communicating that to taxpayers?”

Indeed.

dfrancis@nationalpost.com

Read more: http://www.nationalpost.com/opinion/columnists/story.html?id=7fdbbee6-1bac-45ef-be3c-9f385dc66e06#ixzz0XmCMVoHJ
The New Financial Post Stock Market Challenge starts in October. You could WIN your share of $60,000 in prizing. Register NOW

Big Brother is watching us. For Canadians, our privacy is invaded to a point of sillyness. This is not about terrorism, this is all about money.

Terrorism, was used as justification, and now the door is open. I can tell you that everyone who plays games with money, is going to have tax problems. CRA is the catch basin for all of this. Just look at the last word of this article.

It will be good for Tax Audit Solutions, as a provider of corporate governance and audit ready bookkeeping.

The power of the computers and the internet works both for and against us.

Dan White

www.tax-audit-solutions.com

FINTRAC’s 2009 Annual Report
By admin | November 19th, 2009
« Canadian MSB Agrees to Pay Over USD 19 Million to Manhattan U.S. Attorney’s Office
FINTRAC Told to Cut Back on Gathering of Personal Information »

Released November 17, 2009, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) annual report highlights that more financial intelligence is being produced now than at any time in the organization’s past.

During the 2008-2009 fiscal year, FINTRAC reported making 556 case disclosures to various federal, provincial and municipal police agencies, the Canada Revenue Agency, Canada Border Services Agency, the Canadian Security Intelligence Service and to foreign financial intelligence units. That figure represents nearly three times the volume of disclosures made in their preceding fiscal year. Gone is the focus in previous annual reports on the dollar value of its disclosures.

Of the 556 case disclosures made:

* 474 were for suspected money laundering,
* 52 were for suspected terrorist activity financing and/or threats to the security of Canada, and,
* 30 were for both suspected money laundering and suspected terrorist activity financing and/or threats to the security of Canada.

Still, about 60% of FINTRAC’s cases are originated by Voluntary Information Reports (VIRs) – requests from law enforcement for assistance with their cases. Only 13% of the 556 cases were originated by Suspicious Transaction Reports (STRs) sent by entities subject to the requirement to report.

152 of the cases were disclosed to the Canada Revenue Agency to assist in the collection of taxes on criminal profits. FINTRAC reports that these efforts resulted in $4 million in additional tax assessments.

FINTRAC discloses financial intelligence to law enforcement and other security agencies when it feels there are reasonable grounds to suspect that the information they are providing could aid in the investigation of money laundering and terrorist financing activities.

FINTRAC’s compliance efforts have also escalated – with 455 examinations conducted on its own in the year (compared with 277 in the prior year), and 176 conducted by other regulators on its behalf (compared with 257 in the prior year). FINTRAC continued to rely on questionnaires as part of its compliance efforts, with more than 700 sent out this year, and an increased number expected next year for new reporting entity sectors: including dealers in precious metals and stones, and real estate developers.

As a consequence of its compliance examinations, FINTRAC referred 19 cases of serious and persistent cases of suspected non-compliance disclosures to law enforcement (it did so 5 times in its 2007/2008 fiscal year, and 12 times in the preceding year).

FINTRAC’s progress in financial intelligence and compliance has been recognized by the Financial Action Task Force (FATF) in its follow-up assessments to 2008 mutual evaluation report on Canada.
This entry was posted in AML Compliance and tagged compliance examinations, disclosures, FINTRAC, money laundering and tax.

I have been following this class action suit and also an in dialog with Ian Jaminson about the Tax Man movie. This is going to be pretty interesting to see what is going to happen.

I am privy to inside information on some other things that will bring light to CRA abuse in Canada.

I am currently doing an article on what you can expect in the next round of assult by CRA. There level of agression would indicate that the crunch is on for auditors to collect as much as they possibly can.

I am also writing an update on the pros and cons of HST.

Be sure to watch my blogs.

Best Regards

Dan White

www.taxauditsolutions.ca

The following article is from i-NewsWire as posted by Valerie Hall. It is a very interesting read.

Canadians Wake Up to Injustice and Stand Up For Their Human Rights: Landmark Proposed Class Suit Against CRA
Posted October 27th, 2009 by ctfb111
in

The Canada Revenue Agency acts like a private police organization while it usurps democratic rights and freedoms. CRA criminal investigators now have badges and it’s only a matter of time before they carry weapons and are armed like the IRS. They will eventually convince the federal government that providing them with their own weapons will save taxpayers money. CRA now routinely hires RCMP and other police forces to back them up during their audits as well as search and seizure operations.

The CRA forces Citizens and businesses into bankruptcy. Widespread corruption and incompetence of the CRA cause Canadian families to lose their homes, businesses and income. The unrelenting financial terror of the CRA and it’s financial consequences has resulted in broken families and suicides. The CRA directs distressed or suicidal callers to the Salvation Army’s Suicide prevention services.

The grounds for the proposed Landmark Class Suit against the CRA and the Minister of National Revenue, include extortion, breach of trust, abuse of process, negligence, fraud, discrimination, harassment, intentional infliction of emotional distress, breach of privacy, breech of confidential relationship, invasion of privacy, arbitrary targeting of taxpayers and abuse of power. Canadian Citizens and Small Business Owners are asking financial compensation from the Court for all the damage done to them by the unjust actions of the CRA.

We are witnessing the day by day erosion of democratic rights and freedoms in Canada. Canada is a democracy in name only and not in fact, for some but not for all. Privacy and civil liberties activists are objecting and protesting each time a democratic right disappears. The Supreme Court of Canada unanimously passed a “proceeds of crime legislation” that will allow the police in any province to seize all financial assets they choose of any individual or business “accused” or suspected on the “balance of probabilities” of any crime. This type of law which has a standard that is not as high as the “criminal test of proof beyond a reasonable doubt”, has been misused in other countries such as the United States.

Canada rejected more than half of the 68 United Nations recommendations other countries say will improve Canadian human rights standards.The Public Service Alliance filed a Charter of Rights Challenge in court over the erosion of workers’ and women’s constitutional rights. The claimants allege that Harper government hid regressive laws in the budget. Canadian women’s rights groups and Unions have sent a human rights complaint in a communication to the United Nations Commission on the Status of Women regarding Canada’s current practice of systematic discrimination against women.

The Federal Government of Canada is trying to pass a law giving police expanded powers to obtain certain e-mail subscriber identifying data such as name, postal/email/IP address, telephone number, cell phone identifier without a search warrant or court order or any reasonable grounds to suspect criminal activity. The Federal Court of Appeal has already given the taxman approval to collect the names and sales figures for eBay’s top national sellers of $1000 or more in monthly sales although the computers are in the United States.

Unfortunately the Federal Government has a poor record for keeping immigrants families together as demonstrated recently by the shabby treatment of Mikhail Lennikov. Recently the Sheikh and Chaudhry families originally from Pakistan were deported by armed CBSA agents. The federal government and it’s agent the CRA continue to discriminate and target immigrants such as the farm workers.

The CRA commits criminal acts with impunity. Soon the police and Canadian Security Intelligence Service (CSIS) will have all the power they need to “legally” abuse Canadians in exactly the same manner as the CRA already abuses those they target “outside the law”. Equal rights under the law and due process of the law are becoming a thing of the past while Canadians are sleeping.

As a result of these drastic life changing consequences of inequality and injustice in Canada, the targeted Citizens and business owners are losing faith in the Government of Canada and the Justice System.

The Government of Canada must be held accountable for the targeting, abuse and loss of human rights and democratic freedoms of ordinary Canadians and small business owners caused by the unjust actions of the CRA.

The Taxpayers Ombudsman and the Auditor General are not doing enough to ensure that Democracy, Human Rights and Equal Treatment for everyone in Canada is a fact and not just a theoretical concept available for some but not for all.

It is the duty of the CRA as a private agency representing the Government of Canada, to serve Canadian citizens and businesses not to enslave or destroy them.

The CRA routinely and arbitrarily targets individual citizens and businesses in all regions of Canada, violating the Canadian Charter of Rights and Freedoms, the Canadian Human Rights Act, the Canadian Bill of Rights, the Statutes of Limitations, Contract Law and the Income Tax Act itself including the Taxpayers Bill of Rights.

Every Citizen and Small Business Owner who is targeted by the CRA loses their human rights and democratic rights and freedoms which are in theory guaranteed by the Canadian Charter of Rights and Freedoms.

The Canadian Justice system is not accessible to every ordinary Citizen and business owner. Justice is only available to those who have sufficient wealth to pay for it.

The Ministry of Justice is more concerned with protecting the CRA than with ensuring that justice is served in Canada. The federal Ministry of “Justice” is actually trying to prevent the fair compensation of targeted Citizens and Businesses for the abuse they have suffered from the actions of the Canada Revenue Agency (CRA).

The CRA gets away with abusing targeted Canadian Citizens and businesses because of the complacency of the Canadian public and major media in Canada.

The CRA counts on the complacency of most Federal MP’s who are primarily concerned with staying elected and earning a government pension rather than sticking their necks out and fighting for the rights of the ordinary Canadian Citizens and Small Business owners.

The CRA counts on targeted Citizens and Business owners being too worn out emotionally and financially, too intimidated or embarrassed to go public concerning this blatant abuse and stripping away of their democratic rights and freedoms.

The CRA counts on the high cost of legal action making the Justice system of Canada inaccessible to the targeted individuals and small business owners.

Canadian citizens’ and businesses’ bank accounts are seized and the CRA issues liens on personal, business property, and insurance policies. These liens are often based on improper certificates – RTP- Requirements To Pay instead of proper Court Orders or Judgments of the Court. The democratic rights and freedoms of targeted Canadian Citizens and businesses are effectively canceled since they are denied due process of the law.

Blatant intimidation tactics of the CRA cause financial hardship, damage to human dignity and psychological suffering to the members of the Proposed Suit.

It is unconscionable that the CRA enables the intentional arrogance and misconduct of the tax agents who act as if they are not accountable to the law in the process of carrying out their duties.

Completely ignoring taxpayers rights as well financial resources, the CRA reassess tax returns, threatens to take legal action if the taxpayer does not comply with the demands for private information, payment of arbitrary fines, interest and alleged taxes using a process of blackmail and extortion which is similar to tactics used by communist and fascist regimes.

Tax agents bully, harass, intimidate, and illegally demand financial information from Canadian taxpayers.The CRA issues illegal garnishment orders based on Statutes without proper Court Orders or registered letters or registered certificates signed by the Minister of National Revenue.

These are in fact just an RTP and are improperly, illegibly signed by anonymous CRA officials with no identifying information: lacking printed name, title and no witness. Therefore they are not even a legal document and are invalid.

The Minister of Revenue orders the garnishment at the highest rate, in order that the income of taxpayers is seized as quickly as possible with blatant disregard for the resulting human suffering. The CRA garnishes income from any source including family benefits, disability allowances, pensions,business income, investments.

All taxpayers objections are ignored and swept aside with invalid excuses in a pathetic attempt to terrorize people and hide the gross incompetence of the CRA and its practices of Statute driven extortion. This ruthless intimidation is intended to pressure the taxpayer to enter into a contract with the Minister of National Revenue to pay the alleged amount demanded.

Demanding the taxpayers financial information ignores Sections 7 and 8 of the Canadian Charter of Rights and Freedoms and effectively cancels the rights to privacy, silence and protection against self-incrimination.

On February 11, 2009, Louise Dickson of the Victoria Times Colonist described the Charter of Rights Victory in Court against the CRA by Hal Neumann and his wife Maureen Rivers. This precedent setting case, “Jury awards B.C. man $1.3M for taxman’s raid”, resulted in the Supreme Court Jury of B.C. ruling that the CRA invasion and search of a citizens home violated the privacy protection in Section 7 and the right to be secure against unreasonable search or seizure in Section 8 of the Charter of Rights and Freedoms.

Victoria lawyer Steven Kelliher asked the jury to give a message to the CRA — “The CRA don’t rule us. They have an obligation to respect our fundamental rights. They serve us. They don’t prey on us.” The verdict of the jury substantiates the following statement: “Gestapo tactics of the Revenue Agency Brought to Light”.

The Minister of Justice and CRA are appealing the $1.3 M compensation awarded by the jury because it is greater than all the previous Court awards given to victims of CRA search and seizure. The request for an apology from the Minister of National Revenue is also being appealed. Hal Neumann, a Saanich businessman, was granted access to the award by the B.C. Court of Appeal on May 25, 2009 until the appeal is heard.

As reported by Cheryl Chan in The Province on April 24, 2009, the Minister of National Revenue and CRA are refusing to compensate a former B.C.business owner Irvin Leroux for loss of his home, business and income caused by the abusive and incompetent actions of the CRA who targeted him.

On Thursday, April 23, 2009, Kathy Tomlinson of CBC News interviewed Jill Moore and Irvin Leroux involved in a tax fight with the CRA over a million-dollar tax bill not owed — and won —. However, the CRA and the Government of Canada did not compensate them for their financial loss and other damages caused by the abuse by the CRA.

Glen McGregor of the Ottawa Citizen reports that Tory MP Dick Harris who tried to help Leroux, compared the private federal tax collectors, the CRA to terrorists.

Wally Oppal, former Attorney General of B.C did not respond to the Notice of Claim for the Statement of Claim- File No. S-116959 in New Westminster, B.C, which objects to a “bogus” notice of liens that the CRA used to change the title of a Canadian citizen’s properties.

Donors owe millions in taxes and numerous charities lose revenues after CRA revokes charitable status from one charity after another. John Nicol of CBC News reported that Lawyer David Thompson of Scarfone Hawkins LLP who filed a Class Suit against Banyan Tree Foundation said that the CRA should also take some responsibility.

Bud Webster a former foster parent from Victoria, so broke and depressed he wanted to kill himself. Webster gave up foster parenting and launched a lawsuit against the province of B.C., because the CRA illegally taxed his income and caused him to incur $100,000 in legal bills and unbearable stress. Webster said that raising troubled youth was easier than fighting CRA. He won the fight on behalf of other foster parents so they no longer have to endure abuse by the CRA.

Ontario foster parents Tom and Helen Brouwer also gave up foster parenting, after they were billed for $100,000 in back taxes. It took six years before Revenue Canada admitted it made a mistake. At the time, in 2003, the agency pledged to make sure foster parents across Canada would be treated fairly and equitably.

Accountant Dave Hansen told Go Public reporter Kathy Tomlinson that the Canada Revenue Agency is ‘incompetent’ in carpenter Dennis Collins’s case. The honest carpenter was reassessed $ 500,000 taxes plus $67,000 GST after all his expenses were disallowed and tax information was sent to his wrong address due to CRA errors.

Unfair tax laws requiring taxes to be paid on the stock value at time of purchase, will result in bankruptcies of thousands of Canadians who own worthless stock options from their employers, purchased before the market fell.

The greed and incompetence exhibited by the CRA makes one wonder whether it is the CRA who is in charge instead of their employer the Federal Government of Canada.

http://www.cbc.ca/bc/features/gopublic/2009/04/who…

According to Kim Bolan as reported in the Vancouver Sun on July 21, 2008, the CRA withdrew demands for detailed financial information about earnings and assets of Hells Angels, including any – hidden – outside the country because it violated the Income Tax Act and the Charter of Rights and Freedoms.

Vancouver lawyer David J. Martin, wanted a declaration that the CRA was guilty of illegal conduct by targeting the plaintiffs through an initiative known as – Project MOGAL, – or the – Hells Angel Project – HA – . The CRA gave private financial information to third parties, including the police.

The CRA withdrew the letters of requirement in a precedent setting – out-of-court – agreement made on the same date as the Federal Court challenge was to be heard a year ago in the spring .

The Canada Revenue Agency is out of control and acting like an agency in a fascist or communist dictatorship removing the democratic rights of Canadian Citizens and businesses in a systematic process of statute driven extortion.

The Provinces are allegedly in collusion with the CRA and cooperate to register invalid notices of garnishment based on RTP- CRA requirements to pay which do not constitute judgments of the Court and are not a legal instrument.

Wally Oppal, former Attorney General of B.C did not respond to the Notice of Claim for the Statement of Claim- File No. S-116959 in New Westminster, B.C, which objects to such a “bogus” notice of liens used to change the title of a Canadian citizen’s properties.

The Minister of National Revenue continues to ignore the human consequences of the unjust actions of his agency the CRA and removes the individuals power to self govern his life, and live independently in safety, freedom, and protected from unlawful seizure of personal and business assets. By these improper acts and omissions the CRA with the aid of the Provinces deprives Canadian citizens of equal rights under the law and due process of the law.

Ian Jamieson is producing a feature film documentary exposing the CRA, ” The Tax Man ” is expected to be approximately 120 minutes running time. This new film will give Canadians a unique opportunity to give the CRA a strong message. People will be able to speak their minds about how they feel about the abuse the CRA has inflicted upon them. Documentary Film provides a valuable way to get the critical message across to the public and the politicians about the reality of the devastating human costs of taxpayer abuse. No financing for the film comes from any government agency, directly or indirectly.

“The Tax Man” will be seen by millions of people over many years. They have been already been overwhelmed by large numbers of stories of abuse by the CRA from across Canada. There are a lot of people who are terrified of appearing on camera because of fear of reprisals. However, there are many more, who are saying enough is enough and they are going to appear on film.

The film is currently in production and will be filmed across the country. In October they are starting to film taxpayers and lawyers in Victoria. Interviews will be organized for those interested in appearing in the film.

The film is planned to be ready for the festival circuit, Cannes, Sundance, MIP, TIFF and numerous other festivals as of April, May of next year. The release of the film in theaters will probably be closer to Christmas 2010. There will be a simultaneous release of the high definition DVD version. The film will be distributed world wide.

For more information or to join the Proposed Class Suit Against CRA contact Canadian Taxpayers Fight Back: classactioncra@gmail.com

Documentary film ” The Tax Man ” being produced by Ian Jamieson. theproducer@thetaxmanmovie.com

http://community.icontact.com/p/cantaxpayer/newsle…

Revenue officials appeal ‘earth-shattering’ $1.3-million lawsuit: copy of Neumann article in a blog

http://www.sectorprivate.com/2009/03/jury-awards-1…

Taxpayer abuse is the CRA’s mess to clean up

http://www.canada.com/vancouversun/columnists/stor…

CRA refers people who are suicidal due to abuse by CRA, to the Salvation Army

http://salvationist.ca/2009/03/the-silent-ministry…

Related Links

* Irvin leroux’s web site
* Lawful Access: Canadian government proposals for updating criminal laws and facilitating law enforcement in the electronic age
* Proceeds of crime legislation
* Supreme Court OKs confiscation by provinces of proceeds of crime
* Complaint to United Nations and Commission for the status of Women
* ISPs must help police snoop on Internet under new bill
* Public Service Alliance files in court over workers’, women’s constitutional rights
* Canada rejects UN human rights recommendations

Links from Article Text

* http://www.cbc.ca/bc/features/gopublic/2009/04/who…
* classactioncra@gmail.com
* theproducer@thetaxmanmovie.com
* http://community.icontact.com/p/cantaxpayer/newsle…
* http://www.sectorprivate.com/2009/03/jury-awards-1…
* http://www.canada.com/vancouversun/columnists/stor…
* http://salvationist.ca/2009/03/the-silent-ministry…

Press Contact:
Valerie hall

classactioncra@gmail.com

http://community.icontact.com/p/cantaxpayer/newsletters/cantaxpayer/posts/taxpayer-double-feature

It gets harder and harder to support our government, when they can not conduct themselves in an ethical way. The CRA is an Agency and they act the representative of the Minister. So when we are dealing with CRA tax problems, we are dealing with the government of Canada.

Don’t take my word for it that the government is causing tax problems for Canadians, read what Peter has to say below.

If you want more info… go to www.tax-audit-solutions.com

Dan White

News Canada
Alleged misconduct dogs Revenue staff

By PETER ZIMONJIC, NATIONAL BUREAU

Last Updated: 18th November 2009, 4:18am

The civil servants tasked with ensuring Canadians pay their taxes are being investigated by their own department for everything from accessing child porn at work to bribery, harassment and fraud.

Documents released through Access to Information reveal hundreds of these investigations have been carried out on Canada Revenue Agency staff over a three-year period after evidence of misconduct emerged.

“All CRA employees are subject to a strict standard of conduct, which is clearly defined in the agency’s code of ethics and conduct,” said Philippe Brideau, CRA spokesman.

“The CRA does not tolerate behaviour that contravenes this code and takes appropriate disciplinary action up to and including termination, to enforce our strict standards of conduct for employees.”

COMPUTER MISUSE

The most regular offence seems to be the misuse of CRA computers for sending e-mail and surfing the Internet. The CRA conducted 91 investigations into these offences in 2005-06, 102 in 2006-07 and 98 in 2007-08.

The second highest offence is the unauthorized accessing of personal tax information by CRA staff, of which there are between 23 and 33 cases a year going back to 2005-06.

The documents, obtained by Ottawa researcher Ken Rubin, don’t say why staff were accessing the private information of taxpayers, but they do reveal several more serious offences.

Between 2005-06 and 2007-08, the CRA investigated 17 allegations of security breaches by CRA staff and 14 cases where CRA staff falsified, forged or suppressed documents.

The CRA also investigated 15 cases of fraud, an offence that includes employees approving unwarranted tax refunds and benefits.

More alarmingly, there have been three cases of “criminal activity on an electronic network.” That can include accessing child pornography or using CRA computers to sell contraband tobacco.

STOLEN LAPTOPS

Over the same time period there were 12 investigations of employees for the suspected theft of money, computers or memory sticks from CRA offices.

One laptop can contain tens of thousands of individuals’ tax records, prompting questions about the safety of personal information.

“All CRA laptops are protected using CRA-approved encryption and CRA systems are designed to record employees’ accesses to taxpayer information,” Brideau said.

The same documents also reveal 26 investigations into staff for the improper disclosure of taxpayer information to those not authorized to receive it.

The CRA employs almost 45,000 people.

PETER.ZIMONJIC@SUNMEDIA.CA

Welcome to the world of CRA going more and more electronic.

We enter a new level of working electronically.

Mandatory Internet Filing for T2 Returns is now a reality for next year.

I think that there will be some tax preparation companies, who will opt out of doing taxes for companies doing over the one million dollar threshold.

While it is a pretty convenient way to file taxes, I am concerned that for the first few years it could be very problematic.

Even though I am known as a pretty hip technology guy, I am still not into e-filing of any kind. Perhaps I know too much.

In any case, accounting is going to take on a new meaning for businesses. Audit Ready accounting will be come the norm.

Audits will be more electronically generated than ever before.

The concept of bookkeeping being less than a daily activity, done to audit ready standards, will go the way of the do do bird.

So to learn more about T2 Corporate Electdronic filing… read on:

Dan White

The following data is taken from the CRA website.

As announced in the 2009 Budget Statement, beginning with tax years ending after 2009, corporations with gross revenues in excess of $1 million will be required to Internet file their T2 Corporation Income Tax Return using CRA approved commercial software. The following exceptions apply:

* Insurance Corporations;
* Non-resident corporations;
* Corporations reporting in functional currency; and,
* Corporations that are exempt from tax payable under section 149 of the Income Tax Act.

About the Corporation Internet Filing service

Corporation Internet Filing allows corporations that meet the eligibility criteria to file their 2002 or subsequent year corporation income tax returns directly to the CRA through the Internet using a Web Access Code or EFILE On-Line number and password.

Corporations can also use My Business Account to file their 2002 or subsequent year corporation income tax return directly to the CRA through the Internet. Visit www.cra.gc.ca/mybusinessaccount to find out more about this service.
Who can use Corporation Internet Filing?

You can use this service to file your 2002 or subsequent year corporation income tax return if your corporation meets the following eligibility criteria:

* is a resident of Canada, or
* is an eligible non-resident corporation, see Restrictions for eligibility criteria; and
* is not an insurance company.

If your corporation meets these eligibility criteria, and you wish to use the Internet to file your return, contact the Corporation Internet Filing Help Desk at 1-800-959-2803 or for non-resident corporations, at 819-536-2360 or 204-984-3594 during our Help Desk hours of service to obtain a Web Access Code or get more information.

If you are a tax professional and wish to use the Internet to file your client’s corporation income tax return, you can use the EFILE On-Line service to obtain an EFILE On-Line number and password. If you are already registered to file individual income tax returns over the Internet, you are automatically registered to transmit corporation income tax returns, using the same EFILE On-Line number and password.

Check Restrictions for information on returns that cannot use this filing service.

Beginning with tax years ending after 2009, corporations with gross revenues in excess of $1 million will be required to Internet file their T2 Corporation Income Tax Return using CRA approved commercial software. The following exceptions apply:

* Insurance Corporations;
* Non-resident corporations;
* Corporations reporting in functional currency; and,
* Corporations that are exempt from tax payable under section 149 of the Income Tax Act.

Why use Corporation Internet Filing?

The Corporation Internet Filing initiative is part of the Government Online Initiative to deliver more services electronically. It provides you with an easy-to-use, convenient, secure, and confidential option for filing your corporation income tax return. As a result, the CRA will benefit from reduced processing costs. In support of sustainable development, a paper copy of your return should not be submitted.

Corporation Internet Filing streamlines the tax filing process, provides the filer with an immediate confirmation of receipt, and results in faster refunds.
How do you use Corporation Internet Filing?

Check Before you start for information on what you have to do before transmitting your corporation income tax return.
Is there a cost for Corporation Internet Filing?

You’ll have to use CRA-certified software. You might have to purchase a tax preparation software package, but the Corporation Internet Filing service is free.

Reasons to consider Corporate On Line filing.

* Immediate confirmation: You will receive immediate confirmation that we received your return (legal proof for your records)
* Faster processing: You will receive your Notice of Assessment more quickly than with a paper filed return
* Faster refunds: Receive your refunds more quickly than with paper-based filing (especially when combined with direct deposit)
* Reduced paperwork: Help the environment by reducing paper consumption
* Costs savings: Save on printing and mailing costs

Restrictions

You cannot use the Corporation Internet Filing service to send your tax return if you do not meet the eligibility criteria listed in Who can use Corporation Internet Filing?

You can file only one tax return at a time.
You cannot use Corporation Internet Filing to send:

* an amended return;
* a return for any year prior to the 2002 taxation year;
* a return with a taxation year greater than 371 days.

You cannot use the Corporation Internet Filing service to change the corporation’s:

* name;
* head office or mailing addresses;
* direct deposit information (including new requests).

For information on changing your name, address, or about direct deposit, contact the Business Window in your tax services office toll free at 1-800-959-5525 (English) or 1-800-959-7775 (French).
Non-resident corporations can use the Corporation Internet Filing service for 2006 and subsequent TYEs when any of the following conditions apply

* claiming an exemption under an income tax treaty;
* earning income from a business carried on in Canada through a branch office.

There are some restrictions for the eligible non-resident corporations. When filing your return, if your corporation does not meet the eligibility criteria, you will receive a message explaining the restriction and the resolution.

To file your return through the Corporation Internet Filing service, you have to agree to certain terms and conditions. You should review these terms and conditions in Ready to file? before completing your return. If you agree to these terms and conditions, you’ll have to enter the following information for authentication purposes:

* Business Number;
* Taxation Year End;
* Corporation’s assigned Web Access Code or EFILE On-Line number and password;
* Path and name of the file containing your electronic corporation income tax return (“.cor” file extension).

The Business Number, Taxation Year End, and Web Access Code or EFILE On-Line number and password are the three pieces of identification information that make up your electronic signature.

After you enter this information, you have to read and agree to a declaration certifying that the attached electronic return is correct, complete, and accurate, and confirming that you did not change the corporation’s name, addresses or direct deposit information on the return. You then select the appropriate link to indicate whether you are ready to file the tax return. If you decide to file, be sure to wait a minute or two while your file is loaded.

We will do a preliminary check of your return. If your return meets the basic requirements, you’ll receive your confirmation number. This means that your tax return has been accepted for processing. Keep this confirmation number for your records.

If there are any problems with the electronic tax return you tried to send us, we’ll send you an explanation of errors or corrections needed. This means your tax return was not accepted for processing. You should save, print, or make note of all messages we send. Before trying to retransmit the return, you must change the electronic version of the tax return by making the appropriate corrections according to the error messages you received. For information on making changes to an electronic tax return, see Correcting your electronic tax return.

A filing date is established upon successful validation of the electronic signature. The filing date will remain in effect as long as errors are corrected and the filer retransmits the return within five business days (excluding statutory holidays). If successful validation occurs after the five business days, the filing date is the date that the confirmation number is issued.

If your return has been accepted for processing, do not submit a paper copy of the return. After we have processed your return, we may have to contact you to obtain supporting documents, so remember to keep your receipts and information slips for at least six years. This is part of the same verification process that applies to all tax returns, whether paper or electronic.

Voluntary Disclosure Program. (Tax Amnesty) “Hereafter referred to as “VD”

This “White Paper” on the Voluntary Disclosure (Tax Amnesty) Program is written for the purpose of informing Canadians of the inherent risks by participating in by doing a Voluntary Disclosure and to let Canadians know exactly what they are signing up for, so that taxpayers can make the most informed decision. To do the VD or not to do the VD. That is the question.
A voluntary disclosure, also known as tax amnesty or tax pardon, is a method to allow you to deal with unfilled Canadian income tax or GST returns, or unreported income, with the possibility, not a certainty of avoiding penalties or income tax evasion charges. While Tax Evasion is a criminal offense, actual criminal prosecution is not likely.

Doing a Voluntary Disclosure is a mission critical action, and if is to be done at all, needs to be done properly. How you morph from a tax cheater to an audit ready business person is going to be up to you. But I suggest that in many cases a VD is not the right answer.
The Voluntary Disclosure Program is designed to collect tax that it may not otherwise get. This program allows CRA to collect tax on money that the odds say they won’t get otherwise.

According to CRA; the purpose of the Canada Customs and Revenue Agency’s (CCRA) Voluntary Disclosures Program (VDP) is to promote voluntary compliance with the accounting and payment of duty and tax provisions under the Customs Act, Customs Tariff, Income Tax Act, and Excise Tax Act. The VDP encourages clients to come forward and correct deficiencies to comply with their legal obligations. It is a fairness program that is aimed at providing clients with an opportunity to correct past omissions, thus rendering themselves compliant.

One must understand that the Canada Revenue Agency is there to collect money. That is just a fact. The purpose of the amnesty program is exactly that “For CRA to collect money.” No more and no less. If the program did not collect more tax than not having the program, there would be no Tax Amnesty program at all.
The program gets tax payers to come forward to declare their tax owing. The benefit of this for the tax payer is so that they can reduce their stress by coming clean. The program allows for this, but it is not the only way to come clean and there may be better and safer ways to come clean.

The VD program appears to be ad hoc and maybe it seems that way because it looks like who you are determines how you are treated. In 2008, former Prime Minister Brian Mulroney disclosed that he declared receipt of C$225,000 in cash payments from a German arms dealer six years after the fact and paid taxes on only 50% of the amount. There were no penalties nor was any interest charged to Mulroney.

Doing a disclosure can have serious financial side affects. Always remember that before going to the wolves’ den, make sure you are completely audit ready. If you are not, then you are making a very foolish tactical blunder.
I can not stress enough how important it is that the VD be done completely, correctly and has disclosed any possible information that could invalidate your disclosure. CRA will look very closely for a reason to disqualify you from any protection offered by the VD.
While there is the possibility that doing the program will avoid penalties, which may or may not be true, depending on your particular circumstances. Even if your application is accepted by CRA, you may still ending up paying penalties, and there are other risks involved by you submitting all your financial information to CRA via a voluntary disclosure. Anything that can be used against you, will be used against you. You could find yourself in a 6 year audit.

You need to consider carefully the source of information that you are using to make important decisions. Always remember to consider vested interests when you are taking advice. Be conscious that if the entity or person giving you the advice stands to benefit by you following their advice, then you need to satisfy yourself that the advice is complete and adequate for you to make the appropriate financial decision. For instance; lawyers provide a useful services for those that need a lawyer, and will tell you that you do need one. Just remember that they too have a vested interest in telling you that you need a lawyer to do a voluntary disclosure, so that they can get your business. It clearly is in the interest of Lawyers to tell you to use their client privilege to protect you. This may or may not be needed, it depends on the circumstances. I do strongly recommend getting professional advice. I do not recommend going to CRA for the advice as it is biased.

This is true in terms of my own interest in giving you my advice. So I will be open here about my vested interest in giving you this advice. I too am hoping to get your business. It is my optimistic expectation that by sharing this information, it will cause you to consider our services to handle your tax and accounting issues. What we offer may be more in alignment with your individual needs.
While we can assist you with a Voluntary Disclosure, it is quite possible that we would advise you against doing it, in terms of risk management or that perhaps in your case the Voluntary Disclosure is not the best and safest way to disclose information to CRA.
CRA advises taxpayers to make a voluntary disclosure about unreported income based on that they advertise that they will not penalize you. You can not count on avoiding penalization. You must approach CRA before any investigation is commenced.  You also must be sure that you present the information properly. If you err in how you do this, you could find yourself in a worse predicament than if you did not do the VD at all. In this case VD would stand for voluntary disaster. CRA is not your friend and you must never forget that. You are dealing with a government agency whose mandate is to collect as much tax as possible.

VD generates extra tax income for CRA because it causes people to come out of the woodwork who may never get caught and pay their taxes. I agree that this idea is good and proper, but I don’t like the idea of conveying that this is risk free way to come clean.
Lets look at what constitutes the requirement to have a successful VD.
A VD must fill four conditions:
1.    The disclosure must be voluntary.
2.    It must be complete.
3.    It must involve a potential penalty.
4.    It must include information that is as least one year past due. In some cases less than one year could be accepted, unless the sole reason is to avoid late filing penalties.

It does not matter how many years are involved, when you file a VD.
Tax returns have to be filed for every year you had a net income regardless of how many years are involved.
There are new CRA administrative policy with respect to the voluntary disclosure program, relating to ‘‘No Name’’ disclosures
There is a new CRA administrative policy with respect to the voluntary disclosure program, relating to ‘‘No Name’’ disclosures. A No Name disclosure is not a valid disclosure until such time as the taxpayer is named. If a No Name disclosure is made and an enforcement action is taken before the taxpayer’s name is disclosed to the CRA, the disclosure will not be treated as a voluntary disclosure, even if the person’s name is disclosed within 90 days of the filing of the No Name disclosure.

It is important to realize what exactly is forgiven in a VD. The tax owing and the interest on that tax owing will still be payable. There may not be penalties charged, if everything checks out, but you will still pay a tax price. The best case scenario you can reasonably expect is to only owe tax and interest on the extra net income.

The worst that can happen to you is that because you were under some kind of investigation, or crime, by ANY other authority… eg… civil litigation etc. Anywhere where CRA has information exchange agreements. (The Workers Safety Insurance Board is one such entity. If you are subject to some enforcement procedure by WSIB then you will be denied the protection of a VD. Then not only will you have you made yourself vulnerable to the full CRA blast, but you will have opened up yourself to a complete audit for the entire and duration of the tax years in question.

In some cases if you submit the fact that you are in another enforcement process, and CRA accepts that, then you may be ok with the VD. This will be so if you provided that you first submit your VD first on a “No Names” basis and once the application is accepted only then can you do a VD on a “Names” basis. In this process in this circumstance, you would need a lawyer.

In the case of Karia v. Minister of National Revenue, CRA accepted the no names VD and then changed their mind. In this case the Federal Court ruled CRA wrong. The bad thing here is that most people will not go to court over tax matters.

A big lesson learned here, is as in all dealings with CRA, only what is in writing will save your assets in the end.

The real lesson here is to keep remembering, that CRA is not your friend and they will look to ways to collect more money than you volunteer to disclose. They will look for reasons to deny things they previously agreed to. This is especially true when it comes to verbal information. CRA’s standard response to what they say is; that if it is not in writing than it has no merit.

You can be sure that CRA will be looking for reasons to deny your VD, before and after the submission of your VD. To that statement I will stake my life.

CRA has the authority to reject part or all of your VD protection, in part or in full and at any time.

CRA also has the authority under the new rules to forgive interest on the penalties, although, I would not hold my breath that it will happen to you. I think it is just fly bait.

All it takes for CRA to revoke the protection of your VD is one tiny little reason and you could have a major financial concern on your hands. Even if there are no skeletons in your closets, you could still be subject to an audit. And if you are found in someway to be grossly negligent, or missed any other income, or claimed any bogus expenses, your VD will be voided.

The VD program has been rife with inequities and ad hoc policy throughout its 38-year history. For starters, the 50 per cent discount was available only in Quebec—a vagary the CRA’s spokespeople could not explain when contacted. After the Mulroney VD, the agency abruptly ended this and Sauvé told reporters at the Mulroney inquiry, in the interest of creating “consistency across Canada,” this 50% discount would be discontinued.

It is interesting to note that the World Bank has voiced doubts about the benefits of tax amnesty programs in general, warning they encourage evasion by sending the message that enforcement measures are weak. “Unless an excellent and inarguable reason can be found for an amnesty,” the bank advises governments on its website, “don’t declare one.”

You can take what you want from that statement.

A VD application can be submitted to CRA by an individual even if the individual is a shareholder or director of a corporation and the corporation is the subject of a request to file returns or an audit.

The Voluntary Disclosure program moved from Appeals to Audit, effective back on April 1, 2006. The VD program was moved from Appeals to Audit and new personnel took over.  This move is pretty indicative of what the VD program is all about. It certainly streamlines the collection of money by CRA. Just look at the message it sends in terms of the mandate of the VD program. The audit departments mandate is to get as much tax as you can, and the VD is to forgive as much as possible. That is a conflict of interest or no interest in fairness as the case may be.

A VD allows CRA to have access a statute barred year which would normally prevent them from looking into. CRA being able to open numerous statute barred years is outrageous and a reason to second guess anyone coming clean if the results are going to be unmanageable and could lead to bankruptcy.  CRA officials involved in a file can audit a normally stature barred year even without any basis for the audit other than the fact of someone signing the voluntary disclosure. Any mistake you may have made can make opening a stature barred year possible. CRA considers the disclosure to be an admission of misrepresentation due to the enumerated grounds, so you better be aware.

CRA has used the fact of the disclosure to open, audit and assess statute barred years on Canadians doing VDs, under the authority of subparagraph 152(4)(a)(i), which states that the Minister may assess tax, interest or penalties, after the taxpayer’s normal reassessment period in respect of the year only if the taxpayer :

(i)    has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act.
When you do a VD… this is a serious risk. If CRA audits you as a result of your VD, and they find that you made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud in filing the return or in supplying any information under this Act. THEN THE SHIT HITS THE FAN AND IT IS YOU WHO IS LEFT SPINNING.

In my opinion the CRA Audit section certainly has no business using the disclosure as a basis to assess statute barred years.  And, if the VDP is designed to induce taxpayers to come forward and to become compliant, one is hard-pressed to understand how such an outrageous action is going to enhance the success of the VD program.

Some other pertinent details regarding VD if you are considering coming in from the cold.
The taxpayer is now expected to make a full disclosure without any idea of how many years might be required to be filed. And, of course, once the disclosure is made, the taxpayer runs the risk of having it invalidated, by not filing for additional years that were not originally contemplated in the VD.

In the case of blatant and serious tax evasion, for large amounts of money, and the penalties are going to bankrupt you then you are going to need to get the ball rolling with a good accountant and probably a good tax lawyer.  Some times on rare occasions CRA might want to make an example of an errant taxpayer, but generally they just want their money.

You will need to disclose ALL your world wide assets. If you have more than $100,000 (at cost) in foreign assets you are required to declare the assets on your income tax return and file a form T1135. Foreign assets are assets in any country other than Canada. Not declaring this on your VD will void the protection, but not the resultant audit.

If you have unreported income such as income from eBay sales, unclaimed barter income, unreported cash payments, phony expense claims, it could invalidate your VD.
Coming out of the darkness of unreported income is not as simple as suddenly switching to an accurate tax return. A sudden change in a financial figure on your returns is a red flag that could cause an audit.
A VD does not mean that you won’t be audited; it just means that you may not have to pay penalties and interest on the penalties. On the other hand, you could still end up paying the full shot.
So if you do a VD, for sure you will need to cough up money. If you don’t do a VD, there is a good chance you will never get caught. We are not suggesting you don’t come clean, just be sure to come clean in the best way.
Once thing I could suggest that you could consider would be to simply file a T1A Tax adjustment to your tax years in question. Then deal with the matter the normal way instead of doing the VD and exposing yourself backwards and losing the 3 year statute barred protection against audits.

If you do decide to simply file an adjustment, let’s look at the normal sequence of events in normal circumstances. This is what we see as a sequence of events in regards to CRA and the cases that go through our hands.
1.    The client gets audited.
2.    Expenses are disputed.
3.    Income is adjusted.
4.    Penalties and interest amounting to three times the tax savings created in the incorrectly filed tax return.
5.    A 30 day letter goes out to the client and their representative, outlining what the auditor proposes to assess.
6.    Unless there is a big reason for the auditor to change directions, the assessment goes out.
7.    From there on what happens depends on the circumstances. That is why you need professional help. Do not be lulled into thinking that your matter is simply a matter of being open and honest with CRA. How things go will depend on individual circumstances.

From a logistics point of view when you look at this situation, an audit from simply adjusting your previously filed tax returns could be seen as a good thing for you, as it allows you to come clean and know you can pretty much count on the results. This is a possibilities evaluation that needs to be considered before you proceed.

My personal take on this matter is; CRA is getting better and better at catching tax cheaters, so give that up being a tax evader in today’s technology world “is A Good Idea” because tax evasion is not a good idea, it is a dangerous idea.
Going forward, there is no choice in this matter. CRA is getting on the ball and 1984 Orwellian is not just around the corner. Major changes are now actually in the works and planning for the next wave of CRA tax payer abuse will be coming soon.

If you want to learn more about audits and audit ready bookkeeping visit www.tax-audit-solutions.com

Dan White

This is the best article I have seen on Tax Free Savings Accounts.
I like them and think they are a lot better solution to savings and tax reduction than RRSPs. This article covers the topic very well
Dan White
www.danwhite.ca and www. tax-audit-solutions.com
____________________________

Learning module: A closer look at Tax-Free Savings Accounts
Roberta Wilton / November 06, 2009

Fall has always been the traditional time for Canadians to turn their attention to making their RRSP contributions. Since 1957, RRSPs have been the simple way for Canadians to save for their retirement and for many, the only way to receive a break on their taxes. However, the RRSPs lock on tax-advantaged savings ended at the beginning of this year with the introduction of the Tax-Free Savings Account (TFSA).

The TFSA has been called one of the most exciting financial planning and wealth management tools for Canadians since the RRSP. Given this lofty praise, it is essential for financial planners to understand the rules, regulations and benefits surrounding this new investment tool. To assist advisors, CSI has introduced a continuing education program that focuses on Tax-Free Savings Accounts called Understanding TFSAs.

What is a TFSA?
At its core, it is a savings account, but with a twist: Income earned within a TFSA will not be taxed throughout the holder’s lifetime. Unlike an RRSP, contributions are not tax deductible, but with a TFSA, there are no restrictions on the timing or amount of withdrawals, and the money that is taken out can be used for any purpose.

A TFSA is a good way to save for anything from tuition fees to a new house, and it is ideal to hold as an emergency fund. The appeal of the TFSA, besides the tax-free growth, is its flexibility. According to Understanding TFSAs, “…it can be of benefit through an individual’s entire adult life cycle.”

The Rules
The basic rules are straightforward. Any resident of Canada 18 or over can open a TFSA, and you do not have to earn any income to be able to contribute. Funds can come from a number of sources including gifts, inheritance, employment income and a tax refund. As of today, contributions are limited to $5,000 a year; however, after 2009, the amount will be indexed to inflation and rounded to the nearest $500. As for unused contribution room, according to Understanding TFSAs, “…whenever you don’t make the full annual contribution, you can carry forward that contribution room and use it any time in the future.”

Withdrawals from a TFSA can be made at any time, with no limits on the amounts or restrictions on use. Money taken out of a TFSA may be re-contributed (or replaced) in the next calendar year but does not have to be replaced, and the amount withdrawn will be added on to your contribution room for the following year. Also, there’s no deadline for re-contributing amounts withdrawn. This differs from an RRSP where money taken out under the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP) must be repaid within a certain time period or else the amounts withdrawn become fully taxable.

There is a penalty for over-contribution (i.e., if you contribute more than your contribution room allows) of 1% of the excess contribution every month. On October 16, 2009, the federal government proposed amendments to the TFSA, under which any income reasonably attributable to deliberate overcontributions will be taxed at 100%.

Some other important rules from Understanding TFSAs:

• There is no penalty or tax on the money you withdraw from a TFSA.
• The money you contribute to a TFSA is not tax-deductible.
• There is no tax payable on the income earned in the TFSA, whether it be interest, dividends or capital gains.
• You can invest the amounts in a TFSA in a wide variety of products such as GICs, savings accounts, stocks, bonds or mutual funds.
• To be considered a TFSA, it must be registered with the Minister of National Revenue after it is set up. (The holder does this through the financial institution that issues the TFSA.) The deadline for registration is the last day of February in the year following the year in which it was set up.
• It must be one of the following types: a deposit, an annuity contract, or an arrangement in trust.
• Only the holder may make contributions, except in the case of an employer’s group plan. In that case, the employer is allowed to make contributions on behalf of the holder. (Those contributions are considered income for tax purposes.)

What can go in a TFSA?
Like RRSPs, there is a long list of “qualified investments” for a TFSA. Cash deposits, GICs, mutual funds, bonds and stocks are just some. For a full list of what qualifies and what does not, check with Canada Revenue Agency or CSI’s Understanding TFSAs.

Taxes and TFSA
Administration and investment counseling fees related to a TFSA are not tax-deductible. As well, interest on money borrowed to make TFSA contributions is not tax-deductible. Transferring previously owned stocks and bonds into a TFSA, a contribution in kind, may result in capital gains or losses because, under the regulations, one is deemed to have sold the investments at fair market value when they are transferred into the TFSA. While a resulting capital gain will be treated at tax time like any other capital gain, a resulting capital loss will not be deductible.

TFSAs and RRSPs side by side
While some Canadians will have enough money to both max out their RRSP contributions and put money in a TFSA, many more will not afford to do both. Each offers relative advantages, and in particular, the tax advantages offered by an RRSP or a TFSA will depend on the planholder’s income tax rate at the time of making the contributions and what it will be after retirement.

If a person expects their income tax rate to be higher when they are working than when they retire (taxed higher when making RRSP contributions than when making withdrawals in retirement), then they are better off with an RRSP.

In another scenario, a TFSA may be the better choice. An individual with a modest income and in a low tax bracket when making their RRSP contributions may find themselves in a higher tax bracket after retirement when they have to start withdrawing from an RRSP. People in that situation will be better off with a TFSA, where they will save more by not being taxed on their withdrawals than they would save on tax-deductible contributions to an RRSP.

However, the ideal case, for those who can afford it, is to have both. Understanding TFSAs states, “…the ideal solution is to have both an RRSP and a TFSA. The tax refund resulting from the RRSP contribution can be put into a TFSA, where there will be less temptation to spend it.”

TFSAs will continue to grow in popularity with investors and present a great opportunity for financial planners. As we look at 2010, successful advisors will know the rules, regulations, and advantages and disadvantages of TFSAs as well as they know the rules concerning RRSPs.

Below is a chart from Understanding TFSAs that sums up the basic differences between TFSAs and RRSPs.

Dr. Roberta Wilton is president and CEO of CSI, director of the CSI Research Foundation, vice-chair of the International Forum for Investor Education and member of the Advisor Council of the Learning Partnership in Toronto.

Sometimes it is not just Canadians who have tax problems. It seems that the Canada Revenue Agency, could use some good tax information protection solutions.

The thought that strikes me is along the lines of “sweep your own porch before you complain about how dirty some one else s porch is.

When CRA is so busy complaining about Canadian’s “Gross Negligence” perhaps they should look how grossly negligent they are. Not that two wrongs make a right, but it sure shows that CRA has no right to act all pious and mighty.

Today with the power of the internet, CRA is headed for trouble. There are a lot of us who are now watching and recording.

Trouble is brewing in CRA paradise, Canadians sense of fairness is being meddled with.

Dan White
www.tax-audit-solutions and www.danwhite.ca

Here is a good article on the subject, byPeter Zimonjic
Feds paid out more than $750K to avoid class action lawsuit

By Peter Zimonjic, SUN MEDIA

Last Updated: 6th November 2009, 7:11pm

The federal government paid out more than $750,000 to avoid a class action lawsuit after personal information was stolen from a Canada Revenue Agency office.

The theft of six computers from the Tax Services Office in Laval, Que., on September 4, 2003 jeopardized the personal information of 120,000 people.

“The purpose of the settlement was to compensate for the inconvenience caused to the class action members who took certain steps to limit the risk of their information being used without their consent,” said Philippe Brideau, spokesman for the Canada Revenue Agency.

The out-of-court settlement saw 1,401 people awarded $150 and another 2,708 awarded $200 each as compensation for time spent contacting Equifax or Trans Union to have notes placed on their credit record indicating their personal information had been compromised.

The total payout cost the taxpayer $751,750.

In 2008, an audit of security of CRA offices slammed the agency for repeatedly failing to maintain adequate security at seven offices in Quebec and Ontario.

The audit found combination locks, keys and access cards were not adequately secured, doors were not locked properly and electronic alarm systems were defective, unarmed or missing.

peter.zimonjic@sunmedia.ca

We have entered a new tax crisis, for Canadians. Canadians need to take action now.

I am commenting on two areas, one area is what you can do personally to deal with this assult and the other is an article pasted below about a class action suit against the CRA. It is a great read about CRA tax problems.

Never before have we seen such agressive behavour by the tax department. In Canada there is a need for solutions because there is a tax abuse volcano boiling.

Having a class action lawsuit is a long term solution. Bringing the matter to the attention of the media is for the long term good of the Canadian Taxpayer. In the mean time, we have to ask what needs to be done ‘right now.’ Because we are dealing with a serious assult by CRA on small business in Canada. This means your likelyhood of being in trouble is at an all time high.

In our handling of CRA tax proplems, for clients looking for solutions to their tax problems with CRA. We are experiencing a particularly agressive approach on Canadians by CRA. What we are experiening in many cases is auditors and appeals officers who are not taking the time to properly review details.

CRA auditors are just deynying expenes, ignoring details and bulllying their way to collection of money from the tax payers. When appeals are being filed, the appeals officers are just rubber stamping and standing by the original auditors findings. Things are just being rubber stamped. CRA workers must be under heavy pressure from above. The CRA mandate must be, “collect as much as you can.”

CRA auditors are recognized by two things. Number of files processed and amount of tax money collected. That mandate is in direct conflict of interest in being fair and reasonable.

Because there are less Canadians making profits, that means that CRA must collect more money from somewhere. And right now that somewhere does not seem to matter where and if it is fair, reasonable or accurate, it just does not seem to matter to CRA. What does matter to CRA is get as much as you can in the least amount of time possible.

What happens with most Canadians, it is cheaper and less stressful to just pay the tax, much the same as money paid to the mob for protection. It becomes a cost of doing business in Canada… CRA needs to be paid off as a business expense. Canadians are just folding and paying the “tax and the juice.” This makes sense when it would cost more to fight than what the amount of juice is required to be paid.

So now the only solution to this problem, is to keep audit ready books, with audit reading meaning bookkeeping complete with proper audit trail of source documents. The audit will happen and with perfect records that will be the end of it.

If the bookeeping is not audit ready, then expenses will be denied. The notices of objection will not be properly handled and the notice of objection will fail in many cases.  The objection will be rubber stamped to confirm the original assessment. They the next step will be to file an appeal to the Tax Court of Canada. The appeal will go to the Department of Justice.  At the DOJ will be the first time that the documentation will be properly looked at.

Now that takes us to an interesting situation. There will be a huge amount of taxpayers will fold at this step and will have to pay the juice. For all those who appeal tax court they will be part of an overwhelming number of appeals.

By the sheer volume of appeals it will cause an unmanageable bottle neck of cases at the DOJ. This will cause a new kind of tax problem. “Too many cases to process.” “A large number of case losses in court.” “Negative reaction by the judges to the cases that should not be in tax court.”

What I predict is that when cases go to the Dept of Justice, the DOJ will review them on the bases of which cases they will recommend that CRA drop. CRA knows better than to incur the wrath of the judges over bogus denyals of tax legitimate expense deductions.

Because of this new CRA behaviour, Canadians will have to adapt or pay the juice.

We are recommending that if you need to transition to proper bookkeeping, now is the time. If you are being audited, then you need to be sure that you have proper bookkeeping submitted to the auditor. Failing having a perfect set of books, you will be bumped to the next level of CRA abuse.

If you go through this audit process and have perfect books and records submitted to CRA, that will be the first step of having you removed from the CRA list of who is a good prospect to audit.

After that, with proper audit trail bookkeeping, you will never need to worry about audits again.

As a result of these changes in CRA behaviour, we no longer have any bookkeeping outsource to virtual bookkeepers, we now do it all in house under review of our tax experts.

As is the evolution of the natural species it is adapt or perish. All Canadians need to adapt to this new world order.

The other factor to consider is that having audit ready books is a good idea anyway, if you want to run a succesful business.

Stay tuned, we are close to launching our on line bookkeeping software that will run in any web browser.

Here is the data on the class action suit below. It is a very interesting read about CRA abuse and why you need the services of Tax Audit Solutions.

Dan White
www.tax-audit-solutions.com
________

just rubber stamping notices of ojections

Canadian Minister of National Revenue – Canadian Revenue Agency Complaints – CRA is Abusing, Bullying and Harassing ario
Canada

Canadian Taxpayers Fight Back with a Proposed Landmark CRA Class Action Lawsuit
By: Valerie Hall (Bigg News)
Sunday, Jan 4 2009, 1:05am

The Canada Revenue Agency is out of control and acting like an agency in a fascist dictatorship usurping individual democratic rights. The grounds for the proposed Class Action against the Canadian Minister of National Revenue include fraud, discrimination, harassment, intentional infliction of emotional distress, abuse of process, breach of trust, breach of privacy, negligence, breech of confidential relationship, invasion of privacy, arbitrary targeting of taxpayers and abuse of power.

The Canadian taxpayers allege that the Canadian Minister of National Revenue and the CRA are routinely and arbitrarily targeting individual taxpayers, violating the Canadian Charter of Rights and Freedoms, the Canadian Human Rights Act, the Canadian Bill of Rights, the Statute of Limitations, Contract Law and the Income Tax Act itself including the Taxpayers Bill of Rights.

The CRA takes power over the individual taxpayers life and finances. The Minister of National Revenue continues to ignore the human consequences of the unjust actions of his agency the CRA and removes the individuals power to self govern his life, and live independently in safety, freedom, and protected from unlawful seizure of personal assets.

The grounds for the proposed Class Action against the Canadian Minister of National Revenue include fraud, discrimination, harassment, intentional infliction of emotional distress, abuse of process, breach of trust, breach of privacy, negligence, breech of confidential relationship, invasion of privacy, arbitrary targeting of taxpayers and abuse of power.

The Minister of National Revenue and the Canada Revenue Agency allegedly bully, harass, intimidate, and illegally demand financial information from Canadian taxpayers.The CRA issues illegal wage garnishment orders based on Statutes without proper Court Orders or registered letters.

Demanding the taxpayers financial information ignores Sections 7 and 8 of the Canadian Charter of Rights and Freedoms and effectively cancels the rights to privacy, silence and protection against self-incrimination.

The actions of the Minister of National Revenue cause financial hardship, damage to human dignity and psychological suffering to the members of the Class Action. The intentional arrogance and misconduct of the tax agents in the process of carrying out their duties is unethical and unacceptable. The CRA and their representatives act as if they are not accountable to the law.

Completely ignoring taxpayers rights as well financial resources, the CRA reassess tax returns, threatens to take legal action if the taxpayer does not comply with the demands for private information, payment of arbitrary fines, interest and alleged taxes.

Routinely, the Minister of National Revenue discriminates against targeted individual taxpayers and orders the CRA to issue illegal wage garnishment orders based on Statutes without proper Court Orders or registered letters and improperly illegibly signed by anonymous CRA officials with no identifying information and no witness.

The garnishment is ordered at the highest rate, in order that the income of taxpayers is seized as quickly as possible with blatant disregard for the resulting human suffering.

All taxpayers objections are ignored and swept aside with invalid excuses in a pathetic attempt to terrorize people and hide the gross incompetence of the CRA and its practices of Statute driven extortion.

The purpose of all this ruthless intimidation is to pressure the taxpayer to enter into a contract with the Minister of Revenue to pay the alleged amount demanded.

The handwriting is illegible on the garnishment orders and the CRA officials name and title are not printed on the orders. For this reason they are not a legal document and are therefore invalid.

The Canadian Minister of National Revenue by demanding the taxpayers financial information ignores Sections 7 and 8 of the Canadian Charter of Rights and Freedoms and effectively cancels the rights to privacy, silence and protection against self-incrimination.

According to Kim Bolan as reported in the Vancouver Sun on July 21, 2008, – B.C. Hells Angels, associates, wives and girlfriends- got the CRA to withdraw demands for detailed financial information about their earnings and assets, including any – hidden – outside the country because it violated the Income Tax Act and the Charter of Rights and Freedoms. In the statement of claim filed by Vancouver lawyer David Martin, Brian Airth as well as others linked to Hells Angels wanted a declaration that the CRA was guilty of illegal conduct by targeting the plaintiffs through an initiative variously known as – Project MOGAL, – or the – Hells Angel Project – HA – . The CRA gave private financial information to third parties, including the police. The CRA withdrew the letters of requirement in a precedent setting – out-of-court – agreement made on the same date as the Federal Court challenge was to be heard last spring . The result was that the Airth case was
withdrawn.

The Canada Revenue Agency is out of control and acting like an agency in a fascist dictatorship usurping individual democratic rights.

If you are interested in more information or would like to join the proposed Canadian CRA Class Action Lawsuit, refer to the references below:

mailto:classactioncra@gmail.com

http://canada.com/vancouversun/news/archives/search_resu …

http://communities.canada.com/vancouversun/blogs/realsco …

http://74.125.95.132/search?q=cache:jTzWk38KRaEJ:www.nat …

http://www.canada.com/vancouversun/news/business/story.html?id=d85dff61-df9d-48ea-9f85-613e0e826d19&p=2

http://groups.google.fr/group/man.general/browse_thread/thread/d12c270af0e591f5#

http://www.canada.com/vancouversun/columnists/story.html?id=c0b128a4-b7f5-4461-b651-b1180c22a34f&p=2

Additional Information:
Contact: Valerie Hall
mailto:classactioncra@gmail.com

This is the best article on the situation of becoming a non resident of Canada that I have ever seen. If high taxes and an over aggressive Canada Revenue Agency is causing you tax problems, then read this article by Beth Marlin and David Lesperance, as a possible solution for your situation.

______________Dan White

Flight of Canada’s ‘golden geese’
Wealthy baby boomers ready to fly off to other countries in retirement to escape high taxes
BETH MARLIN SPECIAL TO THE STAR
Published On Thu Nov 05 2009

SOURCE: David Lesperance, Lesperance & Associates.

Ever daydream about retiring somewhere far, far away?

There’s only one attribute separating most empty nesters from those who live out their dreams, says David Lesperance, who specializes in the global relocation of high net-worth individuals.

“It’s a failure of imagination,” says the 48-year-old Hamilton lawyer, who says the cost of living is much more affordable in many other countries.

Six years from now, Lesperance plans to take flight, after draining the last bottle in his wine cellar and handing over the keys to his house to his son. And then he plans to declare his non-resident status when he files his final tax return to the Canada Revenue Agency.

“Is Revenue Canada contemplating the departure of David Lesperance from the tax regime? No,” he says. “But guess what, I’m gone.”

Lesperance predicts many wealthy North American baby boomers, who are set to start retiring in droves by 2011, will be giving up permanent resident status in Canada and the United States, with a significant impact on the tax base of both countries. He calls the phenomenon “the flight of the golden geese.”

Harsh climate is not the only reason North Americans are looking abroad, he says.

Canada’s progressive tax system is much like the United States, where he says the top 10 per cent – the golden geese – pay 93 per cent of the country’s total tax revenue. But now, he says, “the golden geese are leaving.”

That will leave social programs underfunded for those who remain, he predicts.

For the golden geese, any perceived financial risk of moving abroad has evaporated as the subprime mortgage crisis has revealed the North American economy to be just as vulnerable as anywhere else.

So, if financial risk exists everywhere, why not live in the country of your dreams?

While many retirees go abroad for part of the year, others decide to reduce their expenditures by becoming non-resident, for tax purposes.

To become a non-resident of Canada – so that you are not longer liable to report and pay income tax to the Canada Revnue Agency – you must first be recognized by another country as a resident.

Proving you are non-resident of Canada would usually involve selling your property here.

“You would have trouble proving you are non-resident if you have property, a spouse or dependent children living in Canada, a car or furniture, a bank account or if you maintain provincial health insurance coverage or if you maintain an Ontario driver’s license,” Lesperance says.

“As a tax lawyer, I advise that the cleanest break you can make is to get rid of everything in Canada, but you have to acquire them somewhere else. You can keep your RRSP, but we don’t recommend keeping residences, driver’s licenses or vehicles here,” he says, noting that such things as golf club memberships should also be terminated.

Even if you do not maintain residential ties to Canada, you may still be found to be a resident for tax purposes if you spend more than 183 days a year in the country, according to CRA’s website.

Since becoming a non-resident of Canada triggers a one-time capital gains tax on your major assets – other than for your family home – the Toronto Stock Exchange’s current low levels may make this an opportune time for many to pay this so-called departure tax.

According to Service Canada’s website, “Deemed disposition is triggered by your declaration that you have left the country, which you make on your final income tax return, filed by April 30 of the year following your departure. Those with assets valued at more than $25,000 must file a special form with their return.”

If you keep your RRSP, you will be subject to a withholding tax equal to the tax in your adopted country, usually about 25 per cent. Your CPP, while it can be collected abroad, will be subject to the same withholding tax.

Non-resident status doesn’t require you to give up your Canadian citizenship or passport, so you will always have a right to return to Canada and re-qualify for provincial health care coverage. However, the same is not true for landed immigrants, who should seek Canadian citizenship before they leave, Lesperance warns.

“You should get proper legal counsel on this,” he says. “Your decision may affect not only your future, but your children’s and grandchildren’s.”

Lesperance warns that if you move to a country other than the 75 nations with which Canada has a tax treaty, you may be subject to double taxation.

It is also important for retirees to look at the estate and gift taxes in the adoptive country.

Condos are not always the right answer. And Landlords will soon be dealing with tax problems.

This is an excellent article, writen by Roma Luciw,

Roma also correctly makes note of the risks of buying a condo to rent out. This is a potential hazard that CRA will look to exploit. Most  landlords will fold rather than fight, and there will be a lot of condos put up for sale as a result of future CRA attacks. This is going to put downward pressure on condos.

Canada Revenue Agency is causing tax liability problems all over the place and now have targeted landlords who repeatedly claim rental losses and deduct them against their regular income to reduce their income tax bill, So unless you are putting down a large deposit and getting a small mortgage, a rental condo should not be claimed as a tax loss, unless you have some pretty good documentation to prove eventual profit probability.

Dan White

Roma Luciw

Globe and Mail Update Published on Monday, Nov. 02, 2009 6:29AM EST Last updated on Monday, Nov. 02, 2009 7:21AM EST

Condominiums seem like an attractive real estate option, but buyers who don’t do their homework could quickly find themselves stuck with a volatile investment and buried under mounting maintenance and unexpected costs.

“Too many Canadians are being seduced by the pretty pictures and stories of easy lifestyle and they end up buying into a building that is a time bomb of costs …,” says Kurt Rosentreter, a senior financial adviser at Manulife Securities Inc.

In a controversial newsletter, Mr. Rosentreter lays out his position on how, from a financial perspective, condos often don’t make good sense. He argues that far from being less expensive than a regular house, urban condos with high property taxes and steep monthly maintenance costs, not to mention unforeseen expenses such as fixing a broken pool valve, can carve a surprisingly big chunk from a person’s budget.

Condo shoppers generally fall into three categories: young professionals looking for a cheaper entry-point into the red-hot Canadian housing market; retirees aiming to downsize from a big family home; and established investors who want to buy a unit and rent it out for profit.

“ Too many Canadians are being seduced by the pretty pictures and stories of easy lifestyle and they end up buying into a building that is a time bomb of costs. ”— Manulife’s Kurt Rosentreter

Although first-time, urbon condo buyers are lured by short work commutes, minimal upkeep and amenities such as pools and exercise rooms, many still see a condo as a stepping stone to owning a house later in life, when they have a family, says Mr. Rosentreter.

The problem is that most young people don’t have enough of a down payment – they should have saved at least 10 per cent – and haven’t left themselves enough wiggle room in their cash flow to cover bills and unanticipated costs and to also live the life they desire, he said.

In addition, condo owners should not assume they will be able to sell their unit at a profit. Mr. Rosentreter believes that the “sheer number of new condos being built almost guarantees that in the event of a market correction, the condos will fall faster and deeper” than a townhome or a bricks-and-mortar house.

“I tell all my young professional clients that they should not buy a condo unless they plan to own it for 10 years and have solid, sustainable cash flow,” he said.

John Pasalis, the broker owner of Toronto-based Realosophy Realty Inc., says it depends on location. “Condos do appreciate and, depending on which neighbourhood you buy, it can be a great investment.”

Adrian Mastracci, portfolio manager with KCM Wealth Management Inc. in Vancouver, says real estate is always a risky venture when taken with a short-term view. “You might not be able to sell it when you want to for what you want.”

However, in big cities such as Vancouver and Toronto, skyrocketing housing prices have left people with little choice but to enter the real estate market through the condo segment, he says.

“ Generally people buy a condo because of a lifestyle it gives them but you can not buy it on emotion alone –you need the numbers to work too. ”— Portfolio manager Adrian Mastracci

The allure of condo living is another major driver in the decision-making process. “Generally people buy a condo because of a lifestyle it gives them but you can not buy it on emotion alone –you need the numbers to work too,” Mr. Mastracci said.

For retirees on a fixed income, the numbers often don’t add up for condo life, Mr. Rosentreter says. While the idea of moving into a smaller space where you don’t have to shovel the driveway or clean the eaves troughs is appealing, retirees should think twice about committing their limited pension dollars to a rising array of maintenance and other costs that are needed to operate a multimillion-dollar building.

He cites an example of one client whose maintenance fees rose 15 per cent over the last five years to $900 a month – as much as it could be rented for. Another client was hit with a special one-time assessment bill of $12,500 as her share of fixing a crack in the underground parking garage.

Making a rental income from condos is also getting tougher, since Canada Revenue Agency is cracking down on landlords who repeatedly claim rental losses and deduct them against their regular income to trim their income tax bill, Mr. Rosentreter said. So unless you are putting down a large deposit and getting a small mortgage, a rental condo should not be claimed as a tax loss.

Condo buyers who rent out their unit and are not making 10 per cent or more might be better off with other forms of real estate investments, he added.

Before buying a condo unit, make sure that you, your lawyer and your accountant carefully review the building’s status certificate to ensure it is being run well and is in good financial health. Find out how much is in the building’s reserve fund; managed properly, the fund should have the money to cover major expenses such as cracked parking garages.

Roma Luciw is a writer and web editor of the Globeinvestor.com personal finance site. Please send any comments and story ideas to rluciw@globeandmail.ca.

 COURT TRANSCRIPT IS INCLUDED AT THE BOTTOM OF THIS ARTICLE.

About Turning your Hobby into a Business?  You can do it, but you better make it real!

Turning your hobby into a business, is a great idea for a lot of reasons. However the one thing that can not be forgotten is what I have been saying for years. And that is you have to make it “Real.” Making it real means just that. You have to become a real business and keep proper business records.
Yes, business start up losses can be used to offset other income but, you can not use this to generate continual tax losses.

As a backgrounder, the tax rules say that you must have a “reasonable expectation of profit” to be carrying on a business. Therefore, if you operate a money-losing venture and can’t expect to make a profit, your endeavour is no longer a business. If you choose to continue to lose money with no hope of making a profit, the taxman would say you’re indulging in a hobby or some personal calling and losses from that pursuit are not tax deductible. I would agree with that statement.

Say you decided there was a market for snowmobile rentals in your area. And say your first three years of operating this untested venture produced repeated tax losses. In this case, you would have set yourself up for losing your past three years deductions. CRA would rationally take the position that a reasonable person would have shuttered the business after losing money for a few years.

If you believe that this is going to turn around, you better make sure that you keep professional books and records. The CRA would take the postion that you have no reasonable expectation of profit if you don’t keep proper books; have no business plan and have no clue how you expect to make a profit. If so, CRA would generally disallow all or at least everything but the first two years’ losses. The reason being that it should have been abundantly clear after the first few years of losses you had no reasonable expectation of profit.

The following tax court case illustrates how the reasonable expectation of profit principle works.

In Graham vs. The Queen, Oct. 22, 2008, Tax Court of Canada, the taxpayer had claimed business losses as a solo performing musician of $12,000 in 2003, $11,000 in 2004 and $9,000 in 2005. He was full-time employee at a bank during those years. His revenue came from performing gigs at Legion halls. Prior to 2002, he played as a member of a band which generated losses in most years and very modest profits in a few. As a solo performer, he received $350 to $500 per gig and performed up to five gigs a year. The CRA disallowed his losses on the basis the taxpayer had no reasonable expectation of profit and therefore his musical pursuits did not constitute a business. The taxpayer challenged the CRA’s decision.

The judge had to decide whether the taxpayer’s musical activities constitute a business pursued for profit in a commercial manner or whether it was a hobby. Considering the taxpayer didn’t track his profit or losses; couldn’t say how often he needed to perform to break even; kept sloppy bookkeeping; the judge disallowed the taxpayer’s losses on the basis there was no business pursued by the taxpayer in a commercial manner.

Thinking of going into business? If you have a legitimate business, don’t be intimidated by the reasonable expectation of profit test even if you suffer losses during the start-up period. There is no hard and fast rule as to what a reasonable start up period is.

The simple answer is, yes you can have start up losses if you have a real business, and it takes eight years before a Cristmas tree farm can show a profit. A real business keeps audit ready books and pevents tax problems of which he will need a professional solutions provider.

And remember the tax court is the final judgement and Justrice Boyle, is clear…. “you better keep good records and be able to prove that you really are a business. He will disalllow all the expenses.If you keep your books and records ready in a fashion that would convince Justice Boyle that you are a business, then you will truly be able to sleep at night.

Then of course, there is the point, that if you don’t keep good records than you are not a very good business person, and will pay the price sooner or later.

To learn more about audit ready bookkeeping go to http://www.tax-audit-solutions.com/services.htm and see “Audit Ready Bookkeeping.”

__________

COURT RULING FOLLOWS HERE;

Docket: 2008-710(IT)I

BETWEEN:

EDDIE GRAHAM,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on October 6, 2008, at Toronto, Ontario.

Before: The Honourable Justice Patrick Boyle

Appearances:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Laurent Bartleman

Rishma Bhimji (Student-at-Law)

____________________________________________________________________

JUDGMENT

The appeal from the assessments made under the Income Tax Act for the 2003, 2004 and 2005 taxation years is dismissed.

Signed at Winnipeg, Manitoba, this 22nd day of October 2008.

“Patrick Boyle”

Boyle, J.

Citation: 2008 TCC 580

Date: 20081022

Docket: 2008-710(IT)I

BETWEEN:

EDDIE GRAHAM,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Boyle, J.

[1]     The business losses claimed by Mr. Graham in the years 2003 through 2005 from his musical performance and disc jockey business have been denied by the Canada Revenue Agency on the basis that his musical activities and pursuits did not constitute a business.

I. Facts

[2]     Mr. Graham was a full-time employee of a major Canadian bank in the years in question.

[3]     Mr. Graham has a long background in music and had played in a large and successful, and occasionally modestly profitable, band in the 80’s and 90’s. When that band broke up, he decided to start a solo musical performance career involving both disc jockey work and performing. He testified that between 1998 and 2002, after the band broke up and before beginning his solo endeavours, he had taken a break from his musical pursuits. For the years in question, he registered his business as a sole proprietorship, obtained a business licence, had a business phone and business cards. He wanted to market himself to the numerous Legion halls so he attended at a couple of them and even joined one Legion.

[4]     In each of the years 2003, 2004 and 2005 Mr. Graham reported net losses from his business. His modest revenues declined each year reflecting his declining number of performances from five gigs to no more than two performances. He said he stopped pursuing his music business, even though his intention and expectation was that it would become profitable, once it was challenged by Revenue Canada. He explained this was because he was discouraged and frustrated and viewed it as pointless.

[5]     Mr. Graham explained that his revenues and fortunes were adversely affected by the SARS outbreak in Toronto that had an impact on the hospitality business. As well, in 2004 he had injured a middle finger which required it to be in a splint for six months such that he could neither play the guitar nor lug the heavy sound equipment needed to perform.

[6]     Some of the equipment, such as the sound boards and similar mixing equipment and perhaps even the speakers, appear to be of professional quality and, according to Mr. Graham, would not be expected to be owned by people pursuing music on their own outside of a business. Mr. Graham appears to have been a capable and qualified performer who was accomplished and who rehearsed regularly throughout the period in question.

[7]     On the financial side, Mr. Graham said the amount he received per performance was targeted to be in the $350 to $500 range, but could be as little as $200 per performance depending upon the success of the performance and the venue. He did not track his profits and losses personally. He did not ever consider how often he needed to perform in order to break even financially; he said he did not look at his activities that way.

[8]     With respect to the expenses claimed by him in calculating his losses, he had claimed approximately $12,000 in 2003, $11,000 in 2004 and $9,000 in 2005 of business-related expenses in each of those years. In his testimony, he acknowledged that upon reviewing the receipts he had given to the CRA auditor, which should have been the same as the receipts given to his accountant, only approximately $2,300 of expenses was incurred each year. He said he did not know why his accountant would claim expenses that could not properly be claimed. In fairness, the evidence on this point left me unclear on whether only approximately $2,300 of expenses were evidenced by receipts, or only $2,300 was deductible in any event

II. Analysis

[9]     In circumstances such as these, I must first decide whether Mr. Graham’s musical activity constituted a business pursued for profit in a commercial manner or whether it was a personal endeavour in the nature of a hobby or the like. This approach is mandated by the Supreme Court’s 2002 decision in Stewart v. Her Majesty the Queen, 2002 D.T.C. 6969. In Stewart, the Supreme Court highlights some of the criteria, indicia of commerciality, and badges of trade that should be considered.

[10]   In the circumstances, Mr. Graham has been unable to provide sufficient credible evidence to establish on a balance of probabilities that his musical pursuits were a business pursued for profit in a commercial manner. My concerns with the evidence presented are:

(i)           he testified that between 1998 and 2001 he took a break from his music business. However, in his 2007 letter to the Chief of Appeals, he describes himself expressly as carrying on the music business in those years successfully and without incurring a loss. He was unable to sensibly explain the difference between these positions;

(ii)            if Mr. Graham intended to make a profit and believed that he could and would make a profit from his musical pursuits, it does not make any sense that he would discontinue his business when prior years’ losses were challenged by CRA. He could not explain this sensibly either;

(iii)           there is insufficient evidence of a business-like approach to pursuing performance contracts. The only evidence was that he pursued several Legion halls. There was no evidence that, when market conditions changed due to SARS, he adapted his marketing or business strategy in order to keep it going in a successful direction;

(iv)         his solo musical venture has never been profitable. His prior work with the band generated losses in most years and very modest profits in a couple of years. Indeed, its most successful year was 10 years prior to his solo pursuits and his profits were in the $2,000 range. The profitable years were in the years 1989 to 1993;

(v)            while Mr. Graham did own expensive equipment that may well have been beyond what an amateur would be expected to own, his continued ownership of it in the years in question was consistent with him having hung on to quality equipment previously purchased for his band work in the years long before those in question;

(vi)         I am troubled by his explanation that he never considered how many performances he needed to get in order to be profitable and begin making money from the venture. It is one thing not to have a formal written business plan in cases such as these; it is another to maintain one both believed and intended the pursuits to be profitable without ever considering the revenues needed to cover the expenses being incurred; and

(vii)        I am not satisfied with Mr. Graham’s explanation of how his accountant appeared to have claimed a large number of expenses that should not have been claimed. I was not given sufficient details to decide whether that explanation was reasonable or credible.

[11]   Mr. Graham’s appeal is dismissed.

Signed at Winnipeg, Manitoba, this 22nd day of October 2008.

“Patrick Boyle”

Boyle, J.

CITATION:                                       2008 TCC 580

COURT FILE NO.:                           2008-710(IT)I

STYLE OF CAUSE:                          EDDIE GRAHAM v. HER MAJESTY THE QUEEN

PLACE OF HEARING:                     Toronto, Ontario

DATE OF HEARING:                       October 6, 2008

REASONS FOR JUDGMENT BY:   The Honourable Justice Patrick Boyle

DATE OF JUDGMENT:                    October 22nd, 2008

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Laurent Bartleman

Rishma Bhimji (Student-at-Law)

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:                    John H. Sims, Q.C.

Deputy Attorney General of Canada

Ottawa, Canada

The government wants tax whereever possible. There is the never ending hunt for money by the  Canada Revenue Agency… As a result a lot of Canadians finding themselves with tax problems. To avoid being in trouble and need soltutions, be sure you know what is taxable and what is not.

If you are invited to a gold party, or you sell your gold at Cash Converters, be sure to be aware how to handle this in your bookeeping.

Cash for gold not necessarily exempt from tax

Here is another great article by amie Golombeck, writing for hte Gazette.

It is interesting that if you buy gold jewelery (excluding gold coins) and the adjusted tax base is less than $1,000 and you sell it for less than $1,000 then it is tax free.  However if either is over $1,000, then you have a capital gain or loss to claim on your tax return.

So… so long as you don’t make a business of buying and selling gold jewelery, and other listed personal property, it is a good way to come up with either tax free or low tax dollars.

Interesting,,, eh?

Dan White

_____________

Jewellery sales can result in capital gains

By JAMIE G OLOMBEK, The GazetteOctober 31, 2009

It seems everywhere you look, there is someone lining up to buy all that unwanted gold you’ve been hoarding. It started last year with the pawn shops and jewellery stores, some of which have taken to running non-stop TV ads in local markets depicting smiling owners and customers excitingly waving stacks of cash.

No doubt the meteoric rise in the price of gold over the past year, which hit a record high this month, topping US$1,064 an ounce, has prompted people to consider turning their unworn gold jeweller y into cold hard cash.

Last week, I was invited to my first cash-for-gold party, to which partygoers are asked to bring their unwanted gold for a free no-obligation appraisal.

These “parties” are promoted as win-win-win: The buyer gets the gold, the seller gets cash and the host collects up to 10% of the total transaction value that night.

If this sounds tempt – ing, consider the tax consequences of selling your gold for cash. Here’s a quick review of the rules: While a coin dealer who purchases gold coins from an individual has an obligation to report the sale to the Canada Revenue Agency and issue a T5008 tax slip to the seller, there is no such reporting requirement for gold jewellery. The seller, on the other hand, may have an obligation to declare any gains from the sale of jewellery on her tax return since jewellery is considered “listed personal property” (LPP).

LPP is a special category of personal-use property, meaning items you own for your personal use and enjoyment, such as furniture, cars or boats.

While most personal-use property depreciates over time, LPP usually increases in value over time. Listed personal property includes jewellery, works of art, rare books, stamps and coins.

The sale of personal-use property, including LPP such as jewellery, can result in a capital gain, but it’s calc ulated based on special rules. Under these rules, if the amount you paid your adjusted cost base, or ACB) is less than $1,000, it’s deemed to be $1,000 for tax purposes.

Similarly, if the cash you receive for your jewellery is less than $1,000, your proceeds of disposition for tax purposes are considered to be $1,000.

The practical result of these rules is that if both the ACB and the cash you receive for your gold jewellery are less than $1,000, you don’t have to report any gain or loss.

A capital gain from the sale of jewellery must be reported on Schedule 3 of your personal tax return.

A capital loss, however, is considered to be an “LPP loss,” which can only be deducted against other LPP gains. Any unused LPP losses can be carried back three years or carried forward for seven years.

Financial Post Jamie.Golombek@cibc.com

Jamie Golombek, CA, CPA, CFP, CLU, TEP, is the managing director of tax and estate planning with CIBC Private Wealth Management in Toronto.

tax These ‘parties’ are promoted as win-win-win
© Copyright (c) The Montreal Gazette

Canada Court Says Sales Taxes Are Ordinary Claims in Bankruptcy

See COMMENTS below…

Oct. 30 The Supreme Court of Canada rulsed that Canada’s federal and provincial governments can’t skip ahead of other creditors in a bankruptcy to retrieve sales taxes the company had collected, Canada’s highest court ruled today.

The Canadian and Quebec governments argued the tax money was simply collected and held on their behalf, putting their claim ahead of other creditors in the bankruptcy, according to the ruling. Bankruptcy trustees said governments should be considered “unsecured creditors” and ranked accordingly.

The Supreme Court ruled unanimously, in a decision written by Judge Louis LeBel, that the country’s bankruptcy legislation calls for sales-tax trusts to disappear once companies become insolvent. As a result, sales taxes can’t be separated from other assets and governments have no priority over other creditors, the court said.

“When a supplier goes bankrupt, the tax authorities do not own Goods and Services Tax and Quebec Sales Tax amounts that have been collected but not remitted or are collectible at the time of the bankruptcy,” LeBel wrote. “Instead, they have an unsecured claim against the supplier.”

The case is Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 32486, 32489, 32492, Supreme Court of Canada (Ottawa)

COMMENTS;
Well! does this ever bring up an issue regarding GST……. Considered a crown debt… as the money is held in trust for the crown. It makes me wonder if CRA really has the right to take this approach, when they take their normal position, that “before you can dispute the debt, you have to make arrangements to pay the debt…..hmmmmm…. we will have to ponder on this.

Dan White

One third of Ontario Ministry of Revenue jobs in Oshawa to be affected by harmonized sales tax

So what we have here is a situation, where workers from Ontario Retail Sales Tax workers will migrate to HST. This will mean an increased assult on small business as the drive to collect more tax gains momentum.

If you think that you can avoid the tax problems that will need solutions, then you are putting your head in the sand. All small businesses must start doing audit ready bookkeeping. Dealing with CRA will become part of your regular business activities.

We are working hard to get our audit ready bookkeeping software to market and it is very close now. We have reinvented accounting and are proud of the solutions that we offer.

Dan White

_________________________
OSHAWA — Ontario’s revenue minister, John Wilkinson, right, spoke with Ron Bordessa, president of UOIT, October 14 during a talk with the Greater Oshawa Chamber of Commerce and business owners at the Holiday Inn in Oshawa. October 14, 2009

Ministry of Revenue offices in Ontario
Employees from 13 different locations will be affected by the sales harmonization tax:

Feds want ‘first crack’ at workers laid off by tax changes

Oct 30, 2009 – 04:30 AM

By Melissa Mancini of DurhamRegion.com

OSHAWA — Harmonizing the sales tax will affect about a third of the Ontario Ministry of Revenue positions in Oshawa.

But the Minister of Revenue said the Province is working closely with the two unions that represent affected workers.

And the good news is there is already an interested employer, Ontario Revenue Minister John Wilkinson said. The feds want “first crack” at the provincial workers affected by the policy change to work in Canadian Border Services Agency and the Canada Revenue Agency.

“The federal government is quite keen on our people because of their skill sets,” he said when he addressed the Greater Oshawa Chamber of Commerce on Wednesday.

There will be 1,271 full-time equivalent positions affected once the GST and PST become one federally administered tax. This is expected to affect 1,500 provincial employees in 13 revenue offices across the province.

The harmonized sales tax is set to be implemented on July 1, 2010.

News there might be fewer people working downtown is unfortunate but it’s hard to say whether it will affect small businesses in the downtown core, said Vivian Sled, office administrator, downtown Oshawa BIA.

“It’s too bad this is going to happen,” she said. “Downtown jobs are feet on the street and bums in the seats.”

But with the courthouse opening and a larger university presence possible, downtown restaurants will probably still have a busy lunch rush, she said.

And last time there were jobs taken out of the Ontario Ministry of Revenue’s downtown offices, Ms. Sled said the concern that it would mean fewer sales in retail shops and fewer patrons in coffee shops wasn’t warranted.

“We didn’t really see a drop,” she said. “There was a panic but it didn’t seem to affect us.”

In an interview, Oshawa Mayor John Gray said the possibility of job losses in the City “is wrong.

“Oshawa has seen its fair share of job losses. We don’t want to see any more job losses,” Mayor Gray said. “Here we are trying to revitalize our downtown.”

About 1,400 people work at the ministry office in Oshawa, he noted, and he doubted many of those who will be impacted would get jobs with the federal government.

“They probably won’t get jobs at the federal level and they’ll find themselves out on the street,” Mayor Gray stated.

Union officials could not be reached by press time.

Audit Ready Bookkeeping is a requirement if you intend to sell a business.

If you are buying or selling a business, you need to consider audit ready accounting. There are a ton of tax problems requiring solutions that most small businesses are yet to become aware of.

To be a business in Canada today means that you better understand that not doing proper bookkeeping is not an option. You will learn to keep an audit ready set of books or you will pay a greater price for not doing it than what you thought you were saving by going on the cheap and lazy plan.

If you are a sloppy bookkeeper, sooner or later, you will find yourself with a tax audit problem and you will be in the audit emergency room. You will be deal with a CRA Panic Attack.  (CRAPA).

Times have changed and bookkeeping programs like QuickBooks and Simply Accounting can leave you vulnerable to an expensive version of an audit, instead of a slam dunk, non event. These types of accounting packages are not audit ready. That means that they are just not good enough for the current tactics of CRA.

The old generally accepted ways of doing things is no longer adequate. You need to understand that there are so many new laws that no reasonable business person could ever hope to be aware of them all. Ignorance of the law is no excuse for breaking it. What that means is that you have to get in the habit of practicing due diligence in everything you do in business.

You also need to understand that conventional accounting may not be the best way to do things.

If you hope to sell your business, having an audit ready set of books will increase the value of your business in direct relationship to the worst case tax liability risk.

Consider how important filing on time is in relationship to “Stature Barred” dates.

Statute barred, in Canada means that Canada Revenue Agency (”CRA”) cannot audit those years unless they find gross misrepresentation or fraud.  If they are unable to find this, then they cannot audit those years after they become statute barred.

Tax returns become statue barred three years from the date on the notice of assessment. Therefore a business owner is vulnerable for that time frame. This logically is a serious factor when someone buys an existing business.

If the business owner filed the returns late and CRA audits the years that were under the ownership of the old owner, this makes the new owner vulnerable to penalties and interest.  CRA will assess late filing penalties and also could assess you with penalties for wilful deceit and gross misrepresentation

GST is considered a Crown Debt and CRA shows no mercy when it comes to collections of GST. If there was money was not paid for GST owing or payroll taxes prior to your ownership, it is possible that CRA will seize your bank account to cover past debts that were generated prior to your ownership of the business.

CRA is at an unprecedented level of mean aggression, so small business needs to beware of this fact. A new business owner is a prime target for the past practices of the old business owner.

Because when a business is sold the prior years can be challenged, it means that the new buyer may want to think about whether he wants to buy the assets instead of the shares of the business.

In the buy sell agreement, it may say that the old owner is responsible for taxes but what about the penalties and interest and if they decide to challenge the assessment who covers this expense? For example if a business is assessed deemed income that was not reported, you can challenge the CRA position however if it is a GST debt then you must pay the tax first then make your objection later.  Don’t count on the previous owner easily agreeing to cough up doe…. They may be unwilling or unable to pay, a factor that leaves the new owner on the hook for the bill.

If the company for sale has a poor set of books or unfiled tax returns, a wise buyer will take tax liability into serious consideration. They should look at a hold back on final payment pending tax returns being statute barred.

 

Revenue Canada steps up hunt for eBay tax dodgers

This is bad news for people who thought that eBay income was tax free.
This is good news for Tax Audit Solutions, because they have a strategy to absolutely minimize the damages.

CRA is desperate for money, and are leaving no stones unturned.

(I have to insert a joke here….. A bunch of Terns… “seagulls” ate a whole bunch of marijuana seeds. There was no tern unstoned.!)

Anyway on a serious note. If you know anyone who is in some king of tax problems, let me know.

Best Regards

Dan White

and here is what CBC published on Wednesday Oct 21, 2009

_________

Revenue Canada steps up hunt for eBay tax dodgers

Last Updated: Wednesday, October 21, 2009 | 9:13 PM ET Comments213Recommend104

The Canada Revenue Agency is stepping up its efforts to track down eBay merchants who haven’t paid taxes on profits made from selling goods on the popular auction website.

To date, only 50 Canadian eBay merchants have come forward to pay their back taxes since July, when Revenue Minister Jean-Pierre Blackburn gave high-volume eBay sellers one last chance to pay their taxes without penalty.

Under Canadian tax law, profits on goods someone sells are considered income, no matter what the venue. A recent court decision forces eBay to hand over the names, addresses and sales records of its high-volume merchants to tax officials.

Citing privacy concerns, eBay wouldn’t reveal the number of merchant records it has sent to the CRA, but did confirm it’s in the thousands.

The company says it informed its users ahead of time that their records were being passed on to tax authorities.

The revenue agency told CBC News it received 9,939 files from eBay. So far, the federal agency says it has processed only nine of the proactive voluntary disclosures and that those nine represent about $275,000 in previously undeclared income.

Audits launched

The agency also says it has begun launching audits of merchants whose names were released by eBay but have not come forward.

High-volume sellers, according to the court order, are those who made at least $20,000 and had 24 sales in one year or who made more than $100,000 in a year, regardless of the number of transactions.

EBay Canada began providing the revenue agency with information and sales records last November.

The move followed a Court of Appeal decision in April 2008 that upheld a Federal Court judgment requiring eBay Canada to provide tax officials with full account information on sellers.

If an individual or business does not comply with Canadian tax laws, they may be forced to pay any outstanding taxes, plus interest, and could face fines and other sanctions.

Taxpayers who came forward under the voluntary disclosures program will not be penalized or prosecuted if they make a full disclosure before the revenue agency starts any audit or compliance action.

 Ontario announces HST transition rules

Well, Our government has done it again, they have taken a good thing and turned it into a problem for business. This change is going to be a nightmare for record keepers. There are going to be a lot of tax problems created.

Let’s take a look here. the transition is in the middle of the year. We are doing PST for a half year. We are doing RST for a half year and we are doing HST for a half year. We have two types of accounting; accrual and cash, both need to be adjusted to suit the change. The tax returns will be now much more complicated to do … all for one freaking year….. then it will get easier. So what we have is tax problems needing soluitons for just one year.

As you know we are soon to release our new LazyBooks accounting software. So in order to simplify our clients bookkeeping, we are building transition software into the program. The lofty goal is to have this so our clients don’t have to do much more than a few clicks of a mouse to make the transition. The software will need to have date sensitive logic, which will have the ability to activate the tracking process on January 1st 2010. It will have to track and adust for numerous anomolies.

Any business that uses the industry standard accounting packages is going to have some very interesting problems. And just try and do the tax returns for 2010! Ha! this will be a tax time fiasco.

This transition to HST should have just been a cut bait. Stop the clock on December 31 2009. Start 2010 collecting HST. Do a one time accrual adjustment and Bob’s your uncle.

Somehow we have a government that is completely out of touch with reality. Show me a small business and I will show you a business that does not have the time or resources to deal with this kind of tax complexity.

While I love the HST in principle, I really frown on how this is being implemented. Not to mention, that we should be having a HST rate of less tahn 13%, simply because the transiton to HST should not be used as a tax cash grab by the government.

When this is all over and we go into the year 2011 the transition will just be a bad memory of a government gone completely Tax wild.

Herein … following… is Osler Hoskin &Harcourt LLP’s version of the new transition rules.

 Dan White

_____________

Osler Hoskin & Harcourt LLP

D’Arcy Schieman

Canada
October 15 2009
Osler Hoskin & Harcourt LLP logo

Today, the Ontario and British Columbia governments each released “General Transition Rules” for the Ontario and B.C. Harmonized Sales Tax (HST). We view this development as a positive step towards a truly national HST, with consistency between the provinces and a reduction in the potential for double tax and tax preferences that have historically plagued businesses operating in multiple provinces within Canada. We await similar commitments from Saskatchewan, Manitoba and Prince Edward Island, as well as Québec’s final move from the nearly-parallel Québec Sales Tax. We anticipate that all of this will occur, particularly with some financial encouragement from the federal government.

This Update focuses on the General Transition Rules released by the Ontario government (Ontario Rules). The General Transition Rules for B.C. largely parallel those for Ontario. A member of the Osler Commodity Tax team would be pleased to discuss particular differences between the rules for these two jurisdictions.

I. Introduction of Hst

As announced in the 2009 Ontario Budget, the new HST will generally apply to the provision of goods and services in the same manner as GST currently applies. That means that property and services that are currently subject to the 5% GST will now generally be subject to the 13% HST. For those businesses that are currently permitted to claim input tax credits in respect of GST paid on their expenses, the HST will represent a significant cost savings over the existing Retail Sales Tax (RST). No credit was available for RST paid on taxable goods and services, whereas a full input tax credit will now be available for HST paid on taxable goods and services.

As we noted in the Osler Update of April 1, 2009 which was released at the time of the Ontario Budget, many of the most important details that will affect businesses, such as transitional rules, were not announced in the Budget. Instead, the Ontario government stated at that time that the transitional rules would be introduced subsequently, after input from an Implementation Panel that would be established to assist with the transition to the HST. Those transition rules (i.e., Ontario Rules) were announced today The Ontario Rules relate to both transitional rules for the HST that will be proposed to be enacted in the federal Excise Tax Act (ETA) and provincial measures that will be proposed to be enacted to wind down the applicable provisions of the Ontario Retail Sales Tax Act (RSTA).

In particular, the transitional rules provide guidance in determining which tax – the existing RST or the Ontario component of the HST – will apply to transactions that straddle the July 1, 2010 implementation date for the HST.

The following dates are significant under the Ontario Rules:

* July 1, 2010 – Implementation date for the HST:
* May 1, 2010 – The HST will generally apply to consideration that becomes due, or is paid without having become due, on or after this date for supplies made on or after July 1, 2010;
* October 14, 2009 – The HST will not apply to consideration that becomes due, or is paid without having become due, on or before October 14, 2009. Certain businesses and public service bodies may be required to self-assess the Ontario component of the HST on consideration that becomes due, or is paid without having become due, after October 14, 2009 and before May 2010 for property and services provided on or after July 1, 2010;
* October 31, 2010 – Any outstanding RST will become payable by this date.

II. Introduction of transition rules under the ETA

The Ontario Rules contemplate triggering HST on goods, services, intangibles and leases by reference to both the date of the particular supply and the date on which consideration is due or paid.

Tangible Personal Property

Date of Delivery and Ownership

The HST will generally apply to a supply of goods by way of sale to the extent that the goods are delivered, and ownership of the goods is transferred, to the recipient of the supply on or after July 1, 2010.

Consideration Due or Paid On or After July 1, 2010

The HST will generally apply to consideration that becomes due, or is paid without having become due, on or after July 1, 2010 for a supply of goods by way of sale, to the extent that the consideration is for goods that are delivered, and for which ownership is transferred, to the recipient of the supply on or after July 1, 2010.

Consideration Due or Paid On or After May 1, 2010 and Before July 2010

The HST will generally apply to consideration that becomes due, or is paid without having become due, on or after May 1, 2010 and before July 2010 for a supply of goods by way of sale, to the extent that the consideration is for goods that are delivered, and for which ownership is transferred, to the recipient of the supply on or after July 1, 2010.

Consideration Due or Paid After October 14, 2009 and Before May 2010

Persons who are not consumers – such as businesses and public service bodies – may be required to self-assess the Ontario component of the HST on consideration that becomes due, or is paid without having become due, after October 14, 2009 and before May 2010 for a supply of goods by way of sale, to the extent that the consideration is for goods that are delivered, and for which ownership is transferred, to the recipient of the supply on or after July 1, 2010.

The requirement to self-assess HST will generally apply only to:

* selected listed financial institutions;
* non-consumers acquiring property or services for consumption, use or supply otherwise than exclusively in the course of their commercial activities;
* non-consumers acquiring property or services for consumption, use or supply exclusively in the course of their commercial activities but in circumstances where the property or services will be subject to an input tax credit restriction or recapture; and
* non-consumers that use simplified procedures available under the ETA for calculating their net tax (e.g., public service bodies).

A person who is required to self-assess in these circumstances (Self-Assessor) will be required to account for the tax either:

1. in its GST/HST return for the reporting period that includes July 1, 2010, if the due date for that return is before November 2010, or
2. in any other case, in prescribed form and before November 2010.

Services

The HST will generally apply to a supply of a service to the extent that the service is performed on or after July 1, 2010. The HST will generally not apply, however, to a supply of a service if all or substantially all (90% or more) of the service is performed before July 2010. The rules described above for tangible personal property, determining tax by reference to the date on which consideration is due or paid, will with appropriate modifications generally be applied to the provision of services. There are also specific transitional rules for funeral and cemetery services, passenger transportation services and freight transportation services, which we would be pleased to discuss with interested parties.

Leases and Licences

The HST will generally apply to a supply of property by way of lease, licence or similar arrangement (including commercial leases and non-residential rental property) for the part of a lease interval that occurs on or after July 1, 2010. The HST will not, however, apply to a supply of property by way of lease, licence or similar arrangement if the lease interval begins before July 2010 and ends before July 31, 2010. The rules described above for tangible personal property, determining tax by reference to the date on which consideration is due or paid will, with appropriate modifications, generally be applied to the provision of leases and licences.

Intangible Personal Property

The HST will generally apply to consideration that becomes due, or is paid without having become due, on or after July 1, 2010 for a supply of intangible personal property by way of sale. There are also specific transitional rules for memberships, admissions and passenger transportation passes. We would be pleased to discuss these rules with interested parties.

Real Property (Other than Residential Housing)

The HST will generally apply to a supply of real property (other than residential housing) by way of sale in Ontario if both ownership and possession of the property are transferred to the purchaser on or after July 1, 2010. Detailed rules regarding the transitional rules for new residential housing are described in the Ontario Government’s Information Notice No. 2, which was issued on June 18, 2009.

Property and Services Brought into Ontario from Other Provinces

The Ontario component of the HST will generally not apply to property and services that are brought into Ontario if they are acquired by a GST/HST registrant for consumption, use or supply exclusively in the course of its commercial activities.

If a person is not engaged in commercial activities, specific rules apply. The Ontario component of the HST will generally apply on a self-assessment basis to goods that are brought into Ontario on or after July 1, 2010, and to such property that is brought into Ontario before July 2010 by a carrier where the property is delivered in Ontario to a consignee on or after July 1, 2010.

The Ontario component of the HST will also generally apply to consideration that becomes due, or is paid without having become due, after October 14, 2009 for the part of a service performed on or after July 1, 2010 (unless 90% or more of the service is performed before July 2010), if the service is supplied in a non-participating province to a resident of Ontario who acquires the service for consumption, use or supply primarily in the participating provinces. Consideration that becomes due, or is paid without having become due, after October 14, 2009 and before July 2010 for a supply of such a service will be deemed to become due on, and not to have been paid before, July 1, 2010. For consideration that becomes due, or is paid without having become due, after October 14, 2009 and before May 2010, this rule will only apply to non-consumers.

The Ontario component of the HST will also generally apply to consideration that becomes due, or is paid without having become due, on or after July 1, 2010 for intangible personal property that is supplied by way of sale in a non-participating province to a resident of Ontario who acquires the property for consumption, use or supply primarily in the participating provinces.

The Ontario component of the HST will generally apply to consideration that becomes due, or is paid without having become due, after October 14, 2009 for the part of a lease interval that occurs on or after July 1, 2010 (unless the lease interval begins before July 2010 and ends before July 31, 2010), if the lease interval is with respect to intangible personal property supplied by way of lease, license or similar arrangement in a non-participating province to a resident of Ontario who acquires the property for consumption, use or supply primarily in the participating provinces. Consideration that becomes due, or is paid without having become due, after October 14, 2009 and before July 2010 for a supply of such a property will be deemed to become due on, and not to have been paid before, July 1, 2010. For consideration that becomes due, or is paid without having become due, after October 14, 2009 and before May 2010, this rule will only apply to non-consumers.

Imported Goods

The Ontario component of the HST will generally apply to commercial goods brought into Ontario from a place outside Canada on or after July 1, 2010; however, commercial goods that are brought into Ontario by a GST/HST registrant for consumption, use or supply exclusively in the course of commercial activities of the registrant will not be subject to tax.

The Ontario component of the HST will generally apply to non-commercial goods that are imported by a resident of Ontario on or after July 1, 2010.

Imported Taxable Supplies of Services and Intangibles

The Ontario component of the HST will generally apply to consideration for an imported taxable supply of a service made to a resident of Ontario who acquires the service for consumption, use or supply primarily in the participating provinces, to the extent that the consideration is for the part of the service that is performed on or after July 1, 2010.

The Ontario component of the HST will generally apply to consideration for an imported taxable supply of intangible personal property that is made by way of lease, licence or similar arrangement to a resident of Ontario who acquires the property for consumption, use or supply primarily in the participating provinces, to the extent that the consideration is for the part of the lease interval that occurs on or after July 1, 2010.

Other Supplies

The Ontario Rules provide specific rules for Direct Sellers, Continuous Supplies, Combined Supplies, Budget Payment Arrangements, and Progress Payments/Holdbacks. We would be pleased to discuss these rules with interested parties.

III. Elimination of RST

General RST Wind-down Rules

On July 1, 2010, the existing Ontario RST will generally cease to apply to:

* a sale of goods where the goods are delivered, and ownership of the goods is transferred, to the purchaser on or after July 1, 2010;
* a sale of services to the extent the services are performed on or after July 1, 2010 (however, the RST will apply where all or substantially all of the service is provided before July 1, 2010);
* a supply of property by way of lease, licence or similar arrangement for the part of the lease or licence interval that is on or after July 1, 2010 (however, the RST will apply if the lease interval begins before July 1, 2010 and ends before July 31, 2010);
* a sale of property or a service delivered or performed on a continuous basis by means of a wire, pipeline or similar conduit or satellite or other telecommunications facility to the extent the property or service is delivered, performed or made available on or after July 1, 2010;
* goods brought into Ontario or imported by a resident of Ontario on or after July 1, 2010; and
* a sale of an admission for entry to a place of amusement on or after July 1, 2010. Notwithstanding these general RST wind-down rules, the RSTA will apply where consideration for a sale of goods, services or admissions becomes due or is paid:
* on or before October 14, 2009; or
* after October 14, 2009 and before May 1, 2010, except with respect to:

1. goods, services or admissions purchased for use exclusively in the course of commercial activities; or
2. goods, services or admissions for which the self-assessment rules in respect of consideration due or paid after October 14, 2009 and before May 1, 2010 will apply.

Any applicable RST not otherwise payable on or before October 31, 2010 will become payable on October 31, 2010.

Final RST Returns

Final RST returns will generally be required to be filed with the Ontario Ministry of Revenue on or before July 23, 2010.

Where an amount is collected or becomes payable as (or on account of) RST after June 30, 2010, the vendor will be required to account for that amount in a supplemental RST return to be filed on or before the 23rd day of the following month. All supplemental RST returns will be required to be filed no later than November 23, 2010.

RST Refunds and Rebates

Generally, refunds and rebates of RST will remain available until the earlier of the expiration of the existing time limits or June 30, 2014. The following exception will be provided where a person purchases property that is subject to RST before July 1, 2010, but returns it on or after July 1, 2010 and before November 1, 2010:

* if the property is returned and a full refund is given, the RST will be refunded;
* if an exchange is made resulting in neither a refund nor an additional payment, there will be no RST refund and the Ontario component of the HST will not be payable;
* if an exchange is made resulting in a partial refund, the Ontario component of the HST will generally not be payable on the replacement property and the purchaser will be entitled to recover the RST applicable to the amount refunded; and
* if an exchange is made resulting in an additional payment, no RST will apply but the HST will apply to the additional payment.

If the RST did not apply to property that was purchased before July 1, 2010, and it is exchanged on or after July 1, 2010, the Ontario component of the HST will apply to the full consideration for the replacement property.

If property is returned on or after November 1, 2010, no RST adjustments will be available at the point of sale. However, the purchaser may make an application for a refund of RST for tax paid in error.

Assessments, Objections, Appeals and Enforcement

Assessment, objection, appeal and enforcement provisions under the RSTA will generally apply to past transactions where the applicable limitation periods have not expired.

Transitional RST Inventory Rebate for Residential Real Property Contracts

An RST rebate will be available to provide relief with respect to the RST embedded in construction materials used in residential real property contracts that are subject to the HST.

This rebate will be available to a real property contractor for the RST paid on construction materials that are purchased or produced for the contractor’s own use, held in inventory at the end of the day on June 30, 2010 and used in a residential real property contract to which the HST will apply. The rebate will not be available with respect to inventory for which the RST is otherwise recoverable by the contractor or any other party.

IV. Development of HST legislation and policy

Further specific transitional rules are expected to be announced over the coming months. Osler’s Commodity Tax team has significant experience working with provincial and federal officials in connection with the development of legislation and policy. We would be pleased to speak with interested parties about the further implementation of the HST.

The key point to understand is how CRA likes to interpret things in their favour.
The court here points out that more than 5 employees does not mean at least 6 employees. That is not what the law says.
If you consider that 5 full time employess and one part time employee is not the same as at least 6 employees and could have a huge tax consequence on the taxpayer.
In this case it could mean that an individual having an offshore corporation, could suddenly find themselves disallowed for a huge tax deduction.
I am glad the courts are there to keep CRA in line.
Dan White

Canada: How The CRA’s New Assessing Position Can Reduce Your FAPI

08 October 2009
Article by Soraya M. Jamal and Robert W. Nearing of McCarthy Tétrault LLP

The Income Tax Act (Canada) contains a foreign accrual property income (FAPI) regime that imputes “passive income” earned by a non-resident corporation (a controlled foreign affiliate) to its Canadian-resident controlling shareholders on an annual accrual basis, whether or not such income is distributed to the non-resident corporation’s shareholders. Passive income earned by a controlled foreign affiliate includes income derived from an “investment business.” Generally, an “investment business” will be any business that is carried on in a taxation year by a controlled foreign affiliate, the principal purpose of which is to derive income from property and other specified sources. However, such a business will not be an “investment business” if it can be established that ─ amongst other things ─ the controlled foreign affiliate, throughout the period during which the business is carried on, employs “more than five employees full time” (or the equivalent thereof provided by related corporations, certain members of partnerships, and, pursuant to a recent amendment, certain shareholders, corporations and partnerships) in the active conduct of the business.

Historically, the Canada Revenue Agency’s (CRA) assessing practice has been to treat any business with less than six full-time employees and whose principal purpose is to derive “income from property” as an investment business.1 The basis for the CRA’s assessing practice was a number of cases that interpreted the phrase “more than five full-time employees,” as used in connection with the small business deduction for Canadian corporations.2

Recently, however, the CRA has confirmed that it is changing its assessing practice for purposes of the FAPI regime3 such that a controlled foreign affiliate will now meet the “more than five full-time employees” exclusion in the investment business definition where the controlled foreign affiliate employs five full-time employees and one part-time employee in the active conduct of the business.4 Consequently, a Canadian shareholder of a controlled foreign affiliate that employs five full-time employees and one part-time employee in the active conduct of its business will not be subject to FAPI imputation, provided other requirements are satisfied.

This change to the CRA’s assessing practice was prompted by the recent Tax Court of Canada decision in 489599 B.C. Ltd. v. The Queen.5 In this case, the issue to be determined was whether a taxpayer satisfied the “more than five full-time employees” requirement at a time when it employed five full-time employees and two part-time employees. The Tax Court of Canada concluded that the expression “more than five full-time employees” can be satisfied with the employment of five full-time employees and one part-time employee.

In reaching this conclusion, the Tax Court declined to follow the Federal Court Trial Division’s decision in Hughes & Co. Holdings Ltd. v. The Queen,6 wherein the Federal Court held that “more than five full-time employees” means at least six full-time employees. Notwithstanding that the Hughes decision has been followed in other cases, the Tax Court’s view in 489599 B.C. Ltd. was that the Hughes case was incorrectly decided because the Federal Court had relied on irrelevant precedents, adopted a method of statutory interpretation that was inconsistent with that established by the Supreme Court of Canada, and misinterpreted Parliament’s intention with respect to the language used in the expression. Furthermore, the Tax Court found that it was not bound by the Hughes decision as the Federal Court’s interpretation of the expression was obiter. In finding that the phrase “more than five” should not be equated as meaning “at least six,” the Tax Court stated that had Parliament intended the provision in question to apply only to those businesses that employ at least six full-time employees, Parliament would have used such language.

Consequently, taxpayers who have imputed FAPI based on the CRA’s past assessing practice should consider filing amendments to past returns based on the CRA’s assessing practice.

How to get rid of worthless shares.

No matter what you do when it comes to taxes, you will get into trouble if you don’t keep a proper paper trail. Don’t count on the CRA help desk to keep you out of trouble.

When it comes to getting rid of worthless shares, but the shares still exist in the market… you could find yourself with tax problems if you ever get audited. An audit is a process where CRA works to disallow as many expenses and losses as possible. The best Tax Audit Solution is to be prepared ahead of time. An audit ready paper trail is the answer. Don’t get into tax problems because you did not take the time to do things right in the first place.

If your share dispostion is not covered under the Income Tax Act which spells out the circumstances under which you can report the value of certain shares as zero, and claim a capital loss for the full amount that you paid for them.

You need to get rid of the shares and have a paper trail to prove it.  A simple way would be to write up an agreement of purchase and sale to someone at non arms length, e.g. a friend or family member. Transfer the shares to them, write a cheque for a buck, and Bob’s your uncle.

Dan White

CRA foiled in Tax Grab.

Alberta Power foils the tax man who tried to claim that the sale of an asset was “income” but fortunately Alberta Power had the financial strength to fight CRA in Tax Court and justice prevailed.

Alberta Power (2000) Ltd. (Alberta Power), a subsidiary of ATCO Ltd. (ATCO), has received confirmation from the Tax Court of Canada ordering Canada Revenue Agency (CRA) to reverse its 2006 reassessment of Alberta Power’s 2001 tax return.

The impact of the judgment is a $13.7 million recovery of income tax and related interest expense reassessed by CRA in 2006. In addition, Alberta Power will receive interest income of approximately $3.1 million earned on such amounts paid to CRA. These adjustments will result in a $8.8 million increase in ATCO earnings after non-controlling interests. CRA will be required to refund to Alberta Power approximately $28.0 million including interest and net of consequential adjustments to other taxation years arising from the judgment.

The reassessment treated the proceeds received from the sale of the H.R. Milner generating plant to the Alberta Balancing Pool as income rather than as a sale of an asset. Alberta Power successfully argued that its treatment of the proceeds as a capital receipt was correct.

Dan White

This is typical of our government attitude. We are quickly becoming a country where we elect our dictatiors. It is really quite disgusting.

Read on to see what Peter Hilier has to say about this issue.

Dan White

OPINION: What you don’t know about lawful access By:  Peter J. Hillier  On: 01 Oct 2009 For: Network World Canada Creator

The Investigative Powers for the 21st Century Act creates too much opportunity for abuse by intelligence and security organizations.

Why telecom carriers are naïve about the Technical Assisatnce for Law Enformcent in the 21st Century Act

The Government of Canada has gone down the lawful access road on two previous occasions, prior to the introduction in June of Bills C46 and C47. The previous Liberal bills did not get past first reading due to impending elections and changes of government.

The crafters of the previous submissions had a tremendously difficult time getting the telecommunications providers on board given the investment they would be forced to make in order to provide the backbone for Big Brother without some compensation.

Bill C-46, the Investigative Powers for the 21st Century Act (IP21C) and Bill C-47, the Technical Assistance for Law Enforcement in the 21st Century Act (TALEA) aim to give Canadian law enforcement, national security agencies and other “authorities” broader powers to acquire digital evidence to support their investigations. This includes provisions to allow police access, without a warrant, to the personal information of users including names, addresses, telephone numbers, email addresses and internet protocol addresses. Bill C-46 ensures police can obtain warrants for current and historical transmission data, but also allows police to remotely activate existing tracking devices on cellphones and cars. It also included requirements for the telecommunications providers to decrypt date for production of evidence if they have the ability to do so.

In its current form, the legislation is not balanced. It creates too much opportunity for abuse by intelligence and security organizations, let alone law enforcement agencies. Where is the evidence that expanded surveillance powers they contain are essential and that each of the new investigative powers is justified?

To this end, the Bill is more reflective of an intelligence gathering legislation than it is a piece of law enforcement law. The federal Privacy Commissioner, in conjunction with her provincial counterparts, has warned the crafters of the legislation to be cautious in moving forward with the legislation as is.

Now that the appropriation bill C-47 has been split from the legislative piece, C-46, the telecommunications providers see the opportunity for the federal government to foot the bill for the implementation of technology, as well as a per request fee to respond to requests from law enforcement agencies, etc. The telecommunications providers have seemingly acquiesced to the Crown and have the attitude that it will be introduced into law sooner or later; we may as well be prepared. Ironically, they are not.

They have not yet thought through the impacts past the routine requests by law enforcement agencies to gather evidence on child exploitation, because that, after all, is the basis for the entire legislation. With that, the telecommunications providers assume if they apply a fee to each request, the municipalities and Crown will not over burden them with requests for fear of cost overruns. Given the expanded powers of this legislation, this is a terribly naïve mindset.

The article below was written by Jamie Golombec. You just have to respect him as a writer. He “gets” it when it comes to the unfairness of the tax system.

In this article he hits the nail on the head about the unfairness of the employment expenses.

It is clear that it makes more sense to be a business than an employee if you have to pay your own expenses. Of course qualifying as a business is complex and is the biggest target market for CRA.

Dan White

No way to ski by expenses rules

Ski instructors case shows that employees are treated unfairly

Jamie Golombek, Financial Post  Published: Saturday, October 03, 2009
Related Topics

If you’re an employee, you are no doubt well aware of the discrimination imposed on you by the Income Tax Act. Compared with your self-employed neighbour, the Act severely restricts your ability to write off myriad legitimate expenses.

This unfairness came to light yet again last week when the Canada Revenue Agency responded to a question posed by a taxpayer as to whether ski equipment is deductible as an employment expense by ski instructors who earn salaries and commissions.

Under the Tax Act, an employee may only deduct “the cost of supplies that were consumed directly in the performance of the duties of … employment and that the … employee was required by the contract of employment to supply and pay for.”

CRA’s Interpretation Bulletin IT-352R2 “Employee’s Expenses, Including Work Space in Home Expenses,” discusses employment expenses and states specifically that “supplies” will “not include special clothing … worn by employees in the performance of their duties …and any types of tools.”

Since ski equipment is not a supply “consumed directly in the performance” of the job, the cost of the skis were ruled not deductible.

There are additional deductions permitted for commissioned employees who may be required to pay their own expenses and work away from an employer’s place of business, but those specifically exclude capital expenses other than for automobiles and airplanes.

Even if the ski instructors were commissioned employees, the CRA views the cost of ski equipment as a capital expense and therefore not deductible.

This inequity is not new and even reached the Supreme Court of Canada in a 2004 decision, which concluded that a broker who paid $100,000 to purchase a client list from a departing broker was not permitted to deduct any of it as an employment expense. As the Court wrote: “That employees are treated differently than taxpayers earning income from business … is not novel nor readily seen as fair … This seemingly inequitable result … is the result of the structure of the [Income Tax] Act.”

The 2006 federal budget attempted to address this inequity by introducing the non-refundable Canada Employment Credit. As Jim Flaherty, the Finance Minster, said at the time: “This new tax credit gives Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies.”

To claim the credit, no expenditures need actually be made. Rather, this credit is available to anyone who reports employment income. The amount for 2009, on which the credit is based, is the lower of your 2009 employment income or $1,044.

Since it is a tax credit, the actual tax savings are calculated with reference to the federal credit rate for 2009, which is 15%, equating to a maximum credit of $157.

Considering that a decent pair of boots, bindings and skis can run well over a thousand bucks, the credit is small solace to these alpine workers.

Jamie.Golombek@cibc.com-Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax and estate planning, with CIBC Private Wealth Management in Toronto.

Read more: http://www.financialpost.com/personal-finance/story.html?id=2061608#ixzz0SsJfxvOr

Bit of a rant here..

I just can’t understand how we can still breath with all this smell of bull in the air.

FEDERAL TAX: “Individuals and Businesses Can Now Pay Their Taxes Online”-Jean-Pierre Blackburn

Wow! kick up your heels….. we were just dying to find an easier way to pay CRA. No way Jose!

CRA works to stream line their operation. They are equally masters of efficiency and propaganda

It is not that CRA can not find out where you bank, but don’t make it easy for them it is not in your best interest.

Dan White

By: Marketwire .
Oct. 2, 2009 10:26 AM

(See Dan White Comments below)

JONQUIERE, QUEBEC — (Marketwire) — 10/02/09 — The Honourable Jean-Pierre Blackburn, Minister of National Revenue and Minister of State (Agriculture and Agri-Food), announced the launch of a new online service at the Canada Revenue Agency (CRA).

(COMMENT: By Dan White: I guess being minister of revenue is not a full time job?)

“Taxpayers and businesses can now send payments to the Canada Revenue Agency instantly from their accounts at participating financial institutions using the new My Payment service,” said Minister Blackburn. “This new service is yet another achievement aimed at reducing the paperwork and compliance burdens for Canadians.”

(COMMENT: By Dan White: or is it about reducing the paperwork for CRA? not that I am not in favour, I just like honesty instead of propaganda)

The new My Payment service is safe and uses the existing security of your online banking services. It is also private-no sensitive tax or banking information will be shared between the CRA and a financial institution.

(COMMENT: By Dan White: I guess telling them where you bank so they can seize your account if the need be, is not sensitive?)

Minister Blackburn added that “My Payment ends the inconvenience of timing payments to arrive on the right day by mail by crediting CRA accounts at once for payment transfers. The service also ends the hassle of monitoring outstanding cheques to avoid non-sufficient-funds transactions, by only allowing payments when funds are immediately available from your account.” This service will equally benefit businesses of all sizes and individual taxpayers.

(COMMENT: By Dan White: And when what the last time Canadians said they have this problem?)

My Payment is accessed using a portal on the CRA Web site. The service lets individuals and businesses send payments electronically through a secure link with Canadian financial institutions who offer Interac® Online payment service. Currently, those institutions include the following: BMO Bank of Montreal, Scotiabank, TD Canada Trust, and RBC Royal Bank. This new service will be available on October 5, 2009.

(COMMENT: By Dan White: Now let me see…. I link onto CRA site, I connect to my bank account. hmm if this was a business, my response would be: “Are you out of your mind?”)

Transactions completed through My Payment can contain several payments for a combination of both individual and business accounts at the CRA. Payments can be made from a personal or a corporate bank account at a participating financial institution.

For more information about My Payment, or to use the service, go to www.cra.gc.ca/mypayment.

FACT SHEET

My Payment – a new service for businesses and individuals

My Payment is an electronic payment service, accessed through the CRA website, that allows individuals and businesses to send payments directly to the Canada Revenue Agency (CRA) from an account at a participating financial institution(i).

My Payment is fast and easy to use. The service is provided through Interac® Online and its many benefits include:

- Immediate payment – no accounting for the time it takes to mail a cheque.

- Safety and security – the payment is completed through your existing online banking service.

- Privacy – no personal information is exchanged between the CRA and your financial institution.

- Simplicity – payments to several CRA accounts can be made in a single transaction.

How do I use My Payment?

1. Select the My Payment option from the CRA Web site (www.cra.gc.ca/mypayment).

2. Compose your payment by listing the accounts and amounts you will be paying. You will need your account information as provided by the CRA.

3. Select the “Pay now” option and then choose your financial institution. You need to be registered for online banking with your financial institution.

4. Log in to your financial institution’s online banking with your usual login ID and password.

5. Choose an account from which to deduct your payment.

6. Confirm the payment. You will be automatically directed to a confirmation page.

7. Print or save a copy of your transaction receipt.

Is My Payment secure?

Yes. My Payment is secure for a number of reasons:

- You don’t need to enter any financial information, card numbers, or login information on the CRA site.

- The payment is completed through your existing online banking service.

- No personal information is shared between the CRA and your financial institution.

(COMMENT: By Dan White: It seems to me that the name address and location of my bank is rather personal)

To maintain security, keep your identification information confidential.

For more information, visit www.cra.gc.ca/mypayment.

(i) The following financial institutions currently offer Interac® Online as a payment option: BMO Bank of Montreal, Scotiabank, TD Canada Trust, and RBC Royal Bank.

® Trade-mark of Interac Inc. Used under licence.

Contacts:
Canada Revenue Agency
Noel Carisse
Media Relations
613-952-9184

Office of the Minister of National Revenue
and Minister of State (Agriculture and Agri-Food)
Sophie Doucet
Press Secretary
613-608-3252

 Quite interesting how there are getting to be more and more savings plans. As in most things in life, you can look at them and see the good and the bad.
Here is what is wrong with this.
You are giving the government control over more and more of your money.
Money in a government program is money where the government can change the rules at will.
And if you run into a tax problem, unlike an RRSP, CRA can just go in and take your money in the same way they take money from people’s bank accounts.
And as this is a plan where you place your AFTER TAX dollars….. you better make sure you understand just what the heck you are getting into.
For me, I love my country, I don’t trust my government.
This same government who says they don’t have to observe Canada’s laws…. eg…. charter of rights and freedoms, when they go out of the country…. It is interesting that they say we have no jourisdiction over the governments offshore policies, but they have jurisdiction over our offshore wealth.
Hmmmmm

Dan White

Registered Disability Savings Plans: A future of financial security

Wednesday, September 30th, 2009 | 11:50 am

Canwest News Service

If you or someone in your family is eligible for the Disability Tax Credit, there is a new registered savings program that you should know about: the Registered Disability Savings Plan (RDSP).

The RDSP was introduced by the Federal Government. This unique plan is designed to help Canadians to save and invest for themselves or a disabled family member in a tax-deferred environment.

“The RDSP is a welcome addition to existing government programs designed to help ensure the long-term financial security for people with disabilities,” said David Birkbeck, head of registered products strategy at Royal Bank of Canda.

Here’s what you need to know to make the most of an RDSP:

Who can qualify?

The beneficiary of an RDSP must be a resident of Canada with a Social Insurance Number, under age 60 and be eligible for the Disability Tax Credit (DTC). To qualify for the Disability Tax Credit, the individual must have a prolonged and severe impairment in physical or mental function, which is confirmed by a qualified medical practitioner and accepted by the Canada Revenue Agency (CRA).

Who can open an RDSP?

The following people can open an RDSP:

-A person with a disability, who is of the age of majority and has the legal capacity to manage his or her finances.

-The parent of a person with a disability who has not attained the age of majority.

-A guardian or other representative who is legally authorized to act on behalf of a person with a disability.

Tell me about making contributions

Contributions to an RDSP are not tax deductible, but they grow within the plan on a tax-deferred basis. There is no annual contribution limit, but there is a lifetime limit for total contributions of $200,000. Contributions can be made up until the end of the year the beneficiary turns 59.

Is there government assistance?

Contributions may be eligible for federal government matching grants (Canada Disability Savings Grant) up to $3,500 annually and the plan may be eligible for government bond amounts (Canada Disability Savings Bond) up to $1,000 annually. The money in an RDSP can be used for any purpose, as long as it is for the benefit of the plan’s beneficiary.

Within Registered Disability Savings Plans, RBC clients will have access to a wide variety of investment options including RBC Funds, RBC GICs and RBC Savings Deposits. There will be no annual administration or withdrawal fees. Clients will also have the opportunity to make regular, pre-authorized contributions.

RBC has also joined forces with Planned Lifetime Advocacy Network (PLAN), a non-profit organization which led the advocacy for the creation of the Registered Disability Savings Plan, to help educate and offer advice to Canadians. As PLAN’s preferred national RDSP provider, RBC is working closely with PLAN to assist Canadians with disabilities and their families.

For more information please visit: www.rbc.com/rdsp.

For more information on Planned Lifetime Advocacy Network (PLAN) or for more about RDSPs please visit: www.plan.ca or www.rdsp.com.

Windfall for CRA to the current tune of 7.6 million dollars and growing.
Some of you may know that I don’t have a lot of respect for the voluntary disclosure program because I am seeing that this can be guaranteeing your worst case scenario can really happen. VD as we have come to know it, is not that desirable. If you are not prepared for a full audit and if you don’t have all your ducks in order, you are just asking form more tax problems than you already have.

I don’t like offshore for evading tax…. I see offshore as for genuine business. If you are doing tax evasion…. it is not as simple as VD, if you are not doing tax evasion,,,,then simply don’t…. it is not a good idea…. Legal Tax Avoidence is quite another matter, but you need some serious advice to know the difference.

It also looks like the UBS deal is a great bunch of CRA propaganda to scare and bring offshore tax evaders in from the warmth to the frying pan.

Won’t you come into my parlour?, said the spider to the fly.

This is quite a situation…. read on to see wehat Gary Lamphier has to say…. very interesting reading.

Dan White

No teeth to tax watchdog’s war on cheats

CRA relies on ‘voluntary disclosures’

By Gary Lamphier, Edmonton JournalOctober 1, 2009

Back in August, I wrote a column that was highly critical of Jean-Pierre Blackburn, head of the Canada Revenue Agency.

“While the U.S. government has doggedly pursued Switzerland’s biggest bank (UBS) for helping a small army of Americans to dodge the Internal Revenue Service,” I noted, “the CRA has had zip to say about UBS’s well-publicized activities in Canada, or whether similar cases of suspected tax fraud are taking place here.”

My piece followed news of a watershed deal under which UBS agreed to cough up information on some 4,450 bank accounts held by suspected U.S. tax cheats. At one point, the accounts held $18 billion US of assets, or an average of more than $4 million each.

After years of haggling, the landmark U.S. accord finally punched a hole in the dam of Swiss bank secrecy. It followed an admission by UBS that it had taken part “in a scheme to defraud the U.S.” government by helping the bank’s rich clients evade the IRS. UBS agreed to pay a related $780-million penalty.

But let’s get back to Blackburn. My criticism of Canada’s chief tax collector seemed to hit a nerve.

After months of stony silence on the UBS issue, he suddenly emerged from his self-imposed cocoon, granting a flurry of interviews. He was also made available to me, although by then he had already stated his case to other reporters, so I declined.

In those interviews, Blackburn offered a stirring defence of his department’s plan to force UBS to spill the beans on its tax-dodging Canadian clients, just as the IRS had done with the bank’s U.S. clients.

Of course, U.S. authorities had already done much of the heavy lifting for Blackburn, helpfully identifying $5.6 billion of assets held directly by Canadians in UBS accounts in Switzerland, as far back as 2005.

The accounts were set up by UBS’s so-called “Canada Desk,” a clandestine operation of jet-hopping, suitcase bankers who bypassed the bank’s properly licensed Canadian subsidiary, directly wooing clients here in contravention of Canada’s banking laws.

Blackburn certainly talked a good game. He assured reporters the CRA was on the case, and its lawyers were ready to stare down the bankers from UBS, forcing them to disclose the names of Canadian clients.

“UBS tried to delay, but in the beginning of September, we will have a meeting between our lawyers and them to obtain that information,” he told Globe and Mail reporter Greg McArthur, who first revealed UBS’s secret Canada Desk last November.

“Is it a question of thousands of dollars or millions? I don’t know,” he said, in an apparent effort to play down the magnitude of the$5.6 billion of suspect assets already identified by U.S. authorities.

Fast-forward to Wednesday–the final day of September. In a bid to catch up on the progress of Blackburn’s campaign to lift the lid on UBS’s dubious activities in Canada, and its tax-cheating Canadian clients, I called Ottawa. Nope, the minister wasn’t available, I was told. But CRA spokeswoman Caitlin Workman gladly filled me in on the box score to date. I have to say, it’s not overly impressive.

Seems the CRA has managed to conduct just one meeting with UBS officials since Blackburn issued his declaration of war back in August. And although Workman couldn’t confirm it, the meeting was reportedly conducted by telephone, not face to face.

At present, no further meetings are scheduled, she added. She couldn’t explain why.

“It could be that we just don’t have a time yet. It doesn’t necessarily mean that there will be no more meetings, and the discussions are ongoing. But I’m just not at a point yet where I can say, ‘OK, tomorrow there’s a meeting.’ ”

In total, the CRA has received 57 “voluntary disclosures” thus far from Canadians who held accounts with UBS. “Of those 57, we have finished reviewing 20 of them. And from the 20 we’ve finished reviewing, we have assessed $7.6 million in unreported income, as of last Thursday,” she adds.

Got that? Of the $5.6 billion in reported assets secretly held by Canadian account holders at UBS in 2005–a full four years ago– the CRA has so far recovered$7.6 million of unpaid tax money. That’s a little over one-tenth of one per cent of the assets in question.

Upset yet?Hey, this gets better. For tax cheaters who hold money in such accounts, there is no legal means at present to compel them to come forward. Unless UBS discloses their names–which seems pretty unlikely–they could duck the CRA for years.

And if the cheaters do finally “come clean” half a decade from now, they won’t necessarily face any penalty for their tardiness, either.

“The minister has discretion to waive penalties for the previous 10 years,” Workman says. “For the entire period for which your (belated) disclosure is accepted, you will be free from criminal prosecution,” she adds.

“Because you’ve come forward voluntarily and been honest and above-board, even if belatedly, you won’t have the penalty owing, but will still have to pay the tax and the interest. It’s an incentive to come forward, and for the CRA, to recover that income.”

There you have it. Your tax-collection agency at work. Something tells me the lawyers for UBS and their tax-dodging clients aren’t exactly quaking in their boots.
© Copyright (c) The Edmonton Journal

Well here we go again, another Canadian perk under attack by CRA. If you lottery winning has a skill testing question, expect CRA to check the list of winners and assess you for the winning as your income.

You can be sure this is going to happen within the next three years.

This really sucks.
I guess on the other hand… I don’t enter lotteries, so I guess this will not affect me personally.
But it will really take the wind out of a winner, to get a bill after they have spent and given away their winnings.
Dan White

*
IT-213R Prizes from lottery schemes, pool system betting and giveaway contests
o Other formats

Income Tax Interpretation Bulletin
Prizes from lottery schemes, pool system betting and giveaway contests

NO: IT-213R

DATE: October 19, 1984

SUBJECT: INCOME TAX ACT
Prizes from lottery schemes, pool system betting and giveaway contests

REFERENCE: Paragraph 40(2)(f) (also subsections 52(4), 5(1) and 9(1), and paragraph 69(1)(c))

This bulletin cancels and replaces IT-213 dated May 12, 1975. Current revisions are designated by vertical lines.

Lottery Schemes

1. The amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be income from employment, business or property or a prize for achievement referred to in paragraph 56(1)(n).

2. While paragraph 40(2)(f) specifies that no taxable capital gain or allowable capital loss results from the disposition of a chance to win or a right to receive an amount as a prize in connection with a lottery scheme, subsection 52(4) states that for the purposes of computing any tax consequences after receiving a prize a winner in a lottery scheme is deemed to have acquired the prize at a cost equal to its fair market value at the time of acquisition.

3. A lottery has been defined as a scheme for distributing prizes by lot or chance among persons who have purchased a ticket or a right to the chance. If real skill or merit plays a part in determining the distribution of the prize the scheme is not a lottery (unless it is based essentially on chance and the degree of skill is minimal). Again, when the chances of a prize are obtained wholly gratuitously, as for instance, a prize awarded to the winner of a game, the scheme is not a lottery.

Pool System Betting

4. Paragraph 40(2)(f) also provides that no taxable capital gains or allowable capital losses arise from the disposition of a chance to win a bet or a right to receive an amount as winnings on a bet in connection with a pool system of betting referred to in section 188.1 of the Criminal Code. The nature of pool system betting is such that the only winnings are in the form of cash from the respective pool. Consequently, no additional capital gain or loss tax consequences could arise on subsequent disposition of the winnings and thus it is not necessary (as described in 2 above, in the case of a lottery) to deem the winnings to have been acquired at fair market value.

5. A “pool system” of betting is defined in the Athletic Contests and Events Pools Act as a pool system of betting on any combination of two or more professional athletic contests or events. The fact that a degree of skill is involved in the selection of the outcome of the contest or event in the pool betting distinguishes it from a lottery scheme as described in 3 above.

Other Schemes

6. Where a prize has been won otherwise than through a lottery scheme or a pool system of betting, neither paragraph 40(2)(f) nor subsection 52(4) will apply. The tax implications of receiving these other prizes will vary, depending on the following factors:

(a) When the prize has been received as a gift, it is not included in computing income at the time of receipt. However, the recipient will be deemed to have acquired the prize at its fair market value pursuant to paragraph 69(1)(c), so that a subsequent disposition of the prize will result in a capital gain on any increase in value since the time of its acquisition. A prize can be reasonably considered to be a gift from the viewpoint of the recipient, even though chance and/or skill may have been involved in the win. Ordinarily a gift is not considered to have been made until the donee has received delivery of the gift and accepted it in a completed and irreversible transaction.

(b) The prize will be received as income where it is received by virtue of the recipient’s employment pursuant to subsection 5(1) and paragraph 6(1)(a), received by virtue of the recipient’s business pursuant to subsection 9(1) or received in respect of an achievement in a field of endeavor ordinarily carried on by the recipient pursuant to paragraph 56(1)(n) (see IT-75R2).

(c) Where the prize is not received as income as described in (b) and is not a gift as described in (a), no amount will be included in income upon receipt of the prize and the provisions of paragraph 69(1)(c) will not apply. Such a situation would arise where the contestant has incurred a cost towards winning the prize such as purchasing a ticket or paying an entrance fee entitling the contestant to participation in the contest. In such a case, while there are no tax consequences resulting from receipt of the prize, any subsequent disposition of that prize may result in a capital gain or loss. In computing any such gain or loss the taxpayer’s cost of the prize will be the original cost of the ticket or entrance fee rather than the fair market value of the prize as used in (a) above.

It should be noted that where “personal use property” is involved, the $1,000 exemption contained in subsection 46(1) may eliminate any capital gains on disposition of a prize as described in (a) and (c) above.

7. In some instances, a ticket (or entrance fee) of the type described in 6(c) above entitles the holder to something in addition to a prize, for example, some entertainment value. Where, in such a case, the portion of the ticket that relates to the prize is considered insignificant in relation to the total cost of the ticket, the fact that a portion of the cost has been incurred towards the prize may be ignored and the prize will be treated as a gift to the taxpayer as described in 6(a) above.

8. Where the winner referred to in any of the paragraphs above is a syndicate, the income tax consequences to the individual members of the syndicate are the same.

9. Some examples of the manner in which the rules in 6 to 8 above apply are given in the paragraphs which follow.

Employer-promoted Contests

10. Where an employer who was accustomed to awarding employees with a bonus has provided a scheme or giveaway contest in which the bonus or some amount in lieu of a bonus is divided among the employees as prizes following a draw, the scheme would not be a lottery and the prizes are considered to be employment income under subsection 5(1). However, if the employees and their families account for only a small percentage of the participants in a scheme, are not given a favoured position in relation to the other participants and they are subject to the same contribution requirements (if any) towards the scheme as other participants, the value of any prize won by chance is not employment income but is considered a win from a lottery scheme. Therefore, paragraph 40(2)(f) and subsection 52(4) will apply. IT-470, “Employees’ Fringe Benefits – After 1980″ and Special Releases to IT-470 discuss holiday trips and other prizes.

Television and Radio Programs

11. The value of a prize or other award received by a person for being at or participating in a radio or television program is generally not included in income when the person is not party to an employment or business contract, and

(a) it is awarded through a draw because, for example, the person is in a “lucky” seat or has a certain brand of merchandise at home, even though the person may have to demonstrate some minor degree of skill or knowledge before being eligible to receive the prize, or

(b) the prizes that go to winning contestants, the consolation prizes that go to losing contestants or the merchandise gifts given to all participants are all that the person receives for appearing in the program. On the other hand, if a contract exists, such as may be the case where a professional actor, an entertainer or some other person appears on a television show as a celebrity and receives a giveaway prize or wins a prize by skill or chance for appearing or participating in a contest on the show, the prize will be subject to tax as business or employment income.

In all cases cited in this paragraph, the capital gains implications will be established on the basis of the particular circumstances in each case through application of the rules given in 6 or 7 above.

Free Tickets in Lieu of Volume Rebates or Bonuses

12. Volume bonuses or rebates from suppliers are included in computing a purchaser’s business income. However, where a supplier provides customers with free tickets for a draw for a prize with the winning ticket to be drawn strictly by chance, the prize is ordinarily considered a gift. Its value is not included in the recipient’s business income and the application of paragraph 69(1)(c) to the deemed cost of acquisition of the prize is as set out in 6 above. On the other hand, if real skill or merit is involved in the win, it will be a question of fact to be determined in accordance with the circumstances in each case whether the prize is a gift or whether its value is business income to the recipient.

Annuities as Prizes

13. Where the prize in a lottery scheme is an annuity, for the purposes of determining the amounts to be brought into income, the initial adjusted cost basis of the annuity is considered to be the fair market value of the annuity when it was acquired in accordance with subsection 52(4). Should the annuity be a prescribed annuity contract, as defined in Regulation 304, the adjusted purchase price of the annuity will be its fair market value at the time it was acquired. For prescribed annuity contracts and those other annuity contracts not subject to the accrual rules, annuity payments are brought into income under paragraph 56(1)(d) and a deduction from income is allowed under paragraph 60(a) for a portion of the adjusted purchase price as determined under Regulation 300. For other annuity contracts, which are subject to the accrual rules, the income from the annuity is determined according to the provisions of paragraph 56(1)(d.1) and section 12.2 in which the adjusted cost basis is a determining factor. In the case of the application of paragraph 56(1)(d.1) and section 12.2, the income calculation should be furnished by the issuer.

 This is such a crock!

I know one person who had a neighborhood visit from CRA… he got a little too nervous when they asked him pointed questions. He got audited, could not afford the tax bill and went bankrupt.

To have CRA drop in for a visit is like having a fox visit your rabbit pen.

To me, this announced visit, is just another tactic for their own revenue generating agenda. That is their job.

I wish they would stop with the pretenses about how they have so much integrity campaigne. I guess if they say it enought they will believe it themselves.

I know their job is to get as much loot as they can and I understand that. I would just prefer they be straight with us.

As they say in the lastest slogan “They’ve got what they need to get what you got.”

Dan White

________
Canada Revenue Agency Propaganda for your enjoyment.

Canada Revenue Agency
Sep 29, 2009 16:53 ET
Canada Revenue Agency Officials to Visit Downtown Toronto Businesses to Promote Services

TORONTO, ONTARIO–(Marketwire – Sept. 29, 2009) – The Minister of National Revenue, the Honourable Jean-Pierre Blackburn, invites businesses to learn more about government tax services. On September 30, 2009, representatives from the Canada Revenue Agency (CRA) will be talking to businesses along Toronto’s College Street, from Spadina Avenue to Dovercourt Avenue, as part of the CRA’s Community Visit Program.

CRA officers conduct community visits as part of the Agency’s outreach program. The purpose of these visits is to provide businesses with the latest information and answer their questions. The visit is not considered to be a form of enforcement action or investigation. It is an opportunity for businesses to ask questions, learn more about CRA services, and discuss any tax-related issues or concerns.

“Community visits enable entrepreneurs to ask tax-related questions about their companies and validate information directly with CRA staff,” says Jean-Pierre Blackburn.

Significant portions of the visit will also be dedicated to discuss CRA’s Underground Economy Initiatives. The CRA is committed to ensuring its audit, collection, and enforcement activities effectively detect and deter underground economy activity because for legitimate businesses, underground operators provide unfair competition.

The CRA is committed to ensuring that the public can trust the integrity and equity of the tax system. Agency officials promote voluntary compliance with the law by providing information and services, informing Canadians of the risks associated with the underground economy, and taking appropriate measures against those who do not pay their fair share of taxes.

A BC couple, victims of indenty theft, have to pay back the Income tax credits that were issued to the thief who stole their identity.

Now that is a tax problem to say the least, a tax problem without a solution.

It really seems that CRA has no conscience. The fairness provisions are pretty much a joke.

Dan White

______

B.C. identity theft victims say they can’t get justice
Man says he can prove who stole from him, but police still can’t act
Last Updated: Monday, September 28, 2009 | 5:35 PM PT Comments159Recommend116
By Kathy Tomlinson CBC News
Mark Gorst and Shannon Werry believe they know who stole their identities, but are having difficulty getting authorities to act.Mark Gorst and Shannon Werry believe they know who stole their identities, but are having difficulty getting authorities to act. (CBC)

Two B.C. people who are victims of identity theft are speaking out in frustration with the justice system.

Mark Gorst and Shannon Werry have ample evidence indicating who the thief is, but even so, RCMP have told them charges won’t be laid.

“It’s frustrating … and there is a lot of anger,” said Werry. “Because you know who it is — and you have the proof that you need — and nothing happens.”

“I didn’t know most of the money was stolen — until two years afterward,” said Gorst. “We’ve been told — because it’s been such a time delay — the statute of limitations on certain crimes means I am on the hook for everything.”

“[Identity theft and fraud] is a level of crime that you don’t know about until you know about it — which is sometimes too late for legal boundaries,” explained Cpl. Lea-Anne Dunlop of the Chilliwack RCMP.

If more than a year has passed since the initial crime, she said, the bar to get charges approved by the Crown is higher.
Too late for charges: RCMP

“We have to play within the confines of the legal system that exists,” she said. “It is sometimes unlikely a long time after an offence that a charge will be approved.”

Gorst said collection agents call him several times a day, about two-year-old charges on several credit cards. He firmly believes an ex-roommate obtained those cards in his name, then collected the bills at his old address.

“I owe $20,000 on credit cards I never applied for and never used,” said Gorst. “I have no credit. I have nothing in my name. I can’t own anything, because it could be seized by creditors.”

Werry says it’s far too late for the credit card companies to forgive the debt. “There’s a time limit. Most credit cards, you have to report it within so many hours or so many days.”

The couple first noticed something was wrong in 2007, when hundreds of dollars were siphoned out of his RBC account electronically. Gorst said he had never set up online banking.

Once he was able to log on, he discovered someone had listed his roommate as a bill payee — and then transferred money into their account at another bank.

He filed his first report with the RCMP at that time. Gorst said he was told it was a matter for his bank to handle.
Gorst shows CBC his forged signature on one document (top), and his real signature on another (bottom).Gorst shows CBC his forged signature on one document (top), and his real signature on another (bottom). (CBC)

When he later noticed he was not receiving GST rebates, Gorst contacted the Canada Revenue Agency. The CRA eventually sent him a letter it had received, signed with his forged signature, asking that all tax credits and refunds be paid into a TD Canada Trust account that was not his. His former roommate’s return address is listed on that letter.

After his bank called to say his ex-roommate had tried to cash a large cheque by forging his signature, he called the person to confront them — and recorded the conversation.
Forgery admitted on tape

“Please stop forging my signatures? Please, I am just asking nicely,” said Gorst on the tape. “You didn’t need to forge my signature.”

The ex-roommate responded, “How did you expect [a cheque] to be cashed?”

The conversation ended with the person saying, “You are going to wish you never met me,” before hanging up on Gorst.

After he discovered the credit cards he didn’t know about this year, he went back to the RCMP, armed with a pile of new evidence, including the tape recording. Gorst said he was told the financial crimes were too old to pursue. He was advised to hire a lawyer and take civil action, which he said he can’t afford.

‘I wouldn’t wish this on my worst enemy.’—Identity theft victim Mark Gorst

“I wouldn’t wish this on my worst enemy. I really wouldn’t,” said Gorst. “I made the mistake of leaving my ID and my mail on a bedroom counter or kitchen counter where anyone could have grabbed it — and someone did,” he said.

The RCMP said it did try to pursue charges, related to threats, but Crown counsel did not approve those charges.

“Someone who I trusted did this to me. I don’t trust very many people anymore,” Gorst added.
RCMP Cpl. Lea-Anne Dunlop says police need an updated law to address identity theft.RCMP Cpl. Lea-Anne Dunlop says police need an updated law to address identity theft. (CBC)

RCMP Cpl. Dunlop said it is “common” for police to be unable to make charges stick in identity theft cases. The crimes are intricate and often hidden for long periods, with the help of technology, she said, so the laws need updating.

“Until we have some legislation around some things that give us the tools that we need as the police to investigate some of these crimes, it is going to be a challenge,” said Dunlop.
New law promised but not delivered

Identity theft and fraud are not listed as specific crimes in the Criminal Code, putting Canada behind the U.S. and Europe.

“We have such lax laws regarding this,” said Gorst.

For several years, the Harper government has been promising new legislation, which would make it a crime to obtain or possess someone else’s identity information for fraudulent purposes. That legislation has been halted twice, when federal elections were called.

“Especially if you know who the person is that is committing the crimes, that makes it even worse,” said Werry.

The couple said they live in fear that new bills will continue to surface.

“We’re always concerned about what’s next. What’s going to happen next? What can we do? Who do we have to contact? Who do we have to fight with now?” said Werry.

Gorst said he’s hit several brick walls, trying to get information from creditors. When they ask him to verify his identity, he said, he often doesn’t know the phone number or other information they have on file.
The Chilliwack, B.C., RCMP office where Gorst and Werry took their evidence of identity theft.The Chilliwack, B.C., RCMP office where Gorst and Werry took their evidence of identity theft. (CBC)

“If I don’t give them the proper information they don’t tell me anything — because of privacy,” he said. “So, I could have more cards out there I don’t know about.”
Victim expected to pay in full

Gorst drives a transport truck and his wife is a civil servant. They said they have delayed having a family because of the constant financial stress they are under. Gorst said he has paid $5,000 toward the debts, but owes at least another $15,000.

“We basically live paycheque to paycheque,” said Werry. “So, $15,000 is a lot. A thousand dollars — five hundred dollars — is a lot to us.”

To add insult to injury, Gorst said, he’s also paid a higher price for reporting the crimes. The CRA made him pay back some of the tax credits paid out in his name, which he said wouldn’t have happened if he hadn’t written to them.

Collection agents didn’t start chasing him, he said, until he contacted TransUnion Canada, to check his credit rating. He gave his real address and phone number, he said, and the credit agency passed that information on to collectors.

“The way our society is now, you are just a number,” he said. “And according to all the computers, I am a bad person.”

Canadians are under an ever increasing attack by CRA. In this case, I am kind of on their side. Not liking CRA does not mean that I approve of tax evasion.

The tax problems in this country are not because of tax evasion, rather tax evasion is a result of tax problems created by our government administering a tax that is known to be unfair by the vast majority of over taxed Canadians.

The solution to situtations like this is; “Don’t hide your business from the Tax Man. Instead protect your deductions from unfair assult my the audit man.” Make sure you understand “Audit Ready Bookkeeping.”

For more information on this subject, go to

http://www.tax-audit-solutions.com/services.htm

And don’t think the threshold for the amount of transaction in eBay won’t be reduced. It will! Then there will be a whole new arount of tax assults by CRA in round number two.

Dan White

_______-

eBay Canada to Hand over More Seller Tax Records to Government
By Ina Steiner
AuctionBytes.com
September 29, 2009
Reading AuctionBytes: eBay Canada to Hand over More Seller Tax Records to Government

eBay Canada said it would hand over more data to Canada’s tax agency after receiving a court-authorized requirement from the Canada Revenue Agency. The company will release the account information and sales data of Canadian resident eBay members who meet the following criteria:

* Sales of more than $20,000 and at least 24 sales transactions in any of the calendar years 2006, 2007 or 2008, (irrespective of membership in eBay’s PowerSeller program);
* or, Sales of more than $100,000 in any of the calendar years 2006, 2007 or 2008, regardless of the number of sales transactions.

eBay said it was only required to release sales information for the year(s) in which a seller met the above sales thresholds.

The member information that will be released for 2006, 2007 and/or 2008 includes: full name, user id, mailing address, billing address, telephone number, fax number, email address, and the selling prices (high bids) of the items.

The September 2009 request followed a similar request made by the Canada Revenue Agency; in November 2008, after a lengthy legal battle, eBay was required to reveal the account information of members who held PowerSeller status in 2004 and 2005.

eBay Canada said it strenuously objected to the “violation of our members’ privacy,” but said it was obliged to comply with the court-ordered requests. eBay said it was alerting all members affected by the court order prior to disclosing their account information to the Canada Revenue Agency.

Business Investment Losses

ABIL

NUTSHELL: ABIL is a bit of a sham, to reduce the amount of loss a taxpayer can use to reduce his income.
If it is a business loss, then…
First the loss has to be a capital loss.
Then in certain circumstances the loss can be used to offset other income, instead of being just a capital loss.

Hence the term “Allowable” Business Investment Loss. In which case you can then use 75% of the business loss as an allowable business investment loss.
In most cases you can write off the interest you paid on your investment, so long as you did not make your investment a loan that would pay you interest.
This is all just an irritating way that CRA blocks you deducting your investment losses against your income, even whent he investment is in your own corporation.

These kind of tax problems, require tax planning to preplan solutions to these types of problems.

Dan White

Here is CRA’s position from their web site.

Summary:   CRA: NO: IT-484R2

A business investment loss is basically a capital loss from a disposition to which subsection 50(1) applies, or to an arm’s length person, of shares or debt of a small business corporation. Three-quarters of this loss is an allowable business investment loss.

Unlike ordinary allowable capital losses, an allowable business investment loss for a taxation year may be deducted from all sources of income for that year. Generally, an allowable business investment loss that cannot be deducted in the year it arises is treated as a non-capital loss which may be carried back three years and forward seven years to be deducted in calculating taxable income of such other years. Any such loss that is not deducted by the end of the seven-year carry-forward period is then treated as a net capital loss so that it can be carried forward indefinitely to be deducted against taxable capital gains.

Ordinary allowable capital losses for a taxation year may be deducted only from taxable capital gains realized in the year. If the allowable capital losses exceed the taxable capital gains, the difference is a net capital loss which may be carried back three years and forward indefinitely to be deducted only against taxable capital gains.

The purpose of the rules relating to the business investment loss is to encourage investment in small business corporations by giving such losses more generous tax treatment than that available for ordinary capital losses.

This bulletin discusses the various provisions of the Act relevant to determining what constitutes a taxpayer’s allowable business investment loss for a taxation year and the deductibility of such a loss.
Discussion and Interpretation
General

¶ 1. An “allowable business investment loss” is defined in paragraph 38(c) as 3/4 of a “business investment loss” defined in paragraph 39(1)(c). To qualify as a business investment loss, an amount must first be a capital loss. Thus when a transaction does not give rise to a capital loss, or when a capital loss is deemed to be nil (e.g., under paragraph 40(2)(g)), no business investment loss can result.

Although a business investment loss for a year must first qualify as a capital loss, a taxpayer does not have the option of treating it as a capital loss for the year rather than a business investment loss.

The portion of a business investment loss included in calculating a taxpayer’s allowable business investment loss has increased over the years. For example, in the case of an individual or a partnership, the above reference to “3/4″ should be read as a reference to “2/3″ if the taxation year or fiscal period in which the business investment loss arose ended after 1987 and before 1990, and “1/2″ if the taxation year or fiscal period ended before 1988.

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¶ 2. In calculating income pursuant to section 3, an allowable business investment loss is not deducted from taxable capital gains under paragraph 3(b) but is deducted from income from all sources under paragraph 3(d).

Generally, any allowable business investment loss that cannot be deducted in the year it arises is treated as a “non-capital loss” as defined in subsection 111(8). Such a loss may, under paragraph 111(1)(a), be carried back three years and forward seven years and deducted in calculating taxable income of such other years.

The amount of the allowable business investment loss that is included as a non-capital loss is determined in the taxation year in which the business investment loss arises. No adjustment to the amount of the allowable business investment loss is required if the loss is carried forward or back to a taxation year in which the allowable portion of the business investment loss would be different had the loss occurred in that year. For example, a business investment loss arising in a taxation year in which the allowable portion of the business investment loss is 2/3 will not be increased should that allowable business investment loss be deducted in a taxation year in which the allowable portion of business investment losses is 3/4.

Generally, an allowable business investment loss that is not deducted as a non-capital loss by the end of the seventh year of its carry-forward period becomes a “net capital loss,” as defined in subsection 111(8), in that seventh year. This treatment allows the loss to be carried forward indefinitely to be deducted against taxable capital gains beginning in the eighth year. For example, if an individual incurred an allowable business investment loss in 1989, and the individual was unable to use the loss by the end of 1996, the loss will become a net capital loss in 1996. The individual can then carry the loss forward indefinitely and deduct it against taxable capital gains realized in 1997 and subsequent years.

Non-capital losses and net capital losses are discussed in the current version of IT-232, Non-Capital Losses, Net Capital Losses, Restricted Farm Losses, Farm Losses and Limited Partnership Losses — Their Composition and Deductibility in Computing Taxable Income.

¶ 3. A taxpayer’s business investment loss may arise from the disposition of:

(a) a share of a corporation that is a small business corporation, or

(b) a debt owing to the taxpayer (except as discussed in ¶ 5 below) by a Canadian-controlled private corporation.

For a loss on the disposition of such property to qualify as a business investment loss, the disposition must be to an arm’s length person or be deemed to have occurred under subsection 50(1) (see ¶ 6 below). For the meaning of “small business corporation” and more information regarding “Canadian-controlled private corporation” see ¶ 4 below.

¶ 4. The term “small business corporation” is defined in subsection 248(1). In general, a small business corporation is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which is attributable to assets used principally in an active business carried on primarily in Canada or shares or debts of connected small business corporations or a combination of the two. For the purposes of determining a business investment loss, a corporation that was a small business corporation at any time in the 12 months before the disposition of the share or debt, as the case may be, will be considered to be a small business corporation.

The Canadian-controlled private corporation referred to in ¶ 3(b) above and ¶ 6 below has to be:

* a small business corporation;
* a bankrupt (as defined by the Bankruptcy and Insolvency Act) that was a small business corporation when it last became a bankrupt; or
* a corporation referred to in section 6 of the Winding-up Act that was insolvent (within the meaning of that Act) and was a small business corporation at the time a winding-up order under that Act was made for that corporation.

The meaning of “Canadian-controlled private corporation” as defined in subsection 125(7) is discussed in the current version of IT-458, Canadian-Controlled Private Corporation.

¶ 5. A debt owed to a corporation by a non-arm’s length corporation is excluded from debts referred to in ¶ 3(b) above and therefore any capital loss resulting from a disposition thereof will never qualify as a business investment loss.

¶ 6. Subsection 50(1) deems a taxpayer to have disposed of a debt or a share of a corporation at the end of a taxation year for nil proceeds and to have reacquired it immediately thereafter at a cost of nil if:

* in the case of a debt (other than a debt from the sale of personal use property), the debt is owing to the taxpayer at the end of the taxation year and it is established by the taxpayer to have become a bad debt in the year; and
* in the case of a share (other than a share received as consideration from the sale of personal use property), the taxpayer owns the share of the corporation at the end of the taxation year and the corporation:
o has become a bankrupt (as defined by the Bankruptcy and Insolvency Act) in the year;
o is a corporation referred to in section 6 of the Winding-up Act that was insolvent (within the meaning of that Act) and for which a winding-up order under that Act was made in the year; or
o at the end of the year, is insolvent, and neither the corporation, nor a corporation it controls, carries on business. Also, at that time, the share has a fair market value of nil and it is reasonable to expect that the corporation will be dissolved or wound-up and will not commence to carry on business.

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For taxation years ending after February 21, 1994, a taxpayer must elect to have subsection 50(1) apply in respect of a debt or a share. For taxation years ending before February 22, 1994, an election was not required in order to have subsection 50(1) apply in respect of a debt.

If subsection 50(1) applies, the taxpayer is deemed to have disposed of the property for nil proceeds and a capital loss will arise. If the debt is owed (except as discussed in ¶ 5 above) by a Canadian-controlled private corporation (see ¶ 4 above) or the share is a share of a small business corporation, the loss will be considered a business investment loss. Subsection 50(1), as it applies in respect of a capital debt, is discussed in the current version of IT-159, Capital Debts Established to Be Bad Debts.

¶ 7. The business investment loss from a disposition described in ¶ 3 above is the amount by which the taxpayer’s capital loss from the disposition exceeds the amount of any applicable reduction discussed in ¶s 8 to 11 below. The portion of the capital loss that does not qualify as a business investment loss (because of any reduction discussed in ¶s 8 to 11 below) remains a capital loss.

¶ 8. In determining a taxpayer’s business investment loss, the capital loss resulting from the disposition of a share of a small business corporation in the circumstances described in ¶ 3 above is reduced:

(a) under subparagraph 39(1)(c)(v), by the amount of any increase after 1977, from the application of subsection 85(4), in the adjusted cost base to the taxpayer of either that share or any “replaced share” (see ¶ 12 below);

(b) under subparagraph 39(1)(c)(vi), by the amount of the taxable dividends received after 1971 and before or upon the disposition of the share (as well as such dividends receivable upon the disposition) by

(i) the taxpayer,

(ii) the taxpayer’s spouse, or

(iii) a trust of which the taxpayer or the taxpayer’s spouse was a beneficiary

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if the share was issued before 1972 or was a “substituted share” (see ¶ 12 below), other than a share or a substituted share that was acquired after 1971 from a person with whom the taxpayer was dealing at arm’s length; and

(c) under subparagraph 39(1)(c)(vii), if the taxpayer is a spouse trust referred to in paragraph 104(4)(a), by the amount of all taxable dividends received after 1971 or receivable at the time of the disposition by the settlor (as defined in subsection 108(1)) or by the settlor’s spouse on the share if the share was issued before 1972 or was a substituted share, other than a share or a substituted share that was acquired after 1971 from a person with whom the spouse trust was dealing at arm’s length.

Note: The Notice of Ways and Means Motion of June 20, 1996, proposes to repeal subsection 85(4). In general terms, subsection 85(4) applies to deny a loss on a taxpayer’s transfer of property to a corporation that is controlled by the taxpayer, the taxpayer’s spouse or a person or group of persons by whom the taxpayer is controlled. Instead, the amount of the loss is added to the adjusted cost base of shares of the corporation owned by the taxpayer right after the transfer. As mentioned in ¶ 8(a) above, in determining a taxpayer’s business investment loss, the capital loss resulting from the disposition of a share of a small business corporation is reduced under subparagraph 39(1)(c)(v) by the amount of any increase after 1977, from the application of subsection 85(4), in the adjusted cost base to the taxpayer of either that share or any “replaced share.” If enacted as proposed, subsection 85(4) will not apply to dispositions of property occurring after April 26, 1995, subject to certain exceptions. Generally, the exceptions exclude transactions in progress before April 27, 1995.

¶ 9. In determining the business investment loss of an individual or a trust from a disposition of a share or debt described in ¶ 3 above, the capital loss resulting from such disposition is reduced under subparagraph 39(1)(c)(viii) by the amount determined in ¶ 10 below in the case of an individual or ¶ 11 below in the case of a trust.

¶ 10. An individual (other than a trust) is required under subsection 39(9) to reduce the amount of a business investment loss for a taxation year otherwise determined by the total of amounts each of which is 4/3 (except as noted below) of the amount, if any, deducted under section 110.6 as a capital gains deduction in a prior taxation year, to the extent that such an amount has not previously been applied in this manner in respect of other dispositions.

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The above reference to “4/3 of the amount” should be read as a reference to:

* “3/2 of the amount” if the prior year ends after 1987 and before 1990 (except if the capital gains deduction was in respect of a deemed taxable capital gain included in income under subparagraph 14(1)(a)(v), in which case the reference to “4/3 of the amount” is applicable); and
* “twice the amount” if the prior year ends before 1988.

¶ 11. A trust is required under subsection 39(10) to reduce the amount of a business investment loss for a taxation year otherwise determined by the total of amounts each of which is 4/3 (except as noted below) of the amount, if any, designated under subsection 104(21.2) in respect of a beneficiary for a prior taxation year for the purpose of the capital gains deduction under section 110.6, to the extent that such an amount has not previously been applied in this manner in respect of other dispositions.

The above reference to “4/3 of the amount” should be read as a reference to:

* “3/2 of the amount” if the prior year ends after 1987 and before 1990 (except if the amount designated was in respect of a deemed taxable capital gain included in the trust’s income under subparagraph 14(1)(a)(v), in which case the reference to “4/3 of the amount” is applicable); and
* “twice the amount” if the prior year ends before 1988.

¶ 12. The term “replaced share” in ¶ 8(a) above refers to any share, in a line of exchanges or substitutions, that was replaced by another share. For purposes of ¶ 8(a) above, only go back as far as any replaced share that existed on January 1, 1978. A “substituted share” for the purpose of ¶ 8(b) above, refers to any share acquired in a line of exchanges or substitutions which commences with a share issued before 1972 and ends with the share which is the subject of the disposition. Replaced and substituted shares are those that are disposed of or acquired, as the case may be, as a result of corporate reorganizations and rollovers and would include those share exchanges or substitutions to which sections 51, 85, 85.1, 86, and 87 are applicable.

¶ 13. If a shareholder is dealing at arm’s length with a small business corporation, a business investment loss may arise when the shares of that corporation are redeemed or purchased for cancellation. Subsection 84(9) provides that shares are disposed of by the shareholder to the corporation at the time they are redeemed, acquired or cancelled by the corporation. Any deemed dividend on a redemption, acquisition or cancellation of a share may reduce the business investment loss as indicated in ¶ 8(b) above.

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¶ 14. In the case of a payment made by a taxpayer under a guarantee in respect of a corporation’s liabilities, a debt does not arise between the corporation and the taxpayer until the payment is made. In some cases, this payment may be made subsequent to the time the corporation was a small business corporation and this may otherwise preclude any resulting capital loss from being a business investment loss. Under subsection 39(12), a payment made by a taxpayer under a guarantee of the debts of a corporation is deemed to be a debt owing to the taxpayer by a small business corporation if:

* the payment was made to an arm’s length person; and
* the corporation was a small business corporation both at the time the corporation’s debt in respect of which the payment was made was incurred and at any time in the 12 months before the time any amount first became payable under the guarantee.

When these conditions are met, the taxpayer may be eligible to claim a business investment loss on any amounts owing to the taxpayer for payments made under the guarantee even if the corporation has ceased to carry on an active business.

A taxpayer may also be entitled to claim a capital loss if the taxpayer suffers a loss as a result of honouring a guarantee of the debts of certain corporations or from loaning money in the circumstances outlined in paragraph 6 of IT-239R2, Deductibility of Capital Losses From Guaranteeing Loans for Inadequate Consideration and From Loaning Funds at Less Than a Reasonable Rate of Interest in Non-Arm’s Length Circumstances. In such a case, if paragraph 50(1)(a) applies to the debt or the loan, and the other requirements outlined in ¶ 3 above are met, the capital loss will be considered a business investment loss.

Here is a great article by don Cayo,
There seems to be no end to tax problems crated by CRA rather than by the abused Canadian tax payer.

Dan White

________
By Don Cayo, Vancouver SunSeptember 25, 2009

I don’t know if Burnaby contractor Ken Mah actually mailed the information concerning his part-time helpers’ T-4 forms to Canada Revenue Agency last February when he was supposed to. But I do know he says he did.

I don’t know if the CRA actually received Mah’s forms by the April 30 deadline. But I do know the agency can’t find them now, and it presumes he is at fault.

So, sent or not sent? If I were asked to rule on this, I’d throw my hands in the air. This is a classic he-said, she-said dispute with no credible way to determine the rights and wrongs. Could be Mah didn’t send the forms. Could be they were lost in transit. Could be CRA lost them and, if so, this might be due to unavoidable happenstance, or to negligence, or — not likely, but possible — maliciousness.

However, I’m not being asked to arbitrate, and neither is any other neutral party. CRA isn’t just the accuser in this case, it’s also the judge. And its policy, in the words of agency spokesman Bradley Alvarez, is to assign automatic penalties in such cases.

Mah did, of course, send CRA copies of the information as soon as they told him the papers were missing. But this was in mid-May, already too late for him to avoid the penalty.

So, this month, he was fined $200 for late filing, notwithstanding the lack of any evidence — or even any investigation — to determine if he was at fault. And if he doesn’t pay right away — if he waits while he goes the only route left open to him and launches a formal process to ask no lesser authority than the CRA itself to forgive him — he’ll face the prospect of being assessed interest for however long it takes. And if you know beans about how the CRA works, you can bet it will take a long time.

Only $200 is at stake, and many of us would just pay and get on with life. But the principle — penalties imposed with no onus on the guys who stand to gain to meet any standard of proof whatsoever — is odious.

Indeed, think about the incentives built into this policy. In theory, the more CRA staff screw up, the more money CRA collects. And lots of people — I can’t say if it’s CRA staff or the tax filers themselves, but likely it’s some combination of the two — obviously do screw up. The CRA was unable to tell me the total amount of money it rakes in each year from these “automatic” penalties, but it’s substantial.

Indeed, more than 63,000 taxpayers a year go through the humiliating process that is Mah’s only option now. They apply for “relief” from a penalty imposed by CRA.

The good news for Mah is that a little over half these applicants — or do I mean supplicants? — do win at least a partial reprieve. And he can pay now to avoid further potential penalties, yet still have his case heard.

But the fact the deck may not be totally stacked against him doesn’t disguise the arrogance or soften the heavy-handedness of CRA’s presumption of guilt.

It’s not clear to me how the agency gets away with this. When I asked Alvarez for the legal justification for imposing a penalty without any process to establish guilt, he simply gave me a copy of the act that covers people who “fail to file.” When I asked how CRA determines when it’s really failure to file, not just the agency itself losing a document that was sent on time, I got no answer.

But maybe they don’t need formal authority to presume guilt when most of their clients lack the time, the money and/or the courage to take on even their most arbitrary decisions, especially when the sums are small.

So, whether it’s your mistake or theirs, you seem to have two choices. You can pay up and shut up. Or you can pay up and then beg for forgiveness.

dcayo@vancouversun.com
© Copyright (c) The Vancouver Sun

 

HST is coming for sure. You can bet on it. Not to mention that it is pretty much an impossible task to make HST go away.

For starters, HST is not a problem. The amount of tax is the problem.

HST will simplify accounting dramatically. It could reduce the cost of government, although likely the existing PST auditors, will just become another form of auditors.

Rather than fight the HST, lets look at reducing the harmonized rate down from the expected 13% to 11%.

Anyway…. I like the harmonized idea. I especially like that the savings to business can be used to build our economy. If business is not prosperous, there are no jobs.

So lets not resist the HST as a tax problem, lets look at solutions to get the government to look at ways to reduce the cost of government.

See article below from Chirs Young,

Dan White

Ontario can’t drop new tax
CHRIS YOUNG/CP PHOTO
Finance Minister Dwight Duncan delivers the Ontario Provincial Budget for 2009 at the Ontario Legislature, as Premier Dalton McGuinty looks on. (March 26, 2009)
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Robert Benzie
Queen’s Park Bureau Chief

Ontario’s controversial harmonized sales tax is here to stay – no matter who wins the next federal or provincial elections, documents confirm.

Buried in the fine print of the accord signed last March between Ottawa and Queen’s Park is a clause that ensures the new 13 per cent tax, which takes effect July 1, remains at that rate until at least 2012.

Premier Dalton McGuinty said yesterday he was not up on the minutiae of the four-page memorandum of agreement, which also stipulates the HST must be in place through 2015.

“I’m actually not familiar with that stuff,” McGuinty said. “I’m sure that (Finance Minister Dwight Duncan) will be of help.”

He said it was important for both levels of government to give the levy, which blends the 8 per cent provincial sales tax with the 5 per cent federal goods and services tax, a strong foundation.

“Our intention is simply to put in place a tax system that is modern and efficient and that enhances our competitiveness and enables us to create more jobs – that’s what it’s all about,” the premier told reporters.

“In no jurisdiction that they have put this into place have they ever repealed it.

“There’s a broad consensus among economists and, in their hearts of hearts, politicians as well, that this is the right thing to do,” he said.

Duncan, who co-signed the pact with federal Finance Minister Jim Flaherty, said Ottawa insisted upon the provisions that entrench the business-friendly HST.

“That was something the federal government wanted. The Canada Revenue Agency will now collect the tax and it’s enormously complex,” said Duncan.

“We agreed to it. Ontario political parties, if they choose, … can start changing it – either raising it or lowering it, frankly –in 2012,” he said, noting that any modifications would have to wait until nine months after the October 2011 election.

In exchange, the federal government is giving Ontario $4.3 billion in transition funds, most of which will be passed along to lower- and middle-income families in the form of rebate cheques.

Duncan’s comments came after federal Liberal Leader Michael Ignatieff finally admitted Monday he would not repeal the tax if his party defeats Prime Minister Stephen Harper’s Tories.

Ignatieff’s view of the tax has national implications since an almost-identical deal with British Columbia means that province will have a 12 per cent HST as of next July 1 in exchange for $1.6 billion in federal funding.

Designed to be business-friendly, the streamlined HST will raise the price of a slew of goods and services in Ontario that are not now subject to the provincial sales tax, including gasoline, fast-food value meals, tobacco and funerals.

Progressive Conservative Leader Tim Hudak expressed alarm at the emerging details in the Flaherty-Duncan accord.

“It certainly sounds like Dalton McGuinty is trying to lock Ontario taxpayers into a bad deal – a deal that will see some $2.5 billion sucked out of their pockets and into the government treasury,” Hudak said.

With provincial Conservative sources suggesting the party might campaign in 2011 on cutting the tax to 12 per cent, the Tories’ policy-making could be hamstrung by the agreement.

NDP Leader Andrea Horwath, who also opposes the tax but hadn’t studied the accord, said it is further evidence “why we have to stop the tax from even going in.”

“We have to become more vigorous in our opposition to the tax and we have to get the people of Ontario to join the campaign against it because … we have to make sure the tax never sees the light of day in Ontario,” said Horwath.

As opposition parties strive to derail the HST, proponents have formed the Smart Taxation Alliance to help sell it.

It is made up of tax boosters like the Ontario Chamber of Commerce, the Canadian Council of Chief Executives, the Canadian Manufacturers & Exporters Ontario, the Certified General Accountants of Ontario, the Ontario Road Builders’ Association, the Ontario Trucking Association, the Retail Council of Canada, TD Bank, and the Toronto Board of Trade.

The group said the tax would slash red tape and save businesses $500 million a year in administrative costs alone.

It notes that getting rid of the separate PST and GST will remove $5 billion in “layers of embedded taxes” and increase competitiveness.

Even thought this is a bit of a weird tax case, it is interesting that USA is more reasonable than Canada when it comes to medical expenses. And even more interesting is that “protection fees” are tax deductible in Canada.
See this article below written by Michael Herman.
Dan White

danwhite@danwhite.ca

Weird Cases: tax deductable sex

The US Tax Court has recently ruled that money spent on prostitutes and pornography is a not tax deductible expense, even for a New York lawyer.

William G Halby, an established Brooklyn tax lawyer, submitted to the Internal Revenue Services a range of expenses he wanted deducted from his tax liability as “medical expenses”. Under section 213 of the Internal Revenue Code, expenses for medical care can be deducted from a tax liability if the care was for the “diagnosis, cure, mitigation, treatment, or prevention of disease” or for the purpose of “affecting any structure or function of the body”.
Halby argued that his sex expenditure was made both to treat disease and to improve some aspects of his anatomical functionality. He did not skimp when buying his medicine. In 2002, for example, he sought to deduct $111,364 from his tax liability for money spent on “therapeutic sex” in order to “relieve osteoarthritis and enhance erectile function through frequent orgasm”.

In 2005, his claim for tax deductions included $5,005 for sex books, magazines and videos, and $42,152 for prostitutes. For tax purposes, Halby kept a record in his personal journal of all visits to his “service providers” and of all the literature and equipment he bought including a claim for condoms and – unprecedented in American tax law cases – a claim for “nipple clamps”.

When almost all of his claims were refused, Halby brought a case against the Commissioner for Internal Revenue in the Tax Court. Judge Goeke noted that none of the alleged sex therapy had been prescribed by a doctor. In any event, he ruled, patronising a prostitute is illegal in New York and you cannot claim tax deductions for illegal medical treatments. Similarly, the pornography was for Halby’s “general welfare” not on prescription for any specific ailment.

While lawyers cannot claim expenses when they hire prostitutes, prostitutes can claim expenses when they hire lawyers. In 1964, the Court of Exchequer in Canada had to decide which of the expenses of running a call girl business in Vancouver were tax deductible. A claim for $1,925 for the business paying its lawyers was allowed by the court. Law courts are good places in which to plead the universal necessity of lawyers.

However, the court did gently reject a separate claim from the call girl business to reduce its tax liability by another $16,500 – the money it had paid to police as “protection fees”.

Professor Gary Slapper is Director of the Centre for Law at the Open University. English Law, by Slapper & Kelly, is published by Routledge-Cavendish.

Posted by Michael Herman on September 25, 2009 in Weird Cases |

Voluntary Disclosure can be like voluntary financial suicide.

If you are one of those wondering what you should do about unreported income, make sure you get really good advice before you go blundering off to the Canada Revenue Agency looking for forgiveness for youre sins.

This is a tax problem, requiring a professionally prepared solution.

You need to be prepared to have a full audit, disclose all your banking and financial affairs, and there is no guarantee that you will not face criminal charges.

We have clients who wish they had never done the voluntary disclosure. They now have even bigger tax problems.

A Voluntary Disclosure (VD) is like Venereal Disease (VD)  A prophylactic for the mind that will not save you from the ensuing disaster.

You can easily find yourself in the same trouble as you would be if you had not done the VD.

If you are considering a VD, make sure you get some very good advice beforehand, on how to do it, and what you need to prepare for…VD is not a ‘get out of jail easy card.’

These kind of difficult tax problems, require sophisticated tax solutions.

Below is an excellent article written by Tim Cestnick.

Dan White

Tim Cestnick

Last updated on Friday, Sep. 25, 2009 04:41AM EDT

It appears that the ripple effect has begun. When Swiss bank UBS agreed to disclose the names of 4,450 U.S. taxpayers to the Internal Revenue Service south of the border, you knew it was only a matter of time before the Canada Revenue Agency got in on the action. Turns out that the CRA has had discussions with UBS, and who knows how many other foreign financial institutions, to obtain the names of Canadians with money socked away offshore.

All of which leads to the question of the day: If you’re resident in Canada and haven’t been reporting all of your worldwide income to CRA, what should you do about it? There are a couple of ways to deal with this: The first is by way of an adjustment request, the second is by a voluntary disclosure. Adjustment request An adjustment request is the easier option. It’s a one-page form (form T1-ADJ) on which you tell the CRA which line on your tax return ought to be adjusted, and by how much. You’ll need to file a separate T1-ADJ for each tax year in question, but don’t file a T1-ADJ if you’ve failed to file a tax return for a particular year – you’ll need to file a complete tax return in that case.

The problem with an adjustment request is that you won’t avoid the penalties that can arise if the CRA figures out you’ve knowingly unreported your income. Since the penalties can be up to 50 per cent of the tax evaded, plus interest from the date the taxes were due, you need to count that cost first. By the way, if the dollar amounts are big enough, it’s possible that the CRA could file criminal charges that could mean additional penalties of between 50 and 200 per cent of the tax evaded, and up to five years in prison.

Your best bet is to use an adjustment request only where the tax balance owing is very small and the likelihood of criminal charges is remote. If you’re not feeling lucky, a voluntary disclosure might be better for you. V oluntary disclosure You might be glad to know that the CRA is willing to ignore all penalties and criminal charges where you’ve made a voluntary disclosure (VD). In this case, you’ll still be on the hook for the taxes owing, plus interest. The issue is that a VD involves making a detailed submission to the CRA to allow the taxman to verify all the facts surrounding your unreported income, or false deductions or credits.

You can be sure that a VD will cause the CRA to ask plenty of questions about your financial affairs. You may have to provide details regarding deposits and withdrawals from bank and brokerage accounts, among other things. For this reason, you have one chance to disclose all unreported income when you make a VD. If you fail to disclose everything, you could still face penalties, and possibly prosecution.

If you’re considering a VD, you have to contact the CRA before the CRA contacts you. Once the taxman has started an audit of your affairs, it’s too late; no disclosure will be considered voluntary at that point. In addition, your VD must be in writing, and you’d be wise to have a tax professional prepare the submission to ensure it’s complete. The CRA’s information circular IC00-1R2 (available online at cra.gc.ca) provides more information about voluntary disclosure. U.S. connectionsWhile we’re on the topic of coming clean, you should be aware U.S. citizens living in Canada, or anywhere else for that matter, are required to file tax returns – and potentially other forms – with the IRS each year. Green card holders and anyone resident in the U.S. also have the same filing requirements.

Sept. 23, 2009, was to mark the end of an amnesty period for U.S. taxpayers to come forward and file past tax returns and certain forms without the usual potential for criminal charges. The good news is that the IRS has now extended the amnesty period to Oct. 15, 2009. The IRS has not promised to waive criminal charges, but the likely result is that you’ll pay the taxes, interest and penalties only.

According to Mark Feigenbaum, a U.S. lawyer and chartered accountant practising in Toronto, there are a number of forms that may need filing south of the border, including the U.S. Individual Income Tax Return (Form 1040), Report of Foreign Bank and Financial Accounts (Form TD F 9-22.1 or FBAR) and the Controlled Foreign Corporations form, if you’re a U.S. person who is also a shareholder in a Canadian or non-U.S. corporation (also known as Form 5471), and potentially other forms. Failing to file these forms can result in significant penalties. According to Mr. Feigenbaum, the IRS is generally expecting forms for the past six years in order to get properly caught up.

The economic crisis means that tax authorities are conducting more audits, looking for more revenue. Heightened agression on the part of tax authorities around the world means companies are challenging more adjustments than ever, leading to a condcurrent rise in contraversy.

In Canada, the Canada Revenue Agency (CRA) has allocated significant more funds to deal with audits. There has also been a substanial training program in CRA to improve auditor skills.
Businesses are needing more and more sofisticated help in finding solutions to their tax problems.

Tax audits are becoming more time consuming as the tax auditors are asking for more and more details, which can be very time draining and nightmaresh.

There is a mandatory request for contemporaneous documentation at the start of the audit.

There is a huge variance in the skill level of auditors across the country.

We are now at the stage where all businesses need to understand the importance of audit ready bookkeeping. Being ready for an audit means that you will not be put into a tail spin that ends up being a huge tax deduction retention problem. Audit Ready bookkeeping is a tax problem solution emplemented in advance of the problem.

Audit Ready Bookkeeping will become the norm in the near future. For more information on this subject go to www.tax-audit-solutions.com

Dan White

Slowly tax problem solutions are evolving, as accounting systems evove at the rate of melting ice in the Arctic.

Slowly the world evolves, slowly the world wakes up,,, old accounting methods from the long gone era of paper, and little scrouges, sitting in dark corners labouring over numbers, is gone. Yet we slowly change the electronic accounting methods.

We live in a world where business needs to keep records in spreadsheets because accounting packages do not give meaningful data feedback.

Our accounting system that we use for audit ready bookkeeping leads the industry. Stay tuned as we are close to being able to launch our new and improved, high end accounting package that you will be able to operate with a web browser.

See what Jamie Golombec, has to say below, about the GAAP to IFRS standards

Dan White
New accounting standards will have no direct impact on individuals

Jamie Golombek, Financial Post  Published: Thursday, September 24, 2009
Related Topics

International Accounting Standards Board

While accountants and businesses scramble to put together a plan for converting their financial accounting systems and statements from Canadian Generally Accepted Accounting Principles (GAAP) to the new International Financial Reporting Standards (IFRS), the good news is that IFRS shouldn’t impact your personal tax situation — at least not directly. IFRS is basically a set of accounting rules and principles designed to provide guidance to accountants and others to prepare financial statements. “There are not that many direct implications for individuals since individuals don’t have personal financial statements with respect to themselves,” said Stan Maj, a tax partner in the financial services group at Ernst and Young LLP in Toronto. However, IFRS might have an impact on public companies that will have to begin following International Accounting Standard 12 (IAS 12) on Income Taxes for fiscal periods beginning Jan. 1, 2011.

While IAS 12 is similar to current Canadian GAAP, the International Accounting Standards Board released an exposure draft on income tax in March 2009 that would effectively replace IAS 12. Included are proposals on the treatment of uncertain tax amounts, which might have an impact on how corporate taxes will be disclosed on financial statements. If the draft is adopted, financial statements would be expected to reflect a probability-weighted average of all possible outcomes under the assumption that the tax authority (i. e. the Canada Revenue Agency) has “full knowledge of all relevant information.” “The [corporate] veil is being lifted more than it currently is,” Mr. Maj said. “The transition to IFRS is more than a technical accounting exercise — it’s a major change-management project that will take some focus, planning and advice to prepare for.” – Jamie Golombek, CA, CPA, CFP, CLU, TEP, is the managing director, tax and estate planning, with CIBC Private Wealth Management in Toronto.

Read more: http://www.financialpost.com/story.html?id=2026226#ixzz0S2PUEaQ7

 The following article is the CRA Ombudsman’s Report on soutions to tax problems and issues.

While I see this report as somewhat of a good news report, on solving huge tax unfairness situations, it still leaves a ton of stones unturned. There are more tax problem cases in Canada than there is staff in the Ombudsman’s office to deal with the tax issues

The situation at hand is that if you don’t know how to make it very easy for the Ombudsman to determine all the finate details, organized in the appropriate manner, then you will be poop out of luck.

If you are going to go this way, remember that if on round one you get a “NO,” then on round two it will be even harder to get a “YES.” My recommendation, prepare the documents properly, have a summary, have your document evidence exhibits orgainzed and tabbed for easy identification.

Be very specific in makeing sure that you identify exactly what you want the Ombudsman to do. Simply expecting that he will fix the tax problem requires him to find the solutions.

It would be worth your while to have your tax problem prepared by someone intimately familiar with the workings of CRA and can know for sure where CRA erred, so that your application can become a slam dunk.

Dan White

2008-2009 Interim report of the Taxpayers’ Ombudsman

* Part I From the Ombudsman
* Part II The Role of an Ombudsman
* Part III Why a Taxpayers’ Ombudsman?
* Part IV Fulfilling the Mandate
* Part V Making a Difference
* Part VI Conclusion
* Part VII Contact Information

Part I From the Ombudsman

It is an honour and a pleasure for me to serve as Canada’s first Taxpayers’ Ombudsman. I appreciate the opportunity, as the Taxpayers’ Ombudsman, to devote my skills and experience to being a Special Advisor to the Minister of National Revenue and upholding the service rights contained in the Taxpayer Bill of Rights. My role is to see that Canadians receive the professional service and fair treatment they are entitled to from the Canada Revenue Agency (CRA).

The first anniversary of my appointment seems like an appropriate time to issue an interim report on the activities of the Office of the Taxpayers’ Ombudsman. It is an opportunity to report on how the development of the office is coming along and to provide examples of how our work is already making a significant difference in the lives of many Canadians.

Much of this first year was spent setting up and staffing the office as well as developing procedures and protocols for working with taxpayers and the CRA. It has been a challenge to articulate our identity as an organization at arm’s length from the CRA, while depending on many of the CRA’s resources to function. Yet the professionalism and dedication of the civil servants who staff our office have ensured that we are effective and have established our identity as a credible, impartial organization.

It takes an energetic and highly motivated team to carry out the vigorous development strategy we have put in place, and I am proud to say that we have become just such a team. We are dedicated to providing impartial reviews of service complaints about the CRA and to providing recommendations to the Minister of National Revenue on how the CRA can maximize fairness in the delivery of its services. We also help taxpayers access the CRA and get the services and information they need.

Despite the fact that we are still building our organization, we have already helped resolve numerous complaints from individual taxpayers. These individual case reviews, which are significant in their own right, also help us identify and analyze systemic service issues—issues that go beyond the individual and have a wide-ranging impact at a national or regional level. Work in this area is at an early stage but we have already begun research and planning.

Not surprisingly, there have been growing pains associated with the establishment of an Ombudsman who reviews CRA service complaints. CRA employees and management are not used to an outsider reviewing their work and commenting on how they serve taxpayers. There has been a reluctance to follow some of our recommendations for apologies and there does not yet appear to be universal understanding or acceptance within the CRA of the role of the Ombudsman. However, the CRA leadership has expressed a willingness to work through the issues encountered to date. This is something that I will monitor closely and report on periodically.
Part II The Role of an Ombudsman

“It isn’t that they can’t see the solution, it is that they can’t see the problem.”
G.K. Chesterton

If an organization doesn’t know about its small problems, they can grow in magnitude. If small mistakes go unaddressed, they can go on to have a considerable negative impact.

Small problems sometimes go unreported or, worse yet, get covered up, despite the fact that people know about them. Sometimes the employees of an organization are reluctant to bring problems to the attention of their superiors, either out of fear that they will be blamed or that someone will simply want to “shoot the messenger.” There is therefore a benefit in having independent and impartial officials keep an eye on an organization and report their unbiased observations to the leadership.

The role of an Ombudsman is to be a type of early-warning system so that small problems can be solved before they become big problems. By receiving and analyzing complaints about Canada Revenue Agency (CRA) service, and by conducting research, the Taxpayers’ Ombudsman has a unique outside perspective of the CRA from which to identify systemic issues and provide recommendations on how they should be addressed. In carrying out its mandate, the Office of the Taxpayers’ Ombudsman is helping the CRA provide the best service and fairest treatment possible to its clientele.
Part III Why a Taxpayers’ Ombudsman?

“Problems cannot be solved at the same level of awareness that created them.”
Albert Einstein

The Canada Revenue Agency (CRA), which collects taxes and distributes benefits on behalf of the Government of Canada, has a vast responsibility. To fulfill its mandate, the CRA has been given significant powers, such as the authority to seize bank accounts, garnishee wages, and withhold benefits. Taxpayers are protected from errors in law by the Tax Court of Canada, but until now, there was no independent protection from poor service or unfair treatment.

In Canada, the vast majority of individuals and businesses pay their taxes to, and receive their benefits from, the CRA without making a service complaint. The CRA has demonstrated that it is committed to providing quality service to taxpayers and benefit recipients. But no organization is perfect.

The 45,000 employees of the CRA provide services to more Canadians than any other government department or agency through the annual processing of 26 million individual tax returns and 1.6 million corporate returns, as well as the distribution of benefits to millions of recipients. Given the sheer volume and complexity of the transactions between Canadians and the CRA, and the range of services involved, it is perhaps inevitable that certain frictions will arise. Even if the CRA had a 99.9% satisfaction rate amongst the individuals and businesses it deals with, there would still be approximately 26,000 potential service complaints.

The CRA has invested in people, programs, and technologies, and it has established policies and procedures so it can apply the law fairly in each of its millions of interactions with Canadians. However, policies, procedures, programs, and technologies cannot address every individual situation. There are situations where universally applied rules do not get the right result and bad service or unfair treatment could occur.
What do we mean by service?

The Taxpayer Bill of Rights contains eight service rights:

* the right to be treated professionally, courteously, and fairly;
* the right to complete, accurate, clear, and timely information from the CRA;
* the right to lodge a service complaint and to be provided with an explanation of the CRA findings;
* the right to have the costs of compliance taken into account when tax legislation is administered;
* the right to expect the CRA to be accountable;
* the right to expect the CRA to publish service standards and report annually;
* the right to expect the CRA to warn you about questionable tax schemes in a timely manner; and
* the right to be represented by a person of your choice.

The CRA is not a typical service organization in that taxpayers do not have a choice of service provider—they must deal with the CRA. The Income Tax Act does not provide recourse for poor service or unfair treatment. And regardless of how professionally CRA officials believe they are treating someone, a taxpayer may still have a complaint if they feel they were not well served or treated unfairly. In the Taxpayers’ Ombudsman there is now an impartial and independent officer outside the CRA to review taxpayers’ service-related complaints and to identify systemic service issues.

Given the number of people and businesses that interact with the CRA, there is bound to be complaints. Some will have merit and others will not. However, the CRA is no longer the sole arbiter of which service complaints are valid. The Taxpayers’ Ombudsman will review the merits of such cases. When the Ombudsman’s review indicates that a taxpayer did not receive professional service or fair treatment, the Ombudsman will make recommendations to the CRA for corrective action. Conversely, when the Ombudsman concludes that the CRA has acted in a fair and professional manner, he will say so.

Any unfair use of its powers or any lapse of professionalism on the part of the CRA in its dealings with Canadians could have serious consequences for taxpayers and benefit recipients. That is why the Government of Canada proclaimed the Taxpayer Bill of Rights and appointed the Taxpayers’ Ombudsman to uphold those rights.
Part IV Fulfilling the Mandate

“A problem properly stated is half-solved.”
John Dewey

The Taxpayers’ Ombudsman was appointed as a Special Advisor to the Minister of National Revenue by an order-in-council, which describes the mandate of the Ombudsman as follows:

The mandate of the Ombudsman shall be to assist, advise, and inform the Minister about any matter relating to services provided to a taxpayer by the Canada Revenue Agency (CRA).

We fulfill that role by:

* providing an impartial, efficient, and effective system for handling service complaints;
* helping to improve the quality of, and public confidence in, CRA service by identifying and investigating service and fairness issues, whether or not complaints have been received;
* facilitating access by taxpayers to the CRA;
* developing community awareness of the Ombudsman and the services provided;
* developing within the CRA an understanding of the role of the Ombudsman;
* helping the CRA maximize the efficiency and effectiveness of its own internal complaint handling systems; and
* making recommendations directly to the Minister of National Revenue on how CRA service can be improved.

There are, of course, limitations on what the Ombudsman can do. The Ombudsman is not authorized or mandated to review matters that arose more than one year before his appointment. Nor can the Ombudsman review the administration or enforcement of CRA legislation except to the extent that the matter raises a service issue.

“…I would like to express my sincere gratitude to the office of the Taxpayers’ Ombudsman… before (it) got involved, I was at my wits’ end with all of this… I received my payment shortly thereafter…”

Letter from taxpayer
Resolving service complaints

In our day-to-day operations we deal with enquiries from taxpayers. People contact our office by phone, fax, mail, or even in person. We try to provide assistance whether the people who contact us have a CRA service complaint or not.

If someone needs to be referred to another government agency, we will help them in that regard. If they need help contacting the CRA, we will help them get in touch with the right person. Since our mandate is to help taxpayers when they have exhausted all the service redress mechanisms within the CRA, we generally ask taxpayers to try resolving the issue with CRA – Service Complaints before filing a complaint with our office. If they are unable to come to a satisfactory solution with the CRA in a timely fashion, we provide an independent and impartial review of their complaint.

From February 2008, when we became operational, to February 2009, we received 3,776 enquiries from the public. We conducted reviews of nearly 900 taxpayer complaints and have reached conclusions on more than 800 so far. Our case reviews have revealed a variety of service lapses by the CRA.

The Ombudsman’s involvement in such cases has resulted in:

* apologies from the CRA to taxpayers;
* releases of seized bank accounts;
* payments of benefits or refunds;
* the cessation of collection activities; and
* recommendations to change CRA policies.

In many other cases, we found that the complaints were without merit and that the CRA provided exemplary service.
Addressing systemic service issues

A systemic issue is any issue that, if not identified and appropriately addressed, has the potential to have a negative impact on taxpayers in general, to recur, and to generate complaints. It encompasses all the procedures, publications, work processes, and computer systems that the CRA uses to conduct its business. A service issue is systemic when it:

* has national or regional impact;
* affects a segment of the taxpayer population; or
* has the potential for substantial implications for Canada’s self-assessment tax system or the CRA’s strategy of voluntary compliance.

An important role of the Ombudsman is to identify systemic problems. This includes identifying an issue, developing a research plan, obtaining the necessary information, analyzing the issue, forming a conclusion, and making recommendations. We also share best practices with our counterpart in the Ontario government and, as a result, have set up a team dedicated to systemic investigations. We have already identified several systemic issues for further investigation, such as the inconsistent application of policies between various CRA offices.
Outreach

Part of the Ombudsman’s legal mandate is to provide information to taxpayers about what the Ombudsman can do for them. Creating awareness about the Office of the Taxpayers’ Ombudsman has been a priority.

To inform Canadians of this new office, we developed communications tools such as a corporate signature, leaflets, booklets, and posters, and we ensured that our complaint form was widely available. This material identifies the office and explains the mandate of the Taxpayers’ Ombudsman and how to submit a complaint. In October 2008, we sent 30,000 booklets and 700 posters to the 350 Service Canada counters for distribution. Our Web site has been providing Canadians with details, updates, and downloadable documents, and it averages 3,700 visits per month.

A national outreach tour was launched in Toronto in December 2008. The response to the tour is remarkable, with much media interest and a friendly reception from various associations. The Ombudsman will be visiting other major cities across Canada and meeting with more associations and organizations that have direct contact with different segments of the population. The objective of the tour is to inform Canadians about the services that the Office of the Taxpayers’ Ombudsman provides and to hear comments, opinions, and experiences that could help the Ombudsman identify systemic service issues within the CRA.

Other outreach initiatives target specific audiences, such as the Canadian Taxpayers Federation, the Ligue des contribuables du Québec, the Canadian Federation of Independent Business, and numerous professional groups. To promote awareness of his mandate and to share best practices, the Ombudsman has also met with many of his colleagues from other organizations, including the Ontario Ombudsman, the Protectrice du citoyen du Québec, and the Australian Inspector-General of Taxation. He also participates in the Forum of Canadian Ombudsman.

Speaking engagements at various CRA management meetings and visits to CRA offices and call centres have also allowed the Ombudsman to learn more about how the CRA operates while providing an opportunity to explain his role. In fact, part of the first outreach tour included a visit to the Toronto North Tax Services Office where we received a warm welcome from the management and staff. This visit provided a valuable opportunity for the Ombudsman to speak directly with CRA employees about his role and for employees to speak to him. Many staff members expressed their desire to provide the best possible service to taxpayers and explained some of the challenges they face in that regard.

The CRA has included information about the Office of the Taxpayers’ Ombudsman in its General Income Tax and Benefit Guide 2007. CRA – Service Complaints publications remind taxpayers of their right to make a complaint to the Taxpayers’ Ombudsman if they are not satisfied with the CRA’s resolution of a problem.

The Taxpayers’ Ombudsman will continue to meet with Canadians, government officials, and employees of the CRA in every region of Canada to ensure that the Ombudsman’s mandate and the Taxpayer Bill of Rights are understood and that taxpayers are aware of their rights.
Part V Making a Difference

“No problem can withstand the assault of sustained thinking.”
Voltaire

By upholding the Taxpayer Bill of Rights, the Taxpayers’ Ombudsman helps anyone who receives service from the Canada Revenue Agency (CRA) get the professional service and fair treatment to which they are entitled. The Taxpayers’ Ombudsman has reviewed several hundred service complaints to date. Even without the power to impose a solution on the CRA, the intervention of the Ombudsman’s office has already made a significant difference in the lives of many taxpayers. Here are a few examples:

A single mother who relied on the Canada Child Tax Benefit (CCTB) to make ends meet had her benefits suspended by the CRA. The CRA asked this taxpayer to provide documentary proof that her children were born in Canada. Letters from the family doctor who delivered the babies, as well as from other people who knew the family, were provided but deemed insufficient proof by the CRA. The dispute went on for months and the taxpayer was facing foreclosure on her mortgage and the potential loss of her home. A complaint was made to the Taxpayers’ Ombudsman, who reviewed the matter. Following the Ombudsman’s intervention, the taxpayer was issued a $38,000 CCTB payment and was able to keep her home.

The operator of a special care home for adults received a per diem allowance for each of her residents from the provincial government. This allowance is a form of subsidy to the residents and is not considered taxable income for the owner of the home. The CRA officials who reviewed the owner’s file were not aware that this revenue was tax-exempt and proceeded with collection action that included freezing the taxpayer’s bank account and garnisheeing $4,700. This resulted in considerable difficulties for the taxpayer. Once the Ombudsman got involved, the CRA ceased its collection activities and released the taxpayer’s bank account.

A single father supporting a disabled daughter and caring for his elderly mother had worked out a payment arrangement for his tax debt with the CRA and provided the CRA with a series of post-dated cheques. Once the CRA had cashed all the cheques provided, there remained a balance owing on the taxpayer’s account. But rather than contact the taxpayer to request additional cheques or make alternative arrangements, CRA collection officers seized the taxpayer’s bank account. This caused hardship to the taxpayer and his household, which went without food for two days. Once the Ombudsman intervened in this matter, the taxpayer’s bank account was released and he was issued a cheque from the CRA.

A retired taxpayer’s pension was garnisheed as part of the CRA’s efforts to collect taxes from him. The CRA did not respond to a payment arrangement proposed by the taxpayer and issued a Requirement to Pay, which is a form of demand letter. The CRA then garnisheed the account without informing the taxpayer, contrary to CRA collection policy. As a result of the Ombudsman’s intervention, the Requirement to Pay was lifted and a payment arrangement was concluded to the taxpayer’s satisfaction. The taxpayer also received a verbal apology from the CRA.

A taxpayer applied to the Minister of National Revenue for a remission order, which is an order from the Minister to the CRA to erase a taxpayer’s debt. The request was denied because the taxpayer did not meet the eligibility requirements for a remission order. The taxpayer was not satisfied with the result and could not understand why he did not qualify for the relief requested. He filed a complaint with the Ombudsman. While the Ombudsman did not determine any unfair treatment on the part of the CRA, as a result of the Ombudsman’s intervention, the CRA saw the opportunity to improve its communications and will be modifying its standard letter regarding remission orders. It is also in the process of producing a guide for public use.

A woman living on minimum wage and relying on tax credits such as the Canada Child Tax Benefit (CCTB), the Universal Child Care Benefit (UCCB), and the goods and services tax (GST) credit to make ends meet had separated from her common-law partner in March of 2006. She advised the CRA of her change in marital status in her application for increased CCTB and other family allowance supplements. In 2008, the CRA requested proof of her marital status. She provided the CRA with a copy of her new lease without the ex-spouse’s name and utility bills in her name only, the phone number of her former spouse, as well as a letter from the mother of the former spouse stating that her son resided with her. The CRA did not accept this evidence of a change in marital status and claimed a repayment of $4,200 in tax credits. The CRA even asked her to obtain a copy of her ex-spouse’s tax return. As a result of the Ombudsman’s intervention, the CRA eventually recognized the change in marital status and issued a payment of $1,500 to the taxpayer.

A man suffering from an inoperable brain tumour had a house fire in 2005 in which many of his tax records were destroyed. As a result of not filing tax returns on time, he was subject to penalties and interest on his personal income tax account as well as his goods and services tax (GST) account. The taxpayer applied for taxpayer relief under the Income Tax Act, asking that he be absolved of these penalties and interest due to the exceptional circumstances and hardships that led to them. The applications for income tax and GST relief were processed in two different tax offices. One office granted relief and the other did not. The Ombudsman reviewed the case and commented on the apparent lack of fairness in the outcome of the taxpayer’s request for relief. In the end the CRA granted the taxpayer’s request and the penalties and interest were cancelled.

It is important to note that in the above cases, the Ombudsman was not required to make any recommendations. By getting involved in these case reviews, asking questions, and providing initial impressions on the apparent fairness or level of service received by the taxpayers, the Ombudsman caused the CRA to rethink its position on these files. The power of an Ombudsman comes not from being able to order an organization to do anything, but to cause that organization to see a problem from another perspective.
Part VI Conclusion

As Canadians deal with the consequences of a tumultuous economy, financial obligations, such as tax liabilities, may become more difficult for many people to meet. Service requests and complaints tend to increase in difficult economic times, as do challenges in the collection of revenues. As it has done to date, the Taxpayers’ Ombudsman will help ensure that Canadians have access to the service they deserve regardless of circumstances or financial climate.

As we continue to establish the Office of the Taxpayers’ Ombudsman and further develop the talents and expertise of our team, we will help the Canada Revenue Agency (CRA) improve its service to Canadian taxpayers and benefit recipients. We will build on our success in resolving individual complaints and move forward on identifying, analyzing, and suggesting solutions to systemic problems. I invite Canadians to contact us with information about their service experiences with the CRA. Our goal is to be as informed as possible and work with Canadians and the CRA to improve the relationship they have with each other. I look forward to reporting on our activities in greater detail in my first Annual Report to be tabled in Parliament by the Minister of National Revenue in December 2009.

We will continue our outreach initiatives and publish the results of our investigations. More and more Canadians, and the CRA, will recognize the positive contributions this office makes toward helping the CRA improve its services and ensuring fairness for taxpayers.

In conclusion, I want to express sincere thanks to my talented and dedicated team. I am grateful to be supported in the building of this historic organization by people who share my vision and see the benefit to Canadians, the Minister of National Revenue, and the CRA of having an independent and impartial Taxpayers’ Ombudsman.
Part VII Contact Information

Office/mailing address:
Taxpayers’ Ombudsman
50 O’Connor Street, Suite 724
Ottawa ON K1P 6L2
Canada

Office hours:
8:15 a.m. to 4:30 p.m. (Eastern Time)
Monday to Friday (except statutory holidays)

Telephone:
1-866-586-3839 (Canada and the United States)
613-946-2310 (outside Canada and the United States)

Facsimile:
1-866-586-3855 (Canada and the United States)
613-941-6319 (outside Canada and the United States)

This ruling is a wake up call for CRA. They can not operate outside the law and with unfettered power.

Dan White

Tax Court Suggests CRA Be More Responsible in Evaluating Diligence Defences
Source: Blake, Cassels & Graydon LLP – The recent decision in Home Depot of Canada Inc. v. Her Majesty the Queen dealt with the common law defence of due diligence, as opposed to one of the statutory defenses available to directors under subsection 323(3) of the Excise Tax Act (the ETA) or subsection 227.1(3) of the Income Tax Act. It serves to demonstrate the function of the common law due diligence defence in connection with strict liability administrative penalties and suggests that the Canada Revenue Agency (CRA) should apply commercial common sense before dismissing a taxpayer’s defence of due diligence.

I find it very interesting that somehow the word “Trust” instigates trust in the mind of the user. To me a trust is a way to get caught with your pants down.

In this case of trust residency, it would have been a huge surprise to me if Justice Woods had ruled differently than she did. When you consider where is the mind and management of a legal entity, you have to conclude that mind and management is where it exists. Period. Full stop. If you work and live in Canada, then your mind and management is Canadian residency.

I don’t see Justice Woods verdict as”novel,” I see it as logical.

So if you need a solution to your over taxed problems, and want to find your solution offshore, you better think again, the days of offshore glory are now tax problem  situations that require expertise to solve.

Dan White

Tax Court of Canada carves novel approach to trust residency
Posted: September 21, 2009, 7:30 AM by Julius Melnitzer

Madam Justice Woods of the Tax Court of Canada has carved a novel approach to determine the residency of a trust with her Sept. 10, 2009 ruling in Garron and Garron v. The Queen. She rejected the existing test enunciated in Trustees of the Thibodeau Family Trust as the only test for trust residency. Thibodeau decided that a trust is resident where trustees reside and exercise their mandate. But Woods ruled that the central management and control test, which determines the residency of corporations, also applies to trusts.

According to an analysis by Aird & Berlis’ Jack Bernstein and Barbara Worndl, the case could affect the residency of many international and domestic trusts. “For now,” they conclude,” tax planners should ensure that a trust is centrally managed and controlled in the jurisdiction where the trustees are resident.”

Julius Melnitzer

 Thanks to the internet, people who have been abused by Canada Revenue Agency are coming together to find solutions to tax audit problems. While not all CRA staffers are malicious, there are enough out there that they are making life a living hell for people in financial trouble.

Canadians today are looking for fairness in the tax system. The courts do offer fairness but most people can not aford to fight CRA on their tax problems. They are dealing with the stress of requirements to pay, collections, frozen bank accounts, liens on their homes, and often go bankrupt as a result.

I am happy to see that CRA abuse is coming to light via the internet. If enought pressure is brought to bear, reform will come.

Dan White

Donors aid tax battle    Written by Mark Nielsen
Citizen staff
Friday, 18 September 2009
PGCITIZEN.CA
Related Items

A fundraising effort has yielded enough money for Prince George resident Irvin Leroux to hire a lawyer and a tax consultant for his court battle against Canada Revenue Agency over a $1-million tax bill he claims he didn’t owe.
Leroux, who is seeking in excess of $4.5 million in restitution for the assets he says he lost as a result of the CRA incompetence, is crediting donations to a trust fund established in June to help cover his legal costs.
Donations ranged from $4.50 to $500, he said in a statement issued Thursday, many coming from people who’ve had their own run-ins with CRA.
“One lady from back east who’s family is still being harassed by CRA sent $13, she says it’s a dollar for every year I’ve been fighting,” he said. “That’s incredible and this family can ill afford any amount of donation because they are still paying lawyers too.”
Leroux said it all began back in 1996 when an auditor lost his tax and business records — he said they were accidentally shredded — and CRA used other methods to determine he owed $900,000 in income tax and $100,000 in GST.
In 2005, after several other audits, Leroux took his case to the Tax Court of Canada where the CRA dropped its claim. Instead, it refunded Leroux $24,000 and reduced his GST bill to $20,000.
But Leroux said that still falls well short of what he lost because of the CRA’s incompetence.
In the interim, the CRA had placed a writ of seizure and sale against his assets, including a thriving RV park and campground in Valemount.
That raised alarm bells for his creditors and a large business loan Leroux secured for the RV park was called in. Unable to refinance, he was forced to sell the park — worth $2.2 million — for only $825,000.
Other creditors soon followed and he lost all he owned. He has said the appraised value of the assets he lost ran around $4.5 million at the time of the conflict.
In 2006, he filed a statement of claim in B.C. Supreme Court in Prince George seeking financial restitution but it’s been slow going since then.
In March 2008, CRA served a notice of intent to get the case dismissed, but then withdrew the notice and the legal battle is back on. Leroux has also established a website, www.lerouxed.com, through which further donations can be made.
The CRA is not commenting on the case because it’s before the courts.

Canada Revenue Agency and the the hidden story.

There is a story in today’s Globe and Mail of questionable practice of concealment by Canada Revenue Agency, uncovered only after a freedom of information request by a researcher.

Apparently, in 2008, two employees created fictitious tax returns, one netting $300,000, the other $100,000. I guess the argument for concealment was made on the basis of these crimes being ‘aberrations,’ and that letting the public know about them would serve only to undermine confidence in an institution that ‘operates so well.’

I find it VERY interesting that CRA does not divulge their own tax cheaters when they do so ….so very well with non CRA employees.

This article is definitely worth reading.

Dan White

Ottawa — From Thursday’s Globe and Mail Last updated on Thursday, Sep. 17, 2009 08:21AM EDT

Two Canada Revenue Agency bureaucrats siphoned hundreds of thousands of dollars from Ottawa’s coffers by filing fraudulent tax returns and diverting refunds and related benefit payments to their personal bank accounts.

The tax collection agency, which uncovered the fraud in 2008, kept news of it from going public for more than a year, until the facts were released through a request under access-to-information law.

In one case, a veteran male Revenue employee routed $300,000 generated from illegitimate returns into his bank accounts. In an apparently unrelated matter, a female staffer racked up $100,000 using similar means of tricking the government into issuing refunds and payments to accounts she controlled.

The two facilitated this by snooping through taxpayer records – using invasive database searches that, among other things, grant access to Canadians’ social insurance numbers.

It was heavy use of some searches that caught the eye of investigators.

On Wednesday, the Canada Revenue Agency refused to name the fraudsters or reveal whether they were fired or charged and convicted, saying that to identify them would violate privacy law. It also could not say if the money was recovered after the fraud was discovered last year.

Revenue spokeswoman Caitlin Workman would reveal only that the two individuals have left the tax collection business. “They no longer work here,” she said.

She dismissed the notion the two cases represent a problem with the corporate culture of Canada Revenue Agency, which is trusted to handle the confidential files of millions of taxpayers.

“We have close to 45,000 employees here, and they deal with millions of tax and benefit files on a daily basis. And here we are talking about two individuals,” Ms. Workman said. “Yes, we take it very seriously, but it should also be put in perspective.”

The male employee took more than $300,000 by routing bogus refunds and related Canada Child Tax Benefit and GST credit payments to personal accounts, just-released Canada Revenue Agency memos say.

The staffer was an expert on these benefits and “could have created fictitious accounts without any assistance,” the internal investigation found.

“For the last eight years, at least, he had filed tax returns and claimed [benefits and credits] for individuals he did not know,” the probe said.

The male staffer used dozens of taxpayer accounts for his fraud.

“Based on the information gained [from the investigation] and the list of social insurance numbers found at his workstation, it is reasonable to believe that [he] may have had a role to play in the issuance of illegitimate refunds on more than 50 accounts,” investigators found.

The female Canada Revenue Agency worker, who had eight years on the job, prepared and filed hundreds of illegitimate returns, ensuring the tax refunds and goods and services tax credits were routed to her own bank accounts.

The records from this investigation were obtained through access-to-information requests by researcher Ken Rubin.

Other Revenue employees became suspicious in the $300,000 fraud case when they tried to verify some of the claims and could not reach the taxpayers.

“After reviewing the motor vehicle records and conducting credit bureau checks … [a staffer] was unable to determine the whereabouts of the taxpayers involved and could not establish whether or not they actually existed,” the probe reported.

Ms. Workman said internal fraud of this magnitude is very infrequent, but couldn’t provide a historical record.

“I don’t have any numbers for you but they are very rare.”

Both fraudsters made thousands of unauthorized searches into taxpayers’ files, investigators found. The male staffer’s transgressions included gaining access to his own files, and those of his spouse and his stepchildren.
Posted by Lorne at 8:43 AM
Labels: corporate concealment, freedom of information, invasion of privacy, Revenue Canada crime

 If the deal looks too good to be ture, it is likely so.

I spoke out about this finanical investment plan in the past and now the manure has hit the fan.

CRA is going to create a ton of tax problems requiring solutions. This is going to require some very serious tax planning for the victims of this alleged ponzi scheme.

Dan White

****

Taxmen search 50 homes, businesses linked to Ponzi scheme

By Kelly Cryderman, Gwendolyn Richards and Kristen Odland, Calgary HeraldSeptember 16, 2009 7:01 AM Be the first to post a comment

CALGARY – Dozens of investigators in the Canada Revenue Agency’s Calgary office are hunkered down probing one of the largest alleged Ponzi schemes in Canadian history — which was highlighted by RCMP fraud charges laid earlier this week.

The tax examination of an alleged Calgary-based investment plot is part of a two-year investigation and follows an intense, two-day search of 50 locations across Western Canada by agency investigators and auditors in March 2008.

At that time, 300 tax officials swept the locations–which included usually quiet accountants’ offices–for evidence related to alleged fictitious registered retirement savings plans, investment scams and tax evasion.

“It does speak to the fact we are taking this very seriously, and it is a very complicated and involved case,” said agency spokeswoman Joanne Gorsalitz, who confirmed the investigation is related to the alleged Ponzi scheme.

Court documents filed last year to execute the search warrants say the agency has reassessed 295 related investors in at least $29 million in RRSP withdrawals, “creating a significant tax consequence” for those people.

The RCMP took action in the case this week. On Monday, the RCMP charged Milowe Allen Brost, 55, of Chestermere, and Gary Allen Sorenson, 66, of Calgary with fraud. RCMP allege the pair have been involved in a nine-year scheme that defrauded upwards of 3,000 investors — primarily from Canada and the U. S.–of hundreds of millions of dollars.

A Ponzi scam typically includes promises of high investment returns, and sees early investors paid off with cash from newer investors until the pyramid collapses. Investors are discouraged from withdrawing any funds for as long as possible.

In the allegations relating to Brost and Sorenson, a North American-wide army of investment advisers called “structurists” did much of the work recruiting investors through entities such as the Institute for Financial Learning.

It appears that few if any investors had received returns in the last two years, or have been able to withdraw their money. Canadian law firm Bennett Jones is heading up two yet-to-be-certified class action lawsuits on behalf on investors who dealt with Brost or his related companies.

“This is the largest (alleged) Ponzi in Canada that I have seen, and I’ve had experience with many of these cases,” said Jim Patterson, the partner in charge of the firm’s fraud law group.

“The returns being promised are remarkable,” Patterson said. “The common theme in these schemes is if it’s too good to be true, it is.”

But it is now clear that besides being pursued by the RCMP, Brost, Sorenson and others associated with the scheme are also under investigation by the Canada Revenue Agency. They could face charges under the Income Tax Act and the Criminal Code.

Court documents filed to execute the search warrants state that investors attended seminars where they were promised stellar returns on their investments–reportedly as high as 40 per cent — and would also still have access to their money. The investors were also told that this was all eligible for an RRSP tax shelter.

Calgarian Cindy Schug, 49, believes she is one of the victims of the scheme.

In 1999, on the advice of a friend, she attended a downtown hotel meeting. The promise of her money growing by three per cent each month tax free was definitely intriguing.

“Sure you have a house but you never seem to get out of the hole,” Schug said.

“So I went, and thought, ‘well that sounds pretty cool,’ ” she said. “I can make lots of money and then retire when I’m 50.”

Over time, she invested a total of about $155,000 into Syndicated Gold Depository SA and various other companies.

She received professional looking documents and certificates to sign. She said she was also supposed to get a debit-like card to access her money through bank machines but never did.

Schug said she has now been trying to get her money back for the past seven years.

To add insult to injury, Schug said she received a shocking letter from Revenue Canada this spring which states she owes Ottawa approximately $77,000 in back taxes.

“I’m at a point where I don’t know who to believe,” she said. “I have no RRSPs for my future.”

The Canada Revenue Agency documents also allege Brost–who also went under the names Mylo Brost, Milo Brost and MB Gonne–understated his income to avoid paying taxes between 2000 and 2005. The same documents state that most of the money from the “RRSP strip scheme” were funnelled to Sorenson, who hasn’t paid taxes in Canada since 2000.

All the while, say the agency documents, Brost and his now-estranged wife owned at least six vehicles between them, including a Mercedes Benz and two Lexus.

While some questions have been raised about the length of the investigation, the RCMP said Tuesday they could not act until there was enough evidence.

“During that time we didn’t want to be seen as market-breakers,” said Supt. Eric Mattson of the Integrated Market Enforcement Team.

“We don’t want to discuss a group of committing crimes and say’Don’t do this,’because at the end of the investigation perhapswedon’thavesufficient information to lay charges and we’d be open(to civil litigation) as well,” he said.

“We may end up interfering with what could have been legitimate business.”

At the height of the investigation, about a dozen people were on the case, including six RCMP officers, forensic accountants and civil analysts.

Sending officers to numerous foreign countries — including Peru, Honduras and Costa Rica–also added to the lengthy investigation because they had to follow the rules of those countries to obtain evidence, Mattson said. International agreements had to be followed to get banking information for offshore accounts, he added.

As news of the charges spread Tuesday, a further 35 investors contacted RCMP.

Steven Skurka, a Torontobased criminal lawyer who is representing Brost, said he has spoken with his client, but not in person.

“I’ll be meeting with him as soon as is feasible to review the charges. They are serious charges but they are only allegations at this stage. I may have more to say in the near future,” Skurka said.

Brost and Sorenson both have histories dating back to 1998 with the Alberta Securities Commission for a number of violations.

In 2007, Brost was ordered to pay$650,000 in 2007 for fraud, the largest amount levied in the commission’s history, and has been barred for life from trading on the Alberta market. The ASC has been unable to collect the debt.

While the 3 1/2-year RCMP investigation has led to charges in this jurisdiction, police and other agencies elsewhere are also pursuing Sorenson and Brost. According to the court documents, Brost is also facing charges in Ontario for uttering a forged document and fraud over $5,000.

In February 2008, the U. S. Justice Department filed two lawsuits against two accountants– one in Texas and the other in Washington, D. C. –for a fraudulent gold-mining scheme sold to a number of wealthy investors, including seven current or former NFL players. The suits allege the investments were connected to one of Sorenson and Brost’s companies in Calgary.

kcryderman@ theherald. canwest.comwith files from stephane massinon,
© Copyright (c) The Calgary Herald

Here is another good article from Jamie Golombec. It clearly demonstrates that one needs to be very careful when structuring yourself to pay debts and write off the interest.  Simply stated; You can not shuffle your debts to avoid taxation. Things have to have a proper audit trail and need to be done for the right tax and business reasons.
Dan White
_______

When rearranging your debt, do so legally

By Jamie Golombek, Tax Expert, Financial PostAugust 22, 2009

It has been nearly six months since the Lipson decision, in which the Supreme Court of Canada effectively blessed the debt-swap strategy known as the “Singleton shuffle.” But a new court decision reminds us how critical it is when rearranging your debt to do so legally.

After all, in Canada, it’s nearly impossible to write off your mortgage interest without some advance planning.

The Singleton shuffle, named after Vancouver lawyer John Singleton’s 2001 Supreme Court victory, stands for the notion that you can rearrange your financial affairs to make the interest on investment loans tax-deductible. How you do that is by replacing non-deductible debt with tax-deductible debt.

The case decided last month involved Nina Sherle, who owned a rental property (Property A) with a mortgage on it upon which the interest was deductible. She also owned a personal residence (Property B) free and clear.

She wanted to switch properties. In other words, she wanted to live in Property A as her personal residence and rent out Property B. She stated she didn’t want to change her financing strategy, which was to live in her personal residence (soon to be Property A) mortgage-free.

To accomplish this, she mortgaged Property B to pay off the loan on property A. As a result, she was now making interest payments on the new mortgage secured by Property B. She deducted this interest on her tax returns but was reassessed by the Canada Revenue Agency.

The CRA argued that for interest to be deductible, one must look to “the actual, direct use of the borrowed funds” and whether such use was for the purpose of earning income.

Since the mortgage proceeds were used to pay off the loan on Property A, which was to be a personal residence, not an income-producing property, the interest was not tax-deductible.

The judge in the case agreed. He wrote: “Why funds are borrowed is irrelevant.… It is the use of the funds that governs [the decision]. In the present case, the required link between the use of the proceeds and the income-producing property is just not there.”

In a twist, the judge went on to describe what Ms. Sherle could have done to permit the interest to be deductible. While somewhat complex, it essentially involves Ms. Sherle selling Property B to a friend in return for a promissory note.

The next day, Ms. Sherle could have borrowed money from the bank to pay off the mortgage on Property A. She then could buy back Property B from her friend, financing that purchase through a mortgage on Property B.

Her friend would take the proceeds from the sale of Property B and use them to repay the promissory note. Finally, Ms. Sherle would use the proceeds from the promissory note to pay off the bank loan.

Confused yet? The end result is that only the mortgage on Property B would be outstanding. The interest should be tax-deductible since the direct use of the mortgage proceeds was It has been nearly six months since the Lipson decision, in which the Supreme Court of Canada effectively blessed the debt-swap strategy known as the “Singleton shuffle.” But a new court decision reminds us how critical it is when rearranging your debt to do so legally.

After all, in Canada, it’s nearly impossible to write off your mortgage interest without some advance planning.

The Singleton shuffle, named after Vancouver lawyer John Singleton’s 2001 Supreme Court victory, stands for the notion that you can rearrange your financial affairs to make the interest on investment loans tax-deductible. How you do that is by replacing non-deductible debt with tax-deductible debt.

The case decided last month involved Nina Sherle, who owned a rental property (Property A) with a mortgage on it upon which the interest was deductible. She also owned a personal residence (Property B) free and clear.

She wanted to switch properties. In other words, she wanted to live in Property A as her personal residence and rent out Property B. She stated she didn’t want to change her financing strategy, which was to live in her personal residence (soon to be Property A) mortgage-free.

To accomplish this, she mortgaged Property B to pay off the loan on property A. As a result, she was now making interest payments on the new mortgage secured by Property B. She deducted this interest on her tax returns but was reassessed by the Canada Revenue Agency.

The CRA argued that for interest to be deductible, one must look to “the actual, direct use of the borrowed funds” and whether such use was for the purpose of earning income.

Since the mortgage proceeds were used to pay off the loan on Property A, which was to be a personal residence, not an income-producing property, the interest was not tax-deductible.

The judge in the case agreed. He wrote: “Why funds are borrowed is irrelevant.… It is the use of the funds that governs [the decision]. In the present case, the required link between the use of the proceeds and the income-producing property is just not there.”

In a twist, the judge went on to describe what Ms. Sherle could have done to permit the interest to be deductible. While somewhat complex, it essentially involves Ms. Sherle selling Property B to a friend in return for a promissory note.

The next day, Ms. Sherle could have borrowed money from the bank to pay off the mortgage on Property A. She then could buy back Property B from her friend, financing that purchase through a mortgage on Property B.

Her friend would take the proceeds from the sale of Property B and use them to repay the promissory note. Finally, Ms. Sherle would use the proceeds from the promissory note to pay off the bank loan.

Confused yet? The end result is that only the mortgage on Property B would be outstanding. The interest should be tax-deductible since the direct use of the mortgage proceeds was to buy the rental property.

– Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director of tax and estate planning with CIBC Private Wealth Management in Toronto.

Financial Post

Tax Court Report for McLeans versus the Queen.

This is ok to report as it is now public knowledge by way of we were in tax court on the matter, so there is no violation of privacy.

Case was heard. Judgment is pending the 3 cases ahead of us for Justice Webb to rule on.

There was one major issue of national interest in that we were arguing that the product purchases should be 100% deductable. CRA’s long standing position is that they are personal consumption, not for the purpose of earning income and were not deductible as business expenses.
The significance of the case is large because if we win,  the word will spread out through the MLM community very quickly, starting first with Mannatech and then into other MLM’s affecting a 60 Billion dollar a year industry.
If we lose, at we lose while having put up the best possible fight that anyone could have done. I am satisfied that we put up a recognizable well done job in presenting our case. We had both good witnesses and a good argument.
The clients were highly credible in court.
The clients were well prepared. (Except for the issue that I never told them to not refer to the glyco nutrients as “food.”)
The issues were;
1.    Are Mannatech Distributor product purchases deductible or not, when not for resale.
2.    Are personal consumptions a business expense?
3.    Are costs on friends and family tax deductible?
4.    Were the courses taken tax deductible?
5.    Were the travel expenses personal or business?

On # 1. CRA audit disallowed all purchases as personal.
Our arguments were.
A.    It is required to purchase product to maximize bonuses and therefore maximise total income.
B.    You have no credibility in selling the product if you don’t consume it.
C.    They had to purchase product for their down lines to round up leg product consumption.
D.    We argued that if the tax payers were not in the business they would not consume nearly the purchased amount of product.
E.    We argued that the dollar amounts of purchases were not reasonable to assume as personal use.

On # 2. CRA argued that all product purchased were for personal consumption
A.    We argued as per ABC above.
On # 3. CRA Argued that money spent on friends and family are personal expenses.
A.    We argued that MLM is primarily marketed to friends and family. Therefore if the money spent for the purpose of generating income was deductible regardless of the fact that it was friends and family.
B.    We argued that Mannatech was a billion dollar business built on the principle of selling to friends and family.
C.    We argued that you have to look at the “primary purpose” as the overriding issue.
On # 3. CRA argued that the courses were personal interest and not business related.
A.    We argued that the courses were employment expenses and were not lasting in nature, therefore were fully expansible.

On #5. CRA argued that there was no proof of attendance. They argued that if in fact that they both did attend the conference and that the two extra days they stayed were personal. They argued that the Calgary trip was to a wedding and friends and visits.
A.    We submitted evidence of attendance.
B.    We argued that the extra days were to allow for marketing and business activities related to business.
C.    We argued that the taxpayers would not have gone to the nephew’s wedding if they were not going to make it a business trip.
D.    We argued that it was an ideal opportunity to be with lots of friends and family to market to.

The day was long… started about 10AM and went to 5:30

As the Appellant I had to be the one to carry the argument and prove our case.

I think we did an admirable job, the cleints were credible and honest under testimony.

now we will see if the judge agrees. I know he took our arguments seriously.

Here is a good article about the Home Renovation Tax Credit HRTC.

The funny thing and something that the government obviously missed. The refund equals the same amount as what the GST and PST amount to. So it will be very easy for the underground economy to just say…. “Hey pay me cash and you won’t have to do the paperwork and wait for your tax savings. It is instantly 13% in your pocket. I think the government should have made it financially better to avoid the underground economy.

I guess a good point to remember is there will be an election this fall, as we continue to be vitums of politics and huge amounts of tax payer money paying for elections;  the point being… HRTC is not law… there is only a probability that it will come into law. While the odds are good it will happen, it would not be the sort of thing I would gamble on.

Dan White

How to get ready for the Home Reno Tax Credit

Jamie Golombek, Tax Expert, Financial Post  Published: Friday, September 11, 2009
More On This Story

Parliament may not have passed the law that sets it up, but Jamie Golombek says you should get your papers ready to benefit from the Home Renovation Tax Credit Bruce Stotesbury/Victoria Times Colonist Parliament may not have passed the law that sets it up, but Jamie Golombek says you should get your papers ready to benefit from the Home Renovation Tax Credit

Canadians’ love affair with the “proposed” Home Renovation Tax Credit (HRTC) continues unabated, despite the fact that legislation to make the HRTC law has not yet been drafted.

The legislation officially enacting the popular credit is expected to be introduced shortly after Parliament resumes sitting on Monday. Even if the current government is defeated under a confidence motion this fall, the HRTC is so ingrained in the Canadian taxpayer psyche that any future government will most certainly reintroduce it. That has been confirmed publicly by Liberal Leader Michael Ignatieff and Bloc Québécois Leader Gilles Duceppe.

The HRTC is a 15% non-refundable tax credit for eligible renovation expenditures made to your home or vacation property. The credit applies to any amounts spent over $1,000, up to a maximum of $10,000, producing a maximum credit of $1,350.

The Canada Revenue Agency has indicated that a new schedule will be included in your 2009 income tax return that will allow you to list your eligible renovation expenses and calculate the amount eligible for the credit. The CRA has even introduced a nifty yellow HRTC envelope in which to save your receipts. Envelopes are available at various retail stores including Home Depot and Canadian Tire.

In the seven months or so since the credit was first introduced, the CRA has released numerous technical interpretations over exactly which types of renovation expenses qualify for the HRTC. Here’s a quick summary of some of the more recent qualifying expenditures:

* Air conditioners and heat pumps that are permanently installed.

* Common areas of condos that are paid for either from the condo’s reserve fund or a special fund.

* Dock: The materials and installation costs for a dock are eligible provided the dock is attached to land that forms part of the eligible dwelling.

* Driveways.

* Sanding and refinishing of hardwood floors.

* Permanently wired or installed home security systems qualify, but ongoing alarm monitoring costs do not.

* Landscaping.

* Sauna: The costs of installing a wood-fired, 10 x 10-foot, outdoor sauna building on the land that forms part of an eligible dwelling qualifies.

* Solar panels on your home or on adjacent land qualify unless the cost is part of the purchase price of the home. You can still claim the full HRTC on the costs of the installation if you’ve received another government tax credit or grant for installing the solar panels.

* Tree removal if the removal relates to a renovation project that is of an “enduring nature and integral to the home.”

* Wireless broadband tower: The costs of building such a tower, even if unattached to your home but anchored to the ground qualifies, provided it’s installed on the adjoining one half-hectare of land that is considered an eligible dwelling

Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax and estate planning with CIBC Private Wealth Management in Toronto.

Jamie.Golombek@cibc.com

This is an interesting development.

I will have to look further into what is going on here. I am not sure of the author on this.

Dan White

Citizens Object To Massive Corruption in CRA With Proposed Class Action Against Minister of National Revenue
Posted March 2nd, 2009 by ctfb111     in Government Canada business income CRA disability allowances family benefits garnishes investments liens pensions
vote
now
Buzz up!

The Minister of National Revenue ruthlessly seizes taxpayers bank accounts and issues liens on personal, business property, and insurance policies. These liens are based on improper certificates – RTP- Requirements To Pay instead of proper Court Orders or Judgments of the Court. The democratic rights and freedoms of targeted Canadian Citizens and businesses are effectively canceled since they are denied due process of the law.
Blatant intimidation tactics of the Minister of National Revenue cause financial hardship, damage to human dignity and psychological suffering to the members of the Proposed Class Action. The intentional arrogance and misconduct of the tax agents in the process of carrying out their duties is unethical and unconscionable. The CRA and their representatives act as if they are not accountable to the law.
Widespread discrimination against targeted individuals and businesses calls into question whether Canada is a democracy in name only and not in fact, for some and not for all. The injustice is obvious when the Canadian Minister of National Revenue and the CRA are allegedly routinely and arbitrarily targeting individual citizens and businesses in all regions of Canada, violating the Canadian Charter of Rights and Freedoms, the Canadian Human Rights Act, the Canadian Bill of Rights, the Statute of Limitations, Contract Law and the Income Tax Act itself including the Taxpayers Bill of Rights.
The grounds for the proposed Class Action against the Canadian Minister of National Revenue include fraud, discrimination, harassment, intentional infliction of emotional distress, abuse of process, breach of trust, breach of privacy, negligence, breech of confidential relationship, invasion of privacy, arbitrary targeting of taxpayers and abuse of power
The Minister of National Revenue and the Canada Revenue Agency allegedly bully, harass, intimidate, and illegally demand financial information from Canadian taxpayers.The CRA issues illegal garnishment orders based on Statutes without proper Court Orders or registered letters.
The CRA takes power over the individual taxpayers life and finances. The Minister of National Revenue continues to ignore the human consequences of the unjust actions of his agency the CRA and removes the individuals power to self govern his life, and live independently in safety, freedom, and protected from unlawful seizure of personal and business assets.
Completely ignoring taxpayers rights as well financial resources, the CRA reassess tax returns, threatens to take legal action if the taxpayer does not comply with the demands for private information, payment of arbitrary fines, interest and alleged taxes.
Routinely, the Minister of National Revenue discriminates against targeted individual taxpayers and businesses and orders the CRA to issue illegal garnishment orders based on Statutes without proper Court Orders or registered letters. These are in fact just an RTP and are improperly, illegibly signed by anonymous CRA officials with no identifying information: lacking printed name, title and no witness. Therefore they are not even a legal document and are invalid.
The Minister of Revenue orders the garnishment at the highest rate, in order that the income of taxpayers is seized as quickly as possible with blatant disregard for the resulting human suffering. The CRA garnishes income from any source including family benefits, disability allowances, pensions,business income, investments.
All taxpayers objections are ignored and swept aside with invalid excuses in a pathetic attempt to terrorize people and hide the gross incompetence of the CRA and its practices of Statute driven extortion.
This ruthless intimidation is intended to pressure the taxpayer to enter into a contract with the Minister of National Revenue to pay the alleged amount demanded.
Demanding the taxpayers financial information ignores Sections 7 and 8 of the Canadian Charter of Rights and Freedoms and effectively cancels the rights to privacy, silence and protection against self-incrimination.February 11, 2009, Louise Dickson of the Victoria Times Colonist described the Charter of Rights Victory in Court against the CRA by Hal Neumann and his wife Maureen Rivers.
This precedent setting case, “Jury awards B.C. man $1.3M for taxman’s raid”, resulted in the Supreme Court Jury of B.C. ruling that the CRA invasion and search of a citizens home violated the privacy protection in Section 7 and the right to be secure against unreasonable search or seizure in Section 8 of the Charter of Rights and Freedoms.
Victoria lawyer Steven Kelliher asked the jury to give a message to the CRA — “The CRA don’t rule us. They have an obligation to respect our fundamental rights. They serve us. They don’t prey on us.” The verdict of the jury substantiates the following statement: “Gestapo tactics of the Revenue Agency Brought to Light”.
According to Kim Bolan as reported in the Vancouver Sun on July 21, 2008, – B.C. Hells Angels, associates, wives and girlfriends- got the CRA to withdraw demands for detailed financial information about their earnings and assets, including any – hidden – outside the country because it violated the Income Tax Act and the Charter of Rights and Freedoms.
Vancouver lawyer David Martin, Brian Airth as well as others linked to Hells Angels wanted a declaration that the CRA was guilty of illegal conduct by targeting the plaintiffs through an initiative known as – Project MOGAL, – or the – Hells Angel Project – HA – . The CRA gave private financial information to third parties, including the police.
The CRA withdrew the letters of requirement in a precedent setting – out-of-court – agreement made on the same date as the Federal Court challenge was to be heard last spring . The result was that the Airth case was withdrawn.
The Canada Revenue Agency is out of control and acting like an agency in a fascist or communist dictatorship removing the democratic rights of Canadian Citizens and businesses in a systematic process of statute driven extortion.
In addition the Provinces are allegedly in collusion with the CRA and cooperate with them in order to register invalid notices of garnishment based on RTP- CRA requirements to pay which do not constitute judgments of the Court and are not a legal instrument.
Wally Oppal, Attorney General of B.C did not respond to the Notice of Claim for the Statement of Claim- File No. S-116959 in New Westminster, B.C, which objects to such a “bogus” notice of liens against a Canadian citizen’s properties.
This fake notice of lien does not constitute a Court Order or Judgment of the Court. The CRA certificate of alleged taxes owing (RTP) registered by a Court administrator, a registrar, remains only a certificate of evidence which is contrary to the Provincial Land Titles Acts such as the LTSA, the Land Titles Survey Authority of British Columbia. Yet it was improperly used to change the title of a citizen’s property.
By these improper acts and omissions the CRA with the aid of the Provinces deprives Canadian citizens of equal rights under the law and due process of the law.
mailto:classactioncra@gmail.com

http://www.vancouversun.com/story_print.html?id=12…

Our Tax Sytem requires care to avoid tax problems. The following is a good article from the Financial post.

 

© Copyright (c) The Vancouver Sun

Tax collectors have the power in audits

 

Civil investigations can turn into criminal

 

 

 The line between a civil audit and a criminal investigation is not always clear and CRA likes it that way.

Some individuals who filed their tax returns by the April 30th deadline await the results of their assessments by Canada Revenue Agency with some trepidation.

Although the income tax system relies primarily upon self-assessment by taxpayers and “voluntary” reporting of tax liabilities, the CRA is always looking over its shoulder to ensure compliance.

The taxpayer initially determines his or her liability and submits the tax return. The CRA checks the mathematical accuracy of the return, reviews supporting documents, performs perfunctory cross checks, and issues a “quick assessment” within approximately eight weeks of filing.

Mercifully for most taxpayers — particularly employees who have income and payroll taxes withheld at source — that is the end of the tax ritual for another year. But it is only the beginning of the process for the tax collector.

The CRA has substantial audit and investigative powers. These powers are of two types: civil audits and criminal investigations.

However, the line between the two is not always clear and the taxman likes it that way. The blurred line allows the CRA to cross over from the civil to the criminal without alerting the taxpayer.

A civil audit is an examination to determine the accuracy of the taxpayer’s self-assessed income.

Such an audit under the CRA’s regulatory powers is a routine process for verifying the taxpayer’s financial information and examining relevant supporting documents.

The purpose of the audit is to ensure regulatory compliance and mathematical accuracy. If the CRA disagrees with the taxpayer’s self-assessed income, it will reassess him and charge interest on any deficiency in taxes paid. The CRA also has the power to impose civil penalties in circumstances where it can show egregious conduct by the taxpayer in preparing his or her return. Civil penalties can add up to an additional 50% (plus interest) of the tax deficiency to the final bill. The courts grant the tax authorities considerable latitude under the civil audit provisions and taxpayers have minimal constitutional rights.

In contrast, a tax investigation is essentially a criminal examination.

The courts vigilantly protect Charter rights in criminal matters.

In an investigation the state is pitted against the individual in an attempt to establish culpability. The adversarial relationship escalates because the liberty of the subject is at stake.

The CRA must look to s. 231.3 (the part of the tax code that deals with obtaining a warrant for search and seizure), which deals with serious offences under the act.

For example, for the purpose of investigating penal liability, s. 231.3 sets out an application process for an ex parte (without notice) search warrant similar to that found in s. 487 of the Criminal Code. The courts are always on high alert in criminal law.

The difficulty is an examination that starts out as a routine civil audit can turn into a criminal investigation. If this happens, the nature of the relationship between the CRA and the taxpayer changes from regulatory supervision to potential criminal prosecution and becomes subject to restrictions under the Canadian Charter of Rights and Freedoms. Nevertheless, the CRA may use any information that it procures during the proper exercise of its audit function in a subsequent penal investigation.

The use of such information for criminal purposes does not offend either s. 7 (the principles against self-incrimination) or section 8 (reasonable expectation of privacy) of the Charter.

Individuals have few privacy interests under section 8 of the Charter in materials and records that they are obliged to keep and produce for the purposes of the Income Tax Act. Once an auditor has inspected or compelled the production of a document or information, the taxpayer cannot be said to have a reasonable expectation that the auditor will guard its confidentiality.

Given the taxpayer’s diminished expectation of privacy, the government’s interest to intrude on the individual’s privacy in order to advance its goals of law enforcement outweighs the individual’s privacy interest in his materials and records.

The CRA may also conduct an audit and an investigation concurrently.

However, once the CRA begins its investigation, it can use further information that it obtains under its concurrent audit powers only for the purposes of the audit and not for the purposes of the investigation.

It is not easy in practice, however, to distinguish the divergence in powers and obligations related to civil audits and investigations.

An inquiry becomes an investigation when its predominant purpose is to determine penal liability.

There is no “bright-line” test for determining the predominant purpose of an inquiry or when it changes.

Apart from a clear decision to pursue a criminal investigation, no single factor governs in every circumstance. Hence, a court has considerable latitude in its decision to admit evidence resulting from an investigation. In arriving at its decision, however, the court will consider the totality of the circumstances to determine whether the inquiry sufficiently engages the adversarial relationship between the State and the taxpayer to warrant Charter protection.

- Prof. Vern Krishna, CM, QC, FCGA, is tax counsel and a mediator and arbitrator at Borden Ladner Gervais and is executive director of the CGA Tax Research Centre at the University of Ottawa.

© Copyright (c) The Vancouver Sun

Note that this judgement is by Former Chief Justice Bowman, now retired.

I can not stress enough how important your audit trail bookkeeping is. We have provided a system and everyone needs to use it.

If you keep your records in at least our paper system, you will never have problems deducting your legitimate expenses.

Justice Bowman points out that you do not necessarily need the actual receipts. You just have to keep credible records.

And he makes the point, it is not that onerous to keep records.

So if you want to avoid tax problems, that will need solutions, how about emplementing the solutions before you have tax problems.

Dan White

JUDGMENT

It is ordered that the appeals from the assessments made under the Income Tax Act for the 1999, 2000 and 2001 taxation years are dismissed.

Signed at Ottawa, Canada, this 23rd day of September 2004.

“D.G.H. Bowman”

Bowman, A.C.J.

Citation: 2004TCC644

Date: 20040923

Docket: 2004-1206(IT)I

BETWEEN:

RADEK CHRABALOWSKI,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Bowman, A.C.J.

About proof of payment as evidence in court.

It boils down to this. I am sure that there are probably buried in the expenses claimed amounts that should be allowed, but I cannot determine what they are because they are mixed in with so many unproved or implausible claims.

[9]      The appellant came into court with a large box of receipts. They were grouped in bundles with adding machine tapes attached. Contrary to the allegations that the revenue authorities ignored his evidence or treated him unfairly, I find that Ms. Lo, the appeals assessor who dealt with his objection, made a serious and conscientious attempt to reconcile his claims with the receipts and she gave him ample opportunity to organize the receipts in an orderly and comprehensible way. She cited a number of instances in which she attempted to reconcile the amounts claimed under specific headings with the receipts, but was unable to do so.

[10]    As this court has said on a number of occasions there is no requirement that vouchers or receipts be provided for all expenditures claimed as deductions provided that the expenditures are proved by other credible evidence. I do not however think the appellant has passed even the very modest threshold of proving his case that I consider appropriate. It is worthwhile repeating what was said in Merchant v. The Queen, 98 DTC 1734:

[7] Where a large number of documents, such as invoices, have to be proved it is a waste of the court’s time to put them in evidence seriatim. The approach set out in Wigmore on Evidence (3rd Ed.) Vol IV, at s. 1230 commends itself:

s.1230(11): . . . Where a fact could be ascertained only by the inspection of a large number of documents made up of very numerous detailed statements – as, the net balance resulting from a year’s vouchers of a treasurer or a year’s accounts in a bank-ledger – it is obvious that it would often be practically out of the question to apply the present principle by requiring the production of the entire mass of documents and entries to be perused by the jury or read aloud to them. The convenience of trials demands that other evidence be allowed to be offered, in the shape of the testimony of a competent witness who has perused the entire mass and will state summarily the net result. Such a practice is well-established to be proper.

[8] This passage was cited with approval by Wakeling, J.A. in Sunnyside Nursing Home v. Builders Contract Management Ltd. et al., (1990) 75 S.R. 1 at p. 24 (Sask. C.A.) and by MacPherson, J. in R. v. Fichter, Kaufmann et al., 37 S.R. 128 (Sask.         Q.B.) at p. 129. I am in respectful agreement.

Some form of the method approved by Wigmore would have been appropriate here.

SOURCE: http://decision.tcc-cci.gc.ca/en/2007/2008tcc11/2008tcc11.html     Updated : 20080114

[12]    One problem faced by an appellant in a case of this sort is that if there is a series of excessive, implausible or unreasonable claims it casts doubt on all of the claims. In other words, once a pattern of implausibility or excessiveness is established the court is inclined to scrutinize with greater care claims that, standing alone, might be sustainable. In other words, any gaps left in the evidence are filled in, and any doubts resolved, in a manner that is consistent with the pattern. I discussed this point in greater detail in Orly Automobiles Inc. v. The Queen, [2004] G.S.T.C. 57.

[13]    I do not think it is a particularly onerous task for a person claiming employment expenses to keep a record and separate receipts as well as a log book of automobile expenses. That was not done and the evidence, even on the most relaxed and liberal view, does not permit me to find in the appellant’s favour.

 Herein is a very interesting and lengthy case about medical expenses and is the system in violation of the charter of rights.

No wonder Canadians are upset with the tax system. Only being able to get tax credits from prescribed treatments that don’t work makes no sense at all.

In this case there is discussion for the need for a change in legislation.

Dan White

Canada’s armorial bearings   Tax Court of Canada
PDF

Docket: 2006-3169(IT)I

BETWEEN:

MARIE ESTHER LOUISE CHEVALIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on June 29, 2007, at Montreal, Quebec.

Before: The Honourable Justice Paul Bédard

Appearances:

Counsel for the Appellant:

Scott L. Simser

Counsel for the Respondent:

Jade Boucher and

Marie-Claude Boisvert, Student‑at‑Law

____________________________________________________________________

JUDGMENT

The appeal from the reassessment made under the Income Tax Act for the 2002 taxation year is allowed and the reassessment is referred back to the

Minister of National Revenue for reconsideration and reassessment in accordance with the Partial Agreed Statement of Facts signed by the parties on July 19,

2007, and in which the Minister accepted medical expenses of $3,253.74. This results in a medical tax credit of $244 [($3,253 - 1,728) x 16%]; the interest

shall be adjusted in consequence.

Signed at Ottawa, Canada, this 7th day of January, 2008.

“Paul Bédard”

Bédard J.

Citation: 2008TCC11

Date: 20080107

Docket: 2006-3169(IT)I

BETWEEN:

MARIE ESTHER LOUISE CHEVALIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Bédard J.

I. INTRODUCTION

[1]     This is an appeal under the informal procedure for the 2002 taxation year. The Appellant, Marie Esther Louise Chevalier claimed the medical expense tax

credit for the cost of organic products and foods as well as for services provided by a naturopath and an osteopath. The Minister of National Revenue

(“Minister”) disallowed the medical expenses so claimed on the ground that they did not fall within the scope of subsection 118.2(2) of the Income Tax Act

(“Act”).[1] Consequently, the Appellant is challenging the constitutional validity of subsection 118.2(2) of the Act on the basis that it infringes subsection 15(1)

of the Canadian Charter of Rights and Freedoms (“Charter”)[2].

II. FACTS

[2]     The Appellant is 56 years of age and resides in Saint-Charles-Borromée in the province of Quebec. She served in the Canadian Forces (“Forces”) from

1973 until 1989 as an aerospace engineer.

[3]     The Appellant testified that she started experiencing severe health problems in 1978. With the deterioration of her health, she was forced to leave the

Forces in 1989. Consequently, she went through a period of financial hardship until 2000, when the Forces finally recognized the precarious state of her health

and granted her a pension on a retroactive basis.

[4]     The Appellant consulted a number of doctors and was diagnosed as suffering from chronic fatigue syndrome. Furthermore, she testified that she has

severe sensitivities to food, drinks and even to clothing. She testified that she reacts severely to chemicals in food as well as to natural foods such as meat,

conventional bread, potatoes and beets. In addition, she testified that she is intolerant to gluten and lactose. These sensitivities confine her diet to organic

foods and she can only wear clothing made from 100% natural fibres, such as wool, cotton or silk. Furthermore, she must use a purifier for her water, both for

drinking and for cooking. She also indicated at trial that she was sensitive to everyday household cleaning products and therefore uses natural substances

such as borax and citric acid to clean her house.

[5]     The Appellant testified that she reacts strongly to pharmaceutical products and consequently turned to natural remedies. Moreover, in an attempt to

relax her muscles, she uses the services of a naturopath and an osteopath.

[6]     The Appellant testified that due to her illness she is easily fatigued by performing any minor task, such as cooking, cleaning or simply writing a cheque.

Furthermore, she testified that if she did not follow a strict natural diet her brain would become severely irritated, which would then incapacitate her physically

and mentally. Although the Respondent accepted the fact that the Appellant suffers from chronic fatigue syndrome, no expert evidence was presented at trial

as to the symptoms of that illness.

[7]     The parties have partially agreed on certain facts. Among other things, they have agreed that, for the purpose of computing her medical expense tax

credit for the taxation year at issue, the Appellant claimed medical expenses in the amount of $18,252.79. This includes expenses of $3,253.74 conceded to

be medical expenses by the Minister. As indicated by the parties in the Partial Agreed Statement of Facts, the following items remain at issue:

Item

Total expenses claimed by the Appellant

($)

Less medical expenses

($)

Less insurance reimbursement

($)

118.2(3) ITA

Less expenses conceded by the Appellant ($)

Total in issue ($)

Therapists, water purification unit

5,380.66

3,253.74

461.08

6.34

1,659.50

Organic products and food

11,995.39

0

0

5,665.28

6,330.11

Products for personal and house hygiene

1,653.63

0

0

0

1,653.63

Natural supplements

799.19

0

0

0

799.19

TOTAL

10,442.43

The parties further explained the nature of the amounts claimed by the Appellant, and the expenses left to be decided by this Court are as follows:

(i)           $990.00 in expenses paid for osteopathic treatments;

(ii)         $375.00 in expenses paid for naturopathic treatments;

(iii)         $294.50 in expenses paid for organic herbal products bought from a herbalist and naturopath.

(iv)         $6,330.11 representing expenses paid with respect to the “incremental cost” of acquiring organic products and foods;

(v)         $1,653.63 in expenses for personal and household hygiene products, and;

(vi)         $799.19 in expenses for natural supplements.

III. ISSUES TO BE DECIDED

[8]     The following questions have been raised by the parties and need to be answered by this Court:

1.      Are the products and services costs claimed by the Appellant medical expenses under subsection 118.2(2) of the Act?

2.      Does subsection 118.2(2) of the Act violate section 15 of the Charter by discriminating against the Appellant?

3.      If subsection 118.2(2) of the Act violates section 15 of the Charter, is that subsection saved by section 1 of the Charter as demonstrably justifiable in a

free and democratic society?

4.      Does the Tax Court of Canada have jurisdiction to issue declarations and grant, under section 52 of the Constitution Act, 1982, remedies consisting in

reading up, reading down or severing invalid legislation, specifically the impugned provision of the Act?

ISSUE 1

[9]     Are the products and services costs claimed by the Appellant medical expenses under subsection 118.2(2) of the Act?

[10]   Although the Appellant bases her argument on a Charter violation, it is nonetheless important to examine first whether or not any of the expenses at

issue fall within the scope of subsection 118.2(2) as it read in 2002. If such proves to be the case, a Charter analysis will become futile. Furthermore, this

issue was brought forward by the Respondent in her written arguments. In order to answer this first question, it is necessary to differentiate between the

expenses incurred for medical services and those incurred for medication products. The latter will be examined next.

[11]   Paragraph 118.2(2)(n) of the Act provides as follows:

(2) Medical expenses – For the purposes of subsection (1), a medical expense of an individual is an amount paid

(n) [drugs] – for drugs, medicaments or other preparations or substances (other than those described in paragraph (k)) manufactured, sold or represented for

use in the diagnosis, treatment or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof or in restoring, correcting or modifying

an organic function, purchased for use by the patient as prescribed by a medical practitioner or dentist and as recorded by a pharmacist;[3] [Emphasis added]

[12]   This statutory provision enumerates three specific requirements to be met in order for medication or other therapeutic substances to qualify as medical

expenses. Under these requirements the said products must:

(i)      be manufactured, sold or represented for use either

a.      in the diagnosis, treatment or prevention of a disease, disorder, abnormal physical state or the symptoms thereof, or

b.      in restoring, correcting or modifying an organic function;

(ii)      be prescribed by a medical practitioner;

(iii)     be recorded by a pharmacist.

[13]   This is not the first time that this Court has had to determine whether alternative medical products qualify as medical expenses under subsection 118.2

(2) of the Act. On the contrary, the case law is quite extensive and dictates a clear and concise approach to the interpretation of this provision[4]. In the case

at bar, the issue revolves around the third requirement of the test, namely whether the product was “recorded by a pharmacist”. In Ray v. R.[5], the Federal

Court of Appeal unanimously clarified the meaning of the words “recorded by a pharmacist” by stating:

In my view, it is reasonable to infer that the recording requirement in paragraph 118.2(2)(n) is intended to ensure that tax relief is not available for the cost of

medications purchased off the shelf. There are laws throughout Canada that govern the practice of pharmacy. Although the laws are not identical for each

province and territory, they have common features. Generally, they prohibit a pharmacist from dispensing certain medications without a medical prescription,

and they describe the records that a pharmacist is required to keep for medications dispensed by prescription, including information that identifies the

prescribing person and the patient. There is no evidence that pharmacists anywhere in Canada are required to keep such records for the substances in issue

in this case.

I cannot accept the suggestion that, in the case of a medication that is prescribed by a physician but is purchased at a pharmacy off the shelf, a sales slip or

invoice from the pharmacist would be a sufficient “recording” to meet the statutory requirement. A record in that form cannot meet the apparent function of the

recording requirement. There must be a record kept by the pharmacist in his or her capacity as pharmacist. That necessarily excludes substances, however

useful or beneficial, that are purchased off the shelf.[6] [Emphasis added]

[14]   As indicated by Associate Chief Justice Bowman (as he then was) in Herzig v. R.,[7] this requirement leads to the conclusion that only prescription

medicines qualify. Herzig is a similar case to this one insofar as the taxpayer resorted to alternative medicines and products for valid health reasons. However,

in light of the Ray decision, the Tax Court judge had no other choice than to dismiss the appeal. In addition, Ray was followed by the Federal Court of Appeal

in a subsequent decision, Bekker v. R.[8]

[15]   At trial, the Appellant acknowledged that the organic products and foods were not purchased at a pharmacy and were not recorded by a pharmacist. She

testified that she bought them either directly from a farm or from a health food store. It is evident that the amount of $6,330.11 claimed as medical expenses for

organic products and foods fails to meet the statutory requirements of subsection 118.2(2) of the Act. Furthermore, the expenses in the amount of $1,653.63

claimed for personal and household hygiene products are also disqualified. Some of these products were bought from a specialized store and not from a

pharmacy. Although others were bought in a pharmacy, they were not recorded by a pharmacist as they were products that are available off the shelf and

without a prescription. In addition, the Appellant testified that all of the natural supplements, for which she claimed $799.19, were bought at a health food store

and not a pharmacy. As a result, these expenses cannot be claimed as medical expenses in accordance with subsection 118.2(2) of the Act. The same

applies to the organic herbal products bought from a herbalist and naturopath, for which the Appellant claims $294.50. In summary, none of the expenses

claimed by the Appellant for medical products meet the requirements set out in paragraph 118.2(2)(n) of the Act.

[16]   I will now examine the amounts claimed for medical services, in particular, the expenses of $990.00 and $375.00 paid for osteopathic and naturopathic

treatments respectively. Paragraph 118.2(2)(a) of the Act reads as follows:

(2) Medical expenses – For the purposes of subsection (1), a medical expense of an individual is an amount paid

(a) [medical and dental services] – to a medical practitioner, dentist or nurse or a public or licensed private hospital in respect of medical or dental services

provided to a person (in this subsection referred to as the “patient”) who is the individual, the individual’s spouse or common-law partner or a dependant of the

individual (within the meaning assigned by subsection 118(6)) in the taxation year in which the expense was incurred.[9]

[17]   Furthermore, subsection 118.4(2) defines a “medical practitioner” as:

(2) Reference to medical practitioners, etc. – For the purposes of sections 63, 118.2, 118.3 and 118.6, a reference to an audiologist, dentist, medical doctor,

medical practitioner, nurse, occupational therapist, optometrist, pharmacist, psychologist, or speech-language pathologist is a reference to a person

authorized to practise as such,

(a) where the reference is used in respect of a service rendered to a taxpayer, pursuant to the laws of the jurisdiction in which the service is rendered. . . [10]

[18]   These provisions require the Appellant to show that the cost of the medical services has been paid to a medical practitioner authorized to practise his or

her profession pursuant to the laws of Quebec. Under Quebec legislation, naturopaths and osteopaths are not recognized medical practitioners.[11] The

Appellant testified that there was no discernible distinction between the osteopathic and physiotherapy treatments, which were provided by the same therapist,

namely, Ms. Marie‑France Roy Gaudet. Thus, the Appellant argues that since physiotherapists are recognized medical practitioners in the province of

Quebec, the $990.00 paid to Ms. Roy Gaudet for osteopathic treatments should be allowed. I disagree with this reasoning. The receipts for the $990.00 show

that they were issued specifically for osteopathic treatments. As a result, the medical expenses claimed by the Appellant for osteopathic treatments provided

by Marie-France Roy Gaudet fail to comply with the statutory provisions of the Act and must be disallowed. This is in accordance with previous decisions of

this Court. For example, in Davar v. R.[12] the Appellant suffered from severe allergies and sought alternative treatments, including the services from a

naturopath. Justice Miller disallowed the appeal on the basis that the services did not meet the requirements of paragraph 118.4(2)(a) of the Act. He further

commented regarding the medical expense tax credit provision:

. . . While this Court has interpreted these laws liberally and compassionately, the Court cannot turn a blind eye to the real and exact meaning of the law, no

matter how unfair the taxpayer believes it to be. . .

Sometimes the law leads society in a certain direction, but often times societal behaviour leads the law. In the case of medical expenses, it is a matter of the

law eventually catching up to society’s behaviour and I am hopeful the legislators will do that. . . .[13]

[19]   Unfortunately, the law has not yet caught up to societal behaviour. Nevertheless, I too cannot turn a blind eye to the real meaning of the law. Since the

Appellant’s expenses were not paid to a medical practitioner, they cannot be medical expenses. Thus, none of the expenses claimed – neither those for

medical services nor medical products – qualify as medical expenses pursuant to subsection 118.2(2) of the Act. I will therefore move on to the second issue.

ISSUE 2

[20]   Does subsection 118.2(2) of the Act violate section 15 of the Charter by discriminating against the Appellant?

[21]   This is the crux of the Appellant’s argument and constitutes the main issue to be determined in the present appeal. The Appellant submits that

subsection 118.2(2) of the Act, considered in its entirety, violates section 15 of the Charter. Section 15 of the Charter guarantees the Appellant’s right to

equality and reads as follows:

15. (1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in

particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

(2) Subsection (1) does not preclude any law, program or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups

including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.[14]

[22]   Section 19.2 of the Tax Court of Canada Act[15] requires the claimant to serve notice on the Attorney General of Canada and the attorney general of

each province at least ten days before the constitutional question is to be debated. This procedural requirement has been fulfilled by the Appellant and the

constitutional question can therefore be examined by this Court.[16]

[23]   The Appellant argues that subsection 118.2(2) of the Act was drafted in order to assist all persons with disabilities. Furthermore, she submits that, as

presently drafted, subsection 118.2(2) fails to take into consideration her needs for a special diet, while reducing the tax burden of virtually all other disabled

persons. In other words, she claims that she is being excluded from the medical expense tax credit scheme on the basis of her disability. Section 118.2 of the

Act is reproduced in an appendix hereto along with section 5700 of the Income Tax Regulations, which pertains to certain devices and equipment qualifying

under paragraph 118.2(2)(m).

[24]   In Law v. Canada (Minister of Employment and Immigration),[17] the Supreme Court of Canada established a three‑part test to be used in a

determination regarding a section 15 Charter violation. That Court stated:

. . . Accordingly, a court that is called upon to determine a discrimination claim under s. 15(1) should make the following three broad inquiries:

(A)  Does the impugned law (a) draw a formal distinction between the claimant and others on the basis of one or more personal characteristics, or (b) fail to

take into account the claimant’s already disadvantaged position within Canadian society resulting in substantively differential treatment between the claimant

and others on the basis of one or more personal characteristics?

(B)  Is the claimant subject to differential treatment based on one or more enumerated and analogous grounds?

and

(C)  Does the differential treatment discriminate, by imposing a burden upon or withholding a benefit from the claimant in a manner which reflects the

stereotypical application of presumed group or personal characteristics, or which otherwise has the effect of perpetuating or promoting the view that the

individual is less capable or worthy of recognition or value as a human being or as a member of Canadian society, equally deserving of concern, respect, and

consideration?[18]

[25]   It is important to keep in mind that the above test is to be seen only as a guideline for analysis. It goes without saying that the test should not be

mechanically applied but, as indicated by the Supreme Court of Canada, the analysis must be purposive and contextual.[19] This was further emphasized by

the Supreme Court of Canada in Auton (Guardian ad litem of) v. British Columbia (Attorney General),[20] a case in which that Court had to determine if the

government of British Columbia had infringed subsection 15(1) of the Charter by failing to fund specific treatment for autistic children. It concluded that the

benefit claimed – funding for all medically required treatment – is not provided by law and there exists no obligation for the provincial government to fund all

medically required treatments. As a result, a violation of subsection 15(1) could not be found to exist. The analytical framework used in Auton can be of

assistance in the case at bar. Accordingly, the first question to be determined is as follows:

Is the claim for a benefit provided by law?

[26]   The Supreme Court in Auton explained, at paragraph 27:

In order to succeed, the claimants must show unequal treatment under the law — more specifically that they failed to receive a benefit that the law provided, or

was saddled with a burden the law did not impose on someone else. The primary and oft-stated goal of s. 15(1) is to combat discrimination and ameliorate the

position of disadvantaged groups within society. Its specific promise, however, is confined to benefits and burdens “of the law”. Combatting discrimination and

ameliorating the position of members of disadvantaged groups is a formidable task and demands a multi-pronged response. Section 15(1) is part of that

response. Section 15(2)’s exemption for affirmative action programs is another prong of the response. Beyond these lie a host of initiatives that governments,

organizations and individuals can undertake to ameliorate the position of members of disadvantaged groups.[21] [Emphasis added]

[27]   Before answering the question whether or not there is a benefit provided by law, it is necessary to establish what benefits the Appellant is claiming. The

Appellant asks that the following medical products and services qualify for the medical tax credit:

. . . on behalf of the patient who has fibromyaglia [sic], chronic fatigue syndrome, or multiple chemical sensitivities,

VII.     vitamins and natural supplements,

VIII.   specialty personal hygiene, household cleaning, and skin care products that are free of synthetic chemicals,

IX.      homeopathic products,

X.        bottled and chemical-free water,

XI.      naturopathic services, and

XII.     the incremental cost of acquiring organic food products as compared to the cost of comparable non-organic food products,

if the patient has been certified in writing by a medical practitioner to be a person who, because of that disease, requires such items.[22]

[28]   The Appellant submits that the benefit provided by law is established by the application of subsection 118.2(2) of the Act. The Appellant argues that

subsection 118.2(2) is designed to cover all persons with disabilities. More precisely, the Appellant contends that the medical tax credit is “intended to

alleviate the tax burden of an individual who incurs high medical expenses and otherwise incurs sufficient tax payable in order to benefit from the medical

expense tax credit. Thus, there is a definite benefit provided to the individual since it lowers one’s tax payable, and can be a significant tax saving.”[23] In other

words, the Appellant claims that all individuals who incur high medical expenses benefit from the tax credit, if their income is high enough. According to the

Appellant, the unequal treatment lies in allowing the medical expense tax credit for individuals incurring high medical expenses, while denying it to individuals

who suffer from fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities and who incur expenses for vitamins, osteopathy, organic food,

specialty creams and soaps, supplements, and sanitary products.

[29]   This raises the question of whether the legislative scheme created by the medical expense tax credit provision in fact allows an alleviation of the tax

burden for all individuals who incur high medical expenses and otherwise incur sufficient tax payable. An examination of the scheme shows that it does not.

[30]   The predecessor of the medical expense tax credit was first introduced in 1942 as a deduction in computing income for a limited number of medical

expenses.[24] The purpose of the credit is to recognize the effect of above-average medical and disability-related expenses on an individual’s ability to pay

tax.[25] In 1988, it became a deduction in computing tax payable.[26] At its inception, the claimable medical expenses were subject to a maximum amount.

This cap was removed in 1961.[27] Furthermore, a taxpayer’s claim for the deduction has always been subject to a minimum threshold; in the 2002 taxation

year, this threshold was the lesser of $1,728 and 3% of the individual’s income for the year.[28]

[31]   The list of expenses that qualify for the tax credit is regularly reviewed and updated and, as a result, it has become a very lengthy and precise list. As

indicated by the Department of Finance of Canada in The Budget Plan 2005:

The list of expenses eligible for the credit is regularly reviewed and updated in light of new technologies and other disability-specific or medically related

developments.[29]

[32]   The Appellant submits that this very lengthy list of allowable medical expenses “arguably shows the purpose of such legislation is to accommodate every

disability” or at the very least “that the effect is that prima facie every disability is . . . accommodated”[30] (Emphasis added) by virtue of the medical expense

tax credit provision. I do not agree that the legislative scheme of the medical expense tax credit is that broad. Although its purpose is to recognize the effect of

above-average medical and disability-related expenses on an individual’s ability to pay tax, it is not meant to cover every health-related expense. On the

contrary, the legislative scheme clearly demonstrates Parliament’s intention to limit the scope of subsection 118.2(2) of the Act in an attempt to address

specific needs and expenses. This is in line with the decision rendered by this Court in Ali v. The Queen.[31], in which Justice Woods, after analyzing the

purpose of subsection 118.2(2) of the Act, stated:

On the other hand, the decision to list specific qualifying expenses in s. 118.2(2) rather than making all medical expenses eligible has the result that some

taxpayers will incur reasonable medical expenses that do not qualify. I think that this result is intended. Parliament has decided that it is not appropriate to

allow tax relief for all medical expenses incurred either at the discretion of the taxpayer or even on the advice of a medical practitioner.[32]

[33]   It should be noted that Ali is being appealed to the Federal Court of Appeal. Nonetheless, I agree with the analysis of Justice Woods. Thus, the benefit

claimed by the Appellant – that every disability be accommodated by the medical tax credit – is not one that the Act confers on anyone else. Parliament

intentionally limited the scope of subsection 118.2(2) of the Act; it was never intended to accommodate every disability.

[34]   The case law shows that individuals who suffer from fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities are not the only taxpayers

who need to buy vitamins, organic food, specialty creams and soaps, supplements, and sanitary products or who require osteopathic services for justifiable

medical reasons. For example, in Herzig[33] described as a “most deserving case” by Associate Chief Justice Bowman (as he then was), the appellant’s

spouse was suffering from breast cancer that proved to be fatal. The appellant was denied the medical expense tax credit for the cost of homeopathic medicine

and nutrients and herbal supplements prescribed by the appellant’s wife’s medical doctors, because these did not fall within the scope of subsection 118.2(2).

[34] It becomes quite evident that the benefit sought by the Appellant in the present case – i.e., the alleviation of the tax burden for all individuals suffering from

a disability and who incur high medical expenses and otherwise incur sufficient tax payable – is not a benefit that is provided by law.

[35]   As indicated by the Supreme Court of Canada in Auton, the analysis does not end here. That Court explained:

. . . Courts should look to the reality of the situation to see whether the claimants have been denied benefits of the legislative scheme other than those they

have raised. This brings up the broader issue of whether the legislative scheme is discriminatory, since it provides non-core services to some groups while

denying funding for ABA/IBI therapy to autistic children. The allegation is that the scheme is itself discriminatory, by funding some non-core therapies while

denying equally necessary ABA/IBI therapy.

This argument moves beyond the legislative definition of “benefit”. As pointed out in Hodge, supra, at para. 25:

. . . the legislative definition, being the subject matter of the equality rights challenge, is not the last word. Otherwise, a survivor’s pension restricted to white

protestant males could be defended on the ground that all surviving white protestant males were being treated equally.

We must look behind the words and ask whether the statutory definition is itself a means of perpetrating inequality rather than alleviating it. Section 15(1)

requires not merely formal equality, but substantive equality: Andrews, supra, at p. 166.[35]

[36]   In other words, while Parliament is free to target the social programs it wishes to fund as a matter of public policy, it cannot enact a law whose policy

objectives and provisions are discriminatory.[36] In Auton the Supreme Court of Canada further indicates that:

A statutory scheme may discriminate either directly, by adopting a discriminatory policy or purpose, or indirectly, by effect. Direct discrimination on the face of

a statute or in its policy is readily identifiable and poses little difficulty. Discrimination by effect is more difficult to identify. Where stereotyping of persons

belonging to a group is at issue, assessing whether a statutory definition that excludes a group is discriminatory, as opposed to being the legitimate exercise

of legislative power in defining a benefit, involves consideration of the purpose of the legislative scheme which confers the benefit and the overall needs it seeks

to meet. If a benefit program excludes a particular group in a way that undercuts the overall purpose of the program, then it is likely to be discriminatory: it

amounts to an arbitrary exclusion of a particular group. If, on the other hand, the exclusion is consistent with the overarching purpose and scheme of the

legislation, it is unlikely to be discriminatory. Thus, the question is whether the excluded benefit is one that falls within the general scheme of benefits and

needs which the legislative scheme is intended to address.[37] [Emphasis added]

[37]   As already mentioned, the legislative scheme in the case at bar does not imply that all medical expenses are to be accommodated by the medical

expense tax credit. Furthermore, the medical expense tax credit benefit does not exclude individuals who suffer from fibromyalgia, chronic fatigue syndrome or

multiple chemical sensitivities. The Appellant was allowed to claim medical expenses that fell within the scope of subsection 118.2(2) of the Act. In addition, a

cancer patient who might benefit from osteopathic treatments and organic foods will not be allowed to claim such expenses for the purpose of the medical

expense tax credit. In short, medical expenses qualify for the medical expense tax credit on the basis of the product or service purchased and not on the basis

of the type of disability from which the taxpayer suffers. This is reiterated by Justice Woods in Ali where she emphasizes that “The line that Parliament has

chosen to draw is between types of therapeutic substances and not physical characteristics of people”.[38]

[38]   Accordingly, I conclude that the benefit claimed by the Appellant — accommodation under subsection 118.2(2) of the Act for all disabilities — is not a

benefit provided by law. Thus, since the first branch of the equality test has not been met, subsection 118.2(2) of the Act does not infringe on the Appellant’s

rights under subsection 15(1) of the Charter. However, since this case raises important issues, it is appropriate to consider whether the Appellant would have

succeeded had she established that a credit for medical expenses for alternative medicine products and services for patients suffering from fibromyalgia,

chronic fatigue syndrome or multiple chemical sensitivities is a benefit provided by law. The next element in this section 15 analysis consists in this Court’s

determining whether the relevant benefit was denied to the claimant while being granted to a comparator group alike. Thus, I will now turn to the second branch

of the Law test.

Is the claimant subject to differential treatment based on one or more enumerated and analogous grounds?

[39]   Disability is one of the enumerated grounds of discrimination in subsection 15(1) of the Charter. The Appellant alleges that she was denied the medical

expense tax credit for the cost of medical products and services and thus she has been discriminated against on the basis of disability. This allegation

requires the identification of the appropriate comparator group, with which the Appellant can then be compared in terms of benefits available under subsection

118.2(2) of the Act.

[40]   The first step in this enquiry is to determine whether the group with which the claimant compares herself is the appropriate comparator group. This step

is a crucial one, and the Supreme Court of Canada established guidelines in Hodge v. Canada (Minister of Human Resources Development),[39] which were

later summarized in Auton, where, that Court stated:

The law pertaining to the choice of comparators is extensively discussed in Hodge, supra, and need not be repeated here. That discussion establishes the

following propositions.

First, the choice of the correct comparator is crucial, since the comparison between the claimants and this group permeates every stage of the analysis. “[M]

isidentification of the proper comparator group at the outset can doom the outcome of the whole s. 15(1) analysis”: Hodge, supra, at para. 18.

Second, while the starting point is the comparator chosen by the claimants, the Court must ensure that the comparator is appropriate and should substitute an

appropriate comparator if the one chosen by the claimants is not appropriate: Hodge, supra, at para. 20.

Third, the comparator group should mirror the characteristics of the claimant or claimant group relevant to the benefit or advantage sought, except for the

personal characteristic related to the enumerated or analogous ground raised as the basis for the discrimination: Hodge, supra, at para. 23. The comparator

must align with both the benefit and the “universe of people potentially entitled” to it and the alleged ground of discrimination: Hodge, at paras. 25 and 31.

Fourth, a claimant relying on a personal characteristic related to the enumerated ground of disability may invite comparison with the treatment of those

suffering a different type of disability, or a disability of greater severity: Hodge, supra, at paras. 28 and 32. Examples of the former include the differential

treatment of those suffering mental disability from those suffering physical disability in Battlefords and District Co-operative Ltd. v. Gibbs, [1996] 3 S.C.R. 566,

and the differential treatment of those suffering chronic pain from those suffering other workplace injuries in Nova Scotia (Workers’ Compensation Board) v.

Martin, [2003] 2 S.C.R. 504, 2003 SCC 54. An example of the latter is the treatment of persons with temporary disabilities compared with those suffering

permanent disabilities in Granovsky, supra.[40]

[41]   The comparator group chosen by the Appellant is “all taxpayers who have other disabilities, yet are able to claim the medical expense tax credit in

respect of their specific disabilities. Such persons have hearing, mobility, vision, and mental disabilities.”[41] The Appellant further suggests that no other class

of disabilities requires organic food, natural supplements, personal and household hygiene products that are free of synthetic chemicals, and bottled water for

valid health reasons.[42] Moreover, the Appellant argues:

. . . Different disabilities require different expenses. Hearing aids are required by the deaf and hard of hearing but not by many persons who are blind or low

vision. Chemotherapy is required for cancer patients but not for many people with mobility impairments. It would be absurd for the Court to choose a

comparator group that desires to claim organic food, natural supplements, personal and household hygienic products that are free of synthetic chemicals, and

bottled water, since that would not be a “benefit” to persons with other disabilities in the medical sense.[43] [Emphasis added]

[42]   I disagree with the Appellant for the following reasons. First, no evidence has been presented with regard to the statement made by the Appellant that

only individuals suffering from fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities require the use of alternative medicine, such as natural

products and services. Second, the case law indicates otherwise: there are several instances of very deserving cases, ones in which taxpayers with other

disabilities requested the credit for similar health-related expenses and were denied.[44] The suggestion by the Appellant that a cancer patient, as in Herzig,

cannot, medically speaking, “benefit” from alternative medicine is open to medical debate. Be that as it may on reading that case, one can conclude that Ms.

Herzig was benefiting just as much from the natural treatment she received as the Appellant currently is from hers. Alternative medicine is not as narrow in

terms of those whom it may benefit as the Appellant claims it to be; it cannot be compared with a hearing aid, which will, of course, serve its purpose only for

individuals with a hearing impairment.

[43]   When selecting the appropriate comparator group, the Court has to find the group that shares with the claimant all the characteristics that qualify for the

benefit, other than a personal characteristic that is among, or analogous to, those listed in section 15 of the Charter. In the case at bar, the appropriate

comparator group for the Appellant is persons who have a disability other than fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities and

who seek the medical expense tax credit for organic food, natural supplements, and personal and household hygiene products that are free of synthetic

chemicals. Such a comparator group meets the requirements set out by the Supreme Court of Canada in Hodge, since the members of that comparator group

are identical to the claimant in all ways except for the characteristics relating to the alleged ground of discrimination, namely, that they do not suffer from

fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities.

[44]   Taking as a basis the appropriate comparator group, I will now compare the treatment given by law to the Appellant with the treatment given to the

comparator group and determine if the claimant has been denied a benefit made available to the comparator group. It is important to keep in mind that

differential treatment in comparison with the comparator group can be either direct or indirect. The former is established by showing an explicit distinction, and

the latter, by showing that the effect of government actions amounts to singling out the claimant for less advantageous treatment on the basis of the alleged

grounds of discrimination.[45]

[45]   The Appellant alleges that she is being treated differently because she is not being allowed the medical expense tax credit for products and services that

she requires in order to survive and maintain her health. As mentioned previously, these products and services include osteopathic treatments, organic food,

natural supplements, and personal and household hygienic products that are free of synthetic chemicals. In short, the question is whether subsection 118.2(2)

of the Act denies people suffering from chronic fatigue syndrome benefits it accords others in the same situation, except that they do not have this specific

physical disability. The Appellant argues forcefully that the line Parliament has chosen to draw is the physical disability of taxpayers, and not medical products

and services. I disagree; the legislation does not make a distinction between individuals suffering from chronic fatigue syndrome and individuals who suffer from

a different disability. No one is allowed tax relief for organic foods and dietary supplements, and this is so regardless of the disability involved. In addition, no

evidence was put forward by the Appellant that would suggest that individuals suffering from chronic fatigue syndrome have a greater need for natural products

and/or alternative medicine. Justice Woods made a statement that applies perfectly in this case when she said in Ali: “The appellants must do more than

establish that they are harshly affected by the legislation. They must establish that they are affected differently based on a personal characteristic.”[46]

[46]   As already mentioned, there are cases that clearly demonstrate that individuals suffering from a different disability had just as great a need for organic

products as the Appellant, but were not able to claim any tax credit for these products. I agree with the Respondent that, as regards to those products, the

credit was denied on the basis of the product purchased and not the disability of the taxpayer.

[47]   In support of her argument, the Appellant refers to paragraph 118.2(2)(r) of the Act, which allows individuals suffering from celiac disease to claim the

incremental cost of acquiring gluten-free food products as compared to the cost of comparable non-gluten-free food products, if the patient has a written

certificate from a medical practitioner. The said paragraph has been in effect since 2003 and reads as follows:

(r) [gluten-free food] – on behalf of the patient who has celiac disease, the incremental cost of acquiring gluten-free food products as compared to the cost of

comparable non-gluten-free food products, if the patient has been certified in writing by a medical practitioner to be a person who, because of that disease,

requires a gluten-free diet;[47] [Emphasize added]

[48]   The Appellant uses paragraph 118.2(2)(r) of the Act as a justification for allowing persons with chronic fatigue syndrome and multiple chemical

sensitivities to claim the medical expense tax credit for organic foods and products. While the Appellant testified that she is intolerant of gluten, she does not

imply that paragraph 118.2(2)(r) violates the Charter but rather argues that the entire medical expense tax credit provision is under‑inclusive and in breach of

her Charter rights. The Appellant has not established that the organic products she bought were gluten‑free nor has she presented any medical evidence

showing that she requires gluten-free products. It seems to me that by referring to paragraph 118.2(2)(r), the Appellant is attempting to underline her position

that the qualifying process under the medical expense tax credit provision is based on disability rather than on medical products or services. I disagree with

any such inference for the following reasons.

[49]   First and foremost, the Appellant cannot rely on a provision that was non‑existent for the year at issue. Paragraph 118.2(2)(r) of the Act only came into

force for the 2003 taxation year and thus has to be ignored for the purpose of this appeal. This being said, even if the gluten-free provision had been applicable

in 2002, that would not change the outcome of this appeal. I will examine this point next.

[50]   The question to ask is whether paragraph 118.2(2)(r) of the Act indicates a shift towards a disability‑based approach in regard to the medical expense

tax credit. It seems clear that the said provision makes a differentiation based on disability; it restricts the benefit strictly to persons who suffer from celiac

disease. Before this provision was adopted, it was examined by the Standing Committee on Human Resources Development and the Status of Persons with

Disabilities. The following dialogue took place:

Ms. Diane St-Jacques: You spoke about medical expenses for people with gluten problems. There is no reference to those with severe allergies. There is a

case in my riding of parents with two children who were allergic to nearly everything, probably even gluten, but maybe not. In any case, the parents had to

appeal because the problem was not recognized. The children could not eat any food bought at a grocery store.

Could you expand on the amendments made to…?

Mr. Serge Nadeau: The list of medical expenses eligible for the tax credit has been extended so that sufferers of celiac disease could claim the difference in

cost for gluten-free products.

Ms. Diane St-Jacques: But that applies only to people with that problem?

Mr. Serge Nadeau: Yes.

Ms. Diane St-Jacques: So other very severe allergies are not included in that?

Mr. Serge Nadeau: No.

Ms. Diane St-Jacques: Is that something else the interim committee can…?

Mr. Serge Nadeau: It is something else the committee could also review.

Ms. Diane St-Jacques: Those are all my questions, Mr. Chairman.[48] [Emphasize added]

The Bill being discussed was later adopted by Parliament with the specific “celiac disease” requirement. This requirement seems to have been thought through

and perhaps the legislator meant to avoid the financial impact of a larger and more inclusive provision. The nature of the tax credit scheme involves a certain

degree of flexibility and requires Parliament to make certain policy decisions. This was supported by the Supreme Court of Canada in Nova Scotia (Workers’

Compensation Board v. Martin)[49], where Justice Gonthier indicated:

Of course, government benefits or services cannot be fully customized. As a practical matter, general solutions will often have to be adopted, solutions which

inevitably may not respond perfectly to the needs of every individual. This is particularly true in the context of large-scale compensation systems, such as the

workers’ compensation scheme under consideration.[50]

[51]   By adding paragraph 118.2(2)(r), Parliament expanded and updated the list of specific allowable expenses in light of new technologies and other

disability‑specific or medically related developments. While it is true that paragraph 118.2(2)(r) of the Act specifically refers to a disability, namely, celiac

disease, I do not think that this can be seen as a general shift in policy. The gluten‑free food provision is an exception to the overall objective of the medical

expense tax credit scheme rather than the norm. When determining the underlying objective of the medical expense tax credit provision, one has to look at the

provision in its entirety. With the exception of paragraph 118.2(2)(r), the legislator has been consistent in avoiding limiting the scope of the medical expense

tax credit provision on the basis of specific personal disabilities. Such an approach is in line with the objective of making a distinction based on medical

products and services. Therefore, as long as Parliament refrains from adding further provisions that differentiate on the basis of disabilities, the general

structure of the medical expense tax credit remains unchanged: the distinction is based on types of medical products and services and not on personal

characteristics of taxpayers.

[52]   Having concluded that the distinction made by subsection 118.2(2) of the Act is based on types of therapeutic substances and not physical

characteristics of people, it follows that the claimant has not shown that differential treatment exists. She was not denied a benefit granted to a comparator

group alike in all ways relevant to the benefit, except for the personal characteristic associated with an enumerated or analogous ground. If the Appellant had

been able to show that differential treatment exists, the third criterion of the Law test would become relevant, and I will look at it next.

Has discrimination been effected?

[53]   Since there is no finding of differential treatment, for all practical purposes this question becomes moot. However, as it raises some important issues of

law, I will nonetheless proceed by analyzing the third branch of the Law test as though it had been found that subsection 118.2(2) of the Act differentiates the

Appellant on the basis of disability. As stated by the Supreme Court of Canada in Law, the third question that the Court has to answer is as follows:

Does the differential treatment discriminate, by imposing a burden upon or withholding a benefit from the claimant in a manner which reflects the stereotypical

application of presumed group or personal characteristics, or which otherwise has the effect of perpetuating or promoting the view that the individual is less

capable or worthy of recognition or value as a human being or as a member of Canadian society, equally deserving of concern, respect, and consideration?[51]

[54]   Furthermore, it is well established that whether there is an infringement on human dignity is to be determined by examining four contextual factors: (1)

pre‑existing disadvantage; (2) correspondence between the grounds upon which the differential treatment is based and the claimant’s actual needs, capacities

and circumstances; (3) ameliorative purpose or effects; and (4) the nature and scope of the interest affected by the impugned law.[52] These four factors are

not exhaustive and should not be applied mechanically.[53] Furthermore, the appropriate perspective to be used in this analysis is a subjective-objective one.

[54] In Law, the Supreme Court of Canada emphasized that:

. . . Equality analysis under the Charter is concerned with the perspective of a person in circumstances similar to those of the claimant, who is informed of and

rationally takes into account the various contextual factors which determine whether an impugned law infringes human dignity, as that concept is understood

for the purpose of s. 15(1).[55]

[55]   The Appellant argues that the differential treatment discriminates against her by withholding a benefit, namely, the medical expense tax credit, in a

manner reflective of the stereotypical application of presumed group or personal characteristics. The Appellant adds that the differential treatment has the effect

of promoting the view that she is less capable or worthy of being valued as a human being or as a member of Canadian society deserving concern,

consideration and respect. To answer the Appellant’s allegation of discrimination and to follow the guidelines set out by the Law test, I have to examine

whether individuals suffering from fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities experience pre‑existing disadvantages.

(a)  Pre-existing disadvantage

[56]   The Respondent recognizes that individuals with disabilities have experienced disadvantages. In Martin, the Supreme Court of Canada examined the pre

-existing disadvantage of individuals suffering from chronic pain. While the Court found it unnecessary to make a finding on that issue, it noted that “many

elements” seemed to indicate that chronic pain sufferers have historically been subject to disadvantages or stereotypes.[56] In the case at bar, some elements

certainly point in the same direction. The Appellant testified that she was not recognized as qualifying for an Armed Forces pension until 11 years after she

had left. None of the medical doctors seemed to believe she was in fact suffering from a serious illness. She further indicated that she was not taken seriously

and was told by some medical doctors that it was “all in her head”. For these reasons, I accept that individuals suffering from fibromyalgia, chronic fatigue

syndrome or multiple chemical sensitivities are subject to a pre-existing disadvantage. However, this does not automatically result in discrimination. It will

depend on the circumstances of each case and the other contextual factors involved. This leads me to examine the second factor.

(b) Correspondence between the grounds upon which the differential treatment is based and the claimant’s actual needs, capacities and circumstances

[57]   With respect to this factor, I will consider the relationship between the ground of distinction and the actual needs, capacities and circumstances of

individuals who suffer from fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities.[57] I have to ask the following question: does subsection

118.2(2) of the Act take into account the needs, capacities or circumstances of taxpayers suffering from fibromyalgia, chronic fatigue syndrome or multiple

chemical sensitivities in a manner that respects their value as human beings and as members of Canadian society?

[58]   The Appellant claims that she is left out from the benefits provided by subsection 118.2(2) of the Act. More specifically, the Appellant argues that the

said provision is under-inclusive in that that it recognizes “a great multitude of disabled persons in its listing of dozens of products and services, but has

practically nothing for her as a person with the disability of chronic fatigue syndrome and multiple chemical sensitivities.”[58] The Appellant further argues that

a reasonable person would sympathize with her situation or her circumstances. In other words, the Appellant claims that the government acts as if chronic

fatigue syndrome were not a real medical condition and fails to treat her with the respect and consideration she deserves.

[59]   First, one should note that the medical expense tax credit in the Act is a large‑scale benefit program that is available to all taxpayers. In Martin, the

Supreme Court of Canada recognized that, with such large-scale social benefit programs, general solutions, such as classification and standardization, are in

many cases necessary.[59] This is certainly the case with the medical expense tax credit under the Act. It is impossible for the government to personalize the

medical expense tax credit in accordance with the individual medical needs of each taxpayer. In Law, the Supreme Court of Canada described human dignity

as follows:

. . . Human dignity means that an individual or group feels self-respect and self-worth.  It is concerned with physical and psychological integrity and

empowerment.  Human dignity is harmed by unfair treatment premised upon personal traits or circumstances which do not relate to individual needs,

capacities, or merits. It is enhanced by laws which are sensitive to the needs, capacities, and merits of different individuals, taking into account the context

underlying their differences.[60]

[60]   As mentioned previously, the medical expense tax credit, being a large‑scale benefit program, cannot take into account every taxpayer’s needs.

Furthermore, there is no legal requirement that it do so.[61] I agree that subsection 118.2(2) of the Act does not allow the Appellant to deduct all medical

expenses that relate to her individual needs. However, this was never the intended purpose of subsection 118.2(2) of the Act. Also, the said provision does not

exclude the Appellant on the basis of personal traits or circumstances; it is not arbitrary, but, rather, it applies equally to all taxpayers. Many taxpayers

suffering from various types of illnesses seek alternative medical treatment, thus it cannot be said that the legislation draws a line based on physical

characteristics. The government simply had to define the scope of subsection 118.2(2); it did so on the basis of the type of medical services and products.

Consequently, the needs of the Appellant have been taken into account by the government, since she qualifies for some tax relief under that subsection.

(c)  Ameliorative purpose or effects

[61]   In regard to this contextual factor, the Supreme Court of Canada explained in Law:

Another possibly important factor will be the ameliorative purpose or effects of impugned legislation or other state action upon a more disadvantaged person or

group in society.  As stated by Sopinka J. in Eaton, supra, at para. 66: “the purpose of s. 15(1) of the Charter is not only to prevent discrimination by the

attribution of stereotypical characteristics to individuals, but also to ameliorate the position of groups within Canadian society who have suffered disadvantage

by exclusion from mainstream society”.  An ameliorative purpose or effect which accords with the purpose of s. 15(1) of the Charter will likely not violate the

human dignity of more advantaged individuals where the exclusion of these more advantaged individuals largely corresponds to the greater need or the different

circumstances experienced by the disadvantaged group being targeted by the legislation.  I emphasize that this factor will likely only be relevant where the

person or group that is excluded from the scope of ameliorative legislation or other state action is more advantaged in a relative sense.  Underinclusive

ameliorative legislation that excludes from its scope the members of a historically disadvantaged group will rarely escape the charge of discrimination:  see

Vriend, supra, at paras. 94-104, per Cory J.[62] [Emphasize added]

[62]   The Respondent asserts that some taxpayers who benefit from subsection 118.2(2) might be in a position of greater disadvantage than the Appellant.

This may very well be true, but the reverse might also be true. I do not think that the measuring of relative disadvantages as between the Appellant and other

disabled individuals is the key point here. I have determined that the Appellant does belong to a historically disadvantaged group and, as indicated by the

Supreme Court of Canada in Law, in such cases the threshold to escape the charge of discrimination becomes high.[63] Nevertheless, the impugned provision

in this case is a large‑scale benefit program and its purpose is not to provide unlimited tax relief for all medical expenses. It is not under-inclusive since it does

provide individuals suffering from fibromyalgia, chronic fatigue syndrome or multiple chemical sensitivities with partial tax relief. This distinguishes the present

case from Martin, where the claimants were totally excluded under the Nova Scotia Workers’ Compensation Act[64] on the basis of their disabilities. Such is

not the case here, and for the above reasons, I conclude that the overall ameliorative purpose of subsection 118.2(2) of the Act does not conflict with the values

enshrined in subsection 15(1) of the Charter.

(d) The nature and scope of the interest affected by the impugned law

[63]   The last contextual factor to be taken into account requires me to consider the nature and scope of the interest affected by the impugned law. In Law the

Supreme Court of Canada explained this factor as follows:

A further contextual factor which may be relevant in appropriate cases in determining whether the claimant’s dignity has been violated will be the nature and

scope of the interest affected by the legislation.  This point was well explained by L’Heureux-Dubé J. in Egan, supra, at paras. 63-64.  As she noted, at para.

63, “[i]f all other things are equal, the more severe and localized the . . . consequences on the affected group, the more likely that the distinction responsible

for these consequences is discriminatory within the meaning of s. 15 of the Charter”.  L’Heureux-Dubé J. explained, at para. 64, that the discriminatory calibre

of differential treatment cannot be fully appreciated without evaluating not only the economic but also the constitutional and societal significance attributed to

the interest or interests adversely affected by the legislation in question.  Moreover, it is relevant to consider whether the distinction restricts access to a

fundamental social institution, or affects “a basic aspect of full membership in Canadian society”, or “constitute[s] a complete non-recognition of a particular

group”.[65]

[64]   Accordingly, it is necessary to examine whether the Appellant was denied access to a fundamental social institution or was not recognized as being a

full member of Canadian society. The Respondent argues that the Appellant’s interests at stake here are only financial. This question was examined in Martin,

where the Supreme Court of Canada stated:

. . . While a s. 15(1) claim relating to an economic interest should generally be accompanied by an explanation as to how the dignity of the person is engaged,

claimants need not rebut a presumption that economic disadvantage is unrelated to human dignity.  In many circumstances, economic deprivation itself may

lead to a loss of dignity.  In other cases, it may be symptomatic of widely held negative attitudes towards the claimants and thus reinforce the assault on their

dignity.[66]

[65]   While it is true that the benefits of the medical expense tax credit are monetary, in light of the Martin decision, deprivation of such monetary benefits

may in some circumstances lead to a loss of dignity. Therefore, it is not surprising that the Appellant compares herself with the claimants in Martin. However,

in the case at bar, the situation is quite different. First, the Appellant is not excluded from the scope of subsection 118.2(2) of the Act, since for some medical

expenses she did qualify for the credit. Second, the medical expense tax credit only applies to taxpayers with an income high enough to actually qualify for

the credit. Many individuals suffering from the same illness as the Appellant will not gain any benefit from the Appellant’s proposed amendment to the medical

expense tax credit provision of the Act. This suggests that the medical expense tax credit is a financial benefit of which only certain people can avail

themselves. Therefore, if a medical expense does not qualify under the Act, that is not by itself a denial of access to some fundamental social institution, nor

has the government failed to recognize the claimant as being a full member of Canadian society.

Thus, I conclude that, if under subsection 118.2(2) of the Act, there is differential treatment of taxpayers suffering from fibromyalgia, chronic fatigue syndrome

or multiple chemical sensitivities, that differential treatment does not discriminate against the Appellant. As shown above, subsection 118.2(2) does not

promote the view that the Appellant is less capable or less worthy of recognition as a human being. The impugned law simply provides for a financial benefit to

qualifying taxpayers on the basis of qualifying services and products. Consequently, there is no discrimination and subsection 118.2(2) of the Act does not

violate human dignity.

ISSUE 3

[66]   If subsection 118.2(2) of the Act violates section 15 of the Charter, is that subsection saved by section 1 of the Charter as demonstrably justifiable in a

free and democratic society?

[67]   If I were to assume that subsection 118.2(2) of the Act violates subsection 15(1) of the Charter, the Respondent could then demonstrate that such a

violation is justified under section 1 of the Charter. Section 1 reads as follows:

The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can

be demonstrably justified in a free and democratic society.[67]

[68]   The test applicable for a section 1 analysis was established by the Supreme Court of Canada in R. v. Oakes.[68] It is a two-part test; first, in order to

limit a constitutional guarantee, the objective of the legislation must be pressing and substantial. Second, the court has to determine if the limit is proportional

to that objective in that it is rationally connected to the legislative aims, it minimally impairs the claimant’s rights to equality, and finally, its positive objectives

and effects outweigh the effects of the abridgement of those rights. Furthermore, the standard of proof is the preponderance of probabilities and the onus in that

regard is on the Respondent.[69]

(a) Pressing and substantial objective

[69]   At this stage, it is necessary to determine whether the objective of the impugned law is pressing and substantial such that it justifies a restriction of an

equality right. It goes without saying that the legislator cannot legislate contrary to the principles enshrined in section 15 of the Charter. To determine whether

such has been done, it is essential to find the legislator’s true objective. In other words, what did Parliament intend to achieve when first enacting the medical

expense tax credit? It should be noted that the original intention might have changed over time, and this will have to be taken into consideration.

[70]   The purpose of the medical expense tax credit provision of the Act has already been examined, and I will refrain from repeating myself. In short, the

purpose of the medical expense tax credit is to alleviate the tax burden of taxpayers who incur high medical expenses, within certain limits. These limits have

been intentionally drawn by the legislator, and subsection 118.2(2) was never intended to accommodate every disability. The Appellant argues that this case is

different from Ali since it does not specifically question the validity of the “recorded by a pharmacist” requirement set out in paragraph 118.2(2)(n) of the Act.

She stresses that “it is time for this Honourable Court to take a fresh new approach”[70]. Furthermore, the Appellant argues that subsection 118.2(2) is not

about the safety and efficacy of medical products and services. I disagree; the legislator limited the application of the medical expense tax credit provision in

order to avoid abuse and ensure that the provision is in line with concerns for safety and efficacy. This is consistent with the decision rendered by Justice

Woods in Ali, in which she stated:

Assurance of safety and efficacy would not be met if the pharmacist‑recording requirement were removed. The evidence as a whole suggests that the efficacy

of natural health products is very controversial. In terms of the safety and efficacy of dietary supplements to treat FMS and CFS, Health Canada generally has

not required clinical trials for these products and the FMS Report and CFS Report suggest that there is no general acceptance that NHPs generally are

efficacious to treat these conditions.[71]

[71]   While I agree with the Appellant that the question in the Ali case was more specifically directed towards paragraph 118.2(2)(n), the overall purpose and

objective of the medical expense tax credit provision remains identical. It is quite evident that controlling the safety and efficacy of medication is a pressing and

substantive objective. It is important that the benefits provided by the application of subsection 118.2(2) of the Act be geared towards ensuring safe and

efficacious medications. I do not suggest that alternative medicine is unsafe or inefficacious; I wish rather to emphasize that by restricting the application of

subsection 118.2(2) Parliament seeks to ensure that the tax relief is beneficial to taxpayers and is within the monetary means of the government. Furthermore,

the Appellant argues that alternative medicine, such as herbal medicine, homeopathic preparation, vitamins and mineral supplements are safe and “certainly

much more safe that [sic] pharmaceuticals”.[72] The Appellant further argues that natural products will have a natural product number by the end of 2010 and

that this could serve to ensure safety. The Appellant also suggests that this Court “may mandate inclusion in the medical expense tax credit of natural health

products that have a government approved Natural Product Number.”[73] Again, whether alternative medicines, such as natural medicaments, are safe is not

for this Court to determine, but is for Parliament to debate. What matters at this stage of the analysis is that the safety and efficacy of medical products and

services was taken into consideration by the legislator when determining the scope of subsection 118.2(2) of the Act. These considerations are pressing and

substantial objectives.

[72]   The Respondent also raises the issue of the government’s ability to control costs by limiting the scope of the medical expense tax credit provision. As

mentioned previously, the medical expense tax credit is not an all-inclusive medical health plan, but rather a limited and specific benefit available to taxpayers.

In summary, the objective of the impugned law, namely, to ensure that the benefit provides tax relief with respect to safe and efficacious medical products and

services as well as to limit abuse and control costs  in order to maintain the credit’s financial sustainability, is a pressing and substantial objective. I will now

examine whether the limit imposed on the equality right is proportional to the objective of subsection 118.2(2) of the Act. This question is answered by

evaluation of the three following elements.

(b) Proportionality

(i)      Rational connection

[73]   In Oakes, the Supreme Court of Canada indicated that the law must be “carefully designed to achieve the objective in question”; it should not be

“arbitrary unfair, or based on irrational considerations.”[74] In the case at bar, the question is whether subsection 118.2(2) of the Act logically supports the

underlying objective of the legislator. In Rodriguez v. British Columbia (Attorney General)[75], the Supreme Court of Canada makes it clear that a rule of law is

arbitrary if there is no rational connection with its objective. Subsection 118.2(2) of the Act has as its purpose tax relief for specific health‑related expenses.

This reduction in taxes is only for specific products and services that have been listed and defined by Parliament. There is a clear connection between: (1) the

goal of limiting tax relief for safe and efficacious services and products and ensuring that the program is financially sustainable and (2) the limitative scope of

the services and products that are allowed to be claimed under subsection 118.2(2) of the Act.

(ii)      Minimal impairment

[74]   Does the impugned law unnecessarily impair the Appellant’s rights? Her case is a very deserving one and there is no doubt that the Appellant would

benefit from a medical expense tax credit that would include alternative medicine and medicaments. However, unlike the situation in the Martin case, the

Appellant presently benefits from the tax credit; she is not excluded entirely from the scheme. Furthermore, the only way for the government to control a large

-scale tax benefit is to narrow its scope and specify what is included and what is not. As already mentioned, this process is carried out not arbitrarily, but in

the light of new medical technology. It is, moreover, not up to this Court to rewrite policies in this regard. As indicated by the Supreme Court of Canada in

Chaoulli v. Quebec (Attorney General)[76]:

In past cases, the Court has discussed a number of situations in which courts must show deference, namely situations in which the government is required to

mediate between competing interests and to choose between a number of legislative priorities (Irwin Toy Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R.

927, at pp. 993‑94).  It is also possible to imagine situations in which a government might lack time to implement programs or amend legislation following the

emergence of new social, economic or political conditions.  The same is true of an ongoing situation in which the government makes strategic choices with

future consequences that a court is not in a position to evaluate.

In short, a court must show deference where the evidence establishes that the government has assigned proper weight to each of the competing interests.

Certain factors favour greater deference, such as the prospective nature of the decision, the impact on public finances, the multiplicity of competing interests,

the difficulty of presenting scientific evidence and the limited time available to the state.[77] [Emphasis added]

[75]   Considering its limitative purpose, I conclude that subsection 118.2(2) does not unnecessarily impair the Appellant’s rights under the Charter.

(iii)     Do the positive objectives and effects outweigh the effects of the abridgement of the Appellant’s rights?

[76]   Peter W. Hogg notes that what this test requires is “a balancing of the objective sought by the law against the infringement of the Charter. It asks

whether the Charter infringement is too high a price to pay for the benefit of the law”[78].

[77]   Here the objective of the law outweighs the negative consequences; the fact that many taxpayers who incur high medical expenses benefit from the

medical expense tax credit outweighs the fact that not all medical services and products can be claimed. The more the effects of a given provision are negative

for the claimant the more difficult it becomes to justify its necessity. However, in the case at bar, the detrimental effects on some taxpayers, who do not qualify

for the credit with respect to some of the expenses they incur for medical products or services, is outweighed by the general purpose of the provision, that is,

to provide partial tax relief for specific medical expenses.

[78]   Therefore, even if subsection 118.2(2) of the Act infringes subsection 15(1) of the Charter, such infringement can be justified under section 1 of the

Charter.

ISSUE 4

[79]   Does the Tax Court of Canada have jurisdiction to issue declarations and grant, under section 52 of the Constitution Act, 1982, remedies consisting in

reading up, reading down or severing invalid legislation, specifically the impugned provision of the Act?

[80]   Since I have concluded that there is no Charter violation, I find it unnecessary to entertain this question.

CONCLUSION

[81]   While her case is a very deserving one, what the Appellant is really seeking is a legislative change and not judicial review. That lies beyond the power of

the judiciary.

[82]   With regard to the medical expense tax credit, Parliament has to make certain policy choices. In this particular case, the result might seem harsh for

the Appellant. One can only hope that current reality and the progress of alternative medicine will be taken into consideration by Parliament and that the Act

will ultimately be amended.

[83]   Therefore, I conclude that the Appellant shall only be allowed to claim the amount of $3,253.74 as medical expenses, as agreed by the parties in their

Partial Agreed Statement of Facts. Consequently, the Appellant’s 2002 medical tax credit is $244 [($3,253 - $1,728) x 16%]. For the reasons provided in this

judgment, the remaining portion of the medical expenses claimed, amounting to a total of $10,442.43, ought to be ignored in the calculation of the Appellant’s

medical tax credit.

Signed at Ottawa, Canada, this 7th day of January 2008.

“Paul Bédard”

Bédard J.

Appendix

Relevant Statutory Provisions as they read in 2002.

118.2. Medical expense credit

(1) Medical expense credit – For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an

amount determined by the formula

A(B – C) – D

where

A is the appropriate percentage for the year;

B is the total of the individual’s medical expenses that are proven by filing receipts therefor with the Minister, that were not included in determining an amount

under this subsection or subsection 122.51(2) for a preceding taxation year and that were paid by either the individual or the individual’s legal representative,

(a) where the individual died in the year, within any period of 24 months that includes the day of death, and

(b) in any other case, within any period of 12 months ending in the year;

C is the lesser of $1,500 and 3% of the individual’s income for the year; and

D is 68% of the total of all amounts each of which is the amount, if any, by which

(a) the income for the year of a person (other than the individual and the individual’s spouse or common-law partner) in respect of whom an amount is included

in computing the individual’s deduction under this section for the year

exceeds

(b) the amount used under paragraph (c) of the description of B in subsection 118(1) for the year.

(2) Medical expenses – For the purposes of subsection (1), a medical expense of an individual is an amount paid

(a) [medical and dental services] – to a medical practitioner, dentist or nurse or a public or licensed private hospital in respect of medical or dental services

provided to a person (in this subsection referred to as the “patient”) who is the individual, the individual’s spouse or common-law partner or a dependant of the

individual (within the meaning assigned by subsection 118(6)) in the taxation year in which the expense was incurred;

(b) [attendant or nursing home care] – as remuneration for one full-time attendant (other than a person who, at the time the remuneration is paid, is the

individual’s spouse or common-law partner or is under 18 years of age) on, or for the full-time care in a nursing home of, the patient in respect of whom an

amount would, but for paragraph 118.3(1)(c), be deductible under section 118.3 in computing a taxpayer’s tax payable under this Part for the taxation year in

which the expense was incurred;

(b.1) [attendant] – as remuneration for attendant care provided in Canada to the patient if

(i) the patient is a person in respect of whom an amount may be deducted under section 118.3 in computing a taxpayer’s tax payable under this Part for the

taxation year in which the expense was incurred,

(ii) no part of the remuneration is included in computing a deduction claimed in respect of the patient under section paragraph 63 or 64 or (b), (b.2), (c), (d) or

(e) for any taxation year,

(iii) at the time the remuneration is paid, the attendant is neither the individual’s spouse or common-law partner nor under 18 years of age, and

(iv) each receipt filed with the Minister to prove payment of the remuneration was issued by the payee and contains, where the payee is an individual, that

individual’s Social Insurance Number,

to the extent that the total of amounts so paid does not exceed $10,000 (or $20,000 if the individual dies in the year);

(b.2) [group home care] – as remuneration for the patient’s care or supervision provided in a group home in Canada maintained and operated exclusively for the

benefit of individuals who have a severe and prolonged impairment, if

(i) because of the patient’s impairment, the patient is a person in respect of whom an amount may be deducted under section 118.3 in computing a taxpayer’s

tax payable under this Part for the taxation year in which the expense is incurred,

(ii) no part of the remuneration is included in computing a deduction claimed in respect of the patient under section paragraph 63 or 64 or (b), (b.1), (c), (d) or

(e) for any taxation year, and

(iii) each receipt filed with the Minister to prove payment of the remuneration was issued by the payee and contains, where the payee is an individual, that

individual’s Social Insurance Number;

(c) [full-time attendant at home] – as remuneration for one full-time attendant upon the patient in a self-contained domestic establishment in which the patient

lives, if

(i) the patient is, and has been certified by a medical practitioner to be, a person who, by reason of mental or physical infirmity, is and is likely to be for a long

-continued period of indefinite duration dependent on others for the patient’s personal needs and care and who, as a result thereof, requires a full-time

attendant,

(ii) at the time the remuneration is paid, the attendant is neither the individual’s spouse or common-law partner nor under 18 years of age, and

(iii) each receipt filed with the Minister to prove payment of the remuneration was issued by the payee and contains, where the payee is an individual, that

individual’s Social Insurance Number;

(d) [nursing home care] – for the full-time care in a nursing home of the patient, who has been certified by a medical practitioner to be a person who, by reason

of lack of normal mental capacity, is and in the foreseeable future will continue to be dependent on others for the patient’s personal needs and care;

(e) [school, institution, etc.] – for the care, or the care and training, at a school, institution or other place of the patient, who has been certified by an

appropriately qualified person to be a person who, by reason of a physical or mental handicap, requires the equipment, facilities or personnel specially provided

by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by the patient;

(f) [ambulance fees] – for transportation by ambulance to or from a public or licensed private hospital for the patient;

(g) [transportation] – to a person engaged in the business of providing transportation services, to the extent that the payment is made for the transportation of

(i) the patient, and

(ii) one individual who accompanied the patient, where the patient was, and has been certified by a medical practitioner to be, incapable of travelling without the

assistance of an attendant

from the locality where the patient dwells to a place, not less than 40 kilometres from that locality, where medical services are normally provided, or from that

place to that locality, if

(iii) substantially equivalent medical services are not available in that locality,

(iv) the route travelled by the patient is, having regard to the circumstances, a reasonably direct route, and

(v) the patient travels to that place to obtain medical services for himself or herself and it is reasonable, having regard to the circumstances, for the patient to

travel to that place to obtain those services;

(h) [travel expenses] – for reasonable travel expenses (other than expenses described in paragraph (g)) incurred in respect of the patient and, where the patient

was, and has been certified by a medical practitioner to be, incapable of travelling without the assistance of an attendant, in respect of one individual who

accompanied the patient, to obtain medical services in a place that is not less than 80 kilometres from the locality where the patient dwells if the

circumstances described in subparagraphs (g)(iii), (iv) and (v) apply;

(i) [devices] – for or in respect of an artificial limb, iron lung, rocking bed for poliomyelitis victims, wheel chair, crutches, spinal brace, brace for a limb, iliostomy

or colostomy pad, truss for hernia, artificial eye, laryngeal speaking aid, aid to hearing or artificial kidney machine, for the patient;

(i.1) [devices for incontinence] – for or in respect of diapers, disposable briefs, catheters, catheter trays, tubing or other products required by the patient by

reason of incontinence caused by illness, injury or affliction;

(j) [eyeglasses] – for eye glasses or other devices for the treatment or correction of a defect of vision of the patient as prescribed by a medical practitioner or

optometrist;

(k) [various] – for an oxygen tent or other equipment necessary to administer oxygen or for insulin, oxygen, liver extract injectible for pernicious anaemia or

vitamin B12 for pernicious anaemia, for use by the patient as prescribed by a medical practitioner;

(l) [guide dogs, etc.] – on behalf of the patient who is blind or profoundly deaf or has a severe and prolonged impairment that markedly restricts the use of the

patient’s arms or legs,

(i) for an animal specially trained to assist the patient in coping with the impairment and provided by a person or organization one of whose main purposes is

such training of animals,

(ii) for the care and maintenance of such an animal, including food and veterinary care,

(iii) for reasonable travel expenses of the patient incurred for the purpose of attending a school, institution or other facility that trains, in the handling of such

animals, individuals who are so impaired, and

(iv) for reasonable board and lodging expenses of the patient incurred for the purpose of the patient’s full-time attendance at a school, institution or other facility

referred to in subparagraph (iii);

(l.1) [transplant costs] – on behalf of the patient who requires a bone marrow or organ transplant,

(i) for reasonable expenses (other than expenses described in subparagraph (ii)), including legal fees and insurance premiums, to locate a compatible donor

and to arrange for the transplant, and

(ii) for reasonable travel, board and lodging expenses (other than expenses described in paragraphs (g) and (h)) of the donor (and one other person who

accompanies the donor) and the patient (and one other person who accompanies the patient) incurred in respect of the transplant;

(l.2) [alterations to home] – for reasonable expenses relating to renovations or alterations to a dwelling of the patient who lacks normal physical development or

has a severe and prolonged mobility impairment, to enable the patient to gain access to, or to be mobile or functional within, the dwelling;

(l.21) [home construction costs] – for reasonable expenses, relating to the construction of the principal place of residence of the patient who lacks normal

physical development or has a severe and prolonged mobility impairment, that can reasonably be considered to be incremental costs incurred to enable the

patient to gain access to, or to be mobile or functional within, the patient’s principal place of residence;

(l.3) [lip reading and sign language training] – for reasonable expenses relating to rehabilitative therapy, including training in lip reading and sign language,

incurred to adjust for the patient’s hearing or speech loss;

(l.4) [sign language services] – on behalf of the patient who has a speech or hearing impairment, for sign language interpretation services, to the extent that the

payment is made to a person engaged in the business of providing such services;

(l.5) [moving expenses] -  for reasonable moving expenses (within the meaning of subsection 62(3), but not including any expense deducted under section 62

for any taxation year) of the patient, who lacks normal physical development or has a severe and prolonged mobility impairment, incurred for the purpose of the

patient’s move to a dwelling that is more accessible by the patient or in which the patient is more mobile or functional, if the total of the expenses claimed

under this paragraph by all persons in respect of the move does not exceed $2,000;

(l.6) [driveway alterations] – for reasonable expenses relating to alterations to the driveway of the principal place of residence of the patient who has a severe

and prolonged mobility impairment, to facilitate the patient’s access to a bus;

(l.7) [van for wheelchair] – for a van that, at the time of its acquisition or within 6 months after that time, has been adapted for the transportation of the patient

who requires the use of a wheelchair, to the extent of the lesser of $5,000 and 20% of the amount by which

(i) the amount paid for the acquisition of the van

exceeds

(ii) the portion, if any, of the amount referred to in subparagraph (i) that is included because of paragraph (m) in computing the individual’s deduction under this

section for any taxation year;

(l.8) [caregiver training] – for reasonable expenses (other than amounts paid to a person who was at the time of the payment the individual’s spouse or

common-law partner or a person under 18 years of age) to train the individual, or a person related to the individual, if the training relates to the mental or

physical infirmity of a person who

(i) is related to the individual, and

(ii) is a member of the individual’s household or is dependent on the individual for support;

(l.9) [therapy] – as remuneration for therapy provided to the patient because of the patient’s severe and prolonged impairment, if

(i) because of the patient’s impairment, an amount may be deducted under section 118.3 in computing a taxpayer’s tax payable under this Part for the taxation

year in which the remuneration is paid,

(ii) the therapy is prescribed by, and administered under the general supervision of,

(A) a medical doctor or a psychologist, in the case of mental impairment, and

(B) a medical doctor or an occupational therapist, in the case of a physical impairment,

(iii) at the time the remuneration is paid, the payee is neither the individual’s spouse nor an individual who is under 18 years of age, and

(iv) each receipt filed with the Minister to prove payment of the remuneration was issued by the payee and contains, where the payee is an individual, that

individual’s Social Insurance Number;

(l.91) [tutoring services] – as remuneration for tutoring services that are rendered to, and are supplementary to the primary education of, the patient who

(i) has a learning disability or a mental impairment, and

(ii) has been certified in writing by a medical practitioner to be a person who, because of that disability or impairment, requires those services,

if the payment is made to a person ordinarily engaged in the business of providing such services to individuals who are not related to the payee.

(m) [prescribed devices] – for any device or equipment for use by the patient that

(i) is of a prescribed kind,

(ii) is prescribed by a medical practitioner,

(iii) is not described in any other paragraph of this subsection, and

(iv) meets such conditions as may be prescribed as to its use or the reason for its acquisition;

to the extent that the amount so paid does not exceed the amount, if any, prescribed in respect of the device or equipment;

(n) [drugs] – for drugs, medicaments or other preparations or substances (other than those described in paragraph (k)) manufactured, sold or represented for

use in the diagnosis, treatment or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof or in restoring, correcting or modifying

an organic function, purchased for use by the patient as prescribed by a medical practitioner or dentist and as recorded by a pharmacist;

(o) [lab test] – for laboratory, radiological or other diagnostic procedures or services together with necessary interpretations, for maintaining health, preventing

disease or assisting in the diagnosis or treatment of any injury, illness or disability, for the patient as prescribed by a medical practitioner or dentist;

(p) [dentures] – to a person authorized under the laws of a province to carry on the business of a dental mechanic, for the making or repairing of an upper or

lower denture, or for the taking of impressions, bite registrations and insertions in respect of the making, producing, constructing and furnishing of an upper or

lower denture, for the patient; or

(q) [health plan premiums] – as a premium, contribution or other consideration under a private health services plan in respect of one or more of the individual,

the individual’s spouse or common-law partner and any member of the individual’s household with whom the individual is connected by blood relationship,

marriage, common-law partnership or adoption, except to the extent that the premium, contribution or consideration is deducted under subsection 20.01(1) in

computing an individual’s income from a business for any taxation year.

(3) Deemed medical expense – For the purposes of subsection (1),

(a) any amount included in computing an individual’s income for a taxation year from an office or employment in respect of a medical expense described in

subsection (2) paid or provided by an employer at a particular time shall be deemed to be a medical expense paid by the individual at that time; and

(b) there shall not be included as a medical expense of an individual any expense to the extent that

(i) the individual,

(ii) the person referred to in subsection (2) as the patient,

(iii) any person related to a person referred to in subparagraph (i) or (ii), or

(iv) the legal representative of any person referred to in any of subparagraphs (i) to (iii)

is entitled to be reimbursed for the expense, except to the extent that the amount of the reimbursement is required to be included in computing income and is

not deductible in computing taxable income.

(4) Deemed payment of medical expenses – Where, in circumstances in which a person engaged in the business of providing transportation services is not

readily available, an individual makes use of a vehicle for a purpose described in paragraph (2)(g), the individual or the individual’s legal representative shall be

deemed to have paid to a person engaged in the business of providing transportation services, in respect of the operation of the vehicle, such amount as is

reasonable in the circumstances.

Regulation, Part LVII — Medical Devices and Equipment [S. 5700]

5700. For the purposes of paragraph 118.2(2)(m) of the Act, a device or equipment is prescribed if it is a

(a) wig made to order for an individual who has suffered abnormal hair loss owing to disease, medical treatment or accident;

(b) needle or syringe designed to be used for the purpose of giving an injection;

(c) device or equipment, including a replacement part, designed exclusively for use by an individual suffering from a severe chronic respiratory ailment or a

severe chronic immune system disregulation, but not including an air conditioner, humidifier, dehumidifier, heat pump or heat or air exchanger;

(c.1) air or water filter or purifier for use by an individual who is suffering from a severe chronic respiratory ailment or a severe chronic immune system

disregulation to cope with or overcome that ailment or disregulation;

(c.2) electric or sealed combustion furnace acquired to replace a furnace that is neither an electric furnace nor a sealed combustion furnace, where the

replacement is necessary solely because of a severe chronic respiratory ailment or a severe chronic immune system disregulation;

(c.3) air conditioner acquired for use by an individual to cope with the individual’s severe chronic ailment, disease or disorder, to the extent of the lesser of

$1,000 and 50% of the amount paid for the air conditioner;

(d) device or equipment designed to pace or monitor the heart of an individual who suffers from heart disease;

(e) orthopaedic shoe or boot or an insert for a shoe or boot made to order for an individual in accordance with a prescription to overcome a physical disability of

the individual;

(f) power-operated guided chair installation, for an individual, that is designed to be used solely in a stairway;

(g) mechanical device or equipment designed to be used to assist an individual to enter or leave a bathtub or shower or to get on or off a toilet;

(h) hospital bed including such attachments thereto as may have been included in a prescription therefor;

(i) device that is designed to assist an individual in walking where the individual has a mobility impairment;

(j) external breast prosthesis that is required because of a mastectomy;

(k) teletypewriter or similar device, including a telephone ringing indicator, that enables a deaf or mute individual to make and receive telephone calls;

(l) optical scanner or similar device designed to be used by a blind individual to enable him to read print;

(m) power-operated lift or transportation equipment designed exclusively for use by, or for, a disabled individual to allow the individual access to different areas

of a building or to assist the individual to gain access to a vehicle or to place the individual’s wheelchair in or on a vehicle;

(n) device designed exclusively to enable an individual with a mobility impairment to operate a vehicle;

(o) device or equipment, including a synthetic speech system, braille printer and large print-on-screen device, designed exclusively to be used by a blind

individual in the operation of a computer;

(p) electronic speech synthesizer that enables a mute individual to communicate by use of a portable keyboard;

(q) device to decode special television signals to permit the script of a program to be visually displayed;

(q.1) a visual or vibratory signalling device, including a visual fire alarm indicator, for an individual with a hearing impairment;

(r) device designed to be attached to infants diagnosed as being prone to sudden infant death syndrome in order to sound an alarm if the infant ceases to

breathe;

(s) infusion pump, including diposable peripherals, used in the treatment of diabetes or a device designed to enable a diabetic to measure the diabetic’s blood

sugar level;

(t) electronic or computerized environmental control system designed exclusively for the use of an individual with a severe and prolonged mobility restriction;

(u) extremity pump or elastic support hose designed exclusively to relieve swelling caused by chronic lymphedema;

(v) inductive coupling osteogenesis stimulator for treating non-union of fractures or aiding in bone fusion; and

(w) talking textbook prescribed by a medical practitioner for use by an individual with a perceptual disability, in connection with the individual’s enrolment at an

educational institution in Canada.

CITATION:                                       2008TCC11

COURT FILE NO.:                           2006-3169(IT)I

STYLE OF CAUSE:                          Marie Esther Louise Chevalier v. Her Majesty The Queen

PLACE OF HEARING:                     Montreal, Quebec

DATE OF HEARING:                       June 29, 2007

Written arguments (Appellant):            August 7, 2007

Written arguments (Respondent):        August 20, 2007

Reply from the Appellant:                  August 24, 2007

REASONS FOR JUDGMENT BY:   The Honourable Justice Paul Bédard

DATE OF JUDGMENT:                    January 7, 2008

APPEARANCES:

Counsel for the Appellant:

Scott L. Simser

Counsel for the Respondent:

Jade Boucher and

Marie-Claude Boisvert, Student-at-law

COUNSEL OF RECORD:

For the Appellant:

Name:                     Scott L. Simser

City:                      Kanata, Ontario

For the Respondent:                    John H. Sims, Q.C.

Deputy Attorney General of Canada

Ottawa, Canada

[1] Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

[2] Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11.

 To avoid tax problems, it is important to recognize that conventional accounting packages fall short when “Audit Time” comes and you are not audit ready.

Let’s start with the definition of “Audit.”

Definition:To audit means to go through the process of examining and verifying a company’s financial records and supporting documents.

While a business might go through an audit for any number of reasons, such as wanting to attract investors, get a loan, or sell the business, for many business people the word “audit” is welded to the words “income tax”.

An income tax audit is an inspection and verification of a company’s records and supporting documents conducted by a CRA (Canada Revenue Agency) auditor.

The CRA doesn’t just conduct income tax audits, however; they perform audits of any CRA accounts, including auditing GST returns and claims for rebates.

According to the CRA’s Guide For Canadian Small Businesses, an audit usually takes one to two weeks, and involves “an examination of your ledgers, journals, bank accounts, sales invoices, purchase vouchers, and expense accounts.” They go on to point out that the audit process may involve touring your business premises, and seeking information and assistance from your employees.

As the CRA performs a certain number of audits each year to monitor compliance, it’s wise to be certain that your business records are well-kept, complete, and always “audit-ready”.

Audit ready involves having an autit trail for every expense you incur.

If Audit Time is a time requiring an audit solution, and you have to run around in an audit panic, then you need to change your bookkeeping system.

Contact me for more information on this.

Dan

 This is one of those cases that I have had a lot of discussions with donors over. I have been against any and all of these schemes right from the beginning. I saw them as nothing more than a tax problem that is going to need a solution. I stand firm, do not argue that the pan is legitimate, it will just hurt you at negotiation time.

You can negotiate this case with CRA, but you need to know what you are doing or get some good tax problem solver help.

Dan White

ROCHESTER/PROMITTERE/BANYAN TREE
CLASS ACTION CLAIM

Recent Developments

The plaintiffs’ motion seeking certification of this action as a class proceeding was argued before the Honourable Madam Justice Lax, Designated Class Proceedings Judge, in Toronto, June 23, 24 and 25, 2009.

At the same time, the Gift Program Defendants argued a motion before the Court seeking a stay of the action.

The hearing proceeded for three full days before the Court and Her Honour reserved her decision.

This is not unusual in a case such as this which is legally and factually complex. An enormous volume of material was filed with Her Honour and she reserved her decision in order to have an opportunity to further review the materials filed and to consider all of the arguments made before her at the hearing.

In due course, Her Honour will issue a decision and a copy of it will be posted here.

This site will be updated to reflect Her Honour’s decision in due course as well as any other developments in connection with the case.

Overview of Claim

A Statement of Claim was issued in the Ontario Superior Court of Justice in Toronto on February 27, 2008 claiming damages for breach of contract and negligence relating to the Banyan Tree Foundation Gift Program.

The action is brought under the Class Proceedings Act, 1992 on behalf of the class of persons who participated in the Banyan Tree Gift Program for the taxation years 2003 – 2007.

The Statement of Claim, which contains allegations which have yet to be proven in Court, alleges that Promittere Capital Group Inc., Promittere Asset Management Ltd. and Banyan Tree Foundation, with the assistance of Rochester Financial Limited, developed, promoted, sold and administered a gift program under which participants borrowed money to make charitable donations in order to receive charitable donation receipts and concomitant tax credits.

Participants borrowed substantially all of the funds donated and actually paid in cash only a small portion of the total donation amounts.

Law firm Fraser Milner Casgrain LLP is also named in the lawsuit as it is alleged that it issued favourable tax opinion letters which were a necessary pre-requisite to the promotion of the gift program to participants.

We are compiling a database of individuals who participated in the Banyan Tree Foundation Gift Program for the taxation years 2003 – 2007.

If you have not already contacted us, we would appreciate hearing from you as it may assist us in pursuing this claim.

You may contact us by e-mail, telephone, mail, courier, fax, etc.

CONTACT US

If you would like more information regarding this claim or wish to be added to our database of claimants, you may e-mail us at: cyates@shlaw.ca

You can contact them directly by telephone at Scarfone Hawkins LLP
at 905-523-1333.

You can contact them by fax at 905-523-5878.

There are all kinds of tax problems created by taxpayers not understanding legalese. So avoid generating tax problems requiring solutions, but using the right terms in the right places.

Dan White


^^^^^^

Summary: Within the Income Tax Act, terms sometimes have more specific meanings than in common usage. In this instalment of Legalese for charities, we discuss the following terms: prescribed, deemed, shall, and may.

You can read our earlier piece on Legalese for charities in Registered Charities Newsletter No. 22.

“prescribed”

The term “prescribed” refers to the content or use of a form or process having been authorized.

Subsection 248(1) gives the following meanings for prescribed:

(a) in the case of a form, the information to be given on a form or the manner of filing a form, authorized by the Minister;

(a.1) in the case of the manner of making or filing an election, authorized by the Minister; and

(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation;

e.g. 149.1(14) Information returns. Every registered charity shall, within 6 months from the end of each taxation year of the charity, file with the Minister both an information return and a public information return for the year, each in prescribed form and containing prescribed information, without notice or demand therefor.

“deemed”

“Deem” means to consider, regardless of other facts.

For example, under proposed legislative amendments:

248 (35) Deemed fair market value. For the purposes of subsection (31), paragraph 69(1)(b) and subsections 110.1(2.1) and (3) and 118.1(5.4) and (6), the fair market value of a property that is the subject of a gift made by a taxpayer to a qualified donee is deemed to be the lesser of the fair market value of the property otherwise determined and the cost, or in the case of capital property, the adjusted cost base, of the property to the taxpayer immediately before the gift is made if

(a) the taxpayer acquired the property under a gifting arrangement that is a tax shelter as defined in subsection 237.1(1) ; or

(b) except where the gift is made as a consequence of the taxpayer’s death,

(i) the taxpayer acquired the property less than 3 years before the day that the gift is made, or

(ii) the taxpayer acquired the property less than 10 years before the day that the gift is made and it is reasonable to conclude that, at the time the taxpayer acquired the property, one of the main reasons for the acquisition was to make a gift of the property to a qualified donee.

“shall”

When the word “shall” is used in a legal context, it generally imposes a duty or compulsory obligation. It means “must.”

e.g. 189(6.1) Revoked charity to file returns. Every taxpayer who is liable to pay tax under subsection 188(1.1) for a taxation year shall, on or before the day that is one year from the end of the taxation year, and without notice or demand,

(a) file with the Minister

(i) a return for the taxation year, in prescribed form and containing prescribed information, and

(ii) both an information return and a public information return for the taxation year, each in the form prescribed for the purpose of subsection 149.1(14); and

(b) estimate in the return referred to in subparagraph (a)(i) the amount of tax payable by the taxpayer under subsection 188(1.1) for the taxation year; and

(c) pay to the Receiver General the amount of tax payable by the taxpayer under subsection 188(1.1) for the taxation year.

“may”

By contrast, “may” suggests an optional course of action. It allows for choice. In contrast to “shall,” which is to be construed as imperative, “may” is to be construed as permissive. [Footnote 2] It is generally found in deduction provisions – “may be deducted”. For example, a taxpayer is entitled to a credit for receipted charitable donations under subsection 118.1(3), but is not required to claim them. The use of the word “may” in the Income Tax Act, in relation to the actions of the Minister, makes Ministerial discretion possible.
e.g. 149.1(13) Designation of private foundation as public. On application made to the Minister by a private foundation, the Minister may, on such terms and conditions as the Minister considers appropriate, designate the foundation to be a public foundation, and on and after the date specified in such a designation, the foundation to which it relates shall, until such time, if any, as the Minister revokes the designation, be deemed to be a public foundation.

 There is a simple rule of Tax Deferral and Donation schemes.

Rule = if you get a receipt for more than you donate, you will pay 3 times the savings to CRA.

There are more tax problems created for the tax payers of this over taxed country than one can imagine. CRA has turned donation schemes into a 2.5  Billion Dollar cash cow. So helping taxpayers sort out the related tax audit problems becomes a tax problem business on its own.

Dan White
Norton v. The Queen, 2008 TCC 91 (CanLII)
Print:    PDF Format
Date:    2007-08-02
Docket:    2004-396(IT)G
URL:    http://www.canlii.org/en/ca/tcc/doc/2008/2008tcc91/2008tcc91.html

Citation: 2008TCC91

Date: 20080208

Docket: 2004‑396(IT)G

BETWEEN:

PATRICIA NORTON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

(Delivered orally from the bench on August 3, 2007,

in Vancouver, British Columbia, and modified for clarity and accuracy.)

Archambault J.

[1]     Mrs. Patricia Norton is appealing income tax assessments issued by the Minister of National Revenue (Minister) with respect to the 1996 and 1997 taxation years. The issue is whether Mrs. Norton is entitled to an income tax credit in respect of a donation of $20,000 made in 1996 to the Association for the Betterment of Literacy and Education (ABLE). She claimed $6,049 in 1996 and, as a carry-over from 1996, $6,747 in 1997.

[2]     During the course of his argument, counsel for the respondent submitted to the Court written argument in which he presented an overview of the case and a statement of the facts starting at paragraph 11, both of which I reproduce hereunder. The comments in the footnotes are mine.

OVERVIEW

1.         This appeal concerns whether a $20,000 payment by the Appellant to The Association for the Betterment of Literacy and Education (“A.B.L.E.”) was a ‘gift’ giving rise to a charitable donation tax deduction pursuant to section 118.1 of the Income Tax Act (the “Act”).

2.         The Appellant’s ‘donation’ was on December 30, 1996. Her check was cashed on January 7, 1997, and on January 14, 1997 she received a payment of 75% of her donation ($15,000).

3.         The Respondent characterizes the $15,000 payment as a kickback[1] and says that the receipt of a kickback is consideration that vitiates a gift.

4.         Further, the Respondent has proof that of the 101 participants in the ‘kickback’ variant of the scheme 100 got the kickback of 75% of their ‘donation’ (the remaining ‘donor’, Mr. Richard Coglon was not audited but received payments form [sic] the Appellant’s husband’s company.[2])

5.         The Respondent’s [sic] assumed that A.B.L.E. operated in 1993, 1994 and 1995 to operate tax schemes where ‘donors’ received inflated receipts worth four times their actual cash outlay. These assumptions were not demolished.

6.         In documents written prior to trial, the Appellant characterized the $15,000 kickback as a ‘gift’ but then during trial, the Appellant’s evidence was that she simply won a lottery organized by the promoter of the charity, J.I.T. Fundraising Corp. (“J.I.T.”).

7.         J.I.T. was owned and operated by William (‘Bill’) Norton, the Appellant’s husband. J.I.T. raised $3,129,290 for A.B.L.E. during the last quarter of 1996 and was paid $163,015 by A.B.L.E.

8.         Bill Norton gave extensive evidence that the charitable lottery idea was his and that he wanted to develop the business plan. He also testified that the ‘odds of winning’ were 1 in 3.

9.         Not one single document created in 1996 or before referenced a lottery or odds of winning.

. . .

PART II – FACTS

11.      The Respondent submits that assumption 10(a), 10(b)(i) and 10(b)(ii) [of the Reply to the Notice of Appeal] were not rebutted:

10(a) A.B.L.E. was organized and promoted as a tax shelter by Henry N. Thill.

10(b) The mechanics of the A.B.L.E. tax shelter varied from year to year and from investor to investor:

i)

In 1993 and 1994 it was promoted primarily as the Funded Charitable Donation Program (the “FCDP”) in which a Taxpayer:

(a)

Decided the amount for which it wanted a charitable receipt;

(b)

Paid 25% of that amount as ‘insurance premiums’;

(c)

Used the ‘insurance’ to secure and, eventually, satisfy a 30 year ‘loan’ from a British Virgin Islands company;

(d)

Used the ‘proceeds’ of the ‘loan’ to make the ‘contribution’ to A.B.L.E.; and

(e)

Received a charitable receipt from A.B.L.E. for the entire 100% ‘loan’ amount and thus realized a high overall rate of return on the 25% invested.

[the "Fake Loan Variant"]

(ii)

In 1995 the tax shelter was promoted as the Publishers’ Philanthropic Fund of Bermuda (the “PPF”) and, to a lesser extent, as the Gift Provider’s Fund. The PPF was described as a group of “Publishers, royalty rights holders and producers of intellectual properties [that] have over many years profited enormously through their individual and collective enterprise” and have decided “to give some of this wealth back to society” through contributions piggy-backed onto Taxpayers’ contributions in a ratio of 3:1, while remaining anonymous, and allowing the ‘select’ Taxpayers to receive the entire charitable receipt amount. Thus, in this variant, the Taxpayer:

(a)

Decided the amount for which it wanted a charitable receipt;

(b)

Contributed 25% of that amount;

(c)

Received a top-up ‘contribution’ equal to three times the size of the initial contribution through the anonymous benevolence of the PPF; and

(d)

Received a charitable receipt for A.B.L.E. for the entire amount and thus realized a high overall rate of return on the 25% invested.

[The "Top-Up Variant"]

12.      In short, prior to 1996, A.B.L.E. had a three year track record of promoting tax schemes where donors received inflated charitable donation receipts for four times the ‘donors’ [sic] actual cash outlay.[3]

13.      On September 19, 1996, Bill Norton formed J.I.T. to promote A.B.L.E.[4] [Evidence of Mr. Norton, R1 Volume 1, Tab 7, page 214, 219, R2 draft affidavit, paragraph 5].

14.      On October 18, 1996, J.I.T. signed a contract with A.B.L.E. to promote A.B.L.E. J.I.T. was entitled to commissions of 5% of all donations raised.[5] [R3, paragraph 2.2(h)].

15.      Between October 18, 1996 and December 31, 1996, J.I.T. raised $3,129,290 of ‘donations’ for A.B.L.E. [R1, Volume 1, Tab 7, page 229, and the oral evidence of Mr. Norton, in cross‑examination, admitting that the February 21, 1996 date was a typographical error and should have read February 21, 1997].

16.      In return for raising $3,129,290 for A.B.L.E., J.I.T. was paid gross commissions of $163,015.92. [R1, Volume 1, Tab 7, page 229].

17.      Using the gross commissions, J.I.T. issued cheques for $50,000 and $92,000 signed by Mr. Norton to one of Mr. Norton’s other companies “Barely Legal”. [R1, Volume 1, Tab 7, page 243 and 244, and the oral evidence of Mr. Norton acknowledging that 'Barely Legal' was his company].

18.      Mrs. Norton’s tax returns confirm that she received payments from Barely Legal.

19.      Mr. Kuhn testified that in 1996 A.B.L.E. issued receipts for 235 ‘donors’. Mr. Kuhn’s full breakdown of every 1996 donor was entered as evidence.[6] [R1, Volume 1, Tab 9.]

20.      Of the 235 1996 A.B.L.E. ‘donors’, 134 participated in the Top‑Up Variant of the scheme that had been running since 1995.

21.      Of the remaining 101 1996 ‘donors’:

a)         Mr. Kuhn found that 91 received cheques for 75% of their ‘donation’[7] (the “Kickback Cheques”). [Volume 1, Tab 9 summary, with every source cheque copied front and back and entered as evidence with in [sic] Volume 2, Tab 14].

b)         Mrs. Norton was one of the individuals who received a Kickback Cheque. [Volume 1, Tab 9, page 335‑336, and Volume 2, Tab 14, page 579‑580].

c)         For nine of the remaining ‘donors’ Mr. Kuhn found that there was a pattern of wire transfers from the same bank account that issued the Kickback Cheques. Although the wires went to countries with secrecy laws that prevented Mr. Kuhn from further tracing, Mr. Kuhn analysed the pattern of wire transfers and found that there was a striking pattern of wire transfers matching 75% of the amounts donated by the donors who had not received a Kickback Cheque. [R1, Volume 1, Tab 9, pages 341‑343].

d)         One of the taxpayers who Mr. Kuhn believed received a kickback by way of wire transfer was Mr. McPherson, who was the subject of a Tax Court of Canada case that found he had indeed received a kickback of 75% of his donation. [McPherson v. The Queen, 2006 TCC 648 (CanLII), 2006 TCC 648].

e)         The remaining taxpayer, Mr. Coglon, was not audited because his donation receipt was disallowed at the initial assessment stage. [Oral Evidence of Larry Kuhn].

22.      J.I.T. issued a cheque to Mr. Coglon on January 17, 1997. [R1, Volume 1, Tab 7, page 244].

23.      J.I.T. not only received commissions for the Wire‑Transfer Donors but went so far as to loan some of them the money for their donations. For example, Mr. Norton admitted that J.I.T. loaned Conrad Clemiss, $50,000 to make his donation. [Oral evidence of Bill Norton on cross‑examination, R1, Volume 1, Tab 7, page 243, and see also R1, Volume 1, Tab 11 documents from the trust accounts of James Comperelli].

24.      Every donor in 1993, 1994, and 1995 received a receipt with a face value of four times the cash the donor paid. [Undemolished assumptions].

25.      Mr. Norton’s evidence was that he promoted A.B.L.E. based upon his ‘lottery’ idea where charitable donors could ‘win’ a lottery – thus making the charity he promoted more competitive and allowing him to realize a profit in commissions or other “revenue streams” such as “shared advertising”.

26.      Although Mr. Norton provided two lottery style tickets for years after 1996 [A1(b) and (c)  – the glossy tickets], the ticket he provided for 1996 [A1(a) – the non glossy ticket] makes no mention of a lottery but rather refers to a ‘gift’ from the PPF. [8]

27.      Not one single document corroborates Mr. Norton’s evidence that he promoted A.B.L.E. in 1996 as a lottery. He admitted this fact under cross examination.[9]

28.      Mr. Norton testified that the ‘odds of winning’ in 1996 were 1 in 3. Not one single document corroborates his evidence and he admitted this fact under cross examination.

29.      Mr. Norton described attending one ‘reverse draw’ and speculated on multiple other draws for ‘winners’ in his 1996 ‘lottery’. Not one single document, not even an airline ticket, corroborates this evidence.[10]

30.      Mrs. Norton’s evidence was that she relied upon and “trusted” her husband.[11]

31.      Mrs. Norton’s evidence was that she could not remember how she decided to donate $20,000.

32.      Mr. Norton’s evidence was that he was the person who picked the amount of $20,000.[12]

33.      Mrs. Norton was one [sic] the board of directors of A.B.L.E. in 1993.[13]

34.      Mrs. Norton’s evidence was that she had never made any other charitable donation to A.B.L.E. or any other charity before or after the donation at issue in this appeal.[14]

35.      Prior to Mrs. Norton’s December 30, 1996 donation, kickback cheques had already been issued to numerous (approximately 40) donors.[15]

36.      Mr. and Mrs. Norton disavowed knowledge of the references to an ‘Educational Gift’ in the promotional materials. [R1, Volume 1, Tab 5(a), page 60, Tab 5(b) page 77].

37.      Both Mr. and Mrs. Norton’s evidence was that Mrs. Norton relied upon the ‘promotional package’ entered as Exhibit A5 that included A2, A3, and A4. [Oral evidence of Bill Norton] [16]

38.      A2 is identical (other than the exclusion of the legal opinion) to the document disavowed by the Norton’s [sic] at R1, Volume 1, Tab 5(b).[17]

39.      A2 contains references to an educational gift.

40.      The Bennett Jones opinion relied upon by the Appellants assumes as a fact that donors may receive an education gift and that the determination of who shall receive a gift rests at the discretion of the PPF based upon the recommendations of fundraisers − such as JIT. [18] [See paragraph 6 of the Bennett Jones opinion, page 2].

41.      Mr. Norton testified that the PPF actually existed and that he had met its members: Henri, Nicolas Thil, and Don Fraser.

42.      Mr. Norton testified that Don Fraser was chairman of Eurobank.

43.      Mrs. Norton received her cheque from a Eurobank account. [R1, Volume 2, 594].

44.      Mr. Kuhn testified that at the conclusion of his 2‑3 year audit of over 594 A.B.L.E. donors he could find no evidence that the PPF actually existed. [19] Rather, his evidence was that it seemed to be just a ‘circular flow of funds’ skimming money off of inflated prices for the Speed Reading kits to, in essence, use the same money.[20]

45.      The Speed Reading kits given out by A.B.L.E. were the same speed reading kits used for over thirty years in various Thill schemes. [Oral evidence of Bill Norton and Larry Kuhn].

[3]     To these facts, I would add the following. In 1996, Mr. Norton wanted to create, with a business partner in Houston, Texas, a fundraising corporation that would use the sweepstakes technique and earn commission fees and possibly fees from the use of co‑operative advertising on the Internet. He said that in 1996 he met Mr. Thill’s daughter-in-law, Ms. Marie Peters, who was at that time ABLE’s president, for the purpose of discussing the charity’s fundraising.

[4]     Prior to committing to an agreement with ABLE, Mr. Norton did some due diligence. He checked to see whether ABLE was a duly registered charity for tax purposes. In the spring and summer of 1996, he also met a lawyer from the BJV firm to get a legal opinion on the arrangement (the donation program) to be used in connection with the raising of funds for ABLE. He also stated that he had the reading kit evaluated by a University of Toronto professor and by another professor from a U.S. education institution.

[5]     He was able to obtain from BJV a legal opinion which is dated September 25, 1996. However, I would stress that there is no mention in this opinion of the fact that the education gift would amount to 75% of the donation and that all people making a donation would be getting the education gift. The opinion also assumes that the donation is a “voluntary, unconditional and gratuitous transfer of property . . . made without the material expectation of receiving the [Education] Gift or any other benefit or consideration” (page 15 of Exhibit A‑2). It also states that, should there be such a material expectation, the donor would “likely not be entitled to [the] tax credit” for the donations (Ibid., page 19).

[6]     So the difficult issue facing Mr. Norton was whether the ABLE donation program involved a material expectation of receiving a benefit or consideration. He said that he discussed this issue with the BJV lawyer and explored the possibility that the so‑called education gift would be given in the context of a sweepstake mechanism where only one out of three donors would be entitled to receive the award, the gift or the winnings, depending on which version was used. He wanted, as I understand it, to deal with the issue of material expectation by creating uncertainty through having the draw combined with the raising of funds. However, his solution of paying the so‑called education gift ‑ which I call a partial reimbursement ‑ in such circumstances was not dealt with in the BJV written opinion for the reason that there were apparently some concerns about the issue of receiving a consideration for the donation and about the British Columbia legislation concerning “vice and gaming”, to use the words of Mr. Norton.

Respondent’s position

[7]     The respondent’s position is outlined at paragraphs 46 to 60 of the respondent’s written argument:

PART III – LAW

46.      Section 118.1 of the Act provides for a charitable donation deduction that may be claimed by individuals who make charitable donations, gifts to the Crown and certain gifts of cultural property and ecologically sensitive land.

47.      Among the requirements for eligibility for the deduction is the requirement that the taxpayer make a “gift”.

48.      The term “gift” is not defined in the Act so general principles of law govern with regard to gifts.

The Queen v. Friedberg, 92 D.T.C. 6031 (FCA) at 6032.

49.      The Federal Court of Appeal in Friedberg went on to define “gift” as:

a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor (see Heald, J. in The Queen v. Zandstra [74 DTC 6416] [1974] 2 F.C. 254, at p. 261)

50.      The Respondent submits that, although a payment was made to A.B.L.E. by the Appellant during her 1996 taxation year, it did not qualify as a “gift”.

51.      The Respondent submits that, on a balance of probabilities, the Court must find as a fact that the Appellant both anticipated and received the 75% kickback.

52.      It is trite law (and common sense) that the anticipation and receipt of a cash kickback of 75 % vitiates a gift. This has also been the recent finding of the Tax Court of Canada in a case with much weaker evidence.

The Queen v. Friedberg, 92 D.T.C. 6031 (FCA) at 6032.

McPherson v. HMTQ, 2006 TCC 648 (CanLII), 2006 TCC 648.

53.      It is submitted that this case turns on its facts.

54.      Mrs. Norton is married to the promoter of the 1996 Kickback Variant of the A.B.L.E. scheme.

55.      Not only is there a compelling pattern of similar fact evidence that suggests that A.B.L.E. always operated on the basis of providing inflated receipts in a ratio of 1:4, but the evidence is that is exactly what happened in Mrs. Norton’s case ($20,000 in, $15,000 back).

56.      Further, the evidence is that every person audited in the Kickback Variant received a kickback. In Mrs. Norton’s case, the government actually has the ‘smoking gun’ cheque.

57.      Mrs. Norton relies upon the lottery explanation of her husband. No documentary evidence supports this position despite the fact that her husband would be in a unique position to obtain documents as the promoter of the scheme.

58.      It is reasonable to infer that Mrs. Norton knew she would be getting the $15,000 kickback both because everyone else did and also because many donors before her had already gotten their cheques.

59.      A.B.L.E. has already been the subject of several decisions by the Tax Court of Canada and one decision by the Federal Court of Appeal.

Doubinin v. H.M.T.Q., 2005 FCA 298 (CanLII), 2005 FCA 298; 2004 TCC 438 (CanLII), 2004 TCC 438.

Webb v. Her Majesty the Queen, 2004 TCC 619 (CanLII), 2004 TCC 619 (TCC).

Julian v. H.M.T.Q., 2004 TCC 330 (CanLII), 2004 TCC 330.

McPherson v. The Queen, 2006 TCC 648 (CanLII), 2006 TCC 648.

60        In no decision has an Appellant ever previously claimed to have paid the full donation and been successful in their appeal.

[8]     Mrs. Norton relied upon her husband’s argument that there was no material expectation of receiving a gift because of the lottery mechanism. The only evidence to support her position was the two tickets that were filed as Exhibit A‑1 (the B and C portions).

[9]     As I pointed out during argument, the lottery ticket filed as Exhibit A‑1 B, is a ticket for the U.S. market and does not refer to ABLE; it refers rather to “A.B.L.E. ‑ Americans for the Betterment of Literacy and Education” (ABLE Americans). The address given for ABLE Americans is in Bellingham, Washington, and a Houston telephone number is provided. The evidence also established that these tickets were not available in 1996, but came out in subsequent years.

Analysis

[10]   To the comments made by counsel for the Minister, I would add the following. I would start with the statement made by Justice Bowie in the Webb decision, which I think is also applicable here. At paragraph 17 he said:

The circumstances that I have referred to lead me to conclude that there was nothing donative at all about Mr. Webb’s payment to ABLE. His intention was to receive a tax credit for a charitable donation, as well as a substantial refund of the amount he had given, such that when the two were aggregated they would exceed the $30,000 for which he wrote the cheque.

[11]   I believe that this conclusion applies in Mrs. Norton’s case. Even though Mr. Norton claims she did not know that she would receive the education gift, he was the fundraiser through JIT and knew — or ought to have known — that she would be receiving this education gift. He acknowledged that he may have been involved in determining the amount of $20,000 that was given by Mrs. Norton to ABLE. On a balance of probabilities, I conclude that he was the one who got her to make the $20,000 donation to ABLE. She relied on him in tax matters. She could hardly provide any information during her testimony without turning to her husband. Even when testifying about her own tax returns, she consulted him.

[12]   Moreover, she did not remember that she had communicated with the Department of National Revenue on the question of the $15,000 refund, but, after having been shown the statement (Exhibit R‑8) that she had sent to the Minister, she acknowledged having done so.  However, I have reason to believe that the statement was not drafted by her, but by her husband. She stated that the date of March 10, 1998, was not written by her and, in my opinion, the person who wrote the handwritten statement is also the person who wrote the date of March 10, 1998. So it is not surprising that she would not remember having communicated with the Department.

[13]   I repeat that she stated, during the course of her testimony, that she had trusted her husband, and I believe that she did not know anything about the business model and knew nothing of the various details of the donation program: she completely relied on him to make the contribution. In my view, it is fair to conclude that Mr. Norton was the mastermind behind the payment of the $20,000 to ABLE given that he was the person in charge of raising funds for that organization, and that he could see, although he denies it, that the donors were paid the 75% reimbursement within a 15‑ to 60‑day period. In any event, he ought to have known that this was being done. He stated that it was important not to have too many losers in the draw in order to be in a position to raise funds. I would also mention again that there was an incentive for JIT to obtain as many donations as possible because its commissions depended upon it and the duration of its agreement also was dependent upon the amount of money being raised for the benefit of the charity.

[14]   I also believe that the record speaks for itself. In all previous years, the donors had been paid the refund or been getting the top-up contribution, although there was no guarantee that this would take place. In my view, the statements found in the documentation provided to donors — including the acknowledgement form on which each donor acknowledged that the donation was being made without any material expectation of receiving a gift — are only window dressing or self‑serving statements. The reality is that every donor in 1996 received a partial reimbursement of their contributions, and it is fair to assume that they expected to receive it.

[15]   I should point out that there is a credibility issue with respect to Mr. and Mrs. Norton’s testimony. Although she believed that ABLE was a worthy cause, Mrs. Norton had never given any money to this charity from 1993, when she was on its board of directors, until 1996, when she made the $20,000 donation. The only other donation that she ever made from 1990 to 1998 was an amount of $30.

[16]   With respect to the funds that he raised from October 1996 to December 1996, Mr. Norton’s testimony was that the donors’ receipt of the education gift would be entirely subject to the lottery mechanism, i.e. they had only a 1 in 3 chance of getting it. Unfortunately, his testimony is contradicted by that of the auditor, whose audit revealed that the donors were all receiving the reimbursement, and if there ever was any lottery mechanism such as that described by Mr. Norton, it certainly was not in place in 1996.

[17]   I should also state that both Mr. and Mrs. Norton were pretty evasive when they had to discuss what took place when Mrs. Norton’s contribution was made. Mr. Norton was, moreover, very reticent or evasive in recognizing that the documentation that was being used during the fall of 1996 did not refer to a lottery mechanism, and that the education gift arrangement was still being used at that time.

[18]   In his testimony, he said that people could win up to 75% of their contribution to ABLE when in reality they all got 75%. It is my opinion that he was in a position to know that each donor would be getting this refund, that his wife knew about it, and that, if she did not know, he was the one guiding her in making the contribution and, therefore, he knew about the refund when she made the contribution to the charity.

[19]   In my view, Doubinin v. R, 2005 CarswellNat 2814, 2005 FCA 298 (CanLII), 2005 FCA 298,  although Mr. Norton did not refer to it in his argument, is the only decision that could have lent any support to his position. In my view, that decision is of no help to him because there are substantial differences between that case and the facts of this particular case.  The Federal Court of Appeal stated in Doubinin at paragraph 8:

The Tax Court judge allowed the Respondent’s appeal.  In so doing the Tax Court Judge found that the Respondent was entitled to a tax credit in the amount of $6,887.[21] The Tax Court Judge accepted the Respondent’s evidence that he had the requisite intent to establish that his donation of $6,887 was a charitable donation to a registered charity.  The Tax Court Judge said “It was a genuine gift and not given with the expectation of receiving a material benefit or any other type of consideration from PPF. The PPF donation was a mere possibility…”.

[20]   It should be stressed that what was involved in Doubinin was the top‑up contribution arrangement, and the “Tax Court Judge accepted the . . . evidence that [the taxpayer] had the requisite intent to establish that his donation of $6,887 was a charitable donation”. The taxpayer had actually made the “donation of $6,887″, and it was only after being told by ABLE that PPF had made the top-up that he claimed a tax credit in respect of an amount of $27,548. Then, upon learning from the Minister prior to the hearing before the Tax Court that PPF had not made the top‑up contribution, the appellant reduced his tax credit claim to $6,887 (par. 6 of the Federal Court of Appeal decision).

[21]   In my view, the donation program that was marketed in the fall of 1996 by JIT is typical of the numerous aggressive tax shelters that attempt to leverage tax deductions or credits. There are many examples of this. There is the gifting of art to charities in a scheme that has been referred to as “art flipping” (for an example, see Dutil v. The Queen, 95 DTC 281). There is the buying of false charitable tax receipts as in Abouantoun v. The Queen, 2002 DTC 3811 (case summary), a decision that I rendered. The same technique of leveraging tax deductions was in widespread use in tax shelters for research and development in Quebec, as in McKeown v. The Queen, 2001 DTC 511. The same technique has been used with seismic data, for example, in Global Communications Limited v. The Queen, 99 DTC 5377. A similar technique was likewise used in marketing softwares in Morley v.The Queen, 2004 DTC 2604, another decision of mine. The technique in all these tax shelters is the same: you write off more than the amount you have paid or are liable to pay. In this fashion, you make a profit with the tax benefit alone, so no one cares how the money is being spent.

[22]   For all these reasons the appeal is dismissed, with costs to the respondent.

Signed at Ottawa, Canada this 8th day of February 2008.

“Pierre Archambault”

Archambault J.

CITATION:                                       2008TCC91

COURT FILE NO.:                           2004-396(IT)G

STYLE OF CAUSE:                          PATRICIA NORTON v. THE QUEEN

PLACE OF HEARING:                     Vancouver, British Columbia

DATE OF HEARING:                       August 2 and 3, 2007

REASONS FOR JUDGMENT BY:   The Honourable Justice Pierre Archambault

DATE OF JUDGMENT:                    February 8, 2008

APPEARANCES:

For the Appellant:

The Appellant herself

Counsel for the Respondent:

Gavin Laird and Robert Carvalho

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:                    John H. Sims, Q.C.

Deputy Attorney General of Canada

Ottawa, Canada

[1]          I would prefer to characterize the payment received by Mrs. Norton from the Publisher’s Philanthropic Fund of Bermuda (PPF) as a partial reimbursement of the payment she made to ABLE, instead of a kickback.

[2]          I would add that the mention of GST seems to suggest that the payments may have been in respect of services.

[3]          I do take into account some of the changes that were made by counsel during the course of his oral argument. For example, here at paragraph 12, he said: “by 1996″ as opposed to “prior to”. But I will not necessarily mention all of such changes. I will only make reference to the more important ones.

[4]          Mr. Bill Norton, who testified, said that he knew Mr. Thill from the 1970s and 1980s when he was a professional athlete and was buying tax shelters, although he did not at that time buy any from Mr. Thill. He was involved in 1991 in only one with Mr. Thill, who was a promoter of a number of tax shelters and was the author of a reading kit that he had marketed through tax shelters over many years.

[5]          This contract contains a clause dealing with the duration of the agreement, which depended upon the amount raised by JIT. If two million was raised, the contract would be extended to December 1997. If up to ten million dollars was raised, this exclusive agreement for earning commissions would be extended to December 2001.

[6]          I think what Justice Bowie said in Webb v. R., 2004 TCC 619 (CanLII), 2004 TCC 619, [2005] 3 C.T.C. 2068, applies here to describe what took place. He referred to Mr. Kuhn’s testimony in the following manner at paragraphs 11 and 12:

11        Mr. Kuhn testified that during his time investigating the operations of ABLE and assessing donors to it he had disallowed the tax credits claimed by each and every one of 550 [actually, before me, Mr. Kuhn said 449] so‑called donors whom he had audited. In no case did he find a donor to ABLE who had paid more than 25% of the value of the receipt obtained. Either they paid 25% of the face amount of the receipt, or they paid 100% of the face amount of the receipt and received a 75% rebate in one form or another.

12        Mr. Kuhn also identified a series of purchase orders by which ABLE purchased what may be called “reading kits”, or packages to be distributed by it to various schools in British Columbia, as well as the invoices by which its supplier obtained these packages.  Without going into all the details of these transactions, it is obvious from the magnitude of the markups that these are not normal business transactions, but that, as Mr. Kuhn testified was the usual case, much of the money simply was circulated through the printing and distributing companies before being returned to the original donors.

[7]          Described as an “education gift”.

[8]          I would add that one of the two types of tickets that were used in years subsequent to 1996 related to a U.S. charity.

[9]          I would add that Mr. Kuhn, in his testimony, stated there was no evidence of the advertisement of any lottery feature to the raising of funds for ABLE from 1993 to 1996.

[10]          I would add that the meeting which he attended when the reverse draw took place was, according to Mr. Norton, during the 1997 New Year celebrations. According to Mr. Norton, a draw took place with respect to the donations made from October 16, 1996, and only one out of three donors won the right to the education gift. He stated that it was important that there not be too many losers, as that would have hurt his efforts to raise funds for ABLE.

[11]          I would replace this paragraph with the following: “Mrs. Norton stated that she made the $20,000 payment to ABLE because she liked this charity. However, she also recognized that she had relied upon and trusted her husband.”

[12]          Mr. Norton’s evidence was that he may have been the person who picked the amount of $20,000.

[13]          In his testimony, Mr. Norton said that his wife was a member of ABLE’s board of directors for two weeks; however, in his affidavit dated October 1998 (Exhibit R-2), he states that she was on the board for three to four weeks.

[14]          Mrs. Norton’s evidence was that she had never made any other charitable donation to ABLE. In his testimony, Mr. Kuhn stated that his review of Department of National Revenue records for the 1990 to 1998 taxation years revealed that Mrs. Norton did not make any other donation except for one of $30 to School District Number 43, which she claimed in her 1996 tax return (Exhibit R-5).

[15]          I would add that generally these payments were made within a two-week to two-month period, especially in the case of wire transfers.

[16]          According to the documentation given to Mrs. Norton in 1996 (Exhibit A2) at page 8:

There is no guarantee, express or implied, that the Donor will receive any gift and the Donor acknowledges that the Donation to A.B.L.E. Association for the Betterment of Literacy and Education is made voluntarily and without any such expectation.

[17]          The information in Exhibit A2 resembles the information package appearing in Tab 5A of Exhibit R1; however some of the information contained in this package is not found in A2. In particular, at page 61, we have a description of the tax incentive to get people into the donation program. The example specifically assumes that the donor is recommended for and receives the maximum education gift of 75%. It also assumes that the donor wishes to donate the maximum allowed of 50% of his net income. The document goes on to explain that if a donor (with net taxable income of $50,000) makes a contribution of $25,000, the income tax payable after deducting the donation is $2,562.55, representing a saving of $11,236.35 as compared to the tax otherwise payable of $13,798.85.

In addition to quantifying the reduction in tax, the document explains that if the donor receives the education gift of $18,750, his cash position after taxes is $41,187.50 (50,000 − 2,562.50 − 25,000 + 18,750), which means a saving (a return) for the donor of $4,986.35 (− 25,000 + 18,750 + 11,236). At page 65, there is also a statement of the benefits to the donor, which include the following:

Your personal income is not depleted. Your disposable income after taxes is significantly increased. You will have extra money to spend or invest as you wish.

Finally, at page 64, there is a statement as to the circumstances under which one would expect to receive the donation:

. . . In practice it is usual for the recipient to be an active member of a charity of his or her choice and to be a contributor of time and or money.  There is no required amount of participation imposed on selected recipients and the income of those selected is not a factor in the administration of the fund. Gifts, given to individuals by the Publisher’s Philanthropic Fund, are based on recommendations received from fund‑raisers and members of the community at large.

[18]          I would add the following: Mr. Norton denied having told his wife that she would be getting the education gift because that would have been contrary to the opinion given by Bennett Jones Verchere (BJV) and it would not have made any sense to spend all that money on legal fees and then not act in accordance with that opinion. In addition, the promotional document given to Mrs. Norton includes the BJV tax opinion, which stresses that there can be no material expectation of receiving the gift. The document also specifies that ABLE does not represent that the gift will be made by PPF or by any other third party. The only reason being given by Mrs. Norton for making the donation is that she liked the charity and its cause, and she maintains that she was not told she would be getting the gift.

[19]          Either in Bermuda or in the Grand Cayman Islands.

[20]          I would add the following statement describing the PPF philosophy, which appears in Exhibit R1, Tab 5A, at page 64: “The Publishers’ Philanthropic Fund is specifically instructed to endow individuals who have been selected on the basis of an interest and concern for charitable works in education. The Publishers’ Philanthropic Fund does not donate directly to any charity. The founders believe that by selecting individual recipients the monies will be put to the best use in keeping with the spirit and goals of the fund.”

I fail to see what benefit there could have been in this philanthropic organization, if it did exist, giving money (the education gift) to a person such as Mrs. Norton, who has a university degree and training in psychology and sociology.

[21]          There seems to be some confusion about the amount of the gift tax credit and the amount of the gift. The first is a fraction of the second. (See subsection 118.1(3) of the Income Tax Act.)

 The following case makes the point again, that arguing against he requirement to pay taxes, loses every time.

I understand the taxpayer objecting to abortion based on his religious beliefs, however his argument simply does not make sense and forms an impossible battle.

It is better to pick fights that have a chance of winning.

It does make an interesting read though.

Dan White

Canadian Court Rules Canadians Must Pay Taxes which Fund Abortion
By Patrick B. Craine
8/25/2009

LifeSiteNews (www.lifesitenews.com)

Mr. David Little is a Roman Catholic and pro-life activist. He contended that his Charter right to freedom of conscience and religion is violated by the Income Tax Act.
Mr. David Little is a Roman Catholic and pro-life activist. He contended that his Charter right to freedom of conscience and religion is violated by the Income Tax Act.
FREDERICTON, New Brunswick (LifeSiteNews.com) – A Canadian pro-life man convicted in 2007 for refusing to file tax returns over taxpayer funded abortion has lost his second appeal, in a decision released Thursday from the New Brunswick Court of Appeal.

Mr. David Little, 65, formerly of Fredericton, now living in Alberton, P.E.I., is a Roman Catholic and pro-life activist who has committed to not filing his taxes because tax money is used in Canada to fund abortions. While convicted for not filing from 2000-2002, Little has, in fact, not filed since 1999.

In 2003, Little was ordered by Revenue Canada to file the missing tax returns. He was charged in 2005 and then convicted by the New Brunswick Provincial Court in 2007.

Little contends that his Charter right to freedom of conscience and religion is violated by the Income Tax Act, which requires him to fund, through his taxes, a practice that he considers morally and religiously reprehensible. The trial judge found that Little had not adequately established a religious requirement to not file taxes, and stated that this obligation did not impede his religious rights.

After appealing the trial judge’s decision to the Court of Queen’s Bench, Little’s conviction was upheld in 2008. Representing himself, Little presented his appeal of that decision to the Court of Appeal in April.

The Court, with reasons submitted by Justice Robertson, dismissed Little’s appeal on the basis that filing taxes is not prohibited by any religion, and insists that taxpayer-funded abortion does not indicate support for abortion from individual taxpayers, nor does it constitute coercion from the government to fund abortions.

“This appeal asks whether those who oppose abortion on grounds of ‘religion’, or as a matter of ‘conscience’, are relieved of the legal obligation to file annual tax returns and, by necessary implication, the obligation to pay taxes, because of this Charter right,” the judge writes. “The answer has to be no.”

“The non-filing of annual returns, like the non-payment of taxes, does not qualify as a religious practice nor has it become the tenet of any religious faith,” he says. In particular, later on, the judge notes the practice of Little’s own religious community, the Catholic Church, in issuing yearly tax receipts. “The refusals are simply acts of civil disobedience intended to bring about change in government policy, the law, or both.”

The fact that one disagrees with government policy does not mean one can refuse to pay taxes, the judge says, for “otherwise, everyone who disagrees with government policies and the expenditure of public monies in furtherance of those policies would be entitled to abandon their obligation to bear their proportionate share of the national debt while continuing to receive no-cost public benefits such as Medicare.”

According to the Daily Gleaner, Little intends to pursue his case to the Supreme Court of Canada, though he said he would not make his final decision until fully reviewing the Court of Appeal’s decision.

 Hi Folks,

It is interesting to note that the USA was able to penetrate international banking privacy under the guise of catching terrorists, and now privacy  penetration is so common place that Canada is able to do it with no good excuse.

The days of privacy ended with the first good excuse which was 9/11. That was the day I stopped recommending offshore as a way to have complete privacy. Offshore still offers privacy to some extent but not when it comes to the tax man.

The tax man would be a lot better off getting Canadians on side by implementing fair taxation. Right now there is a ton of pissed off Canadians who have been financially ruined by overly punative practices.

Dan White

++++++

Canadian tax evaders warned

Aug 21, 2009 04:30 AM
Richard J. Brennan
OTTAWA BUREAU

OTTAWA–Revenue Minister Jean-Pierre Blackburn says Ottawa is trying to get access to Canadians’ bank account information in so-called tax havens like Switzerland.

He told the Toronto Star yesterday that efforts are being made to change rules and regulations so Ottawa can go after Canadians with money stashed in secret bank accounts to avoid paying taxes.

“Also we need … agreements with other countries to exchange information,” he said, adding that Ottawa is already in discussion with about 10 countries. “We want to obtain all the legislative authority to be able to pursue those people who (engage in) tax avoidance.”

Blackburn was reacting to the fact the U.S. Department of Justice has cracked the tradition of strict banking secrecy with an agreement forcing UBS AG, the Zurich-based financial giant, to hand over the names behind 4,450 accounts as part of a historic lawsuit settlement.

Blackburn said his department has proposed changes to the finance department to streamline efforts to go after offshore accounts if tax avoidance is suspected and to find out when money is transferred out of the country.

Blackburn said now when Canadian officials try to get banking data from other countries it takes up to six years for a private individual and seven years for a business.

The minister also asked U.S. justice officials to notify Ottawa if any data they get from UBS has pertinent information on Canadians.

This is kind of interesting…. you would wonder how this even got to court. The case was so bad that the tax court striped CRA of $35,000 in costs that were awarded to the Plaintiff (The stripper).

Dan White

Stripper 1, Taxman 0
Article in Toronto Star,

Federal taxman gets caught with pants down in battle against Montreal peeler
Aug 20, 2009 03:54 PM
THE CANADIAN PRESS

MONTREAL – In its legal showdown against a tax-wary stripper, it’s the Canada Revenue Agency that’s been caught with its pants down.

The legal saga over $2 million in undeclared revenue began at Chez Paree – a pricey Montreal strip club patronized over the years by scores of wealthy executives and visiting athletes, including some very prominent hockey Hall of Famers.

Martine Landry was a dancer there and was particularly popular with one rich, elderly customer.

The publishing-industry magnate, now 80, began to introduce her to a world she knew nothing about.

He showered her with gifts worth about $2 million: a Corvette, money to buy a BMW, eight fur coats, jewels, a vacation, cash to buy a big downtown bar and get out of the dancing business, and $168,000 in $1,000 bills for a down payment on a house.

Landry, the adoptive daughter of a single mother, said her benefactor was impressed with her determination to succeed after a modest upbringing.

Like many Canadians, Landry had a difference of opinion with the federal taxman about how much money she actually owed.

The feds demanded $602,617 in taxes and penalties for the years 1998 to 2002.

But the Tax Court of Canada sided with Landry.

Judge Robert Hogan ruled the gifts, under Canadian law, could not be taxed.

Hogan also ruled that a more in-depth investigation by the CRA would have given them the answers they sought.

Landry was awarded $35,000, less than the $50,000 her lawyers had been seeking.

But the story’s not over: Revenue Quebec still wants $643,000 in taxes and penalties and that case is playing out in a Quebec court.

Landry is also now considering a lawsuit against the Canada Revenue Agency.

Her lawyer, Yves Ouellette, said in a radio interview he was pleased with the decision.

 Hi Folks,

As you all know CRA is putting ever increasing efforts to collect money. eCommerce is an easy target. Some of you may want to consider voluntary disclosure if you have been receiving non reported income.

The following article was written by Stevan Novoselac and John Sorensen of Gowling Lafleur Henderson LLP.

This is another reason to keep audit ready books. Remember all bank deposits are considered income unless proven otherwise.

Dan White

_______

Stevan Novoselac and John Sorensen

Canada
August 18 2009

Canadians who sell goods using eBay take note: the Canada Revenue Agency (“CRA”) knows who you are and is planning to commence in-depth audits beginning towards the end of this summer. There is an opportunity now to avoid CRA fines, penalties and prosecution, but that window of opportunity is closing fast.

In late 2006, the CRA obtained a court order requiring eBay Canada Ltd. and eBay CS Vancouver Inc. (collectively, “eBay”) to provide the CRA with the names, contact information and gross annual sales figures for eBay’s so-called “Powersellers”, for the purpose of verifying the Powersellers’ tax compliance. The information sought by the CRA was needed to determine if the Powersellers had properly reported income earned from sales made on eBay.

eBay refused to provide the information CRA required, and resisted the CRA at the Federal Court, and on appeal to the Federal Court of Appeal. However, the CRA ultimately succeeded when, on November 7, 2008, the Federal Court of Appeal ruled in its favour. eBay was therefore required to provide the CRA with the names, contact information and sales records for all Canadian Powersellers.

In a recent press release, the CRA confirmed that it will be commencing in-depth audits, based on the information extracted from eBay, at the end of the summer of 2009, and that it will continue to vigorously enforce the provisions of tax legislation. The press release suggested that eBay sellers come forward as soon as possible, pursuant to the CRA’s Voluntary Disclosure Program (“VDP”), to correct their tax reporting, to avoid fines, penalties and prosecution.

CRA’s VDP allows taxpayers to voluntarily come forward to correct incomplete or inaccurate tax filings and/or to disclose previously unreported matters to the CRA, without threat of fines, penalties or criminal prosecution. Additionally, a lower rate of interest may apply to outstanding amounts that are more than three years past due. Where amounts are long overdue, the accrued interest, fines and penalties can easily exceed the amount of tax in issue. Therefore, it is generally recommended that taxpayers with outstanding tax issues avail themselves of the VDP as soon as possible. Taxpayers who have not reported income from e-Commerce, and who do not commence voluntary disclosures face a significant risk of audits, which may result in substantial fines and penalties.

Since ancient times, tax has been defined as a mandatory contribution, accepted willingly or unwillingly by the members of the country, known as “taxpayers.Taxes are believed to be for the purpose of funding the public expenditure of the state, for such things as roads, bridges, railroads, hospitals and schools.

In order for citizens to willingly accept paying income tax and consumption taxes, they must perceive that the taxes are necessary, fair and reasonable, and are being used to help ensure the taxpayers well-being and security.

More than 3,000 years ago, the inhabitants of ancient Egypt and Greece paid income tax, consumption taxes and customs duties. These payments were made in various forms, such as goods, days of unpaid labour and fines.

In ancient India, a tax was levied on livestock and precious stones. In Athens, grain was taxed. The Emperor Augustus (27 B.C.) introduced an excise tax on goods, including slaves, sold in the public markets of Rome.

The salt tax, dates back to the start of the Roman period, that is, to the 8th century B.C.

Upon the arrival of the first European explorers to North America, such as Christopher Columbus in 1492 and Jacques Cartier in 1534, North America was populated by native nations that had their own “taxation” system.
Certain Native groups that served as intermediaries in the fur trade claimed a toll or a tax in kind when they conveyed pelt bales from one place to another.

The Algonquians on the Ottawa River, for example, collected a percentage on furs, cornmeal, sunflower oil and medicinal herbs, in exchange for which they allowed travellers to portage in peace around the rapids. In 1636, the Jesuit Paul Le Jeune observed that this system, which he referred to as the “Law of the Land,” was strictly observed by all the native nations.
Around 1637, to encourage French immigrants to settle in the St. Lawrence Valley, then known as “Canada,” the king of France implemented the seigneurial system, by distributing large tracts of land to settlement agents called “seigneurs.” These agents had to subdivide the tracts of land into lots or pieces of land, each measuring approximately three arpents of frontage by 30 arpents in depth. These lots were granted at no cost to new arrivals. In return for this “free” land, a habitant was required to pay certain annual fees, which constituted the income tax and consumption taxes of that era.

Beginning in 1670, tenants under the seigneurial system were required to remit a tax, or tithe, to the Church. The tithe, equal to 1/26th of the wheat crop, was used to maintain the religious buildings and property that the tenants used, such as the chapel, the rectory and the cemetery. Finally, the obligation to provide days of unpaid labour, dating back to the Middle Ages, remained in effect. A habitant was required to provide three to five days of unpaid labour each year to the seigneur for the maintenance of bridges and roads and for the construction of various buildings or structures, such as the manor house, the mill, barns, stables and fences. In return, the habitant had access to the seigneury’s services and conveniences, and benefited from the security provided by the seigneury.

New France was turned over to England under the Treaty of Paris in 1763. At that time, and more specifically from 1791 on, the primary source of revenue for Lower Canada (Québec) was customs and excise duties on manufactured goods, wine, spirits and tobacco. In Upper Canada (Ontario), which has no seaports, revenue was derived from land (or property) taxes.

When the Canadian federation was formed in 1867, the British North America Act attempted to create a federal government with virtually unlimited revenue gathering abilities, except for modes of direct taxation (section 92(2) of the Income Tax Act), which were reserved exclusively to the provinces.

The federal government was entrusted with the high cost programs of the time, most notably defence and the building of railways. The provinces were given limited taxation power as they could only impose direct taxes such as sales taxes, property taxes, resource revenues and income taxes.

At the time, it was believed that the provinces had adequate revenue sources. This did not consider the future when governments would also be funding social assistance and Medicare. That is a responsibility which has been taken up by the Federal Government.
For the early part of Canadian history most federal government revenue came from tariffs on trade and as the major source of government funding.

The largest source of provincial funding was licenses, permits, and transfers of funds from the federal government. The first corporate taxes were introduced at the end of the nineteenth century.

In the 1880s, faced with an urgent need to bail out its finances, Québec exercised its right of direct taxation, not on inhabitants but on business corporations, such as banks and insurance companies. Thus begin a whole new source of tax revenue.

A crisis developed during the Great Depression largely because the provinces were responsible for skyrocketing welfare costs, but could not raise enough revenue to handle the enormous costs of social welfare.

At that time, the federal government still had considerable revenues and it became necessary to institute a system of transfer payments between the two levels of government. The transfer payments are still in place today and are used by the Federal Government for purposes they believe in their own best interest.

The First World War had mostly been financed by traditional means, but in 1917, a tax on income was introduced as a temporary measure to fund the war. That was War Measures Act and is still going strong, although it is no longer called the War Measures Act. Now it is simply called the Income Tax Act. (ITA)

The income tax has since become a permanent feature of the Canadian tax system. The Second World War led to dramatic change in the tax system. Wars have always been a good time to introduce new taxes because the population buys into the need for these “temporary” taxes.
The percentage of Canadian government revenue from indirect taxes fell from 90% in 1913 to less than 40% by 1946. As a result massive tax sytem change was brought about and Canadians began to pay income taxes and direct taxes. Direct taxes have now become the largest source of government revenue. There is a reason CRA is called “Canada REVENUE Agency.”

In Québec, Premier Maurice Duplessis, a staunch defender of provincial autonomy, had the Québec National Assembly enact the Provincial Income Tax Act in 1954, to retain more spending power for the province. Since then, Quebecers have been required to complete two income tax returns, one federal and one provincial. The Government of Quebec has long seen itself as independent of the rest of Canada. One can certainly understand why they feel that way.

Today both the federal and provincial governments have imposed income taxes on individuals, and these are seen as the most significant sources of revenue for those levels of government accounting for over 40% of tax revenue.

The federal government charges the bulk of income taxes with the provinces charging a somewhat lower percentage. Income taxes throughout Canada are progressively higher depending on amount of income with the high income residents paying a higher percentage of taxes than the lower income residents.

Where income is earned in the form of a capital gain, only half of the gain is included in the yearly income for income tax purposes; the other half is not taxed. Very often Canadians end up paying more in taxes from such gains then if they structured themselves for business gains and losses. Interetingly and unfortunately capital losses can not be used as a deduction against income. Capital Gains Game (GGG) can be a trap, so taxpayers need to beware of the Capital Gains Game trap.

Personal income tax can be deferred in a Registered Retirement Savings Plan (RRSP) and tax sheltered savings accounts that are intended to help individuals save for their retirement. The operative work here is “deferred.” There is a very real possibility that the taxpayer will pay more tax in the end than what they deferred in the beginning.

Corporate taxes in Canada are … shall we say a complex and interesting game. The common perception among taxpayers is that incorporation is better because Corporations pay less tax. While it is true their tax rate is lower, they still follow the same income tax act, so in many cases the total tax paid between the owner of the corporation and their own personal taxes is in fact higher than if they were a sole proprietor.
Companies and corporations pay tax on profit income and on capital.(in economics, capital or capital goods or real capital refers to factors of production used to create goods or services that are not themselves significantly consumed (though they may depreciate) in the production process. Capital goods may be acquired with money or financial capital. In finance and accounting, capital generally refers to financial wealth especially that used to start or maintain a business. )

These capital purchases in themselves make up a relatively small portion of total tax revenue for the tax man. Corporate Tax is paid on corporate income at the corporate level, before it is distributed to individual shareholders as dividends. Dividends are not tax free income. A tax credit is provided to individuals who receive dividend to reflect the tax paid at the corporate level. This credit does not eliminate double taxation of this income completely, however, resulting in a higher level of tax on dividend income than other types of income. (Where income is earned in the form of a capital gain, only half of the gain is included in income for tax purposes; the other half is not taxed. But the big but in this is that capital losses can not be deducted against business income.)

Trusts have become a favourite tax strategy. Personally I don’t like anything where the government can change the rules at whim. The best example of trusting trusts lies with “Income Trusts.” Starting back in 2002, several large companies converted into “income trusts” in order to reduce or eliminate their income tax payments, making the trust sector the fastest-growing in Canada as of 2005. I guess you could say that Canadians are truly looking for ways to save taxes. This mere fact is proof that the taxpayer does not feel they need to pay as much tax to be good citizens. They feel “OverTaxed.”

Conversions to Income Trusts were largely halted on October 31, 2006, when Finance Minister Jim Flaherty announced that new income trusts would be subject to a tax system similar to that of corporations, and that these rules would apply to existing income trusts after 2011.

Sales taxes in Canada; The federal government levies a multi-stage sales tax of 5% (6% prior to January 1, 2008), that is called the Goods and Services Tax (GST), and, in some provinces, the Harmonized Sales Tax (HST). The GST/HST is similar to a value-added tax.
All provincial governments except Alberta levy sales taxes as well. The provincial sales taxes of Nova Scotia, New Brunswick and Newfoundland and Labrador are harmonized with the GST. That is, a rate of 13% HST is charged instead of separate PST and GST. Both Quebec and Prince Edward Island apply provincial sales tax to the sum of price and GST. The territories of Nunavut, Yukon and Northwest Territories do not charge provincial sales tax.

Property taxes have long been the method the municipal levels of government use to support their infrastructure.
Property is funded largely by property taxes on residential, industrial and commercial properties. These account for about ten percent of total taxation in Canada.

Excise taxes; Both the federal and provincial governments impose excise taxes on  goods such as cigarettes, gasoline, alcohol, and for vehicle air conditioners. A great bulk of the retail price of cigarettes and alcohol are excise taxes. The vehicle air conditioner tax is currently set at $100 per air conditioning unit. Canada has some of the highest rates of taxes on cigarettes and alcohol in the world. These are often referred to as “sin taxes.”

Payroll taxes; Ontario levies a payroll tax on employers, the “Employer Health Tax”, of 1.95% of payroll. Eligible employers are exempt on the first $400,000 of payroll. This tax was designed to replace revenues lost when health insurance premiums, which were often paid by employers for their employees, were eliminated in 1989.
Quebec levies a similar tax called the “Health Services Fund”. For those who are employees, the amount is paid by employers as part of payroll. For those who are not employees such as pensioners and self-employed individuals, the amount is paid by the taxpayer.

Premiums for the Employment Insurance system and the Canada Pension Plan are paid by employees and employers. Premiums for Workers’ Compensation are paid by employers. These premiums account for 12% of government revenues. These premiums are not considered to be taxes because they are considered insurance payments, versus taxes which are used to fund government activities.
Employment Insurance is unlike private insurance because the individual’s yearly income impacts the received benefit. Unlike private insurance, the benefits are treated as taxable earnings and if the individual had a mid to high income for the year, they could have to repay up to the full benefit received. In other words, employment insurance is a premium we are forced to pay that if things go well, we can’t collect on the insurance.
Ontario charges Health and Prescription Insurance Tax on income for the health system. These amounts are collected through the income tax system, and do not determine eligibility for public health care. The Ontario Health Premium is an additional amount charged on an individual’s income tax that ranges from $300 for people with $20,000 of taxable income to $900 for high income earners. Individuals with less than $20,000 in taxable income are exempt.
Municipalities charge business tax on businesses that are located in their municipality.

Quebec also requires residents to obtain prescription insurance. When an individual does not have insurance, they must pay an income-derived premium. As these are income related, they are considered to be a tax on income under the law in Canada.
Other provinces, such as British Columbia, charge premiums collected outside of the tax system for the provincial Medicare systems. These are usually reduced or eliminated for low-income people.
Alberta does not levy any taxes or premiums for its provincial medicare.
We tax the dead by way of Estate Taxes. Since the government of Pierre Trudeau repealed Canada’s inheritance tax in 1972, estates have been treated as sales (a “deemed disposition”) upon death, except where the estate is inherited by a surviving spouse or common law partner.
Estate Tax owing is paid by the estate, and not by the beneficiaries. Registered Retirement Savings Plans and Registered Retirement Income Funds are wound down, and the assets are distributed to beneficiaries are treated as withdrawals, i.e., they are taxed as part of the income of the estate at the normal applicable personal income tax rates with no reduction for capital gains. (Dead people cannot complain.) Non-registered capital assets are treated as having been sold, and are taxed at the applicable capital gains tax rates. Interest or other income from non-registered non-capital assets that is accrued up to the date of death is taxed on the final tax return of the deceased as the normal tax rates, and is not included on the tax return of the estate.
International taxation: Canadian individuals and corporations pay income taxes based on their world-wide income.
Canadians are protected against double taxation through the foreign tax credit, which allows taxpayers to deduct from their Canadian income tax otherwise payable from the income tax paid in other countries.
A citizen who is currently not a resident of Canada may petition the CRA to change his status so that income from outside Canada is not taxed, by becoming a “Non Resident.” One does not lose their citizenship by becoming non resident and can regain their residency.

Revenue Canada became Canada Customs and Revenue Agency (CCRA) and later became what it is known as today; Canada Revenue Agency; (CRA). The CRA costs billions of Canadian Dollars to run. We wonder why when we already have a flat tax in the form of GST… why we need income tax. Why not just have a higher HST and no income tax? It would take all the complications of accounting away.  I guess that is so simple that it could never be here in Canada. I think Canadians would support a flat tax, however to support the concept endangers one to ridicule.
So for now at least, we carry on with incredible complexity for the sake of complexity. All the while building more and more resentment in Canadians to what is perceived as an unfair tax regime.
By law, all taxpayers are equal when it comes to taxation. This does not mean that all are subject to the same tax rate, but rather that everyone that owes tax must pay it. The income tax rates are graduated according to taxpayers’ different levels of income.
Tax evasion and the underground economy have replaced the salt smugglers and pirate-smugglers of yesteryear. These offences call into question the fairness of direct taxation because the amounts not remitted by tax evaders must be borne by other taxpayers. So to level the playing field more and more Canadians move underground with some or all of their businesses.
The government has legal remedies to enforce tax legislation but these differ, from the sanctions imposed in 1565 by the Parliament of London. The latter included cutting off the left hand of a person guilty of tax fraud and nailing it to the most visible place in Market Square! If that were the case today, there would be a lot of one handed Canadians. On one hand you would pay tax, but on the other missing hand you would not be able to pay tax.
In days of yore, if you were a tax evader, you would be scorned by your fellow citizens; today your fellow Canadians would want to know how the tax evader is getting way with it.
Today being that the average Canadian sees the tax regime as intolerably unfair, unreasonable and hugely punitive; they no longer see tax evasion is bad unless you get caught.
Canadians are angry about the amount of penalties and interest they are charged on taxes they already can not afford to pay. They don’t understand how it makes sense to charge penalties of up to 100% of the tax owed of which they can’t even pay that. It does not seem like a kinder gentler Canada to those caught in a tax mess and are facing losing their homes and even going bankrupt.

There are thousands of tax auditors out there auditing the books and records of Canadians. As a result of this activity, there are many thousands of Canadians, stressed out wondering if they will need to go bankrupt over unmanageable tax debt. Receiving one of those brown envelopes from CRA often strikes fear and dread in the minds and hearts of Canadians, they are even afraid of opening the brown envelope containing letter the letter of doom.
The tax system is complicated and gets more and more so every year. It is not possible for the vast majority of Canadians to know how to keep their books and records so as to not need to fear the tax man.  It is not part of our educational system to teach personal finance and taxation in a meaningful way.
The greatest fear in the world is “the fear of the unknown.” Not knowing one’s rights, what to do or what to expect is a scary situation for Canadians. They don’t know where to turn and often are in such bad shape financially that they can not afford help.
Very often Canadians feel shame and embarrassment because they have tax problems and don’t realize they have many thousands of fellow Canadians going through the same thing.
Canadians are usually afraid to fight the tax department for fear they will be on the Governments target list for the rest of their lives. So they live in silent tax loneliness.
Many Canadians turn to the underground economy to survive financially. We don’t advocate such activities but we certainly understand why it happens.
With the advent of HST (Harmonized Sales Tax) in Ontario, there is a greater pressure to avoid taxes and go underground. When you consider adding 8% to an already expensive service the total of 13% wipes out even the tax credits for home improvements.
The underground economy in Ontario is so big and so in your face, that small businesses forget that it is illegal. The language of “If you don’t need a receipt, I won’t charge you tax” is part of our everyday experience.
What this means is that the government has lost the respect and support of the average Canadians. Now the movement is to get away with as much as you can. While tax evasion is alluring, it is not the wisest answer.
What we here at Tax Audit Solutions (TAS) recommend; is stay above board in your tax liabilities, learn how to keep perfect business records. All good businesses need to learn how to structure their business affairs and to back up documentation is such a way that they pay a minimal amount of tax. Audit ready bookkeeping is a better solution than the underground economy. To learn more about Audit Ready Bookkeeping contact your local TAS representative.
Dan White

 

Category: Federal Income Tax/Court Decisions/Tax Court of Canada

Document Excerpt:
Sarwari v. The Queen (General Procedure), Tax Court of Canada, July 6, 2009. Neutral Citation: 2009 TCC 357. Court File No. 2007-623(IT)G. Webb, J. Net worth reassessments – Penalties – The taxpayer operated his business as a mechanic through a corporation of which he was the sole shareholder. In reassessing the taxpayer beyond the normal reassessment period for 2000, 2001, and 2002, the Minister added to his income unreported business income of $163,600.62 for 2000 and $38,559.93 (rounded to $38,560) for 2001. Penalties for gross negligence wee also imposed. On appeal, the Minister conceded that the reassessment for 2002 should be vacated – Appeal allowed in part – The TCC concluded that: (a) by overstating the amount of a mortgage, by failing to deduct a tax exempt gain on the sale of a principal residence, and by failing to take into account gifts, loans, and a line of credit obtained by the taxpayer, the Minister had made serious miscalculations for 2000, so that the only amount that could justifiably be added to the taxpayer’s income for 2000 was $17,000; (b) the Minister was justified in adding the $38,560 to the taxpayer’s income for 2001; (c) the Minister’s reassessment for 2000 was statute-barred since, under the circumstances, the taxpayer had not made misrepresentations attributable to neglect or carelessness in filing his return for 2000; (d) the Minister’s reassessment for 2001 was not statute barred, because the taxpayer had made misrepresentations attributable to neglect or carelessness in filing his return for 2000; and (e) the taxpayer, although careless or neglectful with respect to his 2001 return, had not recklessly or intentionally failed to report income for that year, and hence did not have the mens rea to justify the imposition of the penalties for gross negligence for 2001. The Minister was therefore ordered to reassess on the bases that the reassessments for 2000 and 2002 were vacated, and the penalties for gross negligence for 2001 were to be deleted – I.T.A. ss. 152(7), 163(1), 163(2).

 Note:

There are very specif guidelines regarding employment expenses. One should not go down a dangerous road without a guide.

In this case, the conditions of employment did not indicate a need to incur expenses, there was no paper trail to prove a need for incurring the expenses, the T2200 form did not reflect the actual circumstances.

If you claim employment expenses have the situation appraised by a tax specialist.

Dan White

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Category: Federal Income Tax/Court Decisions/Tax Court of Canad

Document Excerpt:

Fitzgerald v. The Queen (Informal Procedure), Tax Court of Canada, July 3, 2009. Neutral Citation: 2009 TCC 321. Court File No. 2008-2731(IT)I. Angers, J. Deductions – Employment-related expenses – The taxpayer was employed as a commissioned automobile salesperson. The taxpayer sought to deduct the accounting, legal, advertising, promotion, motor vehicle, supplies, parking, telephone, cell phone, workspace in home, and meals and entertainment expenses incurred during 2005 and 2006 (the “Expense Deductions”). In reassessing the taxpayer for 2005 and 2006, the Minister disallowed all of the Expense Deductions claimed – Appeal dismissed – The TCC concluded that: (a) the taxpayer was not ordinarily required to carry out his employment duties away from his employer’s place of business; (b) he was reimbursed by his employer for his employment-related expenses and was not required to pay these himself; (c) the T2200 Forms prepared by his employer were erroneous, unreliable, and of no assistance; and (d) as a result of the foregoing findings, he did not qualify under ss. 8(1)(f), 8(1)(h), 8(1)(h.1), 8(1)(i), 8(4), 8(10), or 8(13) of the Act for the Expense Deductions claimed. The Minister’s reassessments were affirmed accordingly – I.T.A. ss. 8(1)(f), 8(1)(h), 8(1)(h.1), 8(1)(i), 8(4), 8(10), 8(13).

A man owned a small farm in Ontario.  HRDC claimed he was not paying proper wages to his help
and sent an agent out to interview him.

“I need a list of your employees and how much you pay them”, demanded the Agent.

“Well,” replied the farmer, “there’s my farm hand who’s been with me for
3 years.  I pay him $400.00 a week plus free room and board.  The cook
has been here for 18 months, and I pay her $300.00 per week plus free
room and board.  There’s the half-wit.  He works about 18 hours every
day and does about 90% of all the work around here.  He makes about
$10.00 per week, pays his own room and board, and I buy him a bottle
of Bourbon every Saturday night.  He also sleeps with my wife
occasionally.”

“That’s the guy I want to talk to…..the half-wit”, says the Agent.

“That would be me”, replied the farmer.

 Further to the Lipson case and the Lanrus case, GAAR is considered to be losing teeth.

Dan White

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Corporate Tax – Canada

 

Landrus: Specificity Ousts GAAR

Contributed by Borden Ladner Gervais LLP

June 05 2009

On April 16 2009 the Federal Court of Appeal affirmed the decision of the Tax Court of Canada in The Queen v Gary Landrus,(1) holding that the general anti-avoidance rule (GAAR) did not deny the deduction of a ‘terminal loss’ under Section 20(16) of the Income Tax Act.(2)

Landrus involved a reorganization in which two partnerships transferred buildings that had declined substantially in value to a new partnership comprising the same partners. The transfer triggered a terminal loss, which the minister of finance disallowed by invoking the GAAR on the basis that the transactions were abusive. Since the partners had continued to own an interest in the property through the new partnership, they did not realize a ‘true’ loss.

The court took into account the object, spirit and purpose of Section 20(16), the scheme of the ‘stop loss’ rules in the Income Tax Act and the overall result of the transactions to conclude that the object, spirit and purpose of Section 20(16) were not frustrated. Therefore, the transactions were not abusive transactions for the purposes of the GAAR, even though they were avoidance transactions.

This case is notable for its use of an ‘overall results’ analysis for the purposes of applying the GAAR based on the Supreme Court of Canada’s decision in Lipson v The Queen.(3) The case also provides guidance on the application of the GAAR in circumstances where the taxpayer, although engaged in an avoidance transaction, will not be considered to have misused or abused the provisions relied upon to claim the tax benefit. In particular, the existence of detailed and carefully crafted specific anti-avoidance provisions in the Income Tax Act may preclude the application of the GAAR to a transaction which falls outside the scope of these rules.

For further information on this topic please contact Elinore J Richardson, Larissa V Tkachenko or Maria Anzola at Borden Ladner Gervais LLP by telephone (+1 416 367 6000) or by fax (+1 416 367 6749) or by email (erichardson@blg.com or ltkachenko@blgcanada.com or manzola@blgcanada.com).

 Here is the scoop on VD (Note a disease, but feels like it)

I suggest getting help with this if there is a significant amount of money involved.

Dan White

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Voluntary Disclosures Program

The Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA, without penalty or prosecution.

A disclosure may be made for Income Tax and Goods and Services Tax/Harmonized Sales Tax (GST/HST) purposes, as well as for charges under the Softwood Lumber Products Export Charge Act, 2006, or the Air Travellers Security Charge Act.
How to make a disclosure

Complete Form RC199, Taxpayer Agreement – Voluntary Disclosures Program, and attach it to your disclosure submission and any supporting documentation. You can complete and submit the form yourself, or you can have an authorized representative do so on your behalf. A submission must be in writing and mailed or faxed to the tax services office (TSO) that has jurisdiction over the area where the taxpayer resides. For businesses, this would be based on their operating address.
Conditions for a disclosure

A valid disclosure must meet four conditions. These conditions require that the disclosure be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue. If the CRA accepts the disclosure, the taxpayer will have to pay the taxes or charges owing, plus interest. However, the taxpayer will not be subject to penalty or prosecution for those amounts accepted as a valid disclosure.
Right of redress

If a taxpayer disagrees with a VDP decision, they may  request a second review of their file by contacting the Director of the TSO where the original decision was issued. In addition, the taxpayer may pursue further recourse through the judicial review process.
How to contact us

For more information about the Voluntary Disclosure Program, or to find the appropriate TSO, please use this link: Contact Us.

Additional information about the Voluntary Disclosure Program is also available from the following documents:

* IC00-1R2, Voluntary Disclosures Program
* Form RC199, Taxpayer Agreement – Voluntary Disclosures Program
* Making a Voluntary Disclosure on your Ontario Corporate Tax

This was published as a news release by CRA.

While it is somewhat propaganda, there is truth to the point, that one should not evade taxes. However not being a tax evador does not mean not minimizing the tax you pay.

Our advice is play the game to win, which does include filing proper tax returns with legally defensible deductions.

If you are a non filer, you should check with an expert (call or email us) and find out your best strategy.

Dan White

____________________

When it comes to your taxes, a clean slate means a clear conscience Ottawa, Ontario, April 6, 2009… Did you fail to file an accurate tax return or not file at all, but should have? Take advantage of the Canada Revenue Agency’s (CRA) Voluntary Disclosures Program and correct your tax information. By coming forward you may avoid being penalized, criminally investigated and prosecuted.

For the 2007-2008 fiscal year, the CRA processed approximately 8,400 disclosures for taxpayers who used the Voluntary Disclosures Program to get a second chance to comply with their tax obligations. Coming clean saved these taxpayers from an audit or a criminal investigation, which could have resulted in penalties, fines, and even jail time. These disclosures resulted in more than $373 million in assessed additional taxes.

By encouraging taxpayers to come forward and correct the information they filed with the CRA, the Voluntary Disclosures Program helps protect the tax base and puts all Canadians on a level playing field.

If you make a full disclosure before the CRA starts any compliance action or investigation, you may only have to pay the taxes owing plus interest, but not penalties or face prosecution.

For more information about how to come clean, see the Voluntary Disclosures Program at www.cra.gc.ca/voluntarydisclosures.

 The idea of withdrawing funds from an RRSP or RRIF is good, but apparently you need to be careful. Somehow this case does not reflect the spirit of fairness in the law.

Dan White

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Bradley v. The Queen (General Procedure). Tax Court of Canada, June 26, 2009.

Neutral Citation: 2009 TCC 341. Court File No. 2006-2923(IT)G. Hershfield, J. Deductions – Legal fees and returns to RRSPs of excess withdrawals -

The taxpayer spent more than a decade disputing the refusal of the Veterans Review and Appeal Board (the “Board”) to acknowledge his entitlement to a disability pension.

As a result he incurred legal fees of $21,095 during 2005, and financed these by withdrawing $44,000 from his RRSP, but later returned $24,000 of this to the RRSP.

In reassessing the taxpayer for 2005, the Minister disallowed the deduction of the $21,095 in legal fees, and of $23,000 claimed in respect of the return to the taxpayer’ RRSP of the $24,000 -

Appeal dismissed – The TCC concluded that: (a) by 2005, the taxpayer had never received any disability pension;

(b) as a result the legal expenses deductible by him for 2005 relating to his dealings with the Board were zero under s. 60(o.1)(ii)(A)(III);

(c) there is, however, a 7-year carryover rule in s. 60(o.1) which might enable the taxpayer to deduct the $21,095 in legal fees at some future time; and

(d) there was no provision in the Act that would justify the $23,000 deduction claimed by the taxpayer relating to his re-contribution to his RRSP of what turned out to be an excess withdrawal.

The Minister’s reassessment was affirmed accordingly – I.T.A., ss. 8(1)(b), 60(o.1), 146(1), 146(6.1), 204.1 – Income Tax Regulations, C.R.C. c. 945, s. 8307(7).

Kubbernus v. The Queen (General Procedure).
Tax Court of Canada, June 29, 2009. Neutral Citation: 2009 TCC 311. Court File No. 2008-3239(IT)
G. Angers, J. Appeals – Motions to quash – In an original assessment dated May 25, 2001 the Minister included in the taxpayer’s income for 2000 an amount of $1,997,525 relating to exercised stock options.
On June 29, 2006 the Minister received from the taxpayer an application for relief under ss. 152(4.2) or 164(1.5) of the Act with respect to his 2000 taxation year.
On October 16, 2006 the Minister reassessed the taxpayer permitting a capital loss carryforward of $545 for 2000.
On appeal from this reassessment (the “Reassessment”) the taxpayer objected to the $1,997,525 inclusion in his income for 2000.
The Minister moved for an Order quashing the taxpayer’s appeal from the “Reassessment” on the ground that it had been made under s. 152(4.2), so that no appeal therefrom was available under s. 165(1.2).
The taxpayer’s position was, in part, that: (a) the Reassessment was made under ss. 152(4)(b)(i) and 152(6), and not under s. 152(4.2) as the Minister had contended, so that the prohibition against an appeal in s. 165(1.2) was inapplicable; (b) under the doctrine of implied exception set out by the SCC, s. 169(1) of the Act does not specifically prohibit appeals from reassessments issued under s. 152(4.2); (c) the Minister was estopped from questioning the validity of the taxpayer’s Notice of Objection to the Reassessment; and (d) the Minister’s alternative motion for an order extending the time for filing a Reply should be dismissed because the Minister did not satisfy the test for granting an extension of time to file a Reply
- Appeal dismissed – The TCC concluded, in part, that:
(a) none of the taxpayer’s arguments was tenable;
(b) in a well-established line of cases (e.g. Groulx v. the Queen 2008 TCC 445 (TCC), affirmed 2009 FCA 10 (FCA)) it has been held that a taxpayer is precluded from appealing to the TCC from a reassessment made under s. 152(4.2) of the Act;
(c) s. 169(1) does not specifically prohibit appeals from s. 152(4.2) reassessments, because there is no need for this in light of the clearly worded prohibition in s. 165(1.2) against appealing from s. 152(4.2) reassessments;
(d) there was no evidence in the present case that the Reassessment was issued under s. 152(4)(b)(ii) or 152(6), as opposed to s. 152(4.2); and (e) although the Minister erred in considering the taxpayer’s Notice of Objection to the Reassessment,
the Court was not bound by this error,
and no estoppel arose in this case if the Minister’s conduct was not in accordance with the law.
The taxpayer’s appeal from the Reassessment was quashed accordingly – I.T.A., ss. 152(4)(b), 152(4.01), 152(4.2), 152(6), 164(1.5), 165(1.1), 165(1.2), 169(1), 169(2), 169(2.2).

This is an important case to consider when you have to deal with needing to file a Notice of Objection that is past the 90 day time limit.

Well worth reading.

Dan White

Fairness Request Rehearing

The FCA recently found in the taxpayer’s favour in Lanno (2005 FCA 153), allowing his application for judicial review of the CRA’s refusal to grant relief under the fairness provisions for a late-filed notice of objection. The FCA overturned the FCTD’s decision, found that the CRA’s denial of the relief was not reasonable, and ordered that the fairness application be referred to a different CRA decision maker for reconsideration.

The fairness provisions in subsection 152(4.2) allow an individual to ask the CRA to accept a late-filed return for a taxation year or reassess a return (for tax, interest, or penalties) beyond the normal reassessment period to provide for an income tax refund or reduce an amount payable. Information Circular 75-7R3, paragraph 4, states that a reassessment to create a refund ordinarily is made on receipt of a written request by the taxpayer, even if a notice of objection has not been filed within the prescribed time, so long as certain conditions are met, such as a finding that the application is not based solely on another taxpayer’s successful appeal to the courts.

The taxpayer was one of many investors in a real estate project in respect of which he claimed losses in his 1993-95 tax returns. In 1997, the CRA disallowed those losses, saying that he had no reasonable expectation of profit (REOP). The taxpayer had intended to file notices of objection, but he thought that the accounting firm that represented the investors in the real estate project had filed the notices on his behalf; in February 2002, he learned that the objections had not been filed. In December 2002, the accounting firm applied on his behalf for fairness relief, but the application was denied in May 2003 on the ground that it was based solely on a successful appeal to the courts by another taxpayer: in May 2002, the SCC in Stewart ([2002] 2 SCR 645) had held that the REOP test should not determine whether a taxpayer’s activities were a source of income for the purposes of section 9. The accounting firm requested a review of the CRA’s May 2003 decision. This second-level fairness request was denied in July 2003 on the basis that no circumstances beyond the accounting firm’s control had prevented it from filing an objection on the taxpayer’s behalf: the CRA cannot assume responsibility for errors or omissions made by a taxpayer’s representative.

The taxpayer requested reconsideration of this second-level fairness response, but was informed in November 2003 that the decision remained unchanged. The CRA refused to change its decision because (1) the fairness provisions are discretionary and cannot be used to extend the time limit to file an objection; (2) there were no circumstances beyond the taxpayer’s control that prevented the timely filing of an objection; and (3) there was no evidence of error or delay by the CRA. The taxpayer’s application for judicial review of the CRA’s July 2003 decision was dismissed; the lower court concluded that the refusal was not “patently unreasonable.” However, the FCA concluded that the standard of review for a fairness application should be the less deferential standard of “reasonableness,” based on its decision in Hillier ([2001] 3 CTC 157). The FCA made three observations on the reasons given by the CRA for denying the fairness application. (1) It was incorrect to say that the fairness provisions cannot be used to extend the time limits for filing a notice of objection. Paragraph 4 of IC 75-7R3 says, “A reassessment to create a refund ordinarily will be made upon receipt of a written request by the taxpayer, even if a notice of objection has not been filed within the prescribed time” (emphasis added by the court). (2) The CRA misapprehended the facts when it stated that a refund could not be granted “based solely upon a successful appeal to the Courts by a taxpayer” (in this case, Stewart). The evidence showed that the taxpayer’s fairness application was based on a number of misunderstandings between him and the accounting firm that led to the late filing of the objections. (3) The CRA failed to address whether there was any reason to treat the taxpayer differently from three other individuals in the same position who had obtained relief; the CRA thus failed to take into account a relevant consideration. On the basis of those observations, the FCA said that the CRA’s denial of the application was not reasonable.

Wayne Tunney
KPMG LLP, Montreal

 The following decision by the Federal Tax Court of Appeals, makes it clear that contracts must be well worded to fall into the traps of having indpended coTax expert before hiring anyone.

TAX: Contract of services or contract for services
The Applicant Drosdovech, an unrepresented litigant, was a veterinarian operating a veterinary clinic as a proprietorship. Ms. Kilburn worked with her in the clinic from time to time. A Revenue Canada rulings officer, pursuant to a request made at the initiative of the Collections Division of the Canada Revenue Agency, determined Ms. Kilburn was employed by the Applicant Drosdovech under contracts of service and that her employment was both insurable and pensionable. The respondent Minister dismissed an appeal from that determination. The Tax Court of Canada dismissed an appeal from the Minister’s decision and the Federal C.A. upheld the Tax Court’s decision.
Moira Eileen Drosdovech v. Minister of National Revenue (Fed. C.A., February 25, 2009)(33143)  “The application for leave to appeal…is dismissed with costs.”

Thousands of Canadian workers who purchased stock options from their employers before the market downturn are expected to pay millions of dollars in taxes on income they haven’t received because the shares have lost their value.

“I had to take out over a hundred thousand dollars in loans, plus interest, in order to pay off taxes,” said marketing manager Shannon McLeod, a tech-industry worker in Vancouver who faced the same situation several years ago.

“I was a good little Canadian taxpayer and I paid it off, but it had a huge effect on me.”

The income tax is applied to stock options, a benefit many Canadian employees are given as part of their remuneration. Employees at various levels of companies in high tech, mining, banking and other industries are allowed to buy stock in their firm at a significantly reduced price.

“Companies give out stock options to their employees thinking it is a huge benefit, and it’s actually a huge liability,” McLeod said.

Because of a little-known loophole in Canada’s tax law, people are expected to pay income tax on the market value of the stocks when they are issued — not on their lesser value if they are later sold at a lower price. Those affected call it a tax on “phantom income.”

Tax experts estimate many Canadians have been hit since the latest stock market downturn. The national group Canadians for Fair and Equitable Taxation says it’s hearing about dozens of new cases from people who have just received their assessments for the 2008 tax year.
Taxpayers going bankrupt, losing homes

“I have colleagues at many different companies I’ve worked at since that have actually lost their homes,” McLeod said. “They’ve gone bankrupt. It’s a huge catastrophe — and it’s something that the government can easily fix.”
Tax lawyer William Cooper thinks Ottawa should allow people to claim their losses against the ‘income.’ Tax lawyer William Cooper thinks Ottawa should allow people to claim their losses against the ‘income.’ (CBC)

For example, if an employee bought $100,000 worth of stock for the employee price tag of $25,000 early in 2008, they would be taxed on $75,000 worth of “income” for that year. If the employee held on to their stock, as many do, they would still have to pay tax on the $75,000 — even if the stock’s value drops to mere pennies. Employees can defer remitting the tax until they sell the stock or the company is sold, but the tax bill doesn’t change.

Thousands of tech-industry employees like McLeod have been hit since 2000.

McLeod bought 10,000 shares in Burnaby, B.C.-based digital-imaging company Creo — with money borrowed against the stock — for $17 each. At the time, the stock was trading at $53. She was assessed income tax on $360,000 — the difference between what she paid and the market value of the shares at that time. She was 27 years old and earning a modest salary of less than six figures.

“On the advice of my financial planner and my accountant, I held on to the shares. And then the market crashed,” she said

Ottawa taxed McLeod $100,000 on the stock options, even though by the time the tax was assessed, the shares were worth less than she bought them for. Creo stock didn’t recover and McLeod said she didn’t make a penny. The company was eventually sold, and McLeod had to use a line of credit to pay the $100,000 bill.

“If I had again gone into the stock option plan with the company I am with now, right before the 2008 crash, I would again be in the exact same situation,” McLeod said.
Thousands more potentially hit by downturn

“People just don’t want to talk about it, and they certainly don’t want to say I owe the government a quarter of a million dollars and I can’t pay it,” Vancouver tax lawyer William Cooper said.

“Right now there are probably thousands of people under water. And how many know about this tax before they get the bill? Not a lot. I would say very few.”

Finance Minister Jim Flaherty indicated Ottawa has no plan to help affected taxpayers.

‘I won’t hold out any hope of any tax exemptions’—Finance Minister Jim Flaherty

“The tax laws apply to all of us equally,” Flaherty said. “There are some remedies that are available through hardship cases, but the reality is that those stock option situations are not uncommon and apply to a large number of Canadians. So, I can’t and I won’t hold out any hope of any tax exemptions in respect to that.”

When Flaherty mentioned “hardship” cases, he was likely referring to JDS Uniphase employees from Victoria. After lobbying by their MP, Gary Lunn, 35 employees with the optical-equipment company were granted exemptions from paying the tax last year.

Nortel employees are another example, but they haven’t received any exemptions. Many are still holding on to stock they bought at the employee rate years ago, when the market value was over $100 per share.
Federal Finance Minister Jim Flaherty says no exemptions will be granted.Federal Finance Minister Jim Flaherty says no exemptions will be granted. (CBC)

If Nortel’s bankruptcy proceedings force the shares to be sold, their huge tax bills on those shares — worth approximately 25 cents each now — will come due. Former Nortel executive Ragui Kamel, an Ontario resident, said he has already paid $300,000 in taxes on stock he sold and could be hit with another bill soon.

“If Nortel collapses, through no action or desire of my own, I will be deemed to have sold the [remaining] shares I still hold in Nortel. That will trigger a tax of over $500,000 — wiping out the bulk of my savings in 30 years of work,” Kamel said.
Former Nortel employee contemplates suicide

Another former Nortel manager from Toronto, who was let go in 1999, said he will get hit with a $204,000 tax bill on stock he still owns, which is worth $250.00 now. The man, who didn’t want his name used, is 69 years old and said he has seriously contemplated suicide to avoid being forced to sell his house.

“I’ve been living an nightmare, not sleeping at nights. It’s affecting my marriage,” he said.

Tax lawyer Cooper said that, in his experience with tax policy makers in Ottawa, the effects of unfair rules are often not taken into consideration.

“Sometimes I think they are just in this bubble. All the technicians are saying, ‘Well, this is how the rules work and this is how they are supposed to work and it all fits within the scheme of the Income Tax Act, so what is the problem?’ ”

“I think that the country needs to pull together and talk to their MPs and voice their opinion and let the government know that this isn’t acceptable,” McLeod said.

The United States had a similar tax policy until 2008, when the law was changed to essentially fix the problem for American employees who lost money through stock options.

“The fact that we are the only G7 country to do this still is kind of embarrassing. It’s pretty archaic,” McLeod added.

Toronto Star

Apr 23, 2009 04:30 AM

James Daw

There is still time to squeeze the most tax savings out of your 2008 tax return. So here are some answers to last-minute questions posed by Toronto Star readers.

Q: Will it be possible to claim dental braces under medical bills or expenses?

A: Yes, orthodontic work including braces is an eligible medical expense. Unfortunately, expenses equal to the first 3 per cent of a person’s net income, up to $1,962, will not be covered.

So have the spouse with the lowest income claim all medical expenses, and choose a 12-month period ending any time during the tax year when you would have had the most medical expenses. You can search the Canada Revenue Agency website cra.gc.ca for a list of all eligible medical expenses.

Q: My partner has failed to file tax returns since 2001. She would like to catch up but she is unemployed. She was in graduate school from 2000 until 2006. What evidence is needed to successfully qualify for the taxpayer relief provision?

A: The details are all set out at cra.gc.ca. First steps to apply for relief from interest and penalties: Gather records, complete the late tax returns and get in the application before the taxman comes knocking, and before the 10-year limitation period expires.

With all of the tax credits available to students, she may qualify for a refund at some point.

Q: I returned a quarter of my minimum 2008 withdrawal to my registered retirement income fund under the one-time opportunity you wrote about on April 2. Now how do I complete my tax return using tax preparation software?

A: Benjamin Gao of CuteTax Inc., provider of Tax Chopper online tax software, suggests users take advantage of the search function to find either “other deductions” or “line 232.” Click on the page, look for a box that refers to other deductions, and enter the amount of money you returned to your RRIF in the space provided.

Some people may have withdrawn money from a locked-in account and, if under the age of 72, contributed the money to an RRSP. In that case, report the contribution as an RRSP deduction on Schedule 7, a form you should find in the interview set-up. If you are using software that shows a replica of the tax forms, go directly to Line 232 or to Schedule 7.

Q: My wife and I and have a combined taxable income of $69,000. I applied for the Ontario senior homeowners’ property tax grant on form ON479, even though I realize our income is too high for the existing property tax credit. Will we get anything as a result?

A: Your combined net income – which would be higher than your taxable income if you were eligible to claim net capital losses or other deductions – is too high to qualify for even a portion of the grant.

The maximum grant of $250 ($500 starting next year) is only available to those homeowners who will turn 65 this year who have a net income of less than $45,000 as a couple or $35,000 as a single person.

A partial grant is available to couples with net income of less than $60,000 and single homeowners with net income of less than $50,000. Here is a link to a bulletin that includes a chart with examples of how much of the maximum $250 grant is payable at different levels of income: rev.gov.on.ca/english/bulletins/itrp/6493.html

jdaw@thestar.ca

This is an interesting case in terms of what happens when a mistake is made.

CRA does not have the authority to reallocate tax owing.

Dan White

*********

Federal tax collector can’t take money and run: Top court, Canwest News Service April 23, 2009 10:01 AM

The Supreme Court of Canada has ordered the federal tax collector to reimburse United Parcel Service $3 million that the courier company overpaid in GST. In a 9-0 ruling, the court concluded Thursday that the government is not entitled to a windfall simply because UPS mistakenly overpaid the tax in 1996-97.

OTTAWA — The Supreme Court of Canada has ordered the federal tax collector to reimburse United Parcel Service $3 million that the courier company overpaid in GST.

In a 9-0 ruling, the court concluded Thursday that the government is not entitled to a windfall simply because UPS mistakenly overpaid the tax in 1996-97.

“It cannot have been the intention of Parliament that persons who were not liable for GST but paid GST in error could not obtain a rebate,” wrote Justice Marshall Rothstein.

The ruling overturns a decision in the Federal Court of Appeal and restores a decision from the Tax Court of Canada.

The case arose from UPS mistakenly paying too much goods and services tax in its role as a customs broker for good entering Canada from a foreign country. UPS remits duties and taxes and them collects the amount from its customers.

The ruling noted that the GST overpayment arose from numerous errors in remitting the tax, arising from such things as mistakes made by the shipper on duty forms. UPS found itself out of pocket for the overpayments and did not seek reimbursement from its customers.

UPS sought a rebate by deducting the $3 million from taxes it owed the federal government.

The Supreme Court rejected the Federal Court of Appeal’s conclusion that it was the customers who actually owed the tax to Ottawa, so the courier company was not entitled to seek a rebate.
© Copyright (c) Canwest News Service

The issue here is never give your records to anyone unless you have a copy. Get a good scanner.

Dan White

Revenue Canada refuses to pay for million-dollar mistake
Taxpayer led to believe Harper government would compensate him for losses
Last Updated: Wednesday, April 22, 2009 | 4:23 PM PT Comments308Recommend618
By Kathy Tomlinson, CBC News

Jill Moore, left, and Irvin Leroux lost their business and their home in B.C. in a tax fight with the Canada Revenue Agency. (CBC)

A B.C. taxpayer who fought the Canada Revenue Agency over a million-dollar tax bill he didn’t owe — and won — says the federal government misled him to believe he would be compensated for his financial losses.

“They’re trying to now find a way to shove this under the rug or silence it so that they don’t get embarrassed,” 64-year-old Prince George resident Irvin Leroux said.

“Promises have been made at the political level,” added his wife, Jill Moore, “and still, here we are.”

Correspondence suggests Leroux’s MP, Conservative Dick Harris, was assured three years ago by the minister responsible that the government was prepared to compensate Leroux for Canada Revenue Agency errors that cost Leroux his business and his home. That settlement has not materialized.

‘Promises have been made at the political level.’
—Irvin Leroux’s wife, Jill Moore

“They took everything I was, everything I stood for, and destroyed it,” Leroux said.

CBC News made several requests to talk to the current revenue minister, Jean-Pierre Blackburn, about Leroux’s case but received no response.

Before their fight with the taxman, Leroux and his wife owned and operated a successful RV park in Valemount, B.C. In 2002, Irvin’s RV Park and Campground was awarded the prestigious SuperHost customer service award by B.C. Tourism.
Records lost by auditor, businessman says

Leroux said his tax troubles began in 1996, when an auditor from the tax agency showed up to look at the books. The auditor took Leroux’s business receipts and other records, he said, then misplaced those records at the CRA office.

“He told me someone had put them on the pile that was to be shredded,” Leroux said.

Without receipts to show his business expenses, numerous CRA audits over several years concluded Leroux owed almost $900,000 in personal income tax, plus over $100,000 in GST, including interest and penalties.
Irvin’s RV Park and Campground in Valemount, B.C., had to be sold. Irvin’s RV Park and Campground in Valemount, B.C., had to be sold. (CBC)

“I said, ‘You had all of these records. You knew I had paid out those expenses. You lost them, and now you’re telling me that you are going to disallow them all?’ ” Leroux recounted. “I said, ‘That’s fine, I will seek a tax lawyer. I will see you in court.’ ”

In 2005, he took his case to the Tax Court of Canada, where the CRA gave up in a so-called consent to judgment, essentially admitting its mistake. That reduced Leroux’s personal tax bill to zero and his GST bill to $20,000. Documents show that by 2006, Leroux was actually owed a $24,000 tax refund.

Years before his case got to tax court, however, the CRA had obtained a writ of seizure and sale against Leroux’s properties so it could move in and collect on his alleged tax debt, if necessary.

“These individuals have the right to come after every one of your assets without justification on what they are doing,” Leroux said.

Because its security was suddenly at risk, Leroux’s main creditor — the Business Development Bank of Canada — demanded in 2001 that he pay back his very large business loan.
Forced to sell all his assets

That touched off a chain of events, Leroux said, that forced the sale — at reduced prices — of his business, his home and other assets, valued at approximately $4 million.

“I lost my house, I lost my business, I lost my land, I lost my income, I lost my savings — I lost it all,” Leroux said. “Why? Because [the CRA] wouldn’t admit to their mistakes. They would sooner destroy me and try to bury me out there than admit they did wrong.”

“I’ve said to him the whole way, I will fight with you,” said Moore, his wife. “This is wrong. They can’t take it away and not even apologize. They can’t take it away and not be held accountable.”

Submit your story or join our blog: www.cbc.ca/bc/features/gopublic/

After Leroux’s tax bill was cancelled, his MP, 16-year veteran B.C. caucus chair Harris, stepped in and took his case to Ottawa.

Correspondence shows that in 2006, Harris had several discussions with then minister of national revenue Carol Skelton — a member of Prime Minister Stephen Harper’s cabinet — urging her to arrange compensation for his constituent’s losses.

At first, Skelton assured Harris that if Leroux filed a lawsuit against the government, an out-of-court settlement could be arranged, the documents suggest.

In a letter to the minister, Harris repeated what she had led him to believe: “I was told that ‘CRA does not have a mechanism to proactively pay damages,… however if Mr. Leroux launches a court challenge with a statement of claim, the department could… settle out of court.’ ”

In an email to Leroux, Harris wrote: “I am convinced that things are going as we were promised…. [The minister] wants the outcome of your case to be an example of how Revenue Canada must be held accountable for its abuses of Canadians.”
‘All hell is going to break loose’: Conservative MP

Later in 2006, when there was no sign of a settlement in the works, Harris wrote this angry email to the minister’s assistant:

“I am livid. This whole episode is the most inhumane treatment I have ever witnessed in my life. And I cannot believe that our own government would treat Canadians in this manner. Mr. Leroux is an honest, principled individual who had been driven to the brink many times by Revenue Canada. If Revenue Canada mount even the slightest objection to the statement of claim filing this week I ASSURE YOU AND THE MINISTER THAT ALL HELL IS GOING TO BREAK LOOSE. This is bulls–t!”
Conservative MP Dick Harris calls Revenue Canada’s treatment of the B.C. couple ‘inhumane.’Conservative MP Dick Harris calls Revenue Canada’s treatment of the B.C. couple ‘inhumane.’ (CBC)

Harris refused a request by CBC News to be interviewed about the affair, however, saying, “I don’t consider the work that I am doing for [Leroux], that it should become a news story, somehow.”

In March, the CRA tried to have Leroux’s statement of claim thrown out of court. Leroux said he would have never filed the claim in the first place if he hadn’t been urged to by his MP, because he can’t afford a lawyer to pursue it.

Leroux said he now feels betrayed by the Harper government, including the prime minister. When Harper himself was campaigning to be leader of the Conservative Party, Leroux said, he spoke to the future PM at length about his fight with the CRA.

“He said to me, ‘I guarantee you if I have your support and I get elected in as the leader of this party,’ he says, ‘I will give you my word I will look into this matter for you and get the matter resolved.’ Now, he’s forgotten my name.”

“We’re tapped out,” Moore said. “There are no more lawyers we can pay. No more accountants we can hire.”

“We don’t have a system in place to protect us,” Leroux added. “Because I’ve gone through the system. I’ve gone through the steps. And every time I walk the steps, I find there’s always something there to push me back down. Where is the justice?”
‘No compensation will be paid’: CRA

Internal CRA emails written by assistant commissioner Rod Quiney in August 2006, obtained by Leroux under the federal access to information law, summarize the agency’s position in his case:

“I believe we have been very fair and have in all respects provided the appropriate respect for his position and appropriate redress [by cancelling the debt],” Quiney wrote.

“No compensation will be paid,” he concluded.

Leroux is thoroughly disappointed in the Harper government he supported.

“The people we elected to look after this stuff and protect us, they’re not there, because the bureaucrats who did all of this stuff are instructing the politicians on what to do.”

Tax breaks for Canadians inconsistent: audit

Updated Sat. Jan. 17 2009 12:16 PM ET

The Canadian Press

OTTAWA — The Canada Revenue Agency is so inconsistent about the way it grants breaks to delinquent taxpayers there’s a risk people will go “shopping” to various tax offices for the best deal, a new audit suggests.

The agency has failed to communicate rules to field offices, says the audit, and doesn’t adequately monitor the way its employees dole out relief to taxpayers who face interest charges and penalties on unpaid taxes.

“Processing inconsistencies existed, between offices and between different work areas within offices,” says the newly released report.

Under so-called “fairness provisions” dating from 1991, the Canada Revenue Agency can waive interest and penalties for taxpayers who through circumstances beyond their control have not been able to pay their taxes or have been late.

More than 341,000 taxpayers benefited from the waivers in 2007-2008, being excused from $618 million in payments.

Most of that relief was dispensed directly by agency computers, based on formulas built into the software. But almost 30,000 of those taxpayers had to be vetted by employees, who granted them $314 million in relief.

The auditors, who sampled 761 files, found a highly decentralized system for making decisions, and inconsistencies in the treatment of taxpayers asking for a break.

For example, head office sometimes updated the rules — but neglected to tell field employees in a timely way of the changes.

“This resulted in taxpayers being treated differently, depending on whether their files were processed before or after updated instructions were issued to field office employees,” says the report, dated October 2008.

The investigators cited several instances in which key information on how to make decisions was not disseminated for months, in one case for more than a year.

The agency also owns computer systems so antiquated that annual reports filed to Parliament on waived charges are partly based on manual calculations, and their accuracy is dubious.

The problems outlined in the audit are remarkably similar to criticisms levelled by the auditor general of Canada in a 2002 report to the House of Commons.

“The controls the agency has put in place to guard against inappropriate forgiveness of interest and penalties are deficient,” Sheila Fraser warned.

“A taxpayer expects the same treatment from every tax services office across Canada given the same set of facts.”

Her report noted that the agency was concerned about the way inconsistent decision-making could increase the “potential for `shopping’ for the best fairness deal.”

A spokeswoman for the agency said numerous steps have been taken since the audit to tighten the system, including the hiring of an external consultant to review procedures. The project runs until March 31, 2009.

Training measures, more updates of the rules, and a revamped form for requesting relief have also helped to improve the system, Caitlin Workman said in an email response to questions.

“The CRA understands that the current economic situation places financial pressure on Canadians, and will endeavour to provide relief when circumstances warrant,” she added.

 The following is a good article by Jamie Golombek who writes for the Financial Post. Often CRA will audit unsuspecting couples and find a source of funds for Canada Revenue Agency.

Our tax regime is punitive and  every way to save a tax dollar needs to be pursued. An informed tax payer is a successful tax saver.

Play your cards right and minimize the tax grab.

Read on….

Conjugal relations can be taxing

Jamie Golombek, Financial Post  Published: Saturday, February 14, 2009
Related Topics

The taxman apparently has it in for Cupid.

Under the Income Tax Act, your status — single, legally married or living common law — could make a significant difference in the amount of tax you ultimately pay.

For tax purposes, common-law partners, defined as two people who cohabit in a “conjugal relationship” for at least 12 months, are treated the same as legally married couples.

But there are some negative aspects associated with being a couple for tax purposes. Unlike in the United States, where couples can choose to file a joint tax return, in Canada each spouse or partner must file his or her own tax return. On that return, each partner must clearly indicate his or her marital status on page one.

Judging by the number of tax cases surrounding marital status, it seems to be very tempting for couples who are living together in a common-law relationship to continue filing their tax returns each year as “single,” primarily to avoid losing certain government benefits where the amounts are based on the combined income of both partners. Popular examples are the GST/HST credit, the Child Tax Benefit or the Guaranteed Income Supplement.

Another problem facing couples is the income attribution rules, which generally block attempts to shift income from a higher-income partner to a lower-income partner by attributing the income back to the higher-income partner. For couples, this blocks most attempts to split income and capital gains.

One way to get around the attribution rules and legally split income or gains with your spouse is when one partner makes a loan to the other for investment purposes. As long as interest is charged on the loan at a rate at least equal to the CRA’s prescribed interest rate at the time the loan was made (currently at a historic low of 2%), the attribution rules will not apply. The interest, however, must be paid within 30 days of the year’s end.

Another tax strategy for couples is to have the higher-income partner pay all the household expenses, thus preserving the lower-income partner’s income for investing. Any returns on such investments would then be taxed in the hands of the lower-income partner.

Finally, since 1982, couples only have access to one principal residence deduction between them. This means that the gain on the sale of one principal residence is exempt from tax. Married or common-law couples who have more than one residence, such as a cottage or cabin, may face capital gains tax on the other property, which paves the road for more complex tax planning.

-Jamie Golombek, CA, CPA, CFP, CLU, TEP, is the managing director, tax and estate planning with CIBC Private Wealth Management in Toronto.

jamie.golombek@cibc.com

 At a time when I have been busy losing faith that Canada is a kinder gentler country, there is a glimmer of hope that somehow our government agencies, that have become ever increasingly more punitive, will be reigned in.

Government agencies have been ignoring the Charter of Rights and invading privacy, behaving in high handed and arbitrary fashions.

The agencies are not consistent on how they treat one person over another. There is a lack of fairness.

The agencies do not care who’s life they ruin or what business goes down because of them. Bankruptcies are up 50% and you can be sure there is a government agency has played some role in making the situation worse.

There is a growing groundswell of citizens who have had enough. This recent court case in favor of the citizen will set the future in motion. You can look to see more cases and more losses by government agencies.

CRA and their tax regime pales in comparison to the Ontario Securities Commission who will post the details of allegations against a citizen. They know no boundaries of decency, not even stopping at the publishing of a citizen’s mental health on their web site. Further they will torment said ill person with consistent badgering …overruling Doctor’s letters, making demands and then publishing the information for the entire country to read. The OSC conducts a trial by media and tribunal of personal information with no concern of a citizens right to be presumed innocent until proven guilty. They ruin businesses and lives in the pursuit of evidence. And if you want to understand the reason just add up all the fines posted on the OSC site.

The Minister Of Labor is a feared agency for businesses… they can come in and make orders and levy huge fines and have the power of incarseration. Usually it is just huge fines. Again there is trial by being guilty until proven innocent.

The OSC and MOL both can conduct trials (Called a Tribunal)  to discover evidence. They follow rules of court, but when you are sitting there being cross examined by their lawyers, you get the picture… you are in a judicial system with no protection by the Charter of Rights.

While CRA can not audit while they are investigating, and when it becomes an investigation, they lose a lot of their broad powers. Still their mandate is about getting as much money as they can. In the GTA alone there are 2,400 auditors out looking for the almighty dollar.

WSIB comes in looking for increased premiums, missed anythings… Team leaders pump up their auditors to get as much as you can… make targets etc…. If you agree to their dollar assessments, then they will back date your debts. Fighting them is expensive, so most businesses fold. In order to fight them, you need to pay the premiums first and then they will listen to your objections.

Now CRA and WSIB have teamed up and share good leads. It makes them both more profitable, one Agency goes in and finds lots of money and then they tip off the other Agency. So now it is a double whammy.

And that is what the Government Agencies have become….Teams of Auditors and investigators, out to get as much money as they can. Success is measured in dollars and cents. They levy huge penalties on people in hard times who can not pay their ticket….. When a citizen can’t pay the principal debt, let alone the tripling of the final amount, very often the result is a bankrupt citizen.

Canada has become a place where its citizens fear their government even when they have done nothing wrong. You never know who’s life will be ruined by the government.

It is all about money and now that we are in tough economic times, the agencies are even more agressive in their financial assults on the Canadian Citizen.

A kinder gentler Canada? I think not!

The following case gives a glimmer of hope that Agencies will have to reign in their Dark Forces and respect the law, the Charter and the Constitution.  And God forbid… have a sense of fairness.

Dan White.

The following article is printed on line on the Times Colonist and written by L Dicson.

*****

http://www.timescolonist.com/news/agents+rebuked+million+awarded+target+raid/1279538/story.html

Hal Neumann, with wife Maureen Rivers, has been awarded $1.3 million in a lawsuit against the Canada Revenue Agency.

Hal Neumann, with wife Maureen Rivers, has been awarded $1.3 million in a lawsuit against the Canada Revenue Agency.
Photograph by: Darren Stone, Victoria Times Colonist

A B.C. Supreme Court jury has awarded a Saanich businessman $1.3 million in damages after finding the Canada Revenue Agency breached his right to be free from unreasonable search and seizure under the Canadian Charter of Rights and Freedoms.

The jury also recommended the minister of revenue apologize to Hal Neumann for the Sept. 7, 2005, search of his home by five CRA agents and two armed and uniformed police officers for documents he had already given the government.

“This jury has told government agencies, ‘Be careful,’ ” said Neumann’s lawyer, Steven Kelliher.

Neumann called the verdict a victory for “ordinary folks in Canada who have been pushed around for far too long.”

“Never in my wildest dreams would I have imagined this,” he said.

Richard Neary, who was part of the legal team, called the decision earth-shattering. “It’s a landmark in law in terms of the recognition of the vital importance that the charter plays and the respect with which it needs to be upheld.”

The jury found Neumann’s right to privacy, which CRA employees infringed, was worth $1 million. The jury also found the CRA employees were negligent and damaged Neumann. They awarded him $150,000 for pain, injury, suffering and loss of enjoyment of life, $100,000 for aggravated damages and $50,000 for loss of income.

The CRA is reviewing the decision and considering its next steps, media relations spokesman Noel Carisse said from Ottawa.

Neumann, who was born in East Germany and escaped with his family to refugee camps in West Berlin, launched the civil suit because he felt bullied and terrorized in the search. He has suffered from depression, paranoia and post-traumatic stress disorder ever since the search, court was told.

Last week, the jury heard Neumann was never the subject of a CRA investigation, but an innocent third party. In 2004, his business went through a successful audit. During the audit, however, the CRA learned that Leah Bonnar, an Alberta woman Neumann did business with, had received commission cheques from him. She later became the focus of a CRA tax-evasion investigation. Neumann gave the auditor his original documents concerning Bonnar. Those documents, which were photocopied and returned to him, were the same ones later sought in the search warrant.

Neumann was at home on the morning of Sept. 7, 2005, when he saw police cars driving into his small cul-de-sac. When he answered the door, a CRA investigator told him she had a warrant to search his home for records regarding the Bonnar investigation.

When Neumann asked her why the CRA was accompanied by police, the police officer said in most such searches, everyone in the house is arrested.

Neumann complied with orders to pull out all the cash he had in the house, and took a computer expert upstairs to his office to download anything he wanted. The search lasted several hours.

University of Victoria law professor Rebecca Johnson said there have been few awards in Canadian history for damages stemming from breaches of charter rights. In 1998, an unidentified woman was awarded $220,000 after suing Toronto police for violating her constitutional right to equality and for breaching the duties they owed her. She had argued that police should have told her she was a potential victim of the man known as the balcony rapist because of where she lived.

The Neumann case is groundbreaking, said Johnson, in that the jury’s decision reflects the fact that it was an unreasonable and unnecessary search.

“This is a very big fine against a powerful agency. It means the CRA will have to take very seriously the human dignity of the people whom they investigate,” said Johnson.

“This would be completely upsetting for any ordinary citizen to have five agents and two police officers show up at your house and tell you they can arrest you. It would be absolutely traumatizing and it would shake your faith in our system of justice.”

ldickson@tc.canwest.com

The Smith Manoeuvre and the Singleton Shuffle bite the Dust.

I hate to feel smug, but what they hell, every once in a while it is ok. Especially after all the crap unloaded on me over my article in REM and then Bob Arron picking up the article in the star and then the ensuing attack on him and I. You would think we had insulted the Holy Grail.

I am proud to say that I think we successfully prevented all our clients from getting involved with this. I was so loud and determined to make sure everyone knew to say away from this tax scheme.

So last week the long awaited judgment came down from the Supreme Court. The final word is in.

The Lipson versus Canada was the final word case and the game of over. You can not convert your home mortgate to a tax deductible mortgage. Check out my previous blog article on the Smith Manoeuvre, what I wrote is now the guiding light on the matter.

The majority decision was written by two criminal lawyers, a family lawyer and a labour lawyer, and the only Justices who actually know something about tax were in the minority.

While there are complaints that the ruling in the Lipson case did not clear up the matter as to how to know when GAAR applies and when it does not. I think the matter is pretty clear.

GAAR itself is pretty clear to me…. the simple solution is if your primary purpose is to reduce tax… it is wrong… if saving taxes is secondary, and you have the documentation to prove it… then there is nothing to worry about you can deduct the interest for investment loans.  So long as the masters of muddy water try to invent phony schemes and paper for untrue diversionary reasons, then they will continue to get caught in grapples of GAAR.

That is not to disagree that the tax system is inept, unfair or unethical and that CRA previous publications on the matter were ambiguous. The end result is now that now thousands of Canadians to be hit with serious penalties and interest. CRA has known this stuff for years but do nothing because it is a good investment for them to let citizens blunder.

For every single person who played this game, they can expect to get audited. The CRA computers can easly identify every homeowner who has unreasonable interest deductions.

I sure won’t complain because my company is here to help victims who got trapped in the sexy nature of converting their taxable mortgages to tax deductible interest deductions. They now become prime prospects for a WNBC rescue mission.

We have our defence strategies worked out to mitigate damages. I will write on this later. CRA will claim gross negligence and will likely go for 100% penalties plus interest.

Following is further information on this topic. Also check out my previous blog article.

So I am going off to have a nice glass of wine. I think I will have a bottle of Chateau Gloat 2009,

Best Regards

Dan

Lipson v Canada(F.C.)(32041)(March 16, 2007)
“The taxpayer E and his wife entered into an agreement of purchase and sale for a family residence.  The wife borrowed $562,500 from a bank to finance the purchase of shares in a family corporation.  She paid the borrowed money directly to the taxpayer who transferred the shares to her.  The taxpayer and his wife obtained a mortgage from a bank for $562,500.  That same day, they used the mortgage loan funds to repay the share loan in its entirety.  On his 1994, 1995 and 1996 tax returns, the taxpayer deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income when applicable.  The brother of the taxpayer, J, conducted similar transactions.  The Minister of National Revenue disallowed the deductions for those taxation years and reassessed the taxpayers accordingly.  The Tax Court of Canada dismissed the taxpayers’ appeals, holding that the series of transactions constituted a misuse of ss. 20(1)(c), 20(3), 73(1) and 74.1 of the Income Tax Act and the taxpayers’ appeals were dismissed.  The Federal Court of Appeal upheld that decision”.

Canada Court Strikes Mortgage-Interest Deduction Plan (Update1)
By Joe Schneider
Jan. 8 (Bloomberg) — Canada’s high court struck down a method some wealthy families use to gain tax deductibility for mortgage interest, ruling that a husband’s application of his wife’s deduction to his own income is abusive and illegal.
The Supreme Court of Canada, in a 4-3 decision today, upheld a federal ruling that dismissed a tax plan devised by Toronto residents Earl and Jordanna Lipson. Mortgage interest in Canada isn’t tax-deductible, though interest paid on investment loans generally is.
The Lipsons agreed to buy a house in Toronto in 1994 for C$750,000 ($633,000). Jordanna Lipson borrowed C$562,000 from the Bank of Montreal to buy shares in the family company, Lipson Family Investments Ltd., from her husband. The Lipsons then obtained a C$562,000 mortgage from the Bank of Montreal and used it to pay off the share loan. Earl Lipson deducted the interest on the mortgage loan on his 1994, 1995 and 1996 tax returns.
“The tax benefit of the interest deduction resulting from the refinancing of the shares of the family corporation by Mrs. Lipson is not abusive viewed in isolation,” Justice Louis LeBel wrote on behalf of the majority. “The ensuing tax benefit of the attribution of Mrs. Lipson’s interest deduction to Mr. Lipson is.”
The ruling won’t affect Canadians who borrow against the value of their home to buy investments, making their mortgage interest in effect tax-deductible, Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, said in a telephone interview.
‘Plain Vanilla’
“That strategy, based on this ruling, is still alive and well,” Golombek said. “The plain vanilla debt-swap strategy should be fine.”
Golombek, who moved to CIBC last year after 12 years as vice president of taxation and estate planning at AIM Trimark Investments, said the case has been closely followed by Canadian tax planners. People lined up outside the Supreme Court in April, when arguments were heard, to gain a seat inside the courtroom, Golombek wrote on his blog at the time.
LeBel said the federal tax department properly relied on a law prohibiting abusive tax avoidance — the general anti- avoidance rule, or GAAR — to deny Lipson’s deduction. Justice William Ian Binnie, in dissenting, said the anti-avoidance rule will make it difficult for people to plan their taxes properly.
“The GAAR is a weapon that, unless contained by jurisprudence, could have a widespread, serious and unpredictable effect on legitimate tax planning,” Binnie wrote.
The case is Between Earl Lipson and Her Majesty The Queen, No. 32041, Supreme Court of Canada (Ottawa).
To contact the reporters on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.
Last Updated: January 8, 2009 14:55 EST

TAX: GAAR (General anti-avoidance rule)
Lipson v Canada(F.C.)(32041)(March 16, 2007)
“The taxpayer E and his wife entered into an agreement of purchase and sale for a family residence.  The wife borrowed $562,500 from a bank to finance the purchase of shares in a family corporation.  She paid the borrowed money directly to the taxpayer who transferred the shares to her.  The taxpayer and his wife obtained a mortgage from a bank for $562,500.  That same day, they used the mortgage loan funds to repay the share loan in its entirety.  On his 1994, 1995 and 1996 tax returns, the taxpayer deducted the interest on the mortgage loan and reported the taxable dividends on the shares as income when applicable.  The brother of the taxpayer, J, conducted similar transactions.  The Minister of National Revenue disallowed the deductions for those taxation years and reassessed the taxpayers accordingly.  The Tax Court of Canada dismissed the taxpayers’ appeals, holding that the series of transactions constituted a misuse of ss. 20(1)(c), 20(3), 73(1) and 74.1 of the Income Tax Act and the taxpayers’ appeals were dismissed.  The Federal Court of Appeal upheld that decision”.
S.C.C. held (4:3 – with 2 separate sets of dissenting reasons) the appeal is dismissed.
Justice LeBel (in majority) wrote as follows (pp. 9-10, 12-13, 21-22):
“It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable (Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (H.L.)).  This remains the case.  However, the Duke of Westminster principle has never been absolute, and Parliament enacted s. 245 of the ITA, known as the GAAR, to limit the scope of allowable avoidance transactions while maintaining certainty for taxpayers (Canada Trustco , at para. 15).  In brief, the GAAR denies a tax benefit where three criteria are met: the benefit arises from a transaction (ss. 245(1) and 245(2)); the transaction is an avoidance transaction as defined in s. 245(3); and the transaction results in an abuse and misuse within the meaning of s. 245(4).  The taxpayer bears the burden of proving that the first two of these criteria are not met, while the burden is on the Minister to prove, on the balance of probabilities, that the avoidance transaction results in abuse and misuse within the meaning of s. 245(4).
…In determining the purpose of the relevant provision(s) of the Act, a court must take a unified textual, contextual and purposive approach to statutory interpretation (Canada Trustco, at para. 47).  This approach is, of course, not unique to the GAAR.  As this Court confirmed in Kaulius, the approach to statutory interpretation is the same for provisions of the ITA as for those of any other statute: it is necessary “to determine the intention of the legislator by considering the text, context and purpose of the provisions at issue” (Kaulius, at para. 42; see also Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at paras. 21-23).
…At this step, it is important to identify which provisions are associated with each tax benefit. Here, it is clear that the tax benefit of deductibility of interest relates to ss. 20(1)(c) and 20(3). On the other hand, the tax benefit arising out of Mr. Lipson’s use of the attribution rules, namely the possibility of deducting the interest to reduce his income, is linked with ss. 73(1) and 74.1(1). By virtue of these provisions, Mr. Lipson retains, for tax purposes, the stream of income from the shares sold to his wife but is able to deduct the interest payments on the mortgage from his income.
…In summary, the tax benefit of the interest deduction resulting from the refinancing of the shares of the family corporation by Mrs. Lipson is not abusive viewed in isolation, but the ensuing tax benefit of the attribution of Mrs. Lipson’s interest deduction to Mr. Lipson is. It follows that this latter tax benefit can be denied under s. 245(2), which is triggered because the transactions in the series include the attribution of the interest deduction under s. 74.1(1) and this attribution frustrates the object, spirit and purpose of that provision. I must now briefly consider the tax consequences of the denial of the tax benefit and the application of the GAAR”.

From the Office of the Information Commissioner of Canda,

Regarding TOMS (Tax Operations Manual) the book on how to get as much tax as you can from Canadians.

CHAPTER III:
CASE SUMMARIES

7. The Flip Side of the Coin

File 3100-14856/001

Background

A taxpayer requested copies of sections of a manual used by officials of Canada Customs and Revenue Agency (CCRA) to determine matters relating to the non-resident and deemed-resident assessment sections of the Income Tax Act. The manual, known as T.O.M. (Taxation Operations Manual), contains policies and procedures for applying and enforcing the Income Tax Act. In response, CCRA disclosed some of the requested information but exempted much of it on the grounds that disclosure could be prejudicial to the enforcement of the Income Tax Act.

The requester was unsatisfied with this response. He was of the view that the policies, methods and procedures employed by CCRA officials, in determining the residency of an individual for income tax purposes, should not be secret. Consequently, he complained to the Information Commissioner as follows:

“- I have a right to know what the rules are, the actual rules not the published ones and, just as importantly, how they will be applied.”

Legal Issue

May paragraph 16(1)(c) of the Act – the law enforcement exemption – be relied on to keep secret information which individuals need to know in order to properly understand, and comply with, the Income Tax Act?

For its part, CCRA explained that its residency determination process involves considering information about an individual’s “ties” to Canada or to other countries. These ties are categorized as “primary” and “secondary” and, residency will be determined based on the number and combination of “ties”. However, CCRA maintained that, were it to disclose the number and nature of these “ties”, individuals could “manipulate the system – to avoid paying Canadian income tax”.

On the other hand, the taxpayer/ requester argued that he could not properly arrange his affairs or challenge CCRA’s determination rulings without having access to the rules of the game. Indeed, the taxpayer expressed concern that secrecy fostered a “shifting sand” of rules which could be turned against the taxpayer at any time.

The Information Commissioner formed the view that Canadians should know the “rules of the game”. He concluded that the institution’s fear, that the taxpayer could manipulate the system, is outweighed by the concern that secrecy could allow the system to manipulate taxpayers. In the commissioner’s view, this type of secrecy was not what Parliament intended to protect when it enacted paragraph 16(1)(c) of the Access to Information Act.

After reflecting upon the commissioner’s concerns, CCRA decided to release most of the previously withheld information. Within the T.O.M.’s, however, there are income thresholds or tolerances which guide CCRA’s enforcement actions. Disclosure of these, according to CCRA, would impede its enforcement of the Income Tax Act.

The commissioner accepted the legitimacy of the limited amount of remaining secrecy and recorded the matter as resolved.

Lessons Learned

Government institutions have a right to keep information secret in order to protect the integrity of their law enforcement duties. However, that legitimate sphere of secrecy does not extend to the “rules of the game” which citizens are expected to obey and against which their obligations and entitlements will be assessed. The exemption in paragraph 16(1)(c) does not authorize institutions to maintain systems of secret law even if to do so would make life easier for the government.
References to specific sections, subsections, paragraphs, and/or subparagraphs in the Access to Information Act:

For more info go to Table of Contents

http://www.infocom.gc.ca/reports/2001-2002t-e.asp

An older, white haired man walked into a jewelry store one Friday evening
with a beautiful young gal at his side. He told the jeweler he was looking
for a special ring for his girlfriend. The jeweler looked through his
stock and brought out a $5,000 ring. The old man said, 'No, I'd like to
see something more special.

At that statement, the jeweler went to his special stock and brought
another ring over. 'Here's a stunning ring at only $40,000' the jeweler
said. The young lady's eyes sparkled and her whole body trembled with
excitement. The old man seeing this said, 'We'll take it.'

The jeweler asked how payment would be made and the old man stated,'by
check. I know you need to make sure my check is good, so I'll write it now
and you can call the bank Monday to verify the funds and I'll pick the

ring up Monday afternoon,' he said.

Monday morning, the jeweler phoned the old man. 'There's no money in that
account.' 'I know,' said the old man, 'But let me tell you about my
weekend!'


All Seniors Aren't Senile

End If Year Tax Strategies

Your investments;

Tax strategies need to be implemented prior to year end. The system allows for doing your taxes after the year end after it is too late to make strategic moves.
No one can give guaranteed advice without taking risks. So it you don’t think the stock market is going to bounce back, and you have some serious capital gains, it may well be time to unload any bad stocks.

Remember that capital gains and losses can not be applied against your salary or business income. They can only be applied to your capital gains and losses basket. The odds work in the tax man’s favour here. More people lose money in the markets than they make. So; so long as you understand the concept of capital gains and losses is to put money in the tax collectors pockets, you can make better buy and cell decisions.

By selling losing stocks before the end of the year, you can reduce tax that might otherwise be payable on capital gains you already made in 2008.

Also consider that you can trigger a refund of any 2005, 2006 or 2007 capital gains taxes you’ve already paid, by carrying it back.

Consider also the cost associated with buying and selling. The stock market industry pays out a handsome profit for those who choose to use their services. Part of wise investing is to be very clear on the costs involved in each transaction.

Do not sell stocks until after 31 days of acquiring them to avoid falling into the `Superficial Loss` Trap. If you sell a stock to trigger a loss, and any related person (your spouse, a trust or corporation you control) purchases it shortly thereafter, you’ll end up in trouble. The superficial loss rules prevent you from using the capital loss if you or your affiliate buys an identical property during the period that begins 30 days prior to the sale and ends 30 days after the sale. So, if you or your spouse actually wants to buy back the same investments, you’ll have to wait at least 30 days.

There are 2,400 tax auditors in the GTA. The tax collectors want your money.  So be prepared the tax man commeth and the tax man taketh… unless you are tax audit proof.

What that means as a small business is; if you do not want a CRA Audit to upset your life, cause you stress and for you to lose thousands of dollars of legitimate deductions because you did not do rock solid tax bookkeeping, then you need an audit proof solution to protect your after tax dollars.

The standard bookkeeping systems make true the words “Two things in life are sure; one is death and the other is taxes.”  This statement is true if you use conventional approaches to record keeping. Quickbooks is not audit ready accounting. If you have to get ready for an audit then you are doing your bookkeeping wrong.

Today’s punitive tax regime that specifically targets small business is raising tax havoc with our small businesses who are struggling just to eke out a small after tax profit. Taxes can kill you just as surely as stress can cause you death. CRA and Stress are spelled the same. A-U-D-I-T.

If you want to live a CRA Tax Free, Stressless life…. Learn to keep a perfect set of books. Our mission is to get the BKS (Bookkeeping Simplified) out there in the market so that small businesses pay only their fair share of taxes. No more tax and no less tax than they are legally obligated to on their non deductible personal expenses.

The tax department gets away with tax payer abuse, simply because the general population keeps mum that they were abused because of social embarrassment. In reality 2,400 auditors who each do over a hundred audits a year, year after year, creating an amazing secret…. Show me an entrepreneur, and I will show you someone who has had a brush in with CRA or who is paying too much tax.

This secret tax shame either needs exposure, or it needs to be eliminated by learning how to keep tax audit proof books.

Be prepared, this down turn in the economy is going to generate a more aggressive tax man, who will want to replace lost income from less businesses with more dollars from fewer businesses.

It is your choice for what solutions to choose, but you need to make one or the other, failing which death and taxes are spelled the same as taxman.

You never know when you’ll need a lawyer for tax issues or otherwise.  But getting access to the right lawyer and for the right price is a common problem we all face.   Long gone are the days when we should rely on our parents’ real estate lawyer to fight the CRA.  We need quick and convenient access to lawyers and information on their legal services.

I am announcing to the world that there is an exciting new solution to this age old problem: www.DynamicLawyers.com.  The idea is simple: Need a lawyer?  Make a Post.  Get Free Quotes!  The website just launched in Toronto and will be written about in the Toronto Star.  This website is a free and invaluable tool when it comes to finding the right lawyer.  All you have to do is make a free, anonymous, and easy-to-make post of your legal issue(s) and then wait for local lawyers to respond to you by e-mail.  You can request their expertise and quotes for how much their services will cost and give them a timeline as well.

If you’re like many of us, and avoid picking up the phone to call your lawyer, those days are gone.  The role of the lawyer is growing, with more and more areas of specialization.  Today’s world is an ever more litigious society with multiple levels of regulation, heavy taxation and new technologies.  Your chances of needing a lawyer, tax litigation or otherwise, have dramatically increased.

www.DynamicLawyers.com gives everyone access to a vast group of legal expertise instantly.  You simply post your issue, and the lawyer members will bid on your case.

The fully searchable website will become a large database where you can get self-help information in the form of Legal-Ease Guides (e.g. how to incorporate your business, how to get an uncontested divorce, how to fight a traffic ticket, how to draft a will, how to file a small claims court action, etc.).

The site is free, anonymous and will set you in the right direction to making informed decisions.

To illustrate how it works, let’s take a common life scenario.  You come home from a long day at work to find a nasty brown government envelope in your mail.  It’s Canada Revenue Agency and you’re being audited on your income taxes.  Instead of breaking out in a sweat, you can go on www.DynamicLawyers.com and make an anonymous post about your situation.  The network of lawyers is there to reply.  Lawyers may give you an overview of your rights, the risks and potential pitfalls, explain the costs involved, and their experiences with respect to resolving your issue(s), etc.  You can compare the responses you receive.  You’re under no obligation to select a lawyer.  You can then make an informed decision about your course of action.  You may even determine it is best is to seek some representation in your situation from one of the lawyers who have responded.

So go to www.DynamicLawyers.com right now and bookmark this page.  Make legal peace of mind only a click away.  Getting a letter from the tax man (or any other legal issues that pop up) can now go down the stress scale rating.

The beauty of www.DynamicLawyers.com is that you are empowered.  You no longer have to sit back and accept what life throws your way – get informed and put the odds in your favour.  Need a Lawyer?  Make a Post.  Get Free Quotes!

Frequently we are asked about what happens to tax owed when someone goes bankrupt. The following is copied in its entirety from the income tax act.

Dan White

Where individual bankrupt
(2) Where an individual has become a bankrupt, the following rules are applicable:

(a) the trustee in bankruptcy shall be deemed to be the agent of the bankrupt for all purposes of this Act;

(b) the estate of the bankrupt shall be deemed not to be a trust or an estate for the purposes of this Act;

(c) the income and the taxable income of the individual for any taxation year during which the individual was a bankrupt and for any subsequent year shall be calculated as if

(i) the property of the bankrupt did not pass to and vest in the trustee in bankruptcy on the bankruptcy order being made or the assignment filed but remained vested in the bankrupt, and

(ii) any dealing in the estate of the bankrupt or any act performed in the carrying on of the business of the bankrupt estate by the trustee was done as agent on behalf of the bankrupt and any income of the trustee from such dealing or carrying on is income of the bankrupt and not of the trustee;

(d) except for the purposes of subsections 146(1), 146.01(4) and 146.02(4) and Part X.1,

(i) a taxation year of the individual is deemed to have begun at the beginning of the day on which the individual became a bankrupt, and

(ii) the individual’s last taxation year that began before that day is deemed to have ended immediately before that day;

(d.1) where, by reason of paragraph 128(2)(d), a taxation year of the individual is not a calendar year,

(i) paragraph 146(5)(b) shall, for the purpose of the application of subsection 146(5) to the taxation year, be read as follows:

“128(2)(b) the amount, if any, by which

(i) the taxpayer’s RRSP deduction limit for the particular calendar year in which the taxation year ends

exceeds

(ii) the total of the amounts deducted under this subsection and subsection 128(5.1) in computing the taxpayer’s income for any preceding taxation year that ends in the particular calendar year.”,

and

(ii) paragraph 146(5.1)(b) shall, for the purpose of the application of subsection 146(5.1) to the taxation year, be read as follows:

“128(2)(b) the amount, if any, by which

(i) the taxpayer’s RRSP deduction limit for the particular calendar year in which the taxation year ends

exceeds

(ii) the total of the amount deducted under subsection 128(5) in computing the taxpayer’s income for the year and the amounts deducted under this subsection and subsection 128(5) in computing the taxpayer’s income for any preceding taxation year that ends in the particular calendar year.”;

(d.2) where, by reason of paragraph 128(2)(d), the individual has two taxation years ending in a calendar year, each amount deducted in computing the individual’s income for either of the taxation years shall be deemed, for the purposes of the definition “unused RRSP deduction room” in subsection 146(1) and Part X.1, to have been deducted in computing the individual’s income for the calendar year;

(e) where the individual was a bankrupt at any time in a calendar year the trustee shall, within 90 days from the end of the year, file a return with the Minister, in prescribed form, on behalf of the individual of the individual’s income for any taxation year occurring in the calendar year computed as if

(i) the only income of the individual for that taxation year was the income for the year, if any, arising from dealings in the estate of the bankrupt or acts performed in the carrying on of the business of the bankrupt by the trustee,

(ii) in computing the individual’s taxable income for that taxation year, no deduction were permitted by Division C, other than

(A) an amount under any of paragraphs 110(1)(d) to (d.3) and section 110.6 to the extent that the amount is in respect of an amount included in income under subparagraph (i) for that taxation year, and

(B) an amount under section 111 to the extent that the amount was in respect of a loss of the individual for any taxation year that ended before the individual was discharged absolutely from bankruptcy,

(iii) in computing the individual’s tax payable under this Part for that taxation year, no deduction were allowed

(A) under section 118, 118.01, 118.02, 118.03, 118.2, 118.3, 118.5, 118.6, 118.8 or 118.9,

(B) under section 118.1 with respect to a gift made by the individual on or after the day the individual became bankrupt,

(B.1) under section 118.62 with respect to interest paid on or after the day on which the individual became bankrupt, and

(C) under subsection 127(5) with respect to an expenditure incurred or property acquired by the individual in any taxation year that ends after the individual was discharged absolutely from bankruptcy,

and the trustee is liable to pay any tax so determined for that taxation year;

(f) notwithstanding paragraph 128(2)(e), the individual shall file a separate return of the individual’s income for any taxation year during which the individual was a bankrupt, computed as if

(i) the income required to be reported in respect of the year by the trustee under paragraph 128(2)(e) was not the income of the individual,

(ii) in computing income, the individual was not entitled to deduct any loss sustained by the trustee in the year in dealing with the estate of the bankrupt or in carrying on the business of the bankrupt,

(iii) in computing the individual’s taxable income for the year, no amount were deductible under any of paragraphs 110(1)(d) to (d.3) and section 110.6 in respect of an amount included in income under subparagraph (e)(i), and no amount were deductible under section 111, and

(iv) in computing the individual’s tax payable under this Part for the year, no amount were deductible under

(A) section 118.1 in respect of a gift made before the day on which the individual became bankrupt,

(B) section 118.62 in respect of interest paid before the day on which the individual became bankrupt, or

(C) section 118.61 or 120.2 or subsection 127(5),

and the individual is liable to pay any tax so determined for that taxation year;

(g) notwithstanding subparagraphs 128(2)(e)(ii) and 128(2)(e)(iii) and 128(2)(f)(iii) and 128(2)(f)(iv), where at any time an individual was discharged absolutely from bankruptcy,

(i) in computing the individual’s taxable income for any taxation year that ends after that time, no amount shall be deducted under section 111 in respect of losses for taxation years that ended before that time,

(ii) in computing the individual’s tax payable under this Part for any taxation year that ends after that time,

(A) no amount shall be deducted under section 118.61 or 120.2 in respect of an amount for any taxation year that ended before that time,

(B) no amount shall be deducted under section 118.1 in respect of a gift made before the individual became bankrupt,

(B.1) no amount shall be deducted under section 118.62 in respect of interest paid before the day on which the individual became bankrupt, and

(C) no amount shall be deducted under subsection 127(5) in respect of an expenditure incurred or a property acquired by the individual in any taxation year that ended before that time, and

(iii) the individual’s unused tuition and education tax credits at the end of the last taxation year that ended before that time is deemed to be nil;

(h) where, in a taxation year commencing after an order of discharge has been granted in respect of the individual, the trustee deals in the estate of the individual who was a bankrupt or performs any act in the carrying on of the business of the individual, paragraphs 128(2)(e), 128(2)(f) and 128(2)(g) shall apply as if the individual were a bankrupt in the year; and

(i) the portion of the individual’s non-capital loss for a particular taxation year in which paragraph 128(2)(e) applied in respect of the individual and any preceding taxation year that does not exceed the lesser of

(i) the amount of the individual’s allowable business investment losses for the particular taxation year, and

(ii) any portion of the individual’s non-capital loss for that particular year that was not deducted in computing the individual’s taxable income for any taxation year in which paragraph 128(2)(e) applied in respect of the individual or any preceding taxation year,

shall, for the purpose of determining the individual’s cumulative gains limit under section 110.6 for taxation years following the taxation year in which paragraph 128(2)(e) was last applicable in respect of the individual, be deemed not to have been an allowable business investment loss.

(3) [Repealed, 1998, c. 19, s. 152(4)]

MARRIAGE BREAKDOWN
LIVING SEPARATE AND APART
In the case of a marriage separation, you do not have to live in separate accommodations in order to apply for the GST credit. You just need to not be living as a couple. And you do need a written separation agreement.

EQUIVALENT-TO-SPOUSE CREDIT
You cannot claim for the equivalent to spouse credit for a child where the individual is required to pay a support amount for that person.

CAPITAL GAINS AND LOSSES
PRINCIPAL RESIDENCE
When a taxpayer converts a principal residence to an income-producing use, the taxpayer may, within limits, elect to defer recognition of any gain to a later year.

PRIVATE HEALTH SERVICES PLAN
Where an employer enters into a PHSP for an employee, the expenses are generally deductible to the employer and not taxable to the employee.  This deductible/non-taxable status may not apply if the PHSP is only available to shareholders.

BUSINESS PROPERTY INCOME
SALARIES PAID TO CHILDREN – may be disallowed if:
(i)    The amounts were either not paid to them or, upon being paid, were then deposited in bank accounts of either the business or the parents.
(ii)    There was not sufficient documentation and,
(iii)    The children did not declare any amounts on their tax returns.

EDUCATIONAL EXPENSES
Employer-paid tuition and related costs, may not be a taxable benefit to the employee.  This includes courses in a field related to the employee’s responsibilities as well as courses not directly related to the employer’s business such as stress management, employment equity, first aid and language skills.

MOTOR VEHICLE EXPENSE DEDUCTION
Where an employee receives a reasonable per kilometer reimbursement for the use of his/her personal motor vehicle in connection with employment duties, the reimbursement is generally excluded from employment income.

CAPITAL COST ALLOWANCE
If a tax payer buys new vehicles and retains the old fleet, the tax payer can apply capital cost allowance.

RRSP –
HOME BUYERS’ PLAN
The HBP permits an individual to borrow up to $20,000 from his/her RRSP to purchase a home in Canada.  To qualify, the borrower, or his/her spouse, cannot have an owner-occupied home in the four preceding years.  Each spouse may withdraw up to $20,000 from their RRSPs to jointly purchase a home.

ESTATE PLANNING
ELDERLY TAXPAYERS

1.    Sign a Power of Attorney for management of property and personal care matters.
2.    Avoid probate fees by naming beneficiaries to life insurance policies and pension plans, joint ownership and by multiple wills.

FARMING
FARM LOSSES
There is a question that CRA has the right to restrict farm losses as a business loss. Get good advice here.

GST
LAWYERS DISBURSEMENTS
A lawyers disbursements are taxed for GST/HST purposes.

SALES BY INDIVIDUALS OF OWNER-OCCUPIED HOMES
Resale homes by owner occupants are not subject to GST.
Vacant land not used for business purposes or as an investment may be GST exempt. Be sure to double check to see if this fits your circumstances.

Election Wishes….

Dion , Harper and Layton are flying on the Executive Airbus

to a gathering in British Columbia when Dion turns to Harper and says, chuckling,

‘You know, I could throw a $1000 bill out the window right now and make someone very happy .’

Harper shrugs and replies,
‘Well, I could throw ten $100 bills out the
window and make ten people happy.’

Not to be outdone, Layton says,
‘Well I could throw a hundred $10 bills
out the window and make a hundred people happy.’

The pilot rolls his eyes and says to his co-pilot,
‘Such arrogant jerks back there.
Heck, I could throw all three of them out the window and make 32 million people happy!!!’

October 6, 2008

 

CRA’s focus on international taxation issues

 The following article from KPMG, outlining how CRA is targeting international business. For those of you who believe you will pay less taxes here in Canada by structuring offshore, those days are over.

There are lots of reasons to be offshore. Saving taxes is not one of them. And why bother, when with less cost of time and money, you can do your own home grown tax strategies.

The fact that CRA can legally demand you prove your offshore connections are free from tax on your world wide income, means that you walk on precarious ice, while doing your offshore strategies.

Offshore tax savings sound sexy, but so do prostitutes, until you find yourself suffering from what you get in bed with.

With Fintrac and all the other government snooping… being offshore only brings attention to your dealings. So is you need to be there for ligitimate business reasons… just keep a good set of books and full paper trail.

The bonus of setting yourself up right, if you loose money offshore, you can take advantage of on shore tax savings.

Dan White

CRA Steps Up International Tax Audits

From KPMG report:
A recent report of the Auditor General (AG) indicates that the CRA has become increasingly concerned with the tax risks associated with international transactions. Although the AG found that the CRA is better able to identify potential non-compliance with the tax rules on international transactions, the CRA still needs to improve in several areas.

Given the CRA’s increased focus on international tax issues, including transfer pricing, Canadian corporations that undertake transactions with related parties in foreign jurisdictions face an ever-increasing probability of a transfer pricing audit by the CRA.

Consequently, corporations should be diligent in developing and implementing transfer pricing policies, as well as preparing appropriate transfer pricing documentation in an effort to reduce the likelihood of a transfer pricing adjustment in the event of a CRA audit.

CRA’s focus on international taxation issues

Aggressive tax planning, which includes international tax compliance, has been one of the CRA’s top four compliance priorities since 2004. As noted in the 2007 AG report, the CRA estimates that over 16,000 Canadian corporate taxpayers report some type of foreign transaction with related parties. These related-party transactions are estimated to involve more than $1.5 trillion in 2005.

The 2005 federal budget allocated $30 million annually to the CRA to address aggressive international tax planning. The CRA is using these funds to research tax avoidance and to increase the number of international auditors and tax avoidance auditors. As of March 31, 2006, the CRA had 320 international auditors and researchers and 210 non-resident auditors and program officers.

Auditors now use checklists and other planning tools to help them determine whether a corporation may be non-compliant and to begin transfer pricing and foreign affiliate audits. In addition, the time budgeted for an international audit of a large corporation has increased significantly. In 2006, the CRA’s total international audit reassessments had increased to $941 million from $778 million in 2001. The additional tax assessed on international transactions by large corporations was $729 million, compared to $300 million in 2001.

International auditor expertise and support

In its 2002 report, the AG expressed concern about the lack of adequately trained and experienced international auditors who were available to undertake transfer pricing and foreign affiliate audits.

A lack of adequate international audit experience was still observed by the AG in 2006. For example, in two Greater Toronto Area (GTA) tax services offices (TSOs), more than 40 percent of auditors had less than two years of international audit experience, while four of the ten international audit team leaders had less than one year of international team leader experience.
In an attempt to combat the lack of international audit experience, the CRA added 140 international and avoidance auditors and 39 experienced auditors to perform research studies. In addition, since 2002, the agency increased the total number of economists it employs to 16. However, the 2007 AG report notes that some TSOs continue to lack adequate training and experience in international audits, especially in the GTA.

The 2007 AG report noted that only 25% of audit recoveries came from the GTA, where more than 40% of large corporations report non-arm’s length transactions. It is suspected that tax recoveries in the GTA have been lost due to inconsistencies in the approach and coverage of international audits. The 2007 AG report also noted that, even though economists have been involved from the onset of the audit, they have limited experience in transfer pricing audits and lack industry-specific expertise.

Foreign documentation requests

The 2007 AG report revealed that the CRA has increased the use of information requests from foreign jurisdictions. However, the report concluded that auditors are still not making sufficient use of these provisions where taxpayers failed to provide the information voluntarily.
Posted by Vancouver Tax Accountant at 12:01 AM
Labels: CRA, cross border tax

 

CRA Heightens its attack on Deleware Corps.

Filed under: Offshore — Tags: ,  — admin @ 10:52 am

 

Consider the following article by Blake Cassels & Gradon LLP… an excellent aricle. It brings up the question of should you consider an offshore company. (IBC) (Anything out of Canada is considered offshore.)

The world offshore is full of pitfalls and is under the constant attack of CRA… they are beefing up their international audit force.

I don’t see offshore as a legal tax strategy… if is fine as a tool of tax evasion, except that is a criminal offence. I used to believe in offshore as a tax stragegy. Now I believe it should only be used for business stragegies.

I believe you should be properly set up, with an auditable set of books, that CRA can see. CRA has very abusive powers when it comes to arbatrary assessments which force business owners to divuldge all data to prove the tax man wrong. So you are better to structure affairs to be transparrent right up front.

Now asside from the fact that CRA is disliked by most Canadian citizens, the financial odds work better in your favour that you are straight up with the tax man in how you set things up. (The explanation to this is a complete article in itself).

The game of corporations, is one fraught with a perils and often a false sense of sequrity. Read the following taking not of CRA intentions. The specific article topic, reaches past the LLPs of the world.

Dan White

Canadian tax consequences of conversion of limited liability company into limited partnership under Delaware law

View original document | Send to colleague | Print
Blake Cassels & Graydon LLP

Jeffrey Trossman

Canada, USA
September 25 2008

Summary

The Canada Revenue Agency (CRA) recently released a non-binding technical interpretation regarding the Canadian tax treatment of conversion of a Delaware limited liability company (LLC) into a limited partnership (LP) under Delaware law.

Delaware law clearly provides that such a conversion does not result in a transfer of property of the convert-ing LLC. Further, Canadian law requires that tax results be determined based on the legal characterization of transactions. Nonetheless, in the technical interpreta-tion, CRA asserted that an LLC should be considered to dispose of its property when it converts into an LP under Delaware law. CRA’s position in the technical interpretation is unexpected, and arguably unsound.

Background

Since the mid-1990s, CRA has consistently asserted that U.S. LLCs should be classified as corporations for Canadian tax purposes. Further, CRA has also maintained that neither an LLC nor its members may access any benefits under the Canada-U.S. tax treaty with respect to items of income or gain realized by the LLC, except where the LLC has elected to be taxed as a U.S. corporation. In most cases, LLCs are fiscally transparent for U.S. tax purposes.

CRA’s position has had unfortunate and inappropriate consequences in many contexts. As an example, where a U.S. investor happens to have invested in a Canadian private company through a fiscally transparent LLC, dividends received by the LLC are, in CRA’s view, subject to statutory, rather than treaty-reduced, withholding rates, and furthermore, the LLC is itself liable to pay Canadian tax on any capital gain realized on a subsequent transfer of the Canadian shares, without the benefit of any treaty exemption. These results are clearly inappropriate from a tax policy perspective, as the U.S. resident members of the LLC are liable to pay U.S. tax on their allocated share of the LLC’s income or gain. CRA’s view was based on its analysis of the legal nature of an LLC. Strict adherence to legal principle overrode any broader concept of tax policy. This is consistent with the well-established Canadian approach – applicable commercial law characterization generally determines tax consequences.

U.S. investors that obtain Canadian tax advice are made aware of this anomaly, and are careful to structure investments into Canada so that no Canadian shares are directly held by an LLC. However, U.S. investors that do not obtain such up-front advice, and that unwittingly invest in a Canadian private company through an LLC, might reasonably want to re-structure their investment once they are made aware of the harsh Canadian regime. If the Canadian shares have appreciated in value by the time the problem is discovered, however, any transfer of those shares to a more suitable entity will result in a Canadian tax liability on the gain realized on transfer to the more suitable entity.

One re-structuring approach that has been pursued by some U.S. investors faced with this problem is to “convert” the LLC into an LP using the specific codified rules for such conversions in Delaware statutory law. These rules, described below, clearly state that such a conversion does not result in a transfer of property. The rules also state that the converted LP is regarded as the same continuing entity as the predecessor LLC. One would have thought it clear in these circumstances that such a conversion does not result in a disposition of property by the LLC. If that is the case, the U.S. investor could convert the LLC into an LP, and then the members of the LP, which is treated as fiscally transparent for both Canadian and U.S. tax purposes, would be entitled to claim treaty benefits prospectively on a look-through basis. Such re-structuring should not be regarded as abusive, given that the wholesale denial of treaty benefits to LLCs is based on a strict legal analysis rather than any broad principle of tax policy.

At least in the case of LLCs, all of whose members are U.S. treaty-eligible residents, this problem will become a historical artefact upon entry into force of the 5th Protocol to the Canada-U.S. tax treaty, which will almost certainly occur in the near future. The protocol will add a specific relieving rule that ensures that such LLCs are able to claim treaty benefits to the extent their members are themselves eligible for such benefits. Nonetheless, for prior periods, and for LLCs with non-U.S. members, the issue remains live.

In a recently published technical interpretation (Document 2004-0104691E5(E) – Conversion of an LLC to an LP, dated August 14, 2008), CRA was asked whether an LLC that converts into an LP under Delaware law should be considered to have disposed of its property. Unexpectedly, CRA asserted that there is a disposition of property by the LLC in such circumstances.

CRA’s support for this position, as articulated in the technical interpretation, departs significantly from the accepted Canadian approach. In particular, CRA reached its conclusion despite the fact that the relevant statutory provisions plainly state that a converted LLC is not considered to have transferred any of its property solely by virtue of the conversion. Unlike the traditional approach to Canadian tax analysis, CRA refused to accept the Delaware commercial law characterization of a conversion, and posited a new test based on whether or not the converted entity is the same “type of entity” as the converting entity.

In the remainder of this article, I review the technical interpretation in detail, and comment on its implications.

Technical Interpretation – Relevant Facts

The facts on which the technical interpretation was requested were as follows:

The entity in question (Entity) was a Delaware LLC governed by the Limited Liability Company Act (Delaware) (LLCA). Entity was converted into a Delaware LP governed by the Delaware Revised Uniform Partnership Act (DRUPA) and the Limited Partnership Act (Delaware) (LPA). At the time of conversion, Entity’s property included “taxable Canadian property” (TCP) for purposes of the Income Tax Act (Canada) (the Act) (such as shares of a private Canadian company).

CRA was asked whether Entity would be considered to have disposed of its TCP solely by virtue of the conversion. If there were such a disposition, this would have resulted in Entity being required to apply for a section 116 certificate and file a Canadian tax return. If the disposition resulted in realization of gain (which is unclear), presumably an immediate tax liability would have resulted.

Delaware Statutory Provisions

Both the LLCA and the LPA have specific provisions that contemplate conversions of, among other things, an LLC into an LP.

CRA cited the relevant provisions of both of these statutes.

Section 17-217 of the LPA provides in part:

(f) When any conversion shall have become effective under this section, for all purposes of the laws of the State of Delaware, all of the rights, privileges and powers of the other entity that has converted, and all property, real, personal and mixed, and all debts due to such other entity, as well as all other things and causes of action belonging to such other entity, shall remain vested in the domestic limited partnership to which such other entity has converted and shall be the property of such domestic limited partnership … The rights, privileges, powers and interests in property of the other entity, shall not be deemed, as a consequence of the conversion, to have been transferred to the domestic limited partnership to which such other entity has converted for any purpose of the laws of the State of Delaware.

(g) … When an other entity has been converted to a limited partnership pursuant to this section, for all purposes of the laws of the State of Delaware, the limited partnership shall be deemed to be the same entity as the converting other entity and the conversion shall constitute a continuation of the existence of the converting other entity in the form of a domestic limited partnership.

[emphasis added]

Section 18-216 of the LLCA similarly provides, among other things, that “interests in property of the [LLC], as well as the debts, liabilities and duties of such [LLC], shall not be deemed, as a consequence of the conversion, to have been transferred”.

These statutory provisions unambiguously provide that no transfer of property occurs under prevailing Delaware law solely by virtue of a conversion of an LLC into an LP. Further, the converted entity is regarded as a continuation of the converting entity.

CRA Analysis

In the technical interpretation, CRA cited these provisions, but refused to accept that a converting LLC does not dispose of its property solely by virtue of a conversion.

CRA approached the problem by considering the appropriate entity classification of LLCs and LPs. CRA observed that it has regarded LLCs as non-fiscally transparent entities (corporations) and LPs as fiscally transparent (partnerships).

CRA asserted that in making these determinations, it follows a “two-step” approach, described as follows:

1) Determine the characteristics of the foreign business association under foreign commercial law and the agreements (such as articles of incorporation) and contracts between the parties that govern it. The most important attributes are the nature of the relationship between the various parties and the rights and obligations of the parties under the applicable laws and agreements; and

2) Compare these characteristics with those of recognized categories of business associations under Canadian commercial law in order to classify the foreign business association under one of those categories.

CRA then asserted that in the case of a Delaware LP, the property held by the LP “is considered to be held in common by its owners, with each owner holding an undivided interest in the underlying partnership property”. This curious statement foreshadows CRA’s conclusion. In fact, it is misleading, if not incorrect to assert that a partnership’s property is “held in common by its owners”. The Act clearly contemplates the concept of a partnership itself owning property. Indeed, the hypothetical taxpayer rules in section 96 pre-suppose that a partnership – not its members – is the owner of partnership property. Similarly, the applicable Delaware statutes also provide that the property of a partnership does not constitute property of the partners. Nonetheless, CRA asserted that an LLC – being a corporation – is the owner of its property in its own right, whereas in the case of a partnership, the owners of the property are the partners themselves. It is unclear how this assertion can be reconciled with the governing Delaware law, which provides otherwise.

It is interesting to note that in 2004, CRA considered the same question (Document 2003-0049231E5). In that case, CRA declined to express a conclusion, stating instead that the facts and the details of the partnership agreement would have to be reviewed to determine whether the assets of the partnership are in fact assets of the partners themselves. The implication was that if applicable law and the partnership agreement provided that partnership assets were not assets of the partners themselves, the LLC would not dispose of its property when it converts. In the more recent technical interpretation, there is no apparent attempt to reconcile CRA’s new analysis with the approach taken in 2004.

Following the unsupported assertion that the LP’s property is property of the partners, CRA concluded that:

“the conversion, viewed from a Canadian tax perspective, results in a fundamental change in the nature and character of the entity being converted: a corporate entity the income of which is subject to tax in its own hands is converted into a non-corporate entity (a partnership) the income of which is subject to tax in the hands of its partners. … As a DLLC and a DLP are not the same type of entities for Canadian tax purposes, the property of Entity will be considered to be transferred by Entity to the DLP on the conversion.” [emphasis added and terminology adjusted]

This is a startling and novel approach to Canadian tax analysis. Canadian tax analysis to date has invariably been based on applicable commercial law – if, under applicable commercial law, property has been transferred, there is a disposition; otherwise there is no disposition unless a specific rule in the Act otherwise provides.

As an example, on a U.S. absorptive merger, it has long been accepted that the corporation which does not survive the merger is considered to have disposed of its property to the survivor. The reason for this is that the applicable commercial law provides that there is a transfer of property to the survivor.

Another similar example arises where two Canadian corporations amalgamate in a so-called “non-qualifying” amalgamation. (A non-qualifying amalgamation for this purpose is an amalgamation that does not qualify for statutory rollover relief under section 87 of the Act. As an example, if a shareholder of a predecessor (other than another predecessor) does not receive shares of the amalgamated company, the amalgamation will be non-qualifying.) In such a case, no statutory rollover is available with respect to the property of the amalgamating corporations. However, under applicable Canadian corporate law, there is no transfer of property; the amalgamated company is regarded as continuation of its predecessors. No transfer of property occurs. On this basis, CRA has correctly concluded that there is no disposition of property for tax purposes on such an amalgamation (see “Revenue Canada Roundtable”, in Report of Proceedings on the Forty-Fourth Tax Conference, 1992 Conference Report (Toronto: Canadian Tax Foundation, 1993), 54:1-75, question 26, at 54:17-18). The guiding principle is that tax consequences flow from legal characterization.

This guiding principle seems to have been discarded by CRA in the recent technical interpretation. CRA asserted that the LLC’s property was disposed of because an LLC and an LP are different “types of entity”. There is in fact no existing principle of Canadian tax law under which property is considered to have been disposed of solely because an entity is converted from one “type of entity” into a different “type of entity”. The assertion of such a principle represents a new and unfounded approach.

Incidentally, CRA also asserted that the owners of membership interests in the converting LLC should be regarded as having disposed of such interests in exchange for interests in the LP. Except in the case of Canadian real estate based vehicles, this observation is of limited relevance, since the membership interests will normally not be TCP.

CRA made no comment on the proceeds of the alleged disposition of property by the LLC. While the Act would impute fair market value proceeds if the LLC’s property were considered to have been disposed of to a non-arm’s length person or as a gift inter vivos, it is conceptually difficult to argue that the LLC and LP do not deal at arm’s length (or that the LLC made a gift to the LP) when in fact they never co-exist. Given CRA’s novel approach, it is difficult to be certain how CRA might approach the question of proceeds of disposition.

Conclusion

The recent technical interpretation discussed in this article was issued in August 2008, though it appears to have been requested in 2004. Given this apparently considerable time frame, it is disappointing that CRA has approached the disposition question in a manner that departs so significantly from accepted principles. CRA has posited a new test for determining whether there is a disposition of property – that test being whether the original and subsequent owners of the property are the same “type of entity”. No authority is cited for this new test.

It remains to be seen whether a court would accept this new theory. For the moment, however, the safest approach for an LLC holding TCP would probably be to defer any potentially taxable event or receipt of Canadian source income until after entry into force of the protocol.

Consider the following article by Blake Cassels & Gradon LLP… an excellent article. It brings up the question of should you consider an offshore company. (IBC) (Anything out of Canada is considered offshore.)

The world offshore is full of pitfalls and is under the constant attack of CRA… they are beefing up their international audit force.

I don’t see offshore as a legal tax strategy… if is fine as a tool of tax evasion, except that is a criminal offense. I used to believe in offshore as a tax strategy. Now I believe it should only be used for business strategies.

I believe you should be properly set up, with an audit ready set of books, that CRA can see. CRA has very abusive powers when it comes to arbitrary assessments which force business owners to divulge all data to prove the tax man wrong. So you are better to structure affairs to be transparent right up front.

Now aside from the fact that CRA is disliked by most Canadian citizens, the financial odds work better in your favor that you are straight up with the tax man in how you set things up. (The explanation to this is a complete article in itself).

The game of corporations, is one fraught with a perils and often a false sense of security. Read the following taking not of CRA intentions. The specific article topic, reaches past the LLPs of the world.

Dan White

Canadian tax consequences of conversion of limited liability company into limited partnership under Delaware law

View original document | Send to colleague | Print
Blake Cassels & Graydon LLP

Jeffrey Trossman

Canada, USA
September 25 2008

Summary

The Canada Revenue Agency (CRA) recently released a non-binding technical interpretation regarding the Canadian tax treatment of conversion of a Delaware limited liability company (LLC) into a limited partnership (LP) under Delaware law.

Delaware law clearly provides that such a conversion does not result in a transfer of property of the convert-ing LLC. Further, Canadian law requires that tax results be determined based on the legal characterization of transactions. Nonetheless, in the technical interpreta-tion, CRA asserted that an LLC should be considered to dispose of its property when it converts into an LP under Delaware law. CRA’s position in the technical interpretation is unexpected, and arguably unsound.

Background

Since the mid-1990s, CRA has consistently asserted that U.S. LLCs should be classified as corporations for Canadian tax purposes. Further, CRA has also maintained that neither an LLC nor its members may access any benefits under the Canada-U.S. tax treaty with respect to items of income or gain realized by the LLC, except where the LLC has elected to be taxed as a U.S. corporation. In most cases, LLCs are fiscally transparent for U.S. tax purposes.

CRA’s position has had unfortunate and inappropriate consequences in many contexts. As an example, where a U.S. investor happens to have invested in a Canadian private company through a fiscally transparent LLC, dividends received by the LLC are, in CRA’s view, subject to statutory, rather than treaty-reduced, withholding rates, and furthermore, the LLC is itself liable to pay Canadian tax on any capital gain realized on a subsequent transfer of the Canadian shares, without the benefit of any treaty exemption. These results are clearly inappropriate from a tax policy perspective, as the U.S. resident members of the LLC are liable to pay U.S. tax on their allocated share of the LLC’s income or gain. CRA’s view was based on its analysis of the legal nature of an LLC. Strict adherence to legal principle overrode any broader concept of tax policy. This is consistent with the well-established Canadian approach – applicable commercial law characterization generally determines tax consequences.

U.S. investors that obtain Canadian tax advice are made aware of this anomaly, and are careful to structure investments into Canada so that no Canadian shares are directly held by an LLC. However, U.S. investors that do not obtain such up-front advice, and that unwittingly invest in a Canadian private company through an LLC, might reasonably want to re-structure their investment once they are made aware of the harsh Canadian regime. If the Canadian shares have appreciated in value by the time the problem is discovered, however, any transfer of those shares to a more suitable entity will result in a Canadian tax liability on the gain realized on transfer to the more suitable entity.

One re-structuring approach that has been pursued by some U.S. investors faced with this problem is to “convert” the LLC into an LP using the specific codified rules for such conversions in Delaware statutory law. These rules, described below, clearly state that such a conversion does not result in a transfer of property. The rules also state that the converted LP is regarded as the same continuing entity as the predecessor LLC. One would have thought it clear in these circumstances that such a conversion does not result in a disposition of property by the LLC. If that is the case, the U.S. investor could convert the LLC into an LP, and then the members of the LP, which is treated as fiscally transparent for both Canadian and U.S. tax purposes, would be entitled to claim treaty benefits prospectively on a look-through basis. Such re-structuring should not be regarded as abusive, given that the wholesale denial of treaty benefits to LLCs is based on a strict legal analysis rather than any broad principle of tax policy.

At least in the case of LLCs, all of whose members are U.S. treaty-eligible residents, this problem will become a historical artefact upon entry into force of the 5th Protocol to the Canada-U.S. tax treaty, which will almost certainly occur in the near future. The protocol will add a specific relieving rule that ensures that such LLCs are able to claim treaty benefits to the extent their members are themselves eligible for such benefits. Nonetheless, for prior periods, and for LLCs with non-U.S. members, the issue remains live.

In a recently published technical interpretation (Document 2004-0104691E5(E) – Conversion of an LLC to an LP, dated August 14, 2008), CRA was asked whether an LLC that converts into an LP under Delaware law should be considered to have disposed of its property. Unexpectedly, CRA asserted that there is a disposition of property by the LLC in such circumstances.

CRA’s support for this position, as articulated in the technical interpretation, departs significantly from the accepted Canadian approach. In particular, CRA reached its conclusion despite the fact that the relevant statutory provisions plainly state that a converted LLC is not considered to have transferred any of its property solely by virtue of the conversion. Unlike the traditional approach to Canadian tax analysis, CRA refused to accept the Delaware commercial law characterization of a conversion, and posited a new test based on whether or not the converted entity is the same “type of entity” as the converting entity.

In the remainder of this article, I review the technical interpretation in detail, and comment on its implications.

Technical Interpretation – Relevant Facts

The facts on which the technical interpretation was requested were as follows:

The entity in question (Entity) was a Delaware LLC governed by the Limited Liability Company Act (Delaware) (LLCA). Entity was converted into a Delaware LP governed by the Delaware Revised Uniform Partnership Act (DRUPA) and the Limited Partnership Act (Delaware) (LPA). At the time of conversion, Entity’s property included “taxable Canadian property” (TCP) for purposes of the Income Tax Act (Canada) (the Act) (such as shares of a private Canadian company).

CRA was asked whether Entity would be considered to have disposed of its TCP solely by virtue of the conversion. If there were such a disposition, this would have resulted in Entity being required to apply for a section 116 certificate and file a Canadian tax return. If the disposition resulted in realization of gain (which is unclear), presumably an immediate tax liability would have resulted.

Delaware Statutory Provisions

Both the LLCA and the LPA have specific provisions that contemplate conversions of, among other things, an LLC into an LP.

CRA cited the relevant provisions of both of these statutes.

Section 17-217 of the LPA provides in part:

(f) When any conversion shall have become effective under this section, for all purposes of the laws of the State of Delaware, all of the rights, privileges and powers of the other entity that has converted, and all property, real, personal and mixed, and all debts due to such other entity, as well as all other things and causes of action belonging to such other entity, shall remain vested in the domestic limited partnership to which such other entity has converted and shall be the property of such domestic limited partnership … The rights, privileges, powers and interests in property of the other entity, shall not be deemed, as a consequence of the conversion, to have been transferred to the domestic limited partnership to which such other entity has converted for any purpose of the laws of the State of Delaware.

(g) … When an other entity has been converted to a limited partnership pursuant to this section, for all purposes of the laws of the State of Delaware, the limited partnership shall be deemed to be the same entity as the converting other entity and the conversion shall constitute a continuation of the existence of the converting other entity in the form of a domestic limited partnership.

[emphasis added]

Section 18-216 of the LLCA similarly provides, among other things, that “interests in property of the [LLC], as well as the debts, liabilities and duties of such [LLC], shall not be deemed, as a consequence of the conversion, to have been transferred”.

These statutory provisions unambiguously provide that no transfer of property occurs under prevailing Delaware law solely by virtue of a conversion of an LLC into an LP. Further, the converted entity is regarded as a continuation of the converting entity.

CRA Analysis

In the technical interpretation, CRA cited these provisions, but refused to accept that a converting LLC does not dispose of its property solely by virtue of a conversion.

CRA approached the problem by considering the appropriate entity classification of LLCs and LPs. CRA observed that it has regarded LLCs as non-fiscally transparent entities (corporations) and LPs as fiscally transparent (partnerships).

CRA asserted that in making these determinations, it follows a “two-step” approach, described as follows:

1) Determine the characteristics of the foreign business association under foreign commercial law and the agreements (such as articles of incorporation) and contracts between the parties that govern it. The most important attributes are the nature of the relationship between the various parties and the rights and obligations of the parties under the applicable laws and agreements; and

2) Compare these characteristics with those of recognized categories of business associations under Canadian commercial law in order to classify the foreign business association under one of those categories.

CRA then asserted that in the case of a Delaware LP, the property held by the LP “is considered to be held in common by its owners, with each owner holding an undivided interest in the underlying partnership property”. This curious statement foreshadows CRA’s conclusion. In fact, it is misleading, if not incorrect to assert that a partnership’s property is “held in common by its owners”. The Act clearly contemplates the concept of a partnership itself owning property. Indeed, the hypothetical taxpayer rules in section 96 pre-suppose that a partnership – not its members – is the owner of partnership property. Similarly, the applicable Delaware statutes also provide that the property of a partnership does not constitute property of the partners. Nonetheless, CRA asserted that an LLC – being a corporation – is the owner of its property in its own right, whereas in the case of a partnership, the owners of the property are the partners themselves. It is unclear how this assertion can be reconciled with the governing Delaware law, which provides otherwise.

It is interesting to note that in 2004, CRA considered the same question (Document 2003-0049231E5). In that case, CRA declined to express a conclusion, stating instead that the facts and the details of the partnership agreement would have to be reviewed to determine whether the assets of the partnership are in fact assets of the partners themselves. The implication was that if applicable law and the partnership agreement provided that partnership assets were not assets of the partners themselves, the LLC would not dispose of its property when it converts. In the more recent technical interpretation, there is no apparent attempt to reconcile CRA’s new analysis with the approach taken in 2004.

Following the unsupported assertion that the LP’s property is property of the partners, CRA concluded that:

“the conversion, viewed from a Canadian tax perspective, results in a fundamental change in the nature and character of the entity being converted: a corporate entity the income of which is subject to tax in its own hands is converted into a non-corporate entity (a partnership) the income of which is subject to tax in the hands of its partners. … As a DLLC and a DLP are not the same type of entities for Canadian tax purposes, the property of Entity will be considered to be transferred by Entity to the DLP on the conversion.” [emphasis added and terminology adjusted]

This is a startling and novel approach to Canadian tax analysis. Canadian tax analysis to date has invariably been based on applicable commercial law – if, under applicable commercial law, property has been transferred, there is a disposition; otherwise there is no disposition unless a specific rule in the Act otherwise provides.

As an example, on a U.S. absorptive merger, it has long been accepted that the corporation which does not survive the merger is considered to have disposed of its property to the survivor. The reason for this is that the applicable commercial law provides that there is a transfer of property to the survivor.

Another similar example arises where two Canadian corporations amalgamate in a so-called “non-qualifying” amalgamation. (A non-qualifying amalgamation for this purpose is an amalgamation that does not qualify for statutory rollover relief under section 87 of the Act. As an example, if a shareholder of a predecessor (other than another predecessor) does not receive shares of the amalgamated company, the amalgamation will be non-qualifying.) In such a case, no statutory rollover is available with respect to the property of the amalgamating corporations. However, under applicable Canadian corporate law, there is no transfer of property; the amalgamated company is regarded as continuation of its predecessors. No transfer of property occurs. On this basis, CRA has correctly concluded that there is no disposition of property for tax purposes on such an amalgamation (see “Revenue Canada Roundtable”, in Report of Proceedings on the Forty-Fourth Tax Conference, 1992 Conference Report (Toronto: Canadian Tax Foundation, 1993), 54:1-75, question 26, at 54:17-18). The guiding principle is that tax consequences flow from legal characterization.

This guiding principle seems to have been discarded by CRA in the recent technical interpretation. CRA asserted that the LLC’s property was disposed of because an LLC and an LP are different “types of entity”. There is in fact no existing principle of Canadian tax law under which property is considered to have been disposed of solely because an entity is converted from one “type of entity” into a different “type of entity”. The assertion of such a principle represents a new and unfounded approach.

Incidentally, CRA also asserted that the owners of membership interests in the converting LLC should be regarded as having disposed of such interests in exchange for interests in the LP. Except in the case of Canadian real estate based vehicles, this observation is of limited relevance, since the membership interests will normally not be TCP.

CRA made no comment on the proceeds of the alleged disposition of property by the LLC. While the Act would impute fair market value proceeds if the LLC’s property were considered to have been disposed of to a non-arm’s length person or as a gift inter vivos, it is conceptually difficult to argue that the LLC and LP do not deal at arm’s length (or that the LLC made a gift to the LP) when in fact they never co-exist. Given CRA’s novel approach, it is difficult to be certain how CRA might approach the question of proceeds of disposition.

Conclusion

The recent technical interpretation discussed in this article was issued in August 2008, though it appears to have been requested in 2004. Given this apparently considerable time frame, it is disappointing that CRA has approached the disposition question in a manner that departs so significantly from accepted principles. CRA has posited a new test for determining whether there is a disposition of property – that test being whether the original and subsequent owners of the property are the same “type of entity”. No authority is cited for this new test.

It remains to be seen whether a court would accept this new theory. For the moment, however, the safest approach for an LLC holding TCP would probably be to defer any potentially taxable event or receipt of Canadian source income until after entry into force of the protocol.

Single Administration of Ontario Corporate Tax
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Transition to a Single Corporate Tax Return

The governments of Canada and Ontario signed a Memorandum of Agreement on October 6, 2006, that will lead to the Canada Revenue Agency (CRA) administering certain Ontario corporate taxes, if the necessary legislation is enacted.

  • The CRA will administer the following corporate taxes on behalf of Ontario:
    • Corporate Income Tax
    • Corporate Minimum Tax
    • Capital Tax
    • Special Additional Tax on Life Insurers
  • Ontario will continue to administer:
    • Mining Tax
    • Insurance Premiums Tax
    • Electricity Act payments-in-lieu of federal and Ontario corporate taxes
  • The CRA will provide the same services to businesses that it currently provides to other provinces under the Tax Collection Agreements. These services include payments processing, returns processing, verification, appeals, rulings, and the collection of accounts receivable.
  • Ontario businesses will benefit from one form, one set of rules, one audit and one appeals process.
  • The single administration will take effect for taxation years ending after December 31, 2008. This means:
    • Corporate taxpayers will start making blended instalment payments to the CRA in February 2008.
    • Corporate taxpayers will start filing a single T2 Corporate Tax return with the CRA for taxation years ending after December 31, 2008.
  • The Ontario Ministry of Revenue will retain responsibility for processing CT23 returns and related matters for tax years ending up to December 31, 2008. The CRA will be responsible for all administrative matters relating to T2 returns for taxation years ending after December 31, 2008.
  • The CRA’s administration for Ontario will be similar to federal administration of other provinces’ corporate income tax.
    • The administrative policies and procedures of the CRA will apply to the taxes administered on behalf of the province; and
    • Ontario will harmonize with the federal definition of taxable income
  • The CRA and the Ontario Ministry of Revenue are making transition arrangements to ensure that corporations experience a smooth transition. Corporations will be informed of these arrangements once they are finalized.

Early Integration of Corporations Income Tax Return (T2) and Corporations Tax and Annual Return (CT23) Audits and Related Services

  • The CRA and the Ontario Ministry of Revenue are also making arrangements to transfer responsibility for the audit of CT23 returns to the CRA before 2009. This means the CRA will audit both the CT23 and the T2 returns in one audit visit. The Ontario Ministry of Revenue will be responsible for processing CT23 reassessments arising from these audits. The start date for the integration of audits is dependent upon the conclusion of human resources and transition agreements, but both organizations are committed to this early improvement for taxpayers.
  • To ensure a smooth transition for taxpayers to a single audit, the CRA and Ontario Ministry of Revenue are also discussing the early transfer of activities related to a single audit, such as objections and appeals, interpretations and enquiry services.
  • Corporations will be fully informed of transition plans and how they will affect them as the agreements are concluded.

Ontario Legislation

  • On December 13, 2006, Ontario tabled the Strengthening Business through a Simpler Tax System Act (Bill 174). If enacted, Bill 174 would implement the Taxation Act, 2006, effective for taxation years ending after 2008. The legislation provides for federal administration of certain Ontario corporate taxes and consolidates into a single statute Ontario’s personal income tax and the corporate taxes that will be administered by the CRA.
  • The corporate tax provisions in the Taxation Act, 2006:
    • Provide for CRA administration of Ontario’s corporate income tax, corporate minimum tax, capital tax, and special additional tax on life insurers;
    • Adopt the federal definition of taxable income, as well as federal administration provisions, including payments, collections, and appeals;
    • Continue the resource allowance through a tax credit/debit mechanism;
    • Maintain the current 14% general tax rate, manufacturing and processing credit, small business deduction, surtax, and refundable tax credits;
    • Include a tax credit/debit mechanism for transitioning to federal tax pools; and
    • Harmonize with the federal large corporations tax (LCT) base for non-financial institutions.

The Legislative Assembly of Ontario web site provides access to Bill 174 at the following link: http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=522

The Ontario Budget introduced in March 2007 proposes additional measures to further support corporate income tax base harmonization and tax simplification. Highlights on Corporate Tax in the March 2007 Budget can be viewed at (http://www.fin.gov.on.ca/english/tax/notices/ct/6020.html). Detailed information on Corporate Tax Simplification and Harmonization can be found in Chapter III of the Ontario Budget 2007 (http://ontariobudget.ca/english/chpt3.html#4).

Information about Transition

Regular updates on the status of the CRA’s single administration of Ontario’s corporate income tax will be posted on the CRA web site at http://www.cra-arc.gc.ca/whatsnew/items/ctao-e.html and on the Ontario Ministry of Revenue web site at: http://www.fin.gov.on.ca.

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