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Archive for the Tax Tips Category

GST/RST to HST is going to be a nightmare of bookkeeping.

October 21, 2009 by Dan White.

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.

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Tax Audit Solution to disposition to worthless shares.

October 8, 2009 by Dan White.

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

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September 14, 2009 by Dan White.

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
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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 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.

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

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Home Renovation Tax Credit. Is it more hype than substance.

September 12, 2009 by Dan White.

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

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On Audit Ready Bookkeeping

September 1, 2009 by Dan White.

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

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Offshore not safe from the taxman.

August 21, 2009 by Dan White.

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.

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Voluntary Disclosure Procedures

July 10, 2009 by Dan White.

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

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CRA News Release, re Voluntary Disclosure

July 10, 2009 by Dan White.

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.

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The Importance of Written Contracts For Employment

July 9, 2009 by Dan White.

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.”

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Some great last minute tax advice by James Daw of the Toronto Star

April 23, 2009 by Dan White.

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

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CRA Fairness Provisions not necessarily fair. By the Canadian Press

April 22, 2009 by Dan White.

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.

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Tax Tips For Spouses in Canada

February 14, 2009 by Dan White.

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

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Year End Investment Strategies

November 30, 2008 by Dan White.

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.

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Get Ready For An Increased CRA Tax Attack.

November 4, 2008 by Dan White.

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.

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Tax Tips

October 13, 2008 by Dan White.

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.

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How long do you have to leave money in an RRSP re: Home Buyer’s Plan

June 21, 2008 by Dan White.

There are some important rules to follow in order to make the RRSP contributions work for the Home Buyer’s Plan. First, the RRSP contributions have to be made at least 90 days before being withdrawn for the HBP. Repayments must begin not later than 60 days after the end of the second year following the first withdrawal. Annual minimum payments would be $2,667, assuming that each makes the full $20,000 contribution to his RRSP. The sums in the RRSPs should be in money market funds or high-interest savings accounts or a short-term guaranteed investment certificate, to minimize risk.

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Rant on Medical Expenses

June 20, 2008 by Dan White.

Dear Editor

Hi Dan,
what’s your tax advise on dental and health services. I’m needing some dental work and It’ll cost about $2,ooo.oo. How do I expend it?
E

Hi E

Nice to hear from you on this fine last day of spring day.
Your medical expenses are deductible. HOWEVER!
The interesting thing is that we all have a standard medical expenses we can write off, however our ever money hungry government has set it up that you can take all your medial expenses minus 3% of your net income. So if you spend $2,000 in medical and earn $64,000 or more in net income, you have to subtract $1,926 (the maximum deduction in this formula.)
The government now only allows a maximim amount of medical expenses of $10,000 which is outrageous.
So in your case your deduction would be around $74. which is a joke and an insult to what Canada stands for.

You would be better off paying your dentist for other business services than dental work. Of course it has to be real.
It is a sick government that would effectively remove the average person’s medical expenses. their threshold where you don’t benefit is below the countries average income.

Oh Canada, I stand medical expense barred for thee. It is time for a tax revolt about revolting government tax greed.
Dan

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Taxpayer wins day in Court over use of home deductions for employees.

May 11, 2008 by Dan White.

Tax Payer wins day in Court over use of home deductions for employees.

Friday’s court day was over all quite successful and we had some very significant results.

Prior to starting court, we were able to have all the clearly documented expenses accepted. The only things we did not get were poorly documented expenses.

Going into court we were faced with a judge who is the who, of who is who, of judges. “Chief Justice Bowman!” You don’t want to ruffle his feathers. Judge Bowman is a very wise, and incredibly sharp witted, not to mention incredibly knowledgeable about tax law.

When a Chief Justice is presiding, you can be sure that whatever he rules on will be looked at by the tax lawyers across the land.

Chief Justice – The Honourable Donald George Hugh Bowman

THE HONOURABLE DONALD GEORGE HUGH BOWMAN, B.A., LL.B. was born on July 14, 1933, in Guelph, Ontario. He is the son of Charles Howard Bowman and Grace Louise Dawson. He studied at Guelph Collegiate, Victoria University, the Ontario College of Education and at the Faculty of Law at the University of Toronto. He was a teacher at the Märkisches Gymnasium, Iserlohn, Nordrhein/Westfalen, Federal Republic of Germany and at the Fergus District High School and Delta Secondary School in Hamilton. Associate Chief Justice Bowman was called to the Bar of Ontario in 1962. He joined the Federal Department of Justice, Tax Litigation Section in 1962 and was appointed Director in 1968. He co-founded the law firm of Stikeman, Elliott, Robarts & Bowman in 1971 and was a partner until his appointment to the Tax Court of Canada. He was appointed Queen’s Counsel in 1974 and has been a member of the New York Bar since 1982. He was appointed Judge of the Tax Court of Canada in 1991 and Associate Chief Judge in February 2000. He was appointed Associate Chief Justice in July 2003 and Chief Justice in February 2005.

In this court case we were dealing with the issue of commission and salary employees deducting home expenses.

In this case we focused on the commissioned Sales Rep who worked as an employee for a chemicals manufacturer. The question of the day was; “Was the client entitled to take business use of home expenses as a commissioned sales rep.” If he did not pass the stringent criteria as outlined in the law, then not only could our client not take the deductions, then neither could the other sales reps from his company. But even more significantly, neither could any other commissioned sales representative in Canada take home expenses. Simply because the way the law has been interpreted no outside sales rep could possibly qualify for the deductions. Sales representatives by the nature of their job, spend most of their time away from their homes.

CRA has been able to successfully disallow all these expenses in their audits across the land. It became very clear in our negotiations with the tax litigator that they were not going to back off on this point and believed they could get the court to agree with them based on how the law is written.

CRA’s lawyer was a very knowledgeable litigator with considerable experience in law. So CRA was well positioned to win on this contentious issue. I am of the opinion that CRA would have made it clear to him that he was to win, and that he was picked because this was not an issue that they would want to lose.

Having the judge rule in our favour was to the surprise of the CRA lawyer.

We won because we had some very good preparation work by the team. And we had a very credible witness. Our witness was a past customer of the client by the name of Michel Chevalier. Oh… and we also won because we were “creative.”

The first thing we had to do was to remove any shadow of doubt as to whether or not our client was required to use his home for doing business.

We were able to establish required use by;

1. We had a T2200 form signed by the client’s employer. The judge wanted to know why an unsigned copy was presented to him instead of a signed copy. I explained that what he had was the copy of the form that was part of the tax return. We submitted the original to the satisfaction of the judge.

2. We presented a letter signed by a manager of the client’s employer, stating it was mandatory to use his home as a place of business. The lawyer for CRA objected based on the letter being “hearsay.” The judge overruled the objection based on the procedures around hearsay have become broader over recent years; he asked to see the letter and then simply asked the client if he believed the letter to be real. The judge stated that while the letter was not strong evidence, he entered it as evidence.

3. We presented his employment contract.

4. We provided a detailed sketch of the entire premises; the lawyer argued that the sketch did not have any actual measurements on it. The judge did not seem to think it was that important based on the clarity of the need to use a lot of the space for business. Judge did allow for the garage and basement to be considered business use.

5. We had a picture of his work area… Having his dog in the picture did create some chuckles and human interest.

6. We had pictures of the equipment that needed a place to assemble.

7. We had a perfect witness who reeked of credibility and said all the right things. (Thanks Michel).

Points 1 to 7 removed any doubt that the home was required for the client to perform his contracted duties.

A. From there on we had to argue the intent of the law.

B. And; w had to argue the interpretation of the law.

We had to deal with the fact that the law was clear. The premises must be used primarily for business, meeting clients and be used for business 100% of the time, in order to be deductible as an employment expense.

I argued that 100% could not conclusively be used if that were a real measurement there would be no business premises anywhere, as all business space is used occasionally for personal purposes, such as calls from your family, etc. If that was a hard and fast rule, all business premises would revert to personal.

I argued that “Primary Purpose could be “What is the primary use of the space when it is being used, rather than what is the space primarily be used for 24 hours a day. No use at all in the non business use time, does not mean it is personal use by default.

I argued that the time the space is not used for any purpose, does not make it default to personal use, it defaults to “no use at all.” So therefore if the only time you use the space is for business, then even if you use the space for only an hour a day it is still used 100% of the time for business.

Upon making the argument to the judge… he stopped me… took off his glasses, waved them in the air in circles, and declared a recess while he went to get a desk copy of the income tax act. He returned and studied the act for what probably was a few minutes but felt like an eternity. He then declared with great wisdom and presence. “In fact; there ARE two ways to interpret the clauses and as such we had to look at the situation from the different interpretation.

There was much argument from the CRA lawyer, however the judge was not buying it, for what I believe is the fact that the way the clause has been interpreted in the past, does not always make sense in the present.

The judge ruled in our favour and declared the home expenses for our client as deductable employment expenses.

What this means is our clients employers other reps can now write of their home use expenses.

But most of all, sales representatives from across the country can use this court case as precedence and being that it was Chief Justice Bowman, who so ruled, it carries huge weight.

This interpretation of the law will also apply to non sales representatives as well because the same sections of the act apply.

We have just cause as a team to say; we the WNBC Team stand together if the cause of ensuring fair treatment for our clients and that we will fight all the way, to see that they get their just tax returns.

We now have to move forward with our education for small business. To ensure that more and more citizens only pay the amount of taxes they are legally obligated to pay.

The tax man can unjustly tax some the people all of the time, all the people some of the time, but he cannot unjustly tax all the people all the time. This claim becomes especially true with us on the side of the tax payer.

Have a fantastic day!

Dan

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April 4, 2008 by Dan White.

Article in National Post

by Vern Krishna,

Re: The Smith Manoeuver….

When this case if over, we will have the final answer From the Supreme Court of Canada, on this topic.

My Prediction is; The Judge will rule that such manoevers are outside the spirit of the law, and within the spirit of GAAR.

It will be pointed out that the process is nothing other than a shell game and the game of doing will end.

The next part of the game will be from CRA who will feast on all the reclaiming of deducted interest, penalties and interest.

For every dollar of tax saved from doing the shuffle, the participants will write a cheque to CRA for three times the amount ($3.00)

It will be very easy for CRA auditors to identify large interest amounts on all the past tax returns in the last 3 years.

Yes, Dan White has been attacked and villified by my assertions; If it looks like a duck, quacks like a duck, walks like a duck then it is a duck……

So my prediction has been written. Be it right or wrong. Now we shall let the courts decide. My conscience is clear, I have advised many people to stay away from doing this kind of stuff.

Dan White.

Vern has done a great job of writing his article. Be sure to read it closely.

Homeowners, tax lawyers alike will watch Lipson case

Court to consider whether couple violated tax rules

Vern Krishna, Financial Post Published: Wednesday, April 02, 2008

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Canadian income-tax law has matured in the past 91 years. It has grown from 20 pages in 1917 to more than 2,000 pages in 2008. Notwithstanding its lengthy development, it is still all but impossible for taxpayers today to predict whether the legal form of transactions prevails over economic substance or vice versa. Interest deductions are the classic — and most recent — example, which the Supreme Court of Canada will soon consider in a case called Lipson.

Joe Clark won the 1979 federal election by promising that he would allow Canadians the same rights as Americans to deduct home-mortgage interest for tax purposes. Unfortunately for homeowners, the Clark government fell in nine months before passage of the bill enacting the legislation. Since then, taxpayers have resorted– with varying degrees of success — to arbitrage interest payments and make their personal mortgage interest-deductible for tax purposes.

Interest arbitrage occurs where a taxpayer exchanges non-deductible interest for deductible interest through a series of transactions that allow form to prevail over substance. In the simplest case, for example, an individual sells stock worth $500,000 to buy a house and then borrows $500,000 to repurchase identical stock. The interest on the borrowed money should be deductible because the taxpayer uses the funds directly to purchase investments.

Canadian tax law has long recognized this type of tax planning. The Westminster principle — named after the 1935 decision of the House of Lords in the Duke of Westminster case — is that a taxpayer can legally arrange his affairs to minimize the tax payable regardless of his motive. The principle is simply one aspect of the doctrine that taxpayers should be governed by the rule of law, preferably clear and certain laws.

Westminster has been part of Canadian tax law for six decades. In a landmark decision in 1984, the Supreme Court of Canada rejected the government’s argument in a case called Stubart that a transaction must have a valid business purpose. The court also rejected any requirement of economic substance — a doctrine long used in the United States.

Following Stubart, Parliament enacted the general anti-avoidance rule (GAAR) in 1988 to curb so-called “abusive” tax avoidance.

GAAR is a clumsy provision even by the standards of tax legislation. It defines an “avoidance transaction” as one that a taxpayer undertakes for tax benefits and that does not have a primary bona fide non-tax purpose. Thus, GAAR has an objective and a subjective component. One must evaluate the taxpayer’s motive for undertaking commercial transactions to determine whether they are primarily tax-driven or have an independent non-tax purpose.

However, there is an important exception to GAAR: It does not apply to tax-motivated transactions — even if they have no bona fide non-tax purpose — provided the transactions do not:

(1) Misuse specific provisions of the Income Tax Act; or

(2) Abuse the underlying policies of the Act read as a whole.

Thus, virtually every GAAR case must analyze whether the taxpayer misused or abused the Income Tax Act. Income tax law has many different policies and they are not a coherent whole. They are a patchwork of rules that can pull in different directions.

The appeal to the Supreme Court of Canada in Lipson illustrates the complexity of GAAR in tax planning. Earl and Jordanna Lipson — a married couple — engaged in a series of transactions intended to arbitrage what would have been non-deductible interest on their home mortgage into deductible interest for tax purposes. The purpose of the transactions was to convert non-deductible personal interest on a home into deductible interest solely for tax purposes. The transactions purported to finance the purchase of investment property. In substance, however, the arrangement financed a personal residence.

The form of each step of the series of transactions was legal. They applied specific deeming provisions of the act. The cumulative effect of the provisions deemed the interest deductible for tax purposes. The arrangements were lawful tax minimization under the Westminster principle.

However, GAAR looks at whether the taxpayer misuses any of the provisions of the Income Tax Act or abuses the statute read as a whole. The economic substance of the Lipson transactions was to circumvent the underlying policy of the Income Tax Act, which clearly prohibits the deduction of personal mortgage interest for tax purposes. Transactions that abuse the underlying policies of the Income Tax Act are avoidance transactions and subject to recharacterization for tax purposes. The substantive economic effect of the Lipson financing was to convert non-deductible personal interest into deductible business interest.

Parliament, however, did not write GAAR as a notwithstanding rule that is paramount over all other rules. Thus, the question in tax planning is: To what extent does GAAR trump the Westminster principle?

There is only one absolute in tax planning: Legal form prevails over substance, except in those circumstances where a court determines that substance prevails over form. Look to the Supreme Court for the definitive answer to resolve the dilemma for the next decade.

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

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More on the Smith Manoeuver by Bob Aaron, quotes Dan in Tor Star

March 19, 2008 by Dan White.

Seek advice before making mortgage manoeuvre

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Mar 15, 2008 04:30 AM

Bob Aaron
The pitch sounds very seductive. “Go ahead. Make your mortgage tax deductible. Yes. It can be done. Yes it’s legal.”

The pitch is used to promote an investment technique called the Smith Manoeuvre.

According to Smith Manoeuvre Financial Corporation (smfc.com), “the Smith Manoeuvre is a financial strategy that simultaneously converts mortgage interest to tax deductions, shortens the amortization of your mortgage and builds a free and clear pension portfolio for your retirement – funded through your monthly mortgage payments and without requiring any additional monthly cash investment!”

The investment strategy is explained in a book called The Smith Manoeuvre: Is Your Mortgage Tax Deductible? by Canadian financial guru Fraser Smith (Outspan Publishing, $24.95).

But it may not be quite as rosy as it sounds.

Writing in the March issue of REM (Real Estate Magazine, remonline.com), a monthly publication for industry stakeholders, tax specialist Dan White sounds an alarm about using the strategy.

In providing a glimpse of the “dark side of the Smith Manoeuvre,” he cautions anyone contemplating using the technique to “think again and think carefully.”

Here’s how the program works: The homeowner obtains what the Smith people call a re-advanceable mortgage –which is basically a mortgage combined with a line of credit, where the balance can fluctuate from time to time.

As the homeowner pays down the principal with monthly payments, he or she then immediately has that amount re-advanced in order to invest in stocks, bonds or other real estate. In theory, that portion of the loan used for investments – and that portion only – is tax deductible.

In other words, the interest paid on the “re-advanced” portion of the loan can be used to reduce investment income.

According to White, the “significant flaw” in the scheme is when the primary purpose of using it is to make a home mortgage tax deductible, it leaves the homeowner vulnerable to attack by Canada Revenue Agency.

Under CRA rules, interest paid on money used from a mortgage to produce capital gains is not tax deductible.

As a result, if a Smith Manoeuvre loan is used to buy stocks mainly for the purpose of capital appreciation, the interest is not deductible.

Interest can only be deducted as a legitimate business expense if it is used to invest in an active business to generate business income. “Even so,” warns White, “if you are going to do this kind of stuff, you need to think it through, get good advice and set yourself up strategically.”

White reminds REM readers that the government is always looking for ways to generate more income. “There is a reason they call it the Canada Revenue Agency,” he adds.

For occasional or passive investors, White warns that the Smith Manoeuvre could be a costly mistake.

“If you are doing this with your principal residence and you claim 100 per cent of your mortgage interest as a business expense, then there is a strong argument that your home is a business and as such, you are not exempt from capital gains on the sale of the residence,” he writes.

White is not alone in criticizing the investment strategy.

Writing in the Star in January, 2007, Ellen Roseman quoted some critics of the Smith Manoeuvre. Among them was Gary Newby, a certified financial planner in Toronto.

In Roseman’s column, he warned, “It’s not good for the average person. Most of my clients wouldn’t understand it because it’s very complex.”

David Trahair, a Toronto chartered accountant, is also quoted in Roseman’s column.

“It’s a high-risk strategy,” he says, “because you’re betting the farm that some investment adviser can do better than you can.”

I agree with the critics of the Smith Manoeuvre. It’s far too risky for the average homeowner.

Always obtain tax advice from a qualified person, such as an accountant or tax lawyer, who is not selling or promoting anything, and to whom the client’s interests come first.

If the tax adviser stands to make a commission selling participation in a scheme like the Smith Manoeuvre, he or she is in an obvious conflict of interest and the advice can hardly be said to be impartial.

Bob Aaron is a Toronto real estate lawyer whose Title Page column appears Saturdays. He can be reached at bob@aaron.ca. His website is aaron.ca.

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Income Trusts

March 12, 2008 by Dan White.

Provincial taxation of income funds. Under current law, income trusts will become subject to a special “SIFT” tax on distributions made by them after 2010 (or before then if they breach “normal growth” guidelines.) The Budget proposes that the provincial component of the SIFT tax (that will be paid over to the provinces) will be based on actual provincial corporate tax rates in the provinces to which the distribution is allocated (under a formula giving equal weight to relative province-by-province payrolls and revenues) rather than being a flat rate of 13% (as previously announced). (However, the Quebec tax rate will be treated as nil for these purposes given that Quebec separately imposes a SIFT tax.)
What this means is you can’t trust the income trusts.

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Divident Tax Credits

March 12, 2008 by Dan White.

The dividend tax credits available to individual investors receiving dividends from most Canadian public corporations will be significantly reduced on a phased-in basis commencing in 2009, with the final reduction occurring in 2012. This will increase the effective tax rate on such dividends compared to current law.

What this means is that investors need to pay more attention to which investments pay dividends and which do not.

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Another CRA RRSP Tax Trap;

February 23, 2008 by Dan White.

Wanted: Dead or Alive. Your Taxes;

It is important to note that RRSP’s have been set up to ensure that CRA benefits from the removal of funds, either if you are dead or alive.

It has been a regular practice of advisors to suggest that there needs to be an assigned beneficiary to your RRSP or RIFF.

CRA has recently won a tax case that sets the precedent that we can no longer expect to be able to bypass probate fees by having an RRSP beneficiary.

If you designate your spouse or partner as the beneficiary, the RRSP or RRIF will qualify for a tax-deferred “rollover” to the surviving partner’s RRSP or RRIF. This is fine with CRA as they will get their loot later.

In cases where no rollover is available due to the death of a spouse or partner, the tax issues change. The tax burden associated with that generally falls to the estate.

Gail L. Belanger was reassessed by the Canada Revenue Agency for more than $6,200 in taxes resulting from her liability on approximately $15,600 she received in 1998 from her late mother’s RRIF.

Ms. Belanger testified that when her mother named her children as direct beneficiaries of her RRIF, it was her intention that the proceeds of the RRIF were to be received by her children “directly and not through her estate” and that the estate be responsible for paying the taxes on the RRIF.

The CRA attempted to collect the estate taxes owing on the RRIF over several years, but without success. It finally turned to the joint and several liability rule under the Income Tax Act, which says that upon the death of the annuitant of a RRIF, the annuitant (or the annuitant’s estate) and any recipient of RRIF proceeds are “jointly and severally liable to pay a part of the annuitant’s tax” on the RRIF for the year of the annuitant’s death.

Ms. Belanger argued that the CRA’s failure to collect the tax owing from the estate and its subsequent attempt to collect it from the beneficiaries was “not fair.” She maintained that the Tax Court should hold the executor of the estate of her late mother accountable for any liability of the estate.

The judge found that since the fair market value of the RRIF was indeed taxable in Ms. Belanger’s late mother’s return since no rollover was available, the estate was appropriately liable for the taxes owing on the RRIF.

And, since the Act also makes a taxpayer who received monies from a RRIF jointly and severally liable for such taxes, the CRA could properly go after Ms. Belanger for the taxes owing.

The bottom line here is; that don’t think your government wants you to retire better off and be sure that they do want your money, regardless if you are dead or alive. The answer is clear; Use your RRSP wisely and at the age of 69 make sure there is no money there when you die or retire.

In the mean time you need a strategy to transfer the money from within your RRSP to outside your RRSP and plan to do it without paying taxes on the money.

Dan White

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Joint Bank Accounts as a Tax and Estate planning tool.

December 2, 2007 by Dan White.

Estate and Tax Planning.
REGARDING JOINT BANK ACCOUNTS
When a parent sets up a joint account with a child to avoid probate or legal fees on death, or to handle the parent’s affairs conveniently, that simple act may create future problems.
Most joint accounts in Canada are structured as “joint tenants with right of survivorship”. That means when one of the joint owners dies, the property passes directly to the remaining owner or owners. No probate of assets is required, although income tax may still be payable by the deceased on his share of the account. Presenting a death certificate to the financial institution is enough to pass the assets to the survivor(s).

REGARDINGJOINT TENANCY
Sometimes a parent will put an account or property in joint tenancy with a child so that it passes directly on the parent’s death as if it were contained in a separate will without the need for probate.
There are two types of owners of a joint account: the beneficial or actual owner and the legal owner. While these can be one and the same, it is not always the case.
A parent may set up an account with one of his children simply for convenience, to administer the parent’s affairs efficiently by being able to write cheques, make deposits, or redeem funds from an investment.
To assist in making a proper determination of the deceased’s intent, common law has developed two presumptions over the years that assist in determining a judicious distribution of assets in joint accounts.
There’s a presumption of ‘resulting trust’. It occurs when a person contributes all the money or assets into a joint account with another person who didn’t contribute to the account.
The law presumes that the transfer to a joint owner was not a gift, but for whatever reason, a bargain to hold the assets as a trust for him or for his estate when he dies. It’s up to the surviving owner therefore to prove that the deceased intended to make him a gift of the account.
The other presumption is called ‘advancement’. This usually means that the original owner intended to make a gift of the assets. Most often the presumption of advancement applies to gifts from one spouse to another or from a parent to a child.

Where there is a transfer of assets to a child by way of a joint account, the presumption of advancement is limited only to gratuitous transfers of assets to a minor child. And, if the account is held jointly with an adult child, whether or not the child is financially dependent on the parent, the courts will assume no gift was intended. That is, if there’s no evidence to the contrary.
The joint account is presumed to be a resultant trust for the deceased parent to be disposed of in his estate, especially where there are other heirs.
The solution is to have a very explicit “Letter of wishes” to clearly demonstrate the intent. This does not need to be part of a will.

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Donations of time to a charity

November 14, 2007 by Dan White.

Dear Editor,

Can you explain the procedure of donating time to a charity and getting a donation receipt? I am aware that tax donations count for 50 percent of the value only. However, in many cases people I know are donating thousands of dollars worth of professional advice.

Thanks

Sheila

Dear Sheila,

Donating time to a charity and getting a receipt for it from the charity is not the best way to do ensure a tax credit. CRA gets lots of money from people who choose to use this method. While it usually slips by CRA, it does not make it right. Remember CRA’s default role is to be the defacto expense rejector.

The typical method does not assign a value paper trail. In order to make it work; the Donor has to donate the actual money first to create the paper trail. This has to be an independent transaction; He gets a receipt for the full amount. He then sells his consulting services to the charity. He then invoices, gets paid, and claims the income. He then claims the donation based on the charitable donation. This exercise gets him revenue neutral and leaves him with the charitable donation receipt.

The thing to be clear on is: donating to a charity is not financially beneficial to the donor. It only substitutes paying charity for paying tax and there are pitfalls to be aware of. Regards

Editor Dan

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The Smith Maneouver. Good or bad?

November 10, 2007 by Dan White.

Here is the scoop on the Smith Manoeuvre.

Simply stated it is a process to convert home equity to debt. It is important to note that you don’t need a home equity line of credit to do that, although the process works fine.

The process is flawed in that if your primary purpose of the exercise is to make your home mortgage tax deductible, that opens you up to attack by CRA. GAAR; General Anti Avoidance regulations.

If some of your investment is in things that produce capital gains, you can not deduct the interest in your annual tax returns, but you can factor it in when you sell the asset to reduce the capital gain.

If you are going to do this kind of stuff, you need to set yourself up strategically. With your investments they need to be positioned as active business and not as investments. For your investment portfolio, you need to become an active trader.

You need to keep impeccable records. Keeping good records seems to be a little known process. Apparently WNBC is the only company that teaches this process.

You also need to know that CRA is aware of this program. When a tax strategy becomes popular with the population, it becomes popular with CRA. You will note that the law keeps getting tighter on tax reduction planning. Remember those income trusts?

The only strategy you can count on is under the flag of business. Make absolutely sure, you have very good advice that applies to you.

If you are an occasional or passive investor the Smith Manoeuvre could be a costly mistake for you to use it.

If you think that the Smith Manoeuvre is for you, it could be true. However if you rush in thinking that it is an easy slam dunk tax saving, then too late; you may figure out that there were better options to save taxes. There are options that perhaps you just never went looking for.

Ten years ago I was vocal about the dangers of the tax deferral donations programs and I was cursed by many. Today rescuing people who took the plunge is good for our business. CRA says they are going after every single Canadian who took part, and now that the law has changed, they are now ging after the promoters of the schemes. I expect the same thing will happen with the Smith Manoeuvre.

How will CRA know who did the SM? Easy! Every Canadian not operating an active real estate business operation, or is an active trader who has high income expenses on line 221 of their tax return. *** and yes you can write off the interest on your rental real estate business. Just make sure you have impeccable documentation to show the money structure. CRA’s default attitude on everything is to look for reasons why you can not deduct things. Interest is just one of many fruitful targets for CRA.

What do I think? Hmmm… I love these things; they are good for my business which includes helping people who get in a mess with CRA. Long live the Smith Manoeuvre!

See what CRA says about interest charges.Line 221 - Carrying charges and interest expenses You can claim the following carrying charges and interest you paid to
earn income from investments:· Fees to manage or take care of your investments (other than administration fees you paid for your registered retirement savings plan or registered retirement income fund). · Fees that you paid to a bank or trust company for the safe-keeping of investments such as safety deposit box charges. · Fees for certain investment advice. See IT238, Fees Paid to Investment Counsel. · Fees to have someone complete your tax return but only if:o you had income from a business or property; o accounting was a usual part of the operations of your business or property; and o you did not use the amounts claimed to reduce the business or property income you reported. · Most interest you pay on money you borrow for investment purposes, but generally only as long as you use it to try to earn investment income, including interest and dividends.

However, if the only earnings your investment can produce are capital gains,

you cannot claim the interest you paid.

For details, contact us. · Interest you paid during 2006 on a policy loan made to earn income. To make this claim, have your insurer complete Form T2210, Verification of Policy Loan Interest by the Insurer, on or before April 30, 2007. · Interest we paid you on an income tax refund. You have to report the interest in the year you receive it (see line 121). If we then reassessed your return and you repaid any of the refund interest in 2006, you can deduct the amount of interest you repaid, up to the amount you had included in your income. You cannot deduct on line 221 any of the following amounts:· Interest you paid on money you borrowed to contribute to a registered retirement savings plan or a registered education savings plan. · The interest portion of your student loan repayments (although you may be able to claim a credit on line 319 on Schedule 1 for this amount). · Subscription fees paid for financial newspapers or magazines, or newsletters. · Brokerage fees or commissions you paid when you bought or sold securities. Instead, you use these costs when you calculate your capital gain or capital loss. For more information, see Capital Gains.

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November 9, 2007 by Dan White.

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Asset Management - Joint Tenants

October 9, 2007 by Dan White.

Joint TenantsHome ownership Asset ManagementClarity is critical when holding joint propertyThere is some recent Supreme Court of Canada court rulings which change tax implications for Canadians.People often ask about holding investment accounts or property jointly with an adult child. There are valid reasons to pursue this path, along with some pitfalls to consider.A popular estate-planning strategy is for a parent to register an asset, such as an investment account or family cottage, in joint names with adult children.Joint ownership is generally set up for two reasons: to avoid probate fees — since such an asset passes by right of survivorship to the surviving joint owner and therefore does not form part of the estate of the deceased; or for convenience, so the child can help the parent with management of the parent’s assets.While joint ownership allows parents to accomplish both of these objectives, these arrangements can have some complications. If not properly set up, putting a family home, investment accounts or other assets into a joint name with an adult child can result in complications upon death of one party.There are risks in putting a family home in joint ownership with a child and is not is not a step to be taken lightly.The Supreme Court of Canada reviewed and clarified the law regarding joint assets on May 3^rd 2007. Canadians now have to be aware that assets held jointly between parent and children will not automatically become the child’s assets when the parent dies.Joint ownership usually includes the right of the survivor of the joint owners to receive legal and beneficial title to the entire asset when the other owner dies. However, in law, there is a distinction between being the person who has legal title being the registered owner and the person who the beneficial owner being the one who has the use and enjoyment of the asset.A registered owner may not always have the right to the use and enjoyment of the asset. Instead, they may be in fact just holding the asset for the original owner’s estate. This is often the case when a parent sets up joint ownership of an asset with an adult child. This can be a good strategy when considering more than one child in your estate planning.Historically, courts would usually rely on the legal presumption that the intention of an individual who jointly owned an asset, such as an investment account or vacation property with their adult child was for that asset to pass, by right of survivorship, upon his or her death directly to that child.As a result, the asset would not form part of the estate of the deceased parent and would thus not be subject to probate fees.However, in light of two recent Supreme Court of Canada rulings, unless there is evidence to the contrary, it is now presumed, at least in the case of assets held in joint ownership by a parent and adult child, that the asset is being held by the surviving joint owner in trust for the parent’s estate.As a result, it is important for Canadians to clearly document their intentions whenever they own assets jointly with an adult child. If the intention as to what is supposed to happen to the asset when the original owner dies is not clear, the asset will likely pass to the original owner’s estate to be distributed in accordance with his or her will.Without the clearly stated intention of the original owner, many joint ownership situations have the strong possibility to end up in a lawsuit. The best documentation of intention is a separate written record of intention. Having such a document will also help to avoid potential legal disputes and costly court battles.We recommend in general that people should create a “letter of wishes.” This is a document that can endure separately from a will and deal with matters not covered in a will.The letter of wishes should clearly state exactly what you wish to happen in the event of your death. It should be dated and witnesses and to be done in much the same way as a will. The letter of wishes can be a supporting document to the will.You can also do a Deed of Gift evidencing you intention that upon your death, the joint asset is to go directly the child — there are other advantages and disadvantages Canadians need to be aware of.The advantage of having a letter of wishes is that; No probate fees will be payable with respect to that asset on death. The assets will be removed from the scope of the will. The transfer is easier and the survivor will not experience any delay in receiving the asset on death.The disadvantages are; Potential for loss of control over the asset by the parent. There is a potential to trigger immediate tax consequences such as capital gains or property transfer taxes. There is a potential for future tax consequences to child. Such as in the case of the asset being a principal residence and the child already has his or her own principal residence, the capital gain exemption may be eroded. There is the risk of assets having claims made against the joint owner from creditors, or even spouses on marriage breakdown.

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Why you need a proper bookkeeping system. Quickbooks is not adequate.

September 14, 2007 by Dan White.

Results of Construction Sector Audits
Number of audits	24,944
Federal tax assessed	$140 million
Interest and penalties	$44 million
GST New Housing Rebate reductions	$36 million
Results of the Contract Payment Reporting System
Amount of unreported income detected	$88 million
Number of non-filer and non-registrant tax returns	58,903

It is interesting how CRA is in the business of money. Based on the above data from the CRA web site,

They took in an average of $5,612.57 per audit.

If all those customers had used our BKS System, the average CRA grab could have been reduced to zero.

BKS is the only bookkeeping system that is structured to keep all expenses safe in an audit.

For anyone who wants to live audit worry free, BKS fills the bill.

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The Importance of Paper in Bookkeeping

August 21, 2007 by Dan White.

The importance of paper

Members of WNBC have been told time and again that if you really want to save money on your taxes you have to work hard at it. This not about working hard at running your business or at your job it is all about keeping detailed receipts and proper books and records. No one can make you do this, you can hire people to help keep your books and receipts in order but no one can make sure the detailed receipts and documents are complete except you. The Best Bookkeeping System (BKS) is an exceptional tool but only if you use it and keep with it your receipts (with the stories on the back) and the documents used to support your tax deduction claims.

Nowhere is this more evident than in actual real life cases that I, as counsel for WNBC, defended against the Canada Revenue Agency.

CASE #1

Our member had just gone through a vigorous audit. The CRA had a great deal of difficulty with some of his expenses considering he was employed by a company. The CRA just could not understand how someone who was working for a company could properly incur these expenses and list them as employment expenses. They denied a large part of his Motor Vehicle expenses (no proof of lease agreement or cost of use after lease return), no expenses for cost of installation of product and complete denial of home workspace.

We objected and the appeals officer focused on the areas of that the auditor had said that proof was missing so denied. I contacted the member he attended the office with his papers and immediately produced the lease agreement, a letter from his company explaining the need of the employee to buy his own parts for installation, and lastly he produced rent receipts. These items were faxed to the appeals officer and the next day she called back and allowed the motor vehicle expense of $3838.00, the parts expenses for $4754.00, and the home workspace for $1800.00 for a total increase of $10,392.00. Simple with no arguing or bickering back and forth,…Case closed.

CASE #2

Our member had a long and protracted bout with the CRA and had exhausted all objections and the only route to go was to the Tax Court of Canada. We helped them put their case together and launched their appeal. The most significant issue here was the denial of interest on $80,000.00 of a mortgage because it was not used to make an investment. Our member insisted that it was used for stocks and margin and so the interest should be deductible. The member did not however, have the paperwork to support the flow of monies from the mortgage to investment. At the time of audit and appeal he did show enough paperwork to have CRA allow interest on $130,000, but the 80K was denied. They had kept meticulous records on other expenses such as phone (which was allowed at appeal for the full 100%), the cost of a computer (the capital cost allowance was allowed to be deducted), and business training and meetings which again was allowed for the full cost. There was nothing to support his $80,000.00.

Our member testified at the Tax Court of Canada hearing about this money and how it was used for stock purchases and he actually did quite well on the stand and withstood the cross examination of the Department of Justice counsel. I certainly believed him as to how the money was spent but we could not produce any documents to support his claim as they had either been misplaced or destroyed by a basement flood. The court rendered its decision and denied the full amount of 80K claimed in the appeal. The court noted that it could not rely solely on the “self serving” of the taxpayer and needed some documents to show the flow of money from mortgage to investment and since that was not produced and we had the burden of proof she ruled against us. That amounted to a significant amount of expense and despite the small victories in the other areas appealed the member walked away unsatisfied with the result of the appeal.

So you have been presented with two stories with significantly different results and all because of the proper use of documentation. I am convinced that if our member in the tax case had all the documents beforehand and we could have produced them to the DOJ lawyer we would have settled the matter thus avoiding the need for a full day hearing. When you have a strong case to present there is no need to fight about it. The other party usually sees that your case is a good one and it is not worth putting up a fight and so they settle.

Preparation is key when dealing with the CRA and it starts with your bookkeeping to support the tax return you initially filed. It is here that the preparation for objection and appeal starts. Simply put, if you are ready at the beginning you will be ready right up until the end and nobody likes to fight a losing battle,…not even the CRA.

Patrick Mlot

Legal Counsel to WNBC

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Beware of ALL tax shelter gifting arrangements

August 15, 2007 by Dan White.

Ottawa, Ontario, August 13, 2007…In support of the new Taxpayer Bill of Rights, Carol Skelton, Minister of National Revenue, is urging Canadian taxpayers to be wary of promotions of tax shelter gifting arrangements promising huge tax savings. Many of these arrangements are currently being aggressively promoted.

“If it sounds too good to be true, don’t fall for it. Taxpayers need to know that the Canada Revenue Agency (CRA) is auditing all tax shelter gifting arrangements,” said Minister Skelton. “Under the new Taxpayer Bill of Rights, you can expect the CRA to provide information to help you recognize the types of tax schemes that are out there, and to warn you about the consequences of participating in risky investments.”

The minister noted that people should read the fine print even if a promoter states repeatedly that the tax scheme is acceptable. “Ask questions, and when in doubt, seek advice from an independent tax professional who is not associated with the scheme.”

The CRA reviews all tax shelter gifting arrangements to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act. New schemes are being marketed that claim to be different from those for which the CRA has previously issued warnings. Taxpayers should avoid all schemes that promise donation receipts equal to 3 or 4 times the cash payment.

**** Dan’s comments… re the 3 to 4 times the cash payment… that leaves only 2 times the donation amount. That is your break even amount. So the conclusion is that these schemes are only good for those who are mathematically challenged.

So far, the CRA has audited over 26,000 individuals who have participated in these tax shelters and as a result, about $1.4 billion in claimed donations have been denied. The CRA will soon complete audits of another 20,000 taxpayers, involving close to $550 million in donations, and is about to begin auditing another 50,000 taxpayers who have participated in tax shelter gifting arrangements. To protect Canadian taxpayers and maintain fairness in the tax system, CRA will audit every tax shelter gifting arrangement.

Recent CRA Alert is as follows.

Warning: Participating in tax shelter gifting arrangements is likely to result in a tax bill!

Despite numerous warnings and audit actions by the Canada Revenue Agency (CRA), taxpayers are still participating in tax shelter gifting arrangements. The CRA is urging taxpayers to avoid these schemes.

The CRA is auditing all gifting arrangements

Taxpayers should be aware that the CRA plans to audit all tax shelter gifting arrangements. Every audit completed to date has resulted in a reassessment of tax, plus interest. In many cases the CRA has denied the “gift” completely. Penalties will be considered, especially where an investor was audited and reassessed for previously participating in a gifting arrangement.

Stats and Facts

To date, the CRA has reassessed over 26,000 taxpayers who participated in these schemes, and denied about $1.4 billion in donations claimed.
Audits of another 20,000 taxpayers involving $550 million in donation claims are just about complete.
Audits on other arrangements involving over 50,000 taxpayers are about to begin.

Current Promotions

New schemes are being marketed that claim to be different from those for which the CRA has previously issued warnings. Taxpayers should avoid all schemes that promise donation receipts for 3 to 4 times the cash payment. It is the CRA’s position that the proposed legislation, effective since 2003, will apply to reduce the donation credit to no more than the actual cash payment. Furthermore, as indicated above, completed audits have shown that there was effectively no gift being made in many cases, and as a result, the donation was reduced to zero.

Packages promoting these schemes sometimes include letters of commendation about the particular charity, which can give the impression of endorsing the scheme itself. These letters should not be interpreted as providing any assurance that these schemes do what they claim to be doing or that the promised tax benefits are in accordance with the Income Tax Act.

Get professional, independent advice

If you are still thinking about participating in a tax shelter gifting arrangement, it’s very important that you get independent legal and tax advice. Independent advice means advice from a tax professional that is not connected to the scheme or promoter. If property is involved, you should also get independent advice on its true value. Packages from promoters will often claim to have legal or tax opinions from a law firm. You may find that these opinions contain very general comments and do not provide unconditional support for the scheme. Ask to see them, and have them reviewed by an independent professional.

In addition, participants who have been reassessed for previous participation in these schemes may also wish to obtain independent tax advice to determine their best options.

Tax shelter identification numbers
The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. These numbers identify both the schemes and those taxpayers who participate in them. They do not guarantee that taxpayers are entitled to receive the proposed tax benefits.

Not been contacted by the CRA yet?
The CRA generally has three years from the date of assessment to reassess taxpayers, and these audits can take over a year to complete. The fact that investors in these tax shelters have not been contacted and/or reassessed should not be interpreted as the CRA’s acceptance of their claim.

Previous Tax Alerts and Fact Sheets
For more information on previous tax alerts and fact sheets, please visit the Taxpayer Alert section of CRA’s website at www.cra-arc.gc.ca.

Tax Alerts:

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A Humours look at Travel Expenses.

July 31, 2007 by Dan White.

Hi Craig, You need to put together a package that goes like this….

Hi Dan,

This is CRA.

Prove to me that Craig and Jay spend all that money on travel, especially the trip to China and India. Signed ….

CRA Auditor.

___________________

Dear CRA Auditor,

Thank you for you inquiry. As you know we are always happy to speak to you guys… Why with out you, we would have no roads or schools and we would have all kinds of unemployed CRA staff. In respect to our client Craig. (Who by the way is the salt of the earth. You could not meet a nicer guy. His son Jay is a chip off the old block and rumour has it that he is a very talented TV Dude.)

As you are aware in places like China and India things work largely on Cash. Please find copies of bank withdrawals, totalling the sum of… $10,000.00 That was the money withdrawn to take the trip. Note the deposit of 38 cents made to their petty cash box on their return from their business trip. That would work out as follows.

What we have receipts for…. Taxi fares to airport and back. $100

Airplane tickets $6,000 Total we have receipts for is $6,100 leaving a difference of $3,900.

Minus cash left over of 38 cents leaves an amount of $3,899.62 as money that was spent in things like taxis, rickshaws, cafe’s hotels, tips, room service. Being gone for fifteen days means we spent in cash $259.97 per day. This is well within the industry norm for travel expenses. We trust that you will find this to your satisfaction and acceptable as proof of the expenditures.

Should you fail to accept this as evidence of the expenses we will be forced to exercise our very considerable options. Best Regards

Dan White CRA Busters.

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The Smith Maneouver, review by DW

June 30, 2007 by Dan White.

RE: Smith Manoeuvre: How to make your mortgage tax deductable.

While the Smith Manoeuvre works and is very appealing to financial planners because they can get clients to invest the money borrowed against home equity, the program is fundamentally foolish. A prime rule of investing is to not invest borrowed money in risk investments.

People earn money as good business people; they lose money as bad investors. If the true statistics of the investment market were ever known, there would be a lot less investors in things like mutual funds. There is a very real risk that the investor will end up with a tax deductible mortgage payment on money that has been lost. The multitude of transaction fees… (yes I know they are tax deductible) also reduce the return on your money. While I agree that it is a great idea to use the equity in your home to build wealth there is a less time onerous way to do this. It is not as sexy sounding as the Smith Manoeuvre, but is easier and makes more sense.

Simply take out a business loan using the equity in your home as security to get the loan. The debt is registered on title. It is called a mortgage. The mortgage payments are then tax deductable and you have the use of the tax free loaned money to make money in bonified business activities.

Keep a separate account where you track your borrowed money. Open up a bank account to be used solely for accruing tax free money that will be used to reduce your mortgage once a year. Whenever you receive tax free money, such as tax refunds, business refunds, gifts or loans, divert that money into the mortgage fund to be used in reducing your mortgage principal.

Establish a line of credit. Use your line of credit to pay deductable business expenses such as interest so that you free up money to pay down your mortgage…Remember you can use borrowed money and debt money to pay off a mortgage. The real objective here is to restructure things so that 100% of your mortgage interest is tax deductable. You end up with a line of credit and debt that you owe money where the interest is tax deductable and a fund you use in business equal to your equity in your home.

When you consider putting your equity money into an investment, you should be aware that money is often lost in investments; you need to be very informed about statistics before putting your money in someone else’s hands. The odds are not good that you will make money.

Money is made in business. Either you are a worker which to the surprise of many is really a form of business or you are a recognized business. The best investment is always in you; your business or your wage earning power. If you are a wage earner, invest in your education and training that will allow you to earn a greater income for the rest of your life. If you are in business, you should figure out how to make minimal risk investments in your own business. You will earn much greater returns than any passive investment where the odds are working against you.

Having said the negative things above regarding passive investments, I do believe in low risk passive investments for the purpose of preserving wealth. What you need to think about is. If you are paying 6% interest on your money but earning only 5% and paying all kinds of fees to your broker, you are being tax wise and dollar foolish.

The first intelligent step for all investors and all those who consider the Smith Manoeuvre, is “Have I calculated all the numbers and what other right answers are there?”. If you are thinking of turning your home equity into an investment portfolio, I strongly advise you to go for financial advice from someone who has no vested interest in your investments.

Invest wisely.

Dan White

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How can you minimize taxes of a deceased taxpayer?

June 26, 2007 by Dan White.

This article is courtesy of www.taxtips.ca

There is no “estate tax” in Canada, but when a person dies there is a deemed disposal of any capital property, so any capital gains would be taxed at this time. This would include assets such as vacation properties and investments. However, if the deceased taxpayer’s property is being distributed to the taxpayer’s spouse or to a “spouse trust”, then under certain circumstances taxable capital gains, allowable capital losses, recaptures of capital cost allowance, and terminal losses may be deferred. The deceased taxpayer’s cost basis for the property would then become the cost basis for the property to the spouse. Thus, any taxable capital gains would be deferred until the property is disposed of by the spouse.More than one tax return may be filed for a deceased taxpayer. One “ordinary” return would be filed for January 1st to the date of death. There are 3 additional tax returns that can be filed as if the taxpayer is “another person”. These returns can reduce or eliminate income tax in the year of death, because certain deductions are allowed to be claimed on the ordinary return as well as the optional returns. These optional returns are available for income from:

i.	“rights or things” - income items that are earned, but not received at the date of death. These rights or things include such things as:
		-dividends declared but not received
		-bond coupons matured but not cashed
		-employment salary, commissions and vacation pay owed by the employer at the date of death, for a pay period that ended before the date of death
		-unpaid employment bonuses
		-CPP and OAS payments received after the date of death
ii.	a business partner or proprietor - for income from the business from the end of the business fiscal period to the date of death
iii.	a testamentary trust - for income from the trust from the end of the trust fiscal period to the date of death

Canada Revenue Agency (CRA) has a web page titled “What to do when someone has died” that can provide further information. This page has links to information on the types of returns that can be filed after a person has died.

See also the CRA publication T4011 Preparing Returns for Deceased Persons, and interpretation bulletin IT-305R4, Testamentary Spouse Trusts.

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Non prescription medical expenses can be claimed, if you do it right.

June 16, 2007 by Dan White.

What attitude should a tax preparer display?

For instance regarding; non prescription Medical Expanses.

There is an argument that all real medical expenses can be deducted, regardless of from a pharmacy, under prescription or not.

In the past when it was me doing the tax returns, for clients that has health issues, I prepared documentation that I sent in much the same as if it was for a notice of objection. I can only recall one being challenged by CRA and I sent in a lot of them.

One of the things we have to watch in how we approach tax returns and our position is the language and attitude we display to our customers.

The natural accountant instinct is to reduce the chances of an audit, this is wise only to a point of the line in the sand. There has to be a line in the sand where it is not wise to take deductions. We understand that. CRA pushes the line one way and we push it the other. The realality is that CRA pushes beyond reason. WNBC does not push beyond credible reason.

The official WNBC market position is that we encourage every reasonable expense be taken. We only recommend timidity when the person may have something to hide or needs a “clean year.” (A year where everything is 100% perfect. Auditors usually only audit back to a clean year and stop.)

This position is what built our tax business. Yes, we did have problems in the past with quality control. That did not mean our position was wrong, what it meant is that we did some shitty work. Fortunately a lot of that work is what caused the problems that we solved that has built our knowledge base and made us the best kick ass CRA issue company in the country.

WNBC’s official stance is that we will fight for every reasonable deduction that there is a legitimate piece of paper to back up the expense.

It is important to WNBC that we need to maintain our market approach in terms of aggressiveness. Does this mean more work for us? Yes it does. But it also means we will attract more new business and keep the business growing and profitable. The extra work incurred by pushing the line in the sand is part of our business model. We can not and must not default to the line in the sand where all is cosy and we don’t incur resistance from CRA. The more resistance we get, the more we win and the happier our clients are because our clients simply pay less taxes. WNBC takes pride in the fact that we are fearless defenders of the faith in less tax is better for all.

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Old Tax Debts, Stature Barred.

June 16, 2007 by Dan White.

Old Tax Debts – Debts beyond six years are now statute barred by recent court decisions (Mar, 03). Not quite certain if CRA will honour that decision but in the meantime, tax debts never die – they just gather interest. If you had an old tax debt, didn’t have to go bankrupt, and are now making good money – look out for those # 8 brown envelopes with your name in the window.
CRA has up to three years from the mailing date of your notice of assessment to conduct an audit For a Canadian controlled private corporation, the MOF has 4 years. After this time, the particular year is statute barred unless there is a case of fraud, in which case there is no time limit to the period for audit.

CRA has up to three years from the mailing date of your notice of assessment to conduct an audit For a Canadian controlled private corporation, the MOF has 4 years. After this time, the particular year is statute barred unless there is a case of fraud, in which case there is no time limit to the period for audit.

Fraud is hard to establish … This includes the time they are messing in the file… they have to be done and over in 3 years from the Notice of Assessment date.

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Canada Gets a CRA Umbudsman this fall.

June 8, 2007 by Dan White.

This is good news for tax payers and for WNBC.

When we are not happy with CRA behaviour, we will soon be able to complain to an ombudsman.

We are expecting that the new ombudsman office will open by this fall to hold the agency accountable for honouring an expanded list of taxpayers’ rights.

The ombudsman will not offer a cheaper route to challenge tax assessments, however. The taxpayer could still have to use the WNBC services and go to court to object to a tax ruling.

For the first time, though, the CRA will have to explain its findings to taxpayers who complain. The agency could also see its service standards and performance criticized in an annual report.

Most other provisions in the 20-point Taxpayer Bill of Rights, including five points devoted to small businesses, are no more than a repackaging of existing promises. Putting everything into a single document is intended to help improve taxpayer awareness of existing practices.

WNBC welcomes the attempt to make the CRA more accountable.

The new bill of rights highlights the long-standing right to delay paying disputed taxes until the outcome of an appeal is known. Interest will be charged if the ruling goes against the taxpayer.

Taxpayers will be reminded they can plead for interest and penalty charges to be waived in light of an unavoidable delay, or because of CRA error.

As always, our clients can appoint us to act for them in dealings with the CRA by providing authority in writing. (The Consent Form)

The ombudsman process will still require strategy and experience to unsure the tax payer achieves their objective of paying no more tax than they are legally obligated to pay. This new entity will be a useful tool, but will not be a slam dunk for a tax payer to get justice.

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Be careful when you move business offshore.

May 25, 2007 by Dan White.

*** Just because you have opened a branch of your company by way of an IBC does not mean you will avoid Canadian taxes. There are pitfalls as noted below.

(Info from CRA web site)

Departure tax - Section 219 There is a 25% departure tax liability under section 219.1 that applies for the tax year considered to have ended because the corporation emigrated from Canada to take up residence in a new jurisdiction. This liability is not affected by any treaty that Canada may have signed with the corporation’s new country of residence, because for the referenced year the corporation is resident in Canada only. Any branch tax that may apply to the non-resident corporation under section 219 is subject to any overriding provisions in an applicable tax treaty.

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Child Care Expenses

April 27, 2007 by Dan White.

Claiming child care expenses

Did you know…

That you can claim child care expenses on your income tax return if your child is cared for at home or in nursery school, daycare, day camps, boarding schools, and sports schools? You can claim these expenses if you or your spouse or common-law partner incurred the expenses in order to work, carry on a business, or attend school.

If you qualify and your child is under the age of 7, you could claim up to $7,000 a year. If your child is over 7 but under 16 years of age, you may be able to claim up to $4,000. There is no age limit if you have a disabled child, and you could be able to claim up to $10,000.

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GARR has lost its teeth, like a toothless grr from a canine.

April 10, 2007 by Dan White.

Supreme Court of Canada Releases Groundbreaking

Decisions on the General Anti-Avoidance Rule

Supreme Court of Canada Releases Groundbreaking Decisions on the General Anti-Avoidance Rule

Here’s an important, timely update for you from the Tax & Trusts Group at Cassels Brock.

Supreme Court of Canada Releases Groundbreaking Decisions on the General Anti-Avoidance Rule

The Supreme Court of Canada has released two groundbreaking decisions on the general anti-avoidance rule (GAAR) set forth in section 245 of the Income Tax Act (Canada) (the “Act”). Since its enactment in 1987, GAAR has cast a shadow over all Canadian tax planning. The mere threat of its use often resulted in otherwise viable tax planning being abandoned. There were no clear rules for applying GAAR, often making it impossible to know what the tax consequences of a transaction might be, and giving the Canada Revenue Agency a very strong hand to play with taxpayers. The unanimous decisions of the Supreme Court of Canada in Canada Trustco and Mathew have cast much of this uncertainty aside and have reintroduced clarity and certainty to tax planning.

The Court has said that three requirements must be established before GAAR will be applied to a transaction or a series of transactions:

1) a tax benefit must result;
2) the transaction must be an avoidance transaction in the sense that it cannot be said to have been reasonably undertaken or arranged primarily for a genuine purpose other than to obtain a tax benefit; and
3) there must be abusive tax avoidance, such that the tax benefit received would be inconsistent with the object and spirit of the provisions relied upon by the taxpayer.

While the burden is on the taxpayer to refute the first two prongs of the test, the Canada Revenue Agency must establish the third prong. If the existence of abusive tax avoidance is unclear, the Court said that the benefit of the doubt goes to the taxpayer.

These two cases have established that GAAR must be interpreted and applied in a manner that preserves the values of consistency, predictability and fairness in tax law. GAAR does not permit courts to rewrite the provisions of the Act or impose their own view of object and purpose; the courts must only interpret and apply the Act. Taxpayers are allowed to take full advantage of the provisions of the Act conferring tax benefits, provided their transactions do not defeat the underlying rationale of these provisions. GAAR cannot be used to set aside the provisions of the Act simply because the Canada Revenue Agency does not agree with the tax benefits obtained by the taxpayer.

In determining whether a transaction is abusive, the Court said that reference must be made to the relevant statutory provisions to discern their object, spirit and purpose and to decide whether the transaction frustrates any of these. A transaction cannot be found to be abusive on the basis of “artificiality,” “lack of substance” or “economic substance” independent of the relevant statutory provisions. Although such matters may be relevant as part of the factual background in determining whether the object, spirit or purpose of the relevant tax provisions has been frustrated, they are not independently determinative of the nature of a transaction. The rejection by the Court of an “economic substance” test is perhaps the most important element of these two truly remarkable decisions. Taxpayers can now rely on the provisions of the Act without having to second guess the motivations of the transactions being entered into.

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What should go under “Other Expenses” ?

April 9, 2007 by Dan White.

Dear Editor,

What is your suggestions as to when to use the catch all category called ‘other expenses’ in the BKS.

Dear SL,

This brings up the same topic we were involved with in regards to “petty cash.”

While the category is a good catch all… it needs to be outlined “How to Minimize, ‘other’ in the training manual add on…(because in reality there is no such expense as ‘other’ therefore all other expenses have to be moved to something other than other… J having fun with words… sorry..

E.G… Actors clothes could be called ‘Business Supplies.’ There could be a number of items in this particular category… Face powder, makeup, costume jewellery, hair styling,,, etc… Our argument is that actors have to buy attire that they don’t use in their personal lives, they have to make themselves look differently, therefore there is no personal benefit. (And yes I know people have been doing this for years, but that is like a fishing lure when fishing for a spouse. Fishing is not tax deductable unless you are doing it for a living. Not that some people don’t go looking for a spouse to support them,,,, for a living so to speak…. which would make spouse hunting tax deductable…. just having fun here…. J

In the end with a properly completed BKS, there should be nothing left in either ‘petty cash’ or the ‘other category.’

Because we are training the Bookkeepers to know where things should go, it reduces the required time for the tax preparer to do a tax return.
There will be less modifications to the BKS… Ideally there would be no BKS adjustments and the data would just go straight to the corresponding category in the T2124 Business Activity Form. To get the BKS to this state of perfection is our goal.

To keep petty cash and other to zero amounts, would be one more item in audit risk protection.
Dan

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The law is clampling down on Charitable Donation Schemes.

April 6, 2007 by Dan White.

The next time someone tries to get you into a tax deferral scheme, or charitable donation scheme where you get a tax recept for greater than the donation. Consider that CRA makes a lot of money going after these things.
Now CRA has increased the fines to 125% of the amount of the gift. It used to work out to 3 times the amount of tax saved. This will be a real cash cow for CRA.
CRA is going after improperly issued donation receipts covering the cases where a receipt is deliberately falsified, perhaps as to the date when the gift was received but more frequently as to the amount of the gift (for example, inflated value of receipt with respect to actual value of gift). If the person responsible is an officer, employee, official, or agent of a charity, the charity is subject to the penalty. But the penalty also applies to people who:

counterfeit the receipts of a legitimate charity; or
issue false receipts on behalf of an organization that has no right to issue official donation receipts.

For any infraction, the penalty is 125% of the eligible amount of the gift as it appears on any false receipt, plus a year’s suspension of the charity’s tax receipting privileges if the total of all such penalties exceeds $25,000. If by issuing false receipts, the person is also subject to a penalty under section 163.2 of the Income Tax Act (the section that provides for penalties for those who help or encourage others to make false claims on their tax returns, usually as part of a tax-shelter promotion), the person is subject to whichever penalty is larger.
If you participate in one of these schemes, you would fall under pretty much the same scenario as the promoters of the scheme.

IN SUMMARY:

If you get a receipt for larger than the amount of your real donation, you are being wilfully blind, very foolish and have a very low chance of success.

Dan White

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Question on promotional expenses

April 4, 2007 by Dan White.

Dear Editor,

I have some promotional items to claim 2006 Air Photography business.

In previous return years I may not have understood or done it properly in BKS. For example, For a donated photograph and frame; in addition to the material costs can I also claim costs for completing the photograph, such as my aircraft operational cost/hr and my hourly rate for editing and photo preparation ?

Thanks in advance for your help with an answer.
K

Hi K

Nice to hear from you.

In respect to promotional costs.

All your hard costs (money you actually spent) can be claimed.
… this would include aircraft costs…

But when it comes to your labour, you cannot deduct that. The way it is looked at is you would have to include that amount of labour value as income from your business, so when you donated it would have an assigned value. However that defeats the purpose of claiming your labour as it ends up a wash.

If you paid a family member to develop the photos that would be tax deductable.

And certainly all your little costs on top of the aircraft cost are business expenses.

The key here is that the promotional expense has to have a business reason for you doing it… such as increasing the chances of future business or as a reward for business that is done, or in a barter situation. Your costs to produce the item are similar to cost of goods for resale… only this case you are business gifting the goods.

Best Regards

Dan

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What Business Expenses can be 100% tax deductible?

March 24, 2007 by Dan White.

Good question.

One that your email box would not be large enough to hold list or our memories large enough to contain all the items. J

The answer is much simpler than the question.

All expenses that are incurred 100% legitimately for business purposes are 100% deductible. You just need the right “Business Statement” the story of why it is directly related to business.

All the rest of the expenses are in direct relationship to the personal benefit that is directly derived. On a scale of zero to a hundred. E.G. your home may be 20% personal, therefore the deductable amount is 20% of the total cost of home ownership.

If you use your computer 50% for personal and 50% for business, it would only be 50% deductible, if you use your computer only for business, then it is 100% deductible.

Remember that in dediding what is deductible or not, it is importand to “Think Correctly” do not to think about what is deductible, but rather think about how it relates to your business.? The aforementioned is a good example and it is a required way to think.
The other point you need to remember is that if the purchase is considered an asset, then that is treated differently. If the purchase price of the Asset is less than $500 then you can write the entire item off in the year of purchase. If the item is over $500 then depending on what class it is… how much you can depreciate it.

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Medical Expenses:

March 7, 2007 by Dan White.

CURTESY OF WWW.TAXTIPS.CA

With thanks

Dan White

Income Tax Act s. 118.2(1)A taxpayer can claim medical expenses paid by the taxpayer or the taxpayer’s spouse or common-law partner. The medical expenses claimable include those paid for the taxpayer, the taxpayer’s spouse or common-law partner, or a child or grandchild (who is dependent on the taxpayer or spouse for support) of the taxpayer or spouse. Also claimable are medical expenses for a parent, grandparent, sibling, aunt, uncle, niece or nephew who resided in Canada at any time during the year and depended on the taxpayer or taxpayer’s spouse for support.

Medical expenses can be claimed for any 12 month period ending in the current tax year (and not claimed in the prior tax year), or in the year of death for any 24 month period ending in the current tax year (and not claimed in a prior year). In order to claim all medical expenses for 24 months in the year of death, the tax return for the prior year could be revised so that no medical expenses are claimed, leaving them available for the year of death. To do this, a T1Adj must be filed. See changing your tax return above.

Generally, all medical expenses can be claimed, even if they were incurred outside of Canada. When medical expenses are reimbursed by an insurance plan, only the portion not reimbursed can be claimed.

Medical expenses for the taxpayer, the taxpayer’s spouse or common-law partner, and dependent children under 18 are claimed on line 330 of the federal tax return. Only expenses in excess of the lesser of $1,844 (federal, for 2005) or 3% of net income can be claimed. The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit.

Starting with the 2004 tax year, there is a separate calculation for the medical expense tax credit for other eligible dependents, which includes children 18 years of age and older, grandchildren, parents, grandparents, siblings, aunts, uncles, nieces or nephews.

Medical expenses for other eligible dependents are claimed on line 331 of the federal tax return. A separate calculation is done for each dependent. Only expenses in excess of the lesser of $1,844 (federal, for 2005) or 3% of net income of the dependent can be claimed, up to a maximum of $10,000 per dependent (federal for 2005, up from $5,000 for 2004). The lowest tax rate is applied to the medical expenses to determine the amount of the tax credit.

Most provinces have also increased the maximum allowable medical expenses for other eligible dependents to $10,000 for 2005. See the tables of non-refundable tax credits for the maximum for each province and territory.

Tax tips:
- You may be eligible for the refundable medical expense supplement.
- In the year of a taxpayer’s death, it may help to adjust the prior year tax return to remove medical expenses, and claim them on the year of death tax return. a. Non-prescription medications are not deductible.

Tax Court of Canada cases prior to 2004 had determined that non-prescription medications could be included as medical expenses on a tax return, as long as they were prescribed by a doctor and “recorded by a pharmacist”. The allowable medical expenses are, according to the Income Tax Act:

“drugs, medicaments or other preparations or substances… 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”

The previous advice was to have medications qualify for this deduction, make sure you get a written prescription from the doctor, and keep your itemized pharmacy receipt.

A 2004 Tax Court of Canada case, Melnychuk v. the Queen, has come to a very different conclusion. The Judge in this case concluded that “The requirement that a medication be recorded by a pharmacist refers to the recording requirements found in legislation governing pharmacists in each province and territory. Unless that legislation requires a pharmacist to keep a record of the sale of a particular medication, the cost of the medication will not be a medical expense under the Income Tax Act, regardless of how it is sold or treated within a particular pharmacy.” A 2005 Tax Court of Canada case, Rasler v. the Queen, came to the same conclusion, disallowing non-prescription medications because they were off-the-shelf medications.

It is possible that this case could be appealed and the decision changed in the future. Our advice is to keep prescriptions and receipts for any non-prescription medications prescribed by your doctor, and talk to your tax advisor as to whether they can be deducted.

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Can I pay my kids and decuct the expenses?

February 24, 2007 by Dan White.

Dear Editor,
I have an autistic child. I am in the business of mental health, and education. I have an opportunity to use my son as a study subject. I think I should pay him for two reasons. One being I want to pay him for his time as a motivation to work with me. The second reason is I intend to use the results for commercial gain. I have a business plan written around this activity. Can I write off what I pay him?
Jane Doe.
Dear Jane,
Me Tarzan, You Jane, CRA are the apes.
Seriously, any reasonable business expense can be written off. If you are going to pay someone wages, or benefits in lieu of wages it has to be real. In other words there has to be a way to prove that the child actually provides commercial value. For instance a professional model gets paid for posing for pictures. There is not an official age when you can pay someone. Baby models get paid for their work. No one questions that because it fits within the mental space one sees as “Normal.” So in your case if you actually do the study, actually document the results of the study, and have a plan on how you are going to use this information to make money, either directly or indirectly, you can write it off. It has to be part of the business you are engaged in for the purpose of commercial gain. Here is another thought, if another professional asked to study your child, would you do it for free? Would you have to claim the income? Would the other person be able to claim the expense? The answer to all three is “yes.”
Your Editor.

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BKS Audit Proof, Member bookkeeping requirements.

February 14, 2007 by Dan White.

Dear Members,

We at WNBC are continuously striving to serve you better and to live up to our commitment of helping you; our members to keep more money in their pockets and give less to CRA.

The purpose of this letter is to inform you of important changes to our procedures and to move another step closer to rock solid audit-proof accounting for you our valued members. We are notifying you about what is REQUIRED on your part to ensure our mutual goal of minimized taxes for all our members.

As we grow and become more and more expert in protecting the tax deductions for our members, we identify where we need to improve. We need to get better at having the stories (explanation of how the expense relates to business) entered into the BKS. To get the expenses entered, they need to be written on the actual receipts then copied accordingly into the BKS.

After years of tangling successfully with CRA we have learned a lot. One of the key things we have learned is that it takes a lot less time for a short fight than a long one.  Further we have found it problematic dealing with member expenses when they did not write their stories. If the reason a business expense was incurred was lost or forgotten, we often lose the deduction.

As a result we have made some changes to how we approach the art of member bookkeeping. Our official policy is that in order for us to defend a tax return and its bookkeeping with CRA all the way to tax court all the receipts must have been itemized, the story written and entered into the BKS.

We provide audit insurance, which is included at no extra charge in the Gold package, but you must do your part to ensure you are covered. Just as in a car warrantee, you must do the service requirements, in WNBC you must do your BKS correctly or have it done by one of our licensed BKS bookkeepers. In any case the responsibility of the story lies in the hands of the member.

While the exercise of going to tax court is a separate service in WNBC, we know that the probability of an audit proof tax return going to court is next to zero. Therefore to protect you our members from unnecessary expenses, the bookkeeping must be done properly.

We cannot do our magic and have you keep your refunds unless you do your part in the deal by organizing yourself the WNBC way.

We want to make sure that even if you are audited you get to keep all your deductions and come out with no money owing to CRA.

Following are some pointers that we need to reinforce for the upcoming tax season:

Things to do for BKS preparation:

• Make sure that you have all your receipts for the expenses that you want to claim as deductions, have your bank and credit card statements as well these will not be admissible by a lot of CRA auditors in an audit but could be allowed in court

• Write your stories on the receipts while they are fresh in your mind (within 48 hrs) and also enter the same description in the BKS

• The category of meeting expense should have names of clients, description of meeting and place of meeting to be deductible

• The category of meals should include meals related to business only – all other meal expenses can go under personal central

• Travel category should include all business related travel – here you should mention the destination, and reason for travel

• Fill out your tax organizer even if you are an existing member

• Mention if you need a GST return to be completed and send us your blank return form. Scan and email is fine.

• Scan all your T-Slips and other documents needed by your tax preparer.

Only legitimate business expenses that we feel can be argued reasonably will be considered as a deduction while preparing your taxes. This is very important in the light of the fact that we will also be representing you in an audit and if we feel that a certain item will not stand up to an audit then we will not consider it.

We require that every member sign this letter to make sure that you have read and understood its contents and implications and agree to abide by the agreement

You are the boss. We work for you, so if you want us to include certain expenses in the tax return that we advise against, we will do so, but you will have sign off in writing that you understand that you are taking full responsibility for the claimed expenses.

Further it is important to understand that if WNBC has to defend the claimed expense, this will not be covered under your membership services. There will be a cost to you for defending an expense that we advised against taking.

CRA holds the tax payer responsible for information submitted in the tax return and also for any errors and omissions in the tax return. So we strongly recommend that you review your tax return carefully, line by line. It is your responsibility to ensure the tax return represents the information that you supplied to us. If anything is incorrect or that you do not agree, or if you need clarification on anything please let us know.

So in order for you to sleep well at night and keep all your deductions, it is necessary for you to do your part. Please follow the above instruction and help us to make your and our lives easier and show you how to save your money. If you have questions about deductions please email consult@wnbc.net.

Sincerely,

Sheila Willis
Manager of Support Services
WNBC World Network Business Club
moss@wnbc.net

I have read the contents of the above letter and am in agreement of the same.

Dated this _________ day of ____________ 200___
________________________
Name of Member

________________________
Signature of Member

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Tax Changes for Automobiles in 2007

February 7, 2007 by Dan White.

The automobile expense deduction limits and the prescribed rates for the automobile operating expense benefit which will apply in 2007, are unchanged from 2006. These include:

The ceiling on the capital cost of passenger vehicles for capital cost allowance purposes is $30,000 (plus sales taxes) for purchases after 2006.
The limit on deductible leasing costs is $800 per months (plus sales taxes) for leases entered into after 2006.
The maximum allowable interest deduction for amounts borrowed to purchase an automobile is $300 per month for loans related to vehicles acquired after 2006.

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Don’t think you can deduct all charitable donations

January 5, 2007 by Dan White.

Gifts to U.S. charities

Generally, if you have U.S. income, you can claim any gifts to U.S. charities that would be allowed on a U.S. return. You can claim the eligible amount of your U.S. gifts up to 75% of the net U.S. income you report on your Canadian return. However, you may be able to claim the eligible amount of your gifts to certain U.S. organizations up to 75% of your net world income. You can do this if you live near the border in Canada throughout the year and commute to your principal workplace or business in the U.S., and if that employment or business is your main source of income for the year.

You can donate to the offshore (USA is offshore to Canada) if The Canadian Government has donated to the specific charity.

The following is good info…

Gifts to registered charities and other qualified donees

You can claim a tax credit based on the eligible amount of the gift you give to a qualified donee. A qualified donee generally includes:

a registered Canadian charity;
a registered Canadian amateur athletic association;
a Canadian tax-exempt housing corporation that only provides low-cost housing for seniors;
a municipality in Canada, or under proposed legislation, for gifts made after May 8, 2000, a municipal or public body performing a function of government in Canada;
the United Nations and its related agencies;
a prescribed university outside Canada;
a charitable organization outside Canada to which the Government of Canada has made a donation in the tax year, or the previous tax year; and
the Government of Canada, a province, or a territory.

Generally, you can claim part or all of the eligible amount of your gifts, up to the limit of 75% of your net income for the year. If you give capital property (including depreciable property), you may be able to increase this limit. For details, see the section called

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How to make sure gambling wins are tax free

December 28, 2006 by Dan White.

Gambling duo prove there’s no tax on luck

PAUL WALDIE

Globe and Mail Updatehttp://www.theglobeandmail.com/servlet/story/RTGAM.20061228.wgamble27/BNStory/National/home

The key issue here to consider is that CRA will look at any money making activity and try to define it as a business. That is a very significant issue around part time real estate investors. If they have a BUSINESS SYSTEM that makes money, then they are a business and capital gains and losses do not apply. All the income becomes taxable, and subsequently so do all the losses.

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Education as a tax deduction

December 13, 2006 by Dan White.

Tax Tips,

You can save a ton of tax by using a tax strategy for your education.

You can write off education when you get it to improve your existing business skills.

So you are better to take university or other courses to assist you in your business than to go get a degree for the sake of self improvement.

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Give away investments as a charitable donation.

November 19, 2006 by Dan White.

Giving to charities can create a tax deduction as well as help others. Just make sure you give in a win win way. Win for you and the targeted beneficiary of your gift.

The Process 1) Identify Your Values and Concerns - What is more important to you, religion, environment, animals, or education? Are you interested in community, service, peace, or justice?

2) Develop a giving plan - How do your values and concerns translate into an effective giving plan?

3) Research your favorite charities - There are a few good Internet sites to take a look at, including www.charityvillage.com, and www.imagine.com

4) Make sure the charity is accountable - Do a fair amount of due diligence on the charity to make sure your dollars are going where you want them to go. What is the charity’s strategy? Are they accountable? Can you designate where you want the gift to go?

5) Time to grant - This is the last step, only after you have diligently completed the aforementioned four steps.

If you gift to a charity by giving stocks or mutual funds directly, instead of cash, you can save on the taxes associated with capital gains, as well as get the deduction for the donation. This can amount to thousands of dollars in savings for you.

The trick here is that you don’t personally cash in the investments, instead you gift it to the charity and you get a receipt without taking the investment into your name. You just leave the investment where it is and give it as is.

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Kids as a tax deduction, how much to pay them?

November 7, 2006 by Dan White.

How to determin how much to pay your children.

Add up all the hard costs that you will encur over the year. School, lessons, clothes, beatings, drugs, allowances etc.

Determine their available time to work for you. Divide the hours into the dollar amount equals the hourly rate.

Now you know how much they need to earn and how much you need to pay them to earn that much. Ensure that is within the industry norm for that kind of work.

Make sure the work actually relates to your business.
Keep a detailed log book of assignments, completion of tasks, review of quality of work, explanation of how that relates to your business, and copies of cancelled cheques or receipts for cash payments.

What this is equal to is paying the cost of your children with before tax dollars.

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Tax Deferral Programs are a very risky business.

November 7, 2006 by Dan White.

It is that time of the year where I get all kinds of requests to comment on various tax deferral programs.

Some of the Tax Deferrals are really silly.

As you know, that in general, I do not consider any of them worth the risk. But I keep an open mind and hope for a real one to come up.

If you do the numbers best case worse case, they simply do not make sense.

Remember any gain you receive is taxable as a capital gain or income… so you can not forget that point.

The best case scenario you donate a dollar and save 50 cents in tax.
In some programs you save a lot more than that.

The worst case scenario it costs you three times the tax savings.

They high probability is all programs that benefit you more than your out of pocket expenses will be viewed as nothing other than schemes by CRA and will ensure they become a pest to you.

The reasonalbe assumption is that you will lose and need to pay back the refund you received times 3.

I don’t like the odds. It is like risking a dollar to lose a dollar fity, but if you win, the odds are you won’t get to keep the pot.

Tax shelters … a good article by CRA…

People are sometimes approached to donate to charity through tax shelter arrangements. Before you decide to donate in this way, you should be aware of the risks associated with participating in certain tax shelter donation arrangements including:

* gifting trust arrangements;
* leveraged cash donations; and
* buy-low, donate-high arrangements.

Promoters of such shelters must obtain a tax shelter number from the Canada Revenue Agency (CRA). The CRA uses the tax shelter number to identify the tax shelter and its investors, but offers no guarantee that taxpayers will receive the proposed tax benefits.

The CRA reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act. The CRA has audited many of these gifting arrangements. Generally, the CRA reduces the amount of the tax credit to no more than the taxpayers’ cash donation, and in many cases it is reduced to even less than that. In some cases the credit is reduced to zero. The CRA may also charge interest and penalties.

For more information on tax shelters and how you can protect yourself, read the CRA’s Taxpayer Alert and Fact Sheet on tax shelters.

Warning: Tax shelter gifting arrangements are risky

Taxpayers should be aware of the risks associated with participating in certain tax shelter gifting and donation arrangements, including gifting trust arrangements, leveraged cash donations, and buy-low, donate-high arrangements.

On April 20, 2006, the Supreme Court of Canada announced that it would not hear the taxpayers’ appeals of the decisions of the Federal Court of Appeal (FCA) in the cases of Frank Klotz and Quinn, Tolley and Nash. These decisions involved buy-low, donate-high art flipping arrangements in which the taxpayers purchased artworks and donated them to charities. The charities issued donation receipts for three or four times the donors’ costs, so that the tax refunds exceeded the costs to the donors. The FCA held that the value of the donations was limited to the amount of cash that the taxpayers paid for the artworks.

Despite these favourable court decisions for the Canada Revenue Agency (CRA), and despite proposed amendments to the Income Tax Act announced by the Department of Finance on December 5, 2003, some donation arrangements continue to be promoted. We have previously reminded taxpayers that the proposed amendments are applicable to years after 2003. They limit donations made under tax shelters and other arrangements to a maximum of the donor’s out-of-pocket costs.
Audits

The CRA continually audits many gifting arrangements and has completed a number of such audits. For donations made prior to 2002, the CRA has reassessed about 6,700 taxpayers, disallowing about $490 million in donations. For the 2002 tax year, a further 5,700 taxpayers, with donations of $360 million, have just been audited and reassessments were issued in all arrangements. For the 2003 tax year, about 1,800 taxpayers have been audited to date with some $66 million in donations disallowed. Generally, the CRA reduces the amount of the gift to no more than the cash paid by the taxpayer, and in many cases it is reduced to less than that. In some cases it is reduced to nil, when the donation is not a true gift.

The fact that investors in some of these tax shelter gifting arrangements have not been reassessed should not be interpreted as the CRA’s acceptance of the arrangement. The CRA generally has three years from the date of assessment to reassess taxpayers and these audits can take over a year to complete.
Current tax shelter promotions

Some of the arrangements currently being marketed as donation programs and gifting initiatives are advertised and/or promoted as resulting in “unique” or “valuable” “tax saving opportunities”. These are “gifting trust arrangements” and “leveraged cash donations.” In gifting trust arrangements, the taxpayer makes a cash donation to a charity and also becomes a beneficiary of a trust. The taxpayer receives property as a distribution from the trust and donates it to a charity. The taxpayer receives donation receipts for the total of the cash and the purported fair market value of the property. Typically, the total cash paid by the investor is about 30 percent of the amount on the donation receipts.

The proposed amendments to the Income Tax Act announced by the Department of Finance on December 5, 2003, provide that the donation amount on which the tax credit is based will be reduced by any “advantage” that is in any way related to the gift. It is the CRA’s position that the receipt of such property from the trust is such an advantage, and the donation amount will be reduced accordingly.

In leveraged cash arrangements, a taxpayer receives a prearranged loan and makes a donation of the loan proceeds and additional cash to a charity. The taxpayer is not at risk for the loan and the charity must use the proceeds in a predetermined manner.

The definition of “advantage” for this purpose includes a limited-recourse debt in respect of the donation. A limited-recourse debt is broadly defined to include any unpaid amounts if there is a guarantee, security, or similar indemnity or covenant in respect of the debt. It is the CRA’s position that debts incurred as part of a leveraged cash donation constitute limited-recourse debts if they are to be repaid under such arrangements structured as part of the donation arrangement. The donation amount will be reduced accordingly.
Tax Shelter Identification Numbers

The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. They do not guarantee that taxpayers are entitled to receive the proposed tax benefits. Rather, they enable the CRA to identify all tax shelters and their participants. The CRA reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act.

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Kids are a write off. How to know how much to pay them.

October 25, 2006 by Dan White.

To determine how much to pay your children:

Add up all the hard costs, school, lessons, clothes, books, allowance, etc.

Determin how many hours per year your child can work for you.

Divide the hours into the Amount.

Make sure the amount is within industry norms for that kind of work.

Keep detailed records of tasks assigned, reviewed and approved for payment.

Keep track of all cheques, and if paying by cash, keep the receipt for cash payments.

Make sure the work relates to your business and record it accordingly in your BKS under “Cost of Labour.”

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Imporant Tax Dates

October 12, 2006 by Dan White.

February 28th - T4 slips & T5 slips

March 1 - RRSP contribution

April 30 - Personal Tax Return (other than self employed individuals)

April 30 - GST owing on self employment income

April 30 - Personal taxes owing (self employed included)

June 15th - Personal tax return for self employed individuals and their spouses

June 15 - GST return for self employed individuals

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What happens to my RRSP if I die?

October 2, 2006 by Dan White.

What happens to my RRSP if I die? When you die, the value of the funds in your RRSP will be included in your income and will be taxed when your final tax return is filed. However, if you have a surviving spouse, the RRSP may be rolled over tax-free to the survivor, who then becomes the annuitant, or holder, of the RRSP. This provision can also apply to a common-law partner. A tax-free rollover may also be made to a dependent child or grandchild, who may use the funds to purchase an annuity with a term not exceeding 18 years, minus the age of the child.

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If I work outside Canada, can I still contribute to my RRSP?

October 2, 2006 by Dan White.

If I work outside Canada, can I still contribute to my RRSP? If you work outside Canada, you may continue contributing to your RRSP only if your earnings are considered earned income in Canada. You may want to contact your local taxation office to clarify your situation.

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What happens to my RRSP if I become bankrupt?

October 2, 2006 by Dan White.

What happens to my RRSP if I become bankrupt? If you go bankrupt, creditors can seize your RRSP. An insurance company RRSP with a named beneficiary may be creditor-proof, but not if you open the plan with the intention of avoiding your creditors. If this is an issue for you, you may want to seek professional advice. Creditors can legally seize your RRSP.

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What happens to my RRSP if I leave Canada and become a non-resident?

October 2, 2006 by Dan White.

What happens to my RRSP if I leave Canada and become a non-resident? If you leave the country and become a non-resident, you can leave your RRSP in place, but you will not be eligible to make further contributions unless you have earned income in Canada. CCRA’s Pension and RRSP Tax Guide explains how to calculate earned income if you are a non-resident. If you become a resident of the U.S., amounts earned by your RRSP investments after you leave the country may be subject to U.S. income tax. If decide to cash in your RRSP after you have become a resident of another country, 25 per cent of the proceeds will be withheld in Canada.

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Be careful about bank deposits

September 7, 2006 by Dan White.

Tax Tip
When setting up banking for your small business, think about the costs of banking.
Your business account should only receive business income deposits. You can decide what payments need to come from that account based on your own needs.
All other deposits should go to your personal bank account with a clear description on why the deposit is not income. CRA considers all bank deposits in any of your accounts personal or business as income. You always have to prove the non income deposits are not taxible income.
Usually a personal chequing account is less expensive to use than a business account, so do as many payments as possible from the personal account. Transfer the money you need to pay bills from your business account to your personal account. The transfer and the payments should balance.
As you will be using your personal account to pay business expenses, the banking fees will be tax deductible.
Make sure you enter all payments in your BKS with the business explanation, so that no business expenses fall in the cracks and no non income deposits go into your business income.
DW

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Trafic tickets are tax deductible.

July 17, 2006 by Dan White.

A traffic or parking ticket incurred while doing business is tax deductible. Make sure you record the expense where the expense is not prorated as partially personal. If you don’t know how, consult your tax strategist.

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What category to put your expenses in…

July 14, 2006 by Dan White.

Tax Tip

When you record the business explanation for expenses on your receipts, pick a category for that expense and try to be consistent. It is a lot easier to do the book keeping when all expense categories are consistent. It is not so important what you call the category… eg you could call the category “Fudge Expenses,” because it is not the category that makes it deductible, any reasonable expense can be written off. Your tax preparer can either rename the category or create a category in your business activities portion of your tax return.

Dan White

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What to write on receipts

July 13, 2006 by Dan White.

Look at a receipt as a written record of why the expense is tax deductable. The receipt needs to have a short story about why the expense was business related.

For example; Coffee shop receipt…
Category = Business Meeting.

Who = John Doe, buyer for ABC Co.

Purpose = To discuss getting more business, I need to submit a quote now…

(include tips in your total shown on receipt)

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Saving Thermal Paper Receipts

July 11, 2006 by Dan White.

When you get a thermal paper receipt, be sure to make a photo copy of it, or record it in your bookkeeping systems with all the details. The paper fades and CRA will not accept blank paper as a receipt.

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Archive for the Tax Tips Category

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On Audit Ready Bookkeeping

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Voluntary Disclosure Procedures

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This was published as a news release by CRA.

The Importance of Written Contracts For Employment

Some great last minute tax advice by James Daw of the Toronto Star

CRA Fairness Provisions not necessarily fair. By the Canadian Press

Tax Tips For Spouses in Canada

Year End Investment Strategies

Get Ready For An Increased CRA Tax Attack.

Tax Tips

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Rant on Medical Expenses

Taxpayer wins day in Court over use of home deductions for employees.

Article in National Post

Homeowners, tax lawyers alike will watch Lipson case

Story Tools

Share This Story

More on the Smith Manoeuver by Bob Aaron, quotes Dan in Tor Star

Income Trusts

Divident Tax Credits

Another CRA RRSP Tax Trap;

Joint Bank Accounts as a Tax and Estate planning tool.

Donations of time to a charity

The Smith Maneouver. Good or bad?

Asset Management - Joint Tenants

Why you need a proper bookkeeping system. Quickbooks is not adequate.

The Importance of Paper in Bookkeeping

Beware of ** ALL ** tax shelter gifting arrangements

Warning: Participating in tax shelter gifting arrangements is likely to result in a tax bill!

The CRA is auditing all gifting arrangements

Stats and Facts

Current Promotions

Get professional, independent advice

A Humours look at Travel Expenses.

The Smith Maneouver, review by DW

How can you minimize taxes of a deceased taxpayer?

Non prescription medical expenses can be claimed, if you do it right.

Old Tax Debts, Stature Barred.

Canada Gets a CRA Umbudsman this fall.

Be careful when you move business offshore.

Child Care Expenses

GARR has lost its teeth, like a toothless grr from a canine.

Supreme Court of Canada Releases Groundbreaking

Decisions on the General Anti-Avoidance Rule

What should go under “Other Expenses” ?

The law is clampling down on Charitable Donation Schemes.

Question on promotional expenses

What Business Expenses can be 100% tax deductible?

Medical Expenses:

CURTESY OF WWW.TAXTIPS.CA

Can I pay my kids and decuct the expenses?

BKS Audit Proof, Member bookkeeping requirements.

Tax Changes for Automobiles in 2007

Don’t think you can deduct all charitable donations

Gifts to U.S. charities

Gifts to registered charities and other qualified donees

How to make sure gambling wins are tax free

Education as a tax deduction

Give away investments as a charitable donation.

Kids as a tax deduction, how much to pay them?

Tax Deferral Programs are a very risky business.

Kids are a write off. How to know how much to pay them.

Imporant Tax Dates

What happens to my RRSP if I die?

If I work outside Canada, can I still contribute to my RRSP?

What happens to my RRSP if I become bankrupt?

What happens to my RRSP if I leave Canada and become a non-resident?

Be careful about bank deposits

Trafic tickets are tax deductible.

What category to put your expenses in…

What to write on receipts

Saving Thermal Paper Receipts

Beware of ALL tax shelter gifting arrangements