Announcements

 

Get caught up with Andrews & Co.

Whether it's tax season or welcoming new team members, we have a lot going on at our firm. We'll keep you connected by sharing our ongoing news.

  • DIRECTOR LIABILITY: Reliance on the Active Shareholder
    Posted

    In a May 5, 2016 Tax Court of Canada case, at issue was whether the taxpayer (a director and 50% shareholder of the Corporation) was liable for the Corporation’s unremitted payroll deductions and tax. A director would not be held liable if he/she had exercised the degree of care, diligence and skill of a reasonably prudent person in comparable circumstances in order to prevent the corporation’s failure to remit.

    In this case, the taxpayer was informed by the other 50% shareholder, who was involved in the day-to-day operations, that the business was doing well. In reality, the Corporation was in financial difficulty and remittances were not being made.

    On receiving correspondence from CRA regarding arrears with its GST and payroll deduction remittances, the taxpayer turned his attention to the corporation’s failures. He spoke to the other 50% shareholder about the need to be diligent, as well as stopping by the business every two or three weeks to check on matters. However, he continued to rely on assurances provided by the other 50% shareholder, even after receiving additional correspondence regarding outstanding source deductions.

    Director loses – personally liable for corporate remittances
    The Court found that reliance on the other shareholder’s word was not acting diligently given the taxpayer’s knowledge of the Corporation’s financial state. The Court suggested a reasonable person would independently verify that remittance payments were being made, whether by direct contact with CRA, review of the Corporation’s bank account, or other approaches. As a result, the Director was personally liable for the unremitted corporate GST/HST and source deductions.

    Action Item: Especially in times of corporate financial difficulty, review source documents to ensure that payments to CRA are being made appropriately

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    In a May 5, 2016 Tax Court of Canada case, at issue was whether the taxpayer (a director and 50% shareholder of the Corporation) was liable for the Corporation’s unremitted payroll deductions and tax. A director would not be held liable if he/she had exercised the degree of care, diligence and skill of a reasonably prudent person in comparable circumstances in order to prevent the corporation’s failure to remit.

    In this case, the taxpayer was informed by the other 50% shareholder, who was involved in the day-to-day operations, that the business was doing well. In reality, the Corporation was in financial difficulty and remittances were not being made.

    On receiving correspondence from CRA regarding arrears with its GST and payroll deduction remittances, the taxpayer turned his attention to the corporation’s failures. He spoke to the other 50% shareholder about the need to be diligent, as well as stopping by the business every two or three weeks to check on matters. However, he continued to rely on assurances provided by the other 50% shareholder, even after receiving additional correspondence regarding outstanding source deductions.

    Director loses – personally liable for corporate remittances
    The Court found that reliance on the other shareholder’s word was not acting diligently given the taxpayer’s knowledge of the Corporation’s financial state. The Court suggested a reasonable person would independently verify that remittance payments were being made, whether by direct contact with CRA, review of the Corporation’s bank account, or other approaches. As a result, the Director was personally liable for the unremitted corporate GST/HST and source deductions.

    Action Item: Especially in times of corporate financial difficulty, review source documents to ensure that payments to CRA are being made appropriately

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

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  • CHARITIES: Ineligible Individuals Can Get Your Organization De-Registered
    Posted

    CRA holds the authority to suspend receipting privileges and refuse or revoke the registration of a registered charitable organization when an “ineligible individual is a board member or controls or manages the organization”.

    On March 17, 2016 CRA Guide CG-024, Ineligible Individuals, was updated. It provides 29 pages of description and implications of having ineligible individuals on boards and in management positions.

    Generally, an individual is ineligible if he/she:

    • has been convictedof an offence:
    • related to financial dishonesty; or
    • relevant to the operation of the organization; or
    • was connectedto an organization whose registration was revoked for a serious breach of the requirements for registration. Relevant connections could include:
      • a director, trustee, officer, or like official;
      • an individual in a position of management or control; or
      • a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization’s registration.

    Individuals who manage a registered organization, directly or indirectly, include anyone who does one or more of the following:

    • performs managerial (rather than only operational) duties;
    • hires, disciplines and dismisses employees;
    • prepares budgets within the organization; or
    • varies staff assignments.

    Individuals who have influence or the power to do one or more of the following would be considered to have control:

    • change the board of directors or reverse its decisions;
    • make alternative decisions concerning the actions of the organization;
    • directly or indirectly end the organization; or
    • appropriate the organization’s assets.

     

    Action Item: Review your charity’s current leadership for possible ineligible individuals. Also consider adjusting recruitment and engagement processes to detect such individuals.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    CRA holds the authority to suspend receipting privileges and refuse or revoke the registration of a registered charitable organization when an “ineligible individual is a board member or controls or manages the organization”.

    On March 17, 2016 CRA Guide CG-024, Ineligible Individuals, was updated. It provides 29 pages of description and implications of having ineligible individuals on boards and in management positions.

    Generally, an individual is ineligible if he/she:

    • has been convictedof an offence:
    • related to financial dishonesty; or
    • relevant to the operation of the organization; or
    • was connectedto an organization whose registration was revoked for a serious breach of the requirements for registration. Relevant connections could include:
      • a director, trustee, officer, or like official;
      • an individual in a position of management or control; or
      • a promoter of a tax shelter, and participating in that tax shelter caused the revocation of an organization’s registration.

    Individuals who manage a registered organization, directly or indirectly, include anyone who does one or more of the following:

    • performs managerial (rather than only operational) duties;
    • hires, disciplines and dismisses employees;
    • prepares budgets within the organization; or
    • varies staff assignments.

    Individuals who have influence or the power to do one or more of the following would be considered to have control:

    • change the board of directors or reverse its decisions;
    • make alternative decisions concerning the actions of the organization;
    • directly or indirectly end the organization; or
    • appropriate the organization’s assets.

     

    Action Item: Review your charity’s current leadership for possible ineligible individuals. Also consider adjusting recruitment and engagement processes to detect such individuals.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

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  • BENEFITS PAID TO SHAREHOLDER EMPLOYEES: Taxable?
    Posted

    The CRA is aware that owner-managers have an incentive to receive benefits deductible by their corporation which are non-taxable to the owner. In essence, this can be perceived as a method to extract profits out of a corporation without paying tax on it. As such, CRA is particularly vigilant to ensure that these benefits comply with the Income Tax Act and do not confer unfair advantages on owners.

    To start off, it must be established whether the benefits or allowances have been conferred on the individual in their capacity as an employee or in their capacity as a shareholder. Unless the particular facts establish otherwise, CRA presumes that an employee-shareholder receives a benefit or an allowance in their capacity as a shareholder (assuming the individual can significantly influence business policy). This presumption may not apply if:

    • the benefit or allowance is available to all employees of the corporation; or
    • all of the employees are shareholders or individuals related to a shareholder, and the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.

    If the benefit or allowance is received in their capacity as an employee, the federal income tax treatment is the same as for an unrelated employee. This means that the benefit is generally deductible to the corporation and, under certain special circumstances, not taxable to the employee.

    Where an employee-shareholder receives a benefit or an allowance in their capacity as a shareholder, the value of the benefit or allowance is included in the shareholder’s income and may not be deductible to the company.

     

    Action Item: When commencing the provision of non- taxable benefits, consider whether they will also be offered to non-shareholder employees. If not, they may be taxable to the shareholder employee.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    The CRA is aware that owner-managers have an incentive to receive benefits deductible by their corporation which are non-taxable to the owner. In essence, this can be perceived as a method to extract profits out of a corporation without paying tax on it. As such, CRA is particularly vigilant to ensure that these benefits comply with the Income Tax Act and do not confer unfair advantages on owners.

    To start off, it must be established whether the benefits or allowances have been conferred on the individual in their capacity as an employee or in their capacity as a shareholder. Unless the particular facts establish otherwise, CRA presumes that an employee-shareholder receives a benefit or an allowance in their capacity as a shareholder (assuming the individual can significantly influence business policy). This presumption may not apply if:

    • the benefit or allowance is available to all employees of the corporation; or
    • all of the employees are shareholders or individuals related to a shareholder, and the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.

    If the benefit or allowance is received in their capacity as an employee, the federal income tax treatment is the same as for an unrelated employee. This means that the benefit is generally deductible to the corporation and, under certain special circumstances, not taxable to the employee.

    Where an employee-shareholder receives a benefit or an allowance in their capacity as a shareholder, the value of the benefit or allowance is included in the shareholder’s income and may not be deductible to the company.

     

    Action Item: When commencing the provision of non- taxable benefits, consider whether they will also be offered to non-shareholder employees. If not, they may be taxable to the shareholder employee.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

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  • DOCUMENTS REQUIRED TO CLAIM A U.S. FOREIGN TAX CREDIT
    Posted

    Prior to the summer of 2015, CRA often accepted copies of the U.S. tax returns, as support to claim a U.S. Foreign Tax Credit (FTC). The “Federal Account Transcript” was selected as alternative evidence the return provided to CRA was filed and assessed as filed.

    Some practitioners report that obtaining “transcripts” from the Federal Government, and State Governments in particular, can be onerous, often requiring a request from the client rather than a representative.

    Form T2209 Federal Foreign Tax Credits sets out the documents required to support foreign tax credit claims, including federal, state and municipal tax returns with all associated schedules and forms, a copy of the federal account transcript and an account statement or similar document from state and/or municipal tax authorities.

    CRA recently changed its requirements, to accept proof of payments made or refunds received in lieu of a notice of assessment, transcript, statement or other document from the applicable foreign tax authority (FTA), provided all of the following information is clearly indicated:

    • that the paymentwas made to or received from the FTA;
    • the amountof the payment or refund;
    • the tax yearto which the payment or refund relates; and
    • the date of paymentof receipt.

    Action Item: Request these documents before a CRA pre- or post-assessing review letter is received to expedite the FTC Claim.

    To get a Federal transcript from the IRS, go to: www.irs.gov/individuals/get-transcript

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Prior to the summer of 2015, CRA often accepted copies of the U.S. tax returns, as support to claim a U.S. Foreign Tax Credit (FTC). The “Federal Account Transcript” was selected as alternative evidence the return provided to CRA was filed and assessed as filed.

    Some practitioners report that obtaining “transcripts” from the Federal Government, and State Governments in particular, can be onerous, often requiring a request from the client rather than a representative.

    Form T2209 Federal Foreign Tax Credits sets out the documents required to support foreign tax credit claims, including federal, state and municipal tax returns with all associated schedules and forms, a copy of the federal account transcript and an account statement or similar document from state and/or municipal tax authorities.

    CRA recently changed its requirements, to accept proof of payments made or refunds received in lieu of a notice of assessment, transcript, statement or other document from the applicable foreign tax authority (FTA), provided all of the following information is clearly indicated:

    • that the paymentwas made to or received from the FTA;
    • the amountof the payment or refund;
    • the tax yearto which the payment or refund relates; and
    • the date of paymentof receipt.

    Action Item: Request these documents before a CRA pre- or post-assessing review letter is received to expedite the FTC Claim.

    To get a Federal transcript from the IRS, go to: www.irs.gov/individuals/get-transcript

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Read More
  • TRANSFERRING PROPERTY TO A FAMILY MEMBER: Taxable Transaction?
    Posted

    When transferring the legal title of a property to a family member, a disposition for tax purposes may not necessarily occur. The taxable event would occur when a “beneficial ownership” change happens. Usually, a beneficial change and legal change are one in the same, but not always.

    In a June 14, 2016 Technical Interpretation, CRA examined the situation where a married couple transferred the title to a property and mortgage into a parent’s name because they no longer qualified to refinance the original mortgage. Once their financial position improved, they transferred the title back. The original taxpayers continued to make all mortgage payments and other house costs. They also continued to live in the dwelling throughout the legal transitions.

    The CRA opined that despite the legal ownership changes, no beneficial ownership change occurred. Therefore, there was no taxable disposition.

    Action Item: Since the taxability of such a transaction is a matter of interpretation, caution should be taken when relying on such a position. Discuss your fact pattern with a professional and be sure to document appropriate support.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    When transferring the legal title of a property to a family member, a disposition for tax purposes may not necessarily occur. The taxable event would occur when a “beneficial ownership” change happens. Usually, a beneficial change and legal change are one in the same, but not always.

    In a June 14, 2016 Technical Interpretation, CRA examined the situation where a married couple transferred the title to a property and mortgage into a parent’s name because they no longer qualified to refinance the original mortgage. Once their financial position improved, they transferred the title back. The original taxpayers continued to make all mortgage payments and other house costs. They also continued to live in the dwelling throughout the legal transitions.

    The CRA opined that despite the legal ownership changes, no beneficial ownership change occurred. Therefore, there was no taxable disposition.

    Action Item: Since the taxability of such a transaction is a matter of interpretation, caution should be taken when relying on such a position. Discuss your fact pattern with a professional and be sure to document appropriate support.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Read More
  • Holiday office hours
    Posted

    Our office will be closed during the holiday season starting at noon on December 23rd and reopening on January 4th, 2017.  On behalf of the Andrews team we wish you a wonderful holiday season and a happy new year!

    Our office will be closed during the holiday season starting at noon on December 23rd and reopening on January 4th, 2017.  On behalf of the Andrews team we wish you a wonderful holiday season and a happy new year!

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  • MUTUAL FUNDS: Corporate Class and Switch Funds
    Posted

    Mutual fund corporations have often been structured to permit changing funds within the group on a tax-free basis. These are commonly referred to as “switch funds” or “corporate-class funds”, and have become popular due to the ability to defer accumulated capital gains. Essentially, investors can switch funds without realizing dispositions and the related taxable capital gains.

    However, new legislation has been proposed to end these deferrals commencing with exchanges on or after January 1, 2017.

    Some exceptions exist, including switching between different series in the same class of shares representing the same underlying fund (for example, due to different commission or fee terms) and transactions where the underlying investment is unchanged, but shares are reorganized for other bona fide reasons (for example, changing voting rights or amalgamating funds).

    Action Item: Consider rebalancing switch fund portfolios by December 31, 2016.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Mutual fund corporations have often been structured to permit changing funds within the group on a tax-free basis. These are commonly referred to as “switch funds” or “corporate-class funds”, and have become popular due to the ability to defer accumulated capital gains. Essentially, investors can switch funds without realizing dispositions and the related taxable capital gains.

    However, new legislation has been proposed to end these deferrals commencing with exchanges on or after January 1, 2017.

    Some exceptions exist, including switching between different series in the same class of shares representing the same underlying fund (for example, due to different commission or fee terms) and transactions where the underlying investment is unchanged, but shares are reorganized for other bona fide reasons (for example, changing voting rights or amalgamating funds).

    Action Item: Consider rebalancing switch fund portfolios by December 31, 2016.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Read More
  • TOY MOUNTAIN 2016
    Posted

    Over the past couple weeks, our staff have been generously contributing to the Salvation Army’s Toy Mountain campaign.

    This year, staff went above and beyond to help make to total donation by the firm the biggest one yet!

    We are proud of the generosity shown by our staff and are looking forward to surpassing it next year.

     

     

    toy-mountain-1      toy-mountain-3

    toy-mountain-2

    Over the past couple weeks, our staff have been generously contributing to the Salvation Army’s Toy Mountain campaign.

    This year, staff went above and beyond to help make to total donation by the firm the biggest one yet!

    We are proud of the generosity shown by our staff and are looking forward to surpassing it next year.

     

     

    toy-mountain-1      toy-mountain-3

    toy-mountain-2

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  • REGISTERED EDUCATION SAVINGS PLAN (RESP): Distribution of Funds
    Posted

    Amounts paid out of an RESP may be taxable, non-taxable, or may trigger a repayment of Government support. The taxation status of a receipt depends on whether it is considered an Educational Assistance Payment, a Refund of Contributions, or an Accumulated Income Payment.

    Educational Assistance Payment (EAP) – An EAP is a taxable amount paid to a beneficiary (a student) from an RESP to help finance the cost of post-secondary education. An EAP consists of the Canada Education Savings Grant, the Canada Learning Bond, amounts paid under a provincial education savings program, and the earnings on the money saved in the RESP. The student includes the EAPs as income on their income tax return for the year the student receives them.

    Refund of Contributions – The promoter can return contributions tax-free to the subscriber or beneficiary when the contract ends, or, at any time before. These payments are not considered income to the recipient. That said, a refund of contributions may, in some cases, trigger a repayment of Government support.

    Accumulated Income Payments (AIP) – An AIP is an amount paid to the subscriber that relates to the income earned in an RESP. An AIP does not generally include: EAPs; payments to a designated educational institution in Canada; the refund of contributions to the subscriber or to the beneficiary; transfers to another RESP; or repayments under the Canada Education Savings Act or under a designated provincial program. An AIP is included in the income of the subscriber and is generally subject to an additional 20% tax rate, except where the amount is eligible for a rollover to another registered plan.

     

    Action Item: Consider the financial consequences, tax or otherwise, on withdrawing funds from an RESP.

     

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Amounts paid out of an RESP may be taxable, non-taxable, or may trigger a repayment of Government support. The taxation status of a receipt depends on whether it is considered an Educational Assistance Payment, a Refund of Contributions, or an Accumulated Income Payment.

    Educational Assistance Payment (EAP) – An EAP is a taxable amount paid to a beneficiary (a student) from an RESP to help finance the cost of post-secondary education. An EAP consists of the Canada Education Savings Grant, the Canada Learning Bond, amounts paid under a provincial education savings program, and the earnings on the money saved in the RESP. The student includes the EAPs as income on their income tax return for the year the student receives them.

    Refund of Contributions – The promoter can return contributions tax-free to the subscriber or beneficiary when the contract ends, or, at any time before. These payments are not considered income to the recipient. That said, a refund of contributions may, in some cases, trigger a repayment of Government support.

    Accumulated Income Payments (AIP) – An AIP is an amount paid to the subscriber that relates to the income earned in an RESP. An AIP does not generally include: EAPs; payments to a designated educational institution in Canada; the refund of contributions to the subscriber or to the beneficiary; transfers to another RESP; or repayments under the Canada Education Savings Act or under a designated provincial program. An AIP is included in the income of the subscriber and is generally subject to an additional 20% tax rate, except where the amount is eligible for a rollover to another registered plan.

     

    Action Item: Consider the financial consequences, tax or otherwise, on withdrawing funds from an RESP.

     

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

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  • CANADIAN INDUSTRY STATISTICS: How Do I Compare?
    Posted

    The Government of Canada provides analysis and detailed information on economic indicators using the most recent data from Statistics Canada on the website, www.ic.gc.ca/eic/site/cis-sic.nsf/eng/home

    This website can help small to medium sized businesses understand the dynamics of their industries. Users can focus on a single industry over time or compare one industry against another.

    Data is segregated based on the North American Industry Classification System (NAICS) code. Within each specific NAICS code is detailed financial performance data. Such data includes, for example, average gross margins, detailed breakdowns of expenses (e.g. repairs and maintenance, labour, professional and business fees) as a percentage of revenues, and certain financial ratios (e.g. current ratio, return on total assets).

    Action Item: Consider using this site to compare your costs as a percentage of revenues to other Canadian companies in your industry.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    The Government of Canada provides analysis and detailed information on economic indicators using the most recent data from Statistics Canada on the website, www.ic.gc.ca/eic/site/cis-sic.nsf/eng/home

    This website can help small to medium sized businesses understand the dynamics of their industries. Users can focus on a single industry over time or compare one industry against another.

    Data is segregated based on the North American Industry Classification System (NAICS) code. Within each specific NAICS code is detailed financial performance data. Such data includes, for example, average gross margins, detailed breakdowns of expenses (e.g. repairs and maintenance, labour, professional and business fees) as a percentage of revenues, and certain financial ratios (e.g. current ratio, return on total assets).

    Action Item: Consider using this site to compare your costs as a percentage of revenues to other Canadian companies in your industry.

     

     

    This publication is produced by Andrews & Co. as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors.

    Read More