Author: Jason Rosen

by Jason Rosen

GST/HST and Crypto Currency Rules

If you use cryptocurrencies to pay for goods and services, then that is considered a barter transaction. What that means, is that the value received for a sale of goods or services in exchange for crypto assets should be the fair market value of that crypto asset.

Therefore for GST/HST purposes, if a taxable product or service is sold for cryptocurrency as payments, the value of the cryptocurrency on which the GST/HST is to be assessed is the fair market value of the cryptocurrency at the time of transaction.

 

GST/HST Rules – Crypto Currency

Generally, GST/HST is levied such that, while the recipient of a taxable supply is liable to pay the tax, the party that makes a taxable supply must collect the tax and remit it to the CRA. While its administrative policy is to pursue the supplier, the CRA has the right to assess the recipient directly.

Presently, and until further clarification of the law, the CRA’s general position regarding the GST/HST treatment of the use of cyptoassets/currency as payment is that vendors accepting crypto for payment are at minimal risk, but that purchasers paying with crypto are at risk of incurring potential GST/HST liability (CRA documents no. 2013-0514707I7, December 23, 2013).

 

Crypto Currency and Financial Instruments

So, if a taxpayer “supplies” crypto by using it as a method of payment, it is still uncertain as to whether that taxpayer be required to collect and remit GST/HST. The best argument for the position that the supplying taxpayer will be not be required to collect and remit is that crypto is “money” for the purposes of the Excise Tax Act (“ETA”). This means that, if supplies of crypto are considered supplies of money, they are therefore supplies of financial services, which are exempt from GST/HST. Furthermore, the ETA definition of “money” is broad and not limited to financial instruments issued by governments, which offers even greater potential for the definition of crypto for GST/HST purposes to fall within this scope.

A secondary argument for the position that the supplying taxpayer will be not be required to collect and remit is that crypto is that crypto suppliers are usually small suppliers (i.e., less than $30,000 of supplies to both crypto and normal goods and services). Crypto suppliers who are considered small suppliers would therefore not be engaged in a commercial activity.

Lastly, if the recipient of the crypto is a non-resident, then, generally, GST/HST would not be required to be collected and remitted.

 

Crypto Currency, GST/HST and Canadian Tax Policy

In essence, Canada is taking a reactionary approach as they are seeing individuals and particularly institutions opening up more to the idea of transacting with cryptocurrencies. Naturally, the increase in flow of money (through crypto) creates a tremendous amount of opportunities for tax avoidance and evasion.

The CRA issued a statement in June 2019 which solidifies their stance on crypto regulation. The government formally expressed its commitment to ensuring cryptocurrency is taxed in accordance with the law.

“Canadians should know that the Canada Revenue Agency is very active in pursuing cases of non-compliance, in order to make sure that the tax system is fair for everyone.”

 

If you have questions about the whether GST/HST applies to your crypto currency transactions, call us today! We are here to help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

The Taxation of Cryptocurrency

For the past decade, the rise of Bitcoin and other cryptocurrencies has taken Canadians by storm. However, through the lens of legal policy making, cryptocurrencies are still considered a relatively new phenomenon. That said, Canadian policy makers have recently taken a stronger stance in the regulation and monitoring of crypto purchases. This blog post seeks to summarize the general rules surrounding crypto currencies as well as the main changes Canadians should be aware of.

 

What are Crypto Currencies?

Generally, the Canada Revenue Agency (“CRA”) considers crypto currencies to be a taxable form of commodity equivalent to stocks and investments. It follows that any gains or losses arising from a taxpayer’s purchase and subsequent disposition of Crypto will be subject to tax.

Irrespective of whether the disposition is from crypto to fiat or coin to coin, the disposition constitutes a taxable event.

 

Capital Gains vs. Business Income?

Typically, the sale of cryptocurrencies would be categorized as a capital gain and result in only 50% of the gross capital gain being taxable. On the same “token”, this means that only 50% of any losses derived from the sale of crypto currencies would be considered a taxable capital loss. Furthermore, capital losses are “quarantined”, in that it can only be applied to offset capital gains and not other sources of income (such as from business nor employment).

However, in some circumstances, the CRA may determine that this trading activity constitutes income on account of business. When this happens, the proceeds of disposition arising from the transaction is captured in full (100%) and taxed accordingly. This usually occurs when the CRA determines that the taxpayer is actively trading crypto currencies or is in the business of speculating price changes of crypto currencies.

Other factors the CRA considers when determining if the taxpayer’s profit in selling crypto is capital or business income includes but not limited to:

• The intention of the Taxpayer;
• The length of time the crypto currency is held;
• The frequency in which the taxpayer buys/sells crypto currencies; and
• The taxpayer’s knowledge and expertise .

It is important to note that each case is very fact-dependent on the taxpayer, their trading activity and other material circumstances.

 

How do I Calculate my Gains and Losses?

Taxpayers must also be very attentive of the constantly changing adjusting cost base (“ACB”) of their crypto currencies. In short, ACB is the measure of what the taxpayer paid to receive the coins. Naturally, the ACB is subject to change then if the taxpayer purchases and sells their coins throughout the year at different prices.

The following example clarifies this concept. Suppose the following transactions occurred:

• Taxpayer purchased 1 coin of X for $100 on January 1^st;
• Taxpayer purchased an additional 1 coin of X for $200 on May 1^st;
• Taxpayer sold 1.5 coins of X for $300 on June 1^st; and
• Taxpayer purchased an additional 1 coin of X for $400 on August 1^st.

In this example, the Taxpayer’s ACB after transaction 1 would be $100. However, after transaction 2, the taxpayer’s ACB for coin X would increase to $150. As a result, the taxpayer’s proceeds from the disposition in transaction 3 would be $150 ($300 – $150). After transaction 4, the taxpayer’s ACB of coin X would rise to $275. This example assumes there are not transaction fees for each purchase and sale.

Taxpayer’s should also be aware that the ACB of each type of coin should be calculated and monitored. For instance, the cost basis of Bitcoin, Ethereum, Litecoin and others must be calculated separately and adjusted after each corresponding transaction. Intuitively, this is akin to calculating the ACB for different stocks. The ACB of a taxpayer’s Apple shares should not be affected by a subsequent purchase or sale of RBC shares or any other stock except Apple.

 

If you have questions about the taxation of crypto currencies, call us today! We are here to help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

Coinsquare and the CRA

On March 19, 2021, the Honourable Justice Pamel ordered CoinSquare, a major Canadian cryptocurrency exchange to provide a list of all Customer accounts, both active and inactive, either alone or jointly held with any other person(s) or business(es).

Customers are defined as the following:

• Accounts with a value of $20,000 CAD or more from December 31, 2014 to December 31, 2020;
• Customers who have cumulative deposits of $20,000 CAD or more since the account opening; and
• The 16,500 largest Customer accounts by trading volume in CAD dollars between 2014 and 2020, and if not already included, the 16,500 largest Customer accounts by number of trades between 2014 and 2020.

Additionally, the order also required CoinSquare to disclose the following:

• A detailed listing of all cryptocurrency and fiat currency transfers identifying the source and destination of all Customer’s deposits and withdrawals.
• A detailed listing of all trading activity of its Customers, including over the counter (OTC) or off-exchange trades and information indicating over-the-counter (OTC) or off-exchange trades and information indicating the trading pair, buy/sell order, date, time, amount, price per unit, fees, transaction identifier, which can include a list of all known cryptocurrency addresses that were, or may have been, used during the Period of its Customers, either alone or jointly with any other person(s) or business(es).

 

What Does this New Order Mean & How am I Affected?

In short, this new order means that Canadian policy makers are clamping down on taxpayers who are failing to properly report their assets, capital gains or income via crypto currencies. In effect, this will impact both taxpayers who both fail to report their crypto currencies intentionally or by accident. Many crypto trading platforms actively encourage their users to monitor and report their gains from crypto currencies. The CRA has broad powers to investigate and request information from both trading platforms such as CoinSquare as well as individual taxpayers.

If a taxpayer did not disclose their assets or gains from crypto currencies properly, they may still have a chance to come clean via the Voluntary Disclosure Program (“VDP”). You can read about our earliest post on the VDP here and here. Under the Canada Revenue Agency’s Voluntary Disclosure program, taxpayers can come forward to disclose past non-compliance, whether that be non-filing, over-claimed expenses, offshore reporting, or any of an almost limitless number of errors and omissions on Canadian taxes.

 

60 Day Order

CoinSquare has 60 days from receiving the March 19, 2021 order to comply and disclose the above-mentioned information. This will surely impact many taxpayers as the order means that CoinSquare will disclose information on approximately 5% to 10% of CoinSquare’s 400,000 customers to the CRA. More importantly, this may be a sign for further things to come as the CRA and Canadian policy makers actively seek to clamp down on non-compliance.

 

If you are having trouble navigating through the complex laws surrounding crypto currencies or need advice, contact a professional at Rosen Kirshen Tax Law today! We’re here to help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

 

Additional Resources

by Jason Rosen

T1135 Discretionary Penalties

Over the past decade, the Tax Court of Canada (TCC) has gradually carved a role for itself to decide whether to penalize Canadians who fail to file their Foreign Income Verification Statement (T1135 form) on time. A T1135 form must be filled out by any Canadian who, at any time during the year, owns foreign property valued at more than $100,000.00 CAD. Failure to file a T1135 form normally results in a strict penalty being levied against the taxpayer. A “strict” penalty is practically automatic; the circumstances that resulted in the late filing are not examined by the CRA when they’re applied.

 

T1135 Penalties and the Tax Court of Canada

The courts have gradually decided that there are circumstances where the strict T1135 penalty should not be applied. In Douglas v HMQ, 2012 TCC 73, the TCC accepted the Appellant’s argument that the penalty imposed under subsection 162(7) of the Income Tax Act should be waived for the late-filing of a T1135 form.

In that case, the Appellant knowingly filed his T1 income tax return along with his T1135 nine months late. He assumed that his failure to file on time would not attract a penalty as he did not owe any taxes for the year. However, the Minister imposed the maximum penalty of $2,500.00 for the late-filed T1135.

The TCC noted that the facts of that case justified such application to waive the T1135 penalty. The Court found that the Appellant acted reasonably in believing that there would be no penalty since no taxes were owing. Notwithstanding that subsection 162(7) imposes a strict penalty, the TCC held that it would be unfair to penalize the Appellant in these circumstances.

This decision suggests that a taxpayer may have recourse through the TCC for late-filed T1135 penalties when the taxpayer has exercised “all reasonable measures” to comply with the Income Tax Act.

In Fiset v R, 2017 TCC 63 (Informal Procedure), the Tax Court confirmed the judgement of the Court in Douglas. In that case, the Minister’s counsel (the CRA) decided to agree to cancel the penalties over the course of the proceedings. Justice Fournier stated that had the agreement not been reached, he would have done so himself. Justice Fournier explained:

“It is important to recognize that the Minister of National Revenue (or his delegate) has the discretion to waive any penalty or interest imposed under the Act (subsection 220(3.1)). This is a fairness provision. In my opinion, to insist that the appellant suffer the consequences of an honest mistake would neither benefit the public administration nor enhance confidence in the CRA.” (paragraph 10)

In other words, it is not the Act’s purpose to punish an individual who makes a reasonable mistake in good faith, nor would it generate greater confidence in the CRA. The fact that a Justice of the Tax Court of Canada is considering these appeals demonstrates that these matters are within their purview. Their impact on decisions from the Appeals Division of the CRA are less certain as Appeals Officers are not bound by Informal Procedure decisions.

 

T1135 Penalties and the Federal Court

In Biswal v Canada, 2017 FC 529, the Federal Court was not able to accept the Appellant’s use of Douglas because it found that it does not have similar jurisdiction of the Tax Court of Canada. This, in essence, confirms that matters of cancelling penalties can be within the jurisdiction of the Tax Court of Canada. The Federal Court judge even encouraged the Appellant to file an appeal to the Tax Court, to access the remedy that she sought.

 

T1135 Penalties and the Voluntary Disclosure Program

In Leclerc v R, 2010 TCC 99, the Court concluded that Canadians could not be expected to know that T1135 late filing penalties would only be waived by the CRA if they formally applied under its Voluntary Disclosure Program, since these information forms do not involve fraud or non-disclosure of income. The Court’s point in Leclerc was taken further in Moore v the Queen, 2019 TCC 141, where the Court criticized the Tax Guide available to taxpayers, and found that it is unreasonable to punish ordinary Canadians with penalties for honest mistakes.

The Court in Moore cited Leclerc, stating at paragraph 17, “Justice Favreau’s comments are also relevant to, and highlight, the fact that Mr. Moore may have voluntarily disclosed to CRA his late filing, but was unaware that would have had to be done under CRA’s formal voluntary Disclosure Program if he wanted to avoid coming to Court”. He proceeded to cancel the penalties imposed on the Appellant.

If you are considering a voluntary disclosure, please give us a call.

 

T1135 Discretionary Penalties

The evolving case law underscores the more active role that the Tax Court of Canada is taking in providing oversight for the CRA’s more severe penalties and procedures. The Court is chiefly interested in whether the taxpayer exercised due diligence in trying to meet their obligation to file a T1135.  While the Court admits that relief should be granted sparingly, it also seems quite willing to consider the remedy in a broad range of circumstances.

However, the Court’s newfound discretion has only been confirmed in judgements rendered under the Informal Procedure. It has not yet been heard in a proceeding under the General Procedure.

The distinction between these two Tax Court procedures is crucial. While officers in the CRA’s internal appeal process can consider judgements rendered through the Informal Procedure, they are only bound by ones rendered in the General Procedure. Until T1135 penalty cases are heard under the General Procedure, these new developments are less likely to have an impact on decisions made by officers in the CRA’s internal appeal process. This unfortunately means that Canadian taxpayers who are unfairly subject to T1135 penalties cannot benefit from the CRA’s internal appeal process; they will have to undergo a costly appeal to the Tax Court or pin their hopes on a taxpayer relief request.

 

If you have any questions about Form T1135, “Foreign Income Verification Statement”, or you are late filing it, or simply don’t know whether you need to file it or not, call us today! We can help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

How Real Estate Agents can Incorporate a Company

On October 1, 2020, the Real Estate and Broker’s Act includes regulations which permit the use of Personal Real Estate Corporations (PRECs).

Based on the regulations, PRECs must have the following attributes:

1. They must be incorporated under the Ontario Business Corporations Act;
2. They must have one controlling shareholder who owns all equity and voting shares;
3. The sole shareholder must be president, sole director and sole officer of the corporation;
4. The shareholder must be a registered broker;
5. Any non-equity (non-voting) shares must be owned directly or indirectly by family;
6. No agreement restricting the authority of directors to supervise the affairs of the corporation can exist; and
7. There must be an agreement governing the relationship between the broker (yourself), the PREC, and the brokerage. This agreement should also include clauses that prevent the PREC from hindering the provision of services of the broker on behalf of the brokerage.

After incorporating a PREC, for it to remain valid the agent must remain an associate of the brokerage and must have all remuneration flow through the PREC. There can be no advertising done by the PREC for provision of real estate services that are not supplied by the brokerage. Lastly, the broker is responsible for evaluating the legitimacy of a PREC before making payment to it.

 

Ownership Requirements in a PREC

The legislation requires that all the equity shares of the corporation be legally and beneficially owned, directly or indirectly, by the controlling shareholder. It is possible for a holding corporation to own equity shares of a PREC, legal advice should be sought to confirm the best structure for you.

It also states that all the non-equity shares must be owned directly or indirectly by a family member. A family member is a spouse, child, parent, or a trust for a minor child. Whether shares will be held directly or indirectly by the controlling shareholder or a family member is a business decision to be made by the registrant setting up the PREC. Of course, legal advice should be sought to ensure compliance with the law.

 

Tax Benefits for Real Estate Agents who Incorporate

The passing of Trust in Real Estate Services Act carries significant tax benefits for real estate agents who decide to incorporate. As real estate agents are sole proprietors, their businesses have been subject to the same marginal tax rates as the personal incomes of Ontarians. However, as a PREC, real estate agents will be able to enjoy the much lower Ontario small business tax rate, and potentially the Canadian Controlled Private Corporations tax rate. The incorporation route promises huge tax savings for real estate agents.

 

Reporting Requirements for Real Estate Corporations

Of course, with incorporation comes new challenges. Requirements for filing and record keeping for corporations are far more onerous than for individuals. There are also indirect taxes like employer health tax, WSIB, taxes for payroll and GST/HST on commissions that can add expenses. In essence, while the power to incorporate would give real estate agents far more power to file their income strategically and enjoy small business tax rates, it also requires a far more complicated tax filing process with more costly obligations.

 

If you are a real estate agent and would like to discuss the implications of incorporating your business in the near future, contact our firm for a free consultation. We are here to help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

Cryptocurrency Mining and the CRA

This tax season brings many hot topics, however one that carries a high degree of complexity is the taxation of cryptocurrency. As the cryptocurrency market rebounds, and Bitcoin surges towards $12,000-mark, Taxpayer’s should be weary of how they report their income, what counts as income, and what must be reported.

Specifically, a looming question is, does a taxpayer who mines cryptocurrency include the value of “mined” currency in income at the time it is received? For more information on cryptocurrencies and the CRA in general, please see our prior blog post on cryptocurrencies and the CRA.

 

Cryptocurrency Mining and the CRA

Cryptocurrencies are entirely decentralized and therefore exist separate from a central bank. With this decentralization comes a notoriety of security, and in modern times they are often used as a method of payment for goods and services. However, unlike traditional currency cryptocurrency must be mined.  

The mining of these cryptocurrencies is a very complex and digitally demanding matter. It requires the use highly specialized computers which must solve intricate mathematical problems. Upon the solution of these problems, the cryptocurrency transactions are complete, and the digital version of a currency is mined. Miners then group cryptocurrency transactions into blocks and try to guess a number that will create a valid block. A valid block is accepted by the corresponding cryptocurrency’s network and becomes part of a public ledger, known as a blockchain. By mining, a miner is monitoring and validating transactions occurring on the network.

Successful miners will receive two types of payments. One payment represents the creation of new cryptocurrency on the network and the other payment represents the fees from transactions included in the newly validated block. Both types of payments should be disclosed on the taxpayer’s returns.

 

Cryptocurrency Mining and the CRA – How is it Taxed?

Ultimately for taxation purposes, if you perform the mining processes, you are paid with the cryptocurrency you are validating. In the CRA’s view, this is a barter transaction.

A barter transaction occurs when two parties agree to exchange goods or services and carry out that exchange without using legal tender. Cryptocurrencies are not legal tender, therefore, when a cryptocurrency is used to pay for, or is received as payment for, goods or services, this is treated as a barter transaction. Thus, if you or your corporation are in the business of mining cryptocurrency, the currency received must be included as income at the time it is earned under section 3 and section 9 of the Income Tax Act.

As a result, taxpayers who receive cryptocurrency as proceeds from their mining activities, must bring into income the value of the services rendered or the value of the cryptocurrency received. The value to be included depends on whichever is more readily valued. In most cases, this should be the value of the cryptocurrency received and this is the amount to be brought into income. 

 

If you have ever been involved with mining of cryptocurrencies or cryptocurrency transactions in general, and are being audited by the CRA or have questions, contact our office today. As well, if you believe you have not properly disclosed this income on your tax returns in the past, the Voluntary Disclosures Program may be available to correct your past errors or omissions. Call us today, we can help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

What is an Allowable Business Investment Loss?

When a capital loss satisfies certain criteria, it can be reported to the CRA as an Allowable Business Investment Loss (“ABIL”), which is subject to preferential tax treatment.

For a loss to be an “allowable business investment loss”, it first must be a “business investment loss”. An ABIL is simply the portion of a business investment loss that is deductible (thus the word “allowable” in ABIL). Of your total business investment losses of tax year, 50% qualify as ABILs and are therefore deductible. However, unlike other sources of income like capital gains which can only be applied to reduce capital losses, the Canadian tax authorities have decided to give taxpayers greater privileges when applying ABILs.

 For instance, taxpayers can apply ABILs to any source of income, to reduce their overall taxable income. If your ABIL is higher than your income, you could effectively reduce your income to zero and pay no income tax for that year. Additionally, if you have ABILs that you do not wish to apply to your income earned this year, it can optionally be carried back three years or forward ten years to offset any amount of income from any source in those years.

 

What are the Requirements to claim an ABIL?

There are four questions taxpayers must ask themselves before determining whether their capital loss qualifies as an ABIL:

1. Did the Taxpayer invest in shares or debt of a Corporation?

 The taxpayer would have had to purchase shares or have made a loan to a corporation.

 

2. Has the debt been established to be a bad debt?

 A “bad debt” is an expense owed to a creditor that is unlikely to be paid. For a debt to be claimable as an ABIL, it must be a bad debt; uncollectible.

 

3. Was the property issued by a “Small Business Corporation”?

An ABIL can only be claimed on a loss from a stock in a small business corporation (“SBC”) or a debt owing to the taxpayer by an SBC. Meeting the definition of an SBC in Section 248 of the ITA is an important element of an ABIL claim:

• It must be a Canadian-controlled private corporation (“CCPC”)
• All or substantially all of the fair market value of the assets is carried on primarily in Canada

 

4. Was the property acquired for the purpose of earning income?

The investment must have been made to an active business. Taxpayers are sometimes faced with the argument that the business was not being carried on because it never commenced or because it had already ceased. The question comes down to whether the taxpayer can prove they were investing in a business that was active; that it had indicia of an active business. Indicia can include an organizational structure, employees, market research, cost benefit analysis, etc.

 

Are there any Limitations to Claiming an ABIL?

The amount of ABIL you can claim is reduced by the amount you have previously claimed under the lifetime capital gains deduction. The capital gains exemption has a top limit, exempting you from paying tax on the first $424,126.00 (as of 2018) of taxable capital gains (half of $848,252.00 in capital gains) in your lifetime. If your capital gains exempt income from the past in addition to your ABIL reach that threshold, then the remainder can only be used to reduce capital gains.

 

If you have questions about the above, have attempted to claim a business investment loss, or an allowable business investment loss and the Canada Revenue Agency is auditing your loss claim, give us a call today to see how we can help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

Edge Highshare Updates and Recent Correspondence

This blog will provide those who purchased a Franchise in any year with an update in respect of our ongoing Edge related dispute with the CRA. If you require an overview of the Edge program dispute in general please review our previous Edge Highshare Blog.

Below, please find a summary for the stage of the dispute resolution process that each franchise year is currently in, along with what will be happening in the near future.

 

2012 Franchisees

Some Franchisees, who invested in this year, are already in Tax Court. However, others are a few months into the appeals process but have elected to hold their position in order to join the 2013 Franchisees, which consists of a much larger group and allows us to split fees amongst more people.

If you are in the appeals process and looking to join our group for tax court, please contact Rosen Kirshen Tax Law.

 

2013 Franchisees

If you are a 2013 Franchisee, the CRA’s review of your previously submitted objection representations will take a significant amount of time.

It is our understanding that the completion of this dispute could take years to complete at the CRA appeals division (similar to the 4-5 years consumed by Audit). As well, the CRA has advised that they have not yet designated a team of appeal officers to focus on the Edge/Highshare matter.

As such it is our recommendation that franchisees in this predicament proceed straight to Tax Court.

 

2014 Franchisees

The CRA’s audit of the 2014 Franchisees has been completed for all of our clients. They have received final letters which outline the adjustments that the audit division made to their previous returns. After the CRA issues a final audit letter, a notice of reassessment for each taxation year will be issued creating the alleged tax liability, some of our clients have already received these reassessments.

Once these reassessments are issued, we can proceed to either:

(a) file a Notice of Objection and remain in the queue at CRA; or

(b) file a Notice Objection to start the 91-day clock allowing us to by-pass the anticipated delay inherent with the CRA appeals process and proceed to defend our position in the Tax Court.

As with the 2013 Franchisees, it is our recommendation that franchisees at this junction bypass CRA appeals and proceed to Tax Court. Furthermore, the CRA has not provided personalized audit responses but rather grouped their position into one final letter applicable to all of our clients. This blatant disregard for the taxpayer’s rights solidifies our recommendation of disputing these matters in Tax Court.

 

2015 Franchisees

The audit of 2015 Franchisees has begun. Many of our clients have received proposal letters already. This outlines the adjustments that the CRA is intending to make along with a brief explanation of their ill-founded reasons.

The deadline to respond to the proposal letters is usually 30 days from when they are issued. However, we have a working relationship with the designated team and they have afforded us the opportunity to negotiate extensions. If you have received an audit proposal letter from the CRA for your 2015 Franchise do not hesitate contact Rosen Kirshen Tax Law for assistance.

Moving forward, we anticipate the CRA will not issue a final audit position for several months. This is because, following the final audit letter being issued, it will likely take them several weeks to process the results and issue a Notice of Reassessment.

 

If you have bought into the Edge/Highshare franchise agreements, and are being audited by the CRA, contact our office today. Call us today for more information about this potential action and about how we can help.

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

When You Need A Tax Lawyer vs. When You Need An Accountant

There are clear distinctions to be made between tax lawyers and accountants.  Understanding these differences will make it easier to decide what you are in need of.  

The most important distinction is between legal tax issues and non-legal tax procedures.  For example, if you want to file an objection to a Notice of Reassessment, you will want to solicit the skills of a lawyer.  It is within the practical knowledge of a tax lawyer to be consulted on any legal procedures appropriate to your position, whether it’s individual audit issues, company tax claims, tax planning structures, will drafting, tax appeals, or tax opinion letters to back up your case.  In these situations – and many more – an individual has a legal avenue to challenge what they deem to be incorrect tax assessment from the CRA.  An accountant simply does not have the depth of training a tax lawyer does to navigate the complex judicial system on your behalf.  

On the other hand, if have questions about filing a tax return, accountants are the ones to work with.  Accountants are trained to deal with all manner of paperwork pertaining to tax returns.  Accountants will help ensure you file all income, expenses, investments, and other costs pertaining to your financial state.  Unlike a tax lawyer, whose job it is to interpret the complexities of tax law, accountants strictly follow the law and manage the practical side of income tax filing for their clients.  

Overlap does exist between a lawyer and accountant, particularly in the realm of tax audits.  Both professionals are trained in dealing with the completion of tax audits.  However, if you are subject to a CRA audit, your best option is to work with a tax lawyer because they are trained in legal interpretation as well as proper filing of paperwork pertaining to an audit.  

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jason Rosen

Can I File An Income Tax Objection?

If you feel as though the CRA has not interpreted the law correctly in their tax audit, it is within your rights to challenge it through the Income Tax Objection process.  An objection of an audit can be filed either online at your ‘My Account’ portal on the CRA website, or by mail.  There are three levels of complexity objections, ranging from low (individual tax credits, Disability Tax Credit), medium (business expenses), to high (international business transactions).  A tax lawyer will be able to assess the validity of your objection and ensure you follow through with it correctly, no matter what category of objection you fall under.

You must be careful to follow the guidelines for each specific tax bracket, as the procedure is different for an individual or business account.  For example, an individual or a corporation can file an objection on whichever date is later: one year following the deadline of the tax return itself, or 90 days following the Notice of Assessment being sent.

It is also imperative that your objection is specific.  Provide clear details about what part of your tax return has been interpreted incorrectly in the audit, as well as documents to support your claim.  You might, for example, claim that the expenses the CRA disallowed were actually legitimate expenses and should thus not be taxed.  In any case, the documents must show conclusively that you were either guilty of an honest mistake or the CRA simply miss-understood your financial movements as a violation of Canadian tax law.  A firm grounding in either of these camps is usually enough to convince the CRA that you were in the wrong – but a tax lawyer is needed to get you there.  

If the CRA does not accept the objection, you still have an option: discuss the logistics with your tax lawyer and bring your case to the Tax Court of Canada.

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.