Author: Jeff Kirshen

by Jeff Kirshen

CRA Collections and COVID-19

Given the unprecedented financial turmoil facing Canadians as a result of the COVID-19 Pandemic, on March 20^th 2020, the government of Canada announced a suspension of collection activities and the removal of certain legal action. The following will detail how the suspension of these activities will affect taxpayers, and the proactive ways in which Canadians can benefit.

 

Suspension of CRA Collections Activity

The Canada Revenue Agency has suspended debt collection due to the fallout from the COVID-19 outbreak.

The CRA has stopped collection on new debts “until further notice,” and said it will allow flexible payment arrangements. As per pre-existing debt obligations, the CRA has stated that collections staff will address pre-existing situations on a case-by-case basis to prevent financial hardship. For general information on the power and limits of the CRA collections, see our blog here.

The CRA has also stated that taxpayers prevented from making payments, filing returns on time, or complying with other tax obligations due to circumstances beyond their control “can submit a request to cancel penalties and interest.” This can be done via an application for Taxpayer Relief under the IC07-1R1 Taxpayer Relief Provisions. For more information on these provisions, and the CRA’s guidelines surrounding what constitutes Taxpayer Relief, see our blog on Taxpayer Relief found here.

With regards to payment plans, the CRA has arranged for payment plans to be available on a case by case basis in relation to the inability to pay taxes, child and family benefit overpayments, Canada Student Loans, or other government program overpayments in full. The Federal Government has already pushed back the income tax filing date to June 1,  and has allowed taxpayers who pay by instalments to delay their payments.

 

CRA Collections and COVID-19 – What Happens Next?

Canadian taxpayers have been given the unique opportunity to take proactive action and benefit from the suspension of CRA Collection’s activities. CRA Collections will be under tremendous pressure once the Pandemic has passed. There will be hundreds of thousands if not millions of Canadians who are now unable to pay their taxes. CRA Collections will have its hands full, to say the least.

That is why being proactive matters so much at this point in time. Here at Rosen Kirshen Tax Law, we are assisting our clients with working out a plan for repayment once CRA collections resumes regular operations. By having a plan of action ready, CRA collections will be much more willing to work with us and the taxpayer. The reason for this is because they will have a lot of files in their inventory, so if they can make a deal and move on, we think they will do so.

Ignoring your debt does not make it go away, even as CRA actions are suspended. In fact, it has never been more prudent to manage your affairs appropriately. It is very important that taxpayers act quickly and avoid long term financial or legal consequences which may arise when the CRA reintroduces debt collections.

Once the CRA reactivates debt collections, they will also begin charging interest compounded daily at the prescribed rate on any amount owing – until your balance is paid in full. Taking the time now to properly address your debt amount will avoid the accumulation of interest once the CRA’s pandemic protocol comes to an end. As well, properly organizing your financial affairs now, for future negotiations, will allow for a seamless process to ensure that no legal action is taken, or reinstated, once the CRA resumes their normal functions.

 

At Rosen Kirshen Tax Law, we have both lawyers and paralegals with years of experience negotiating directly with the CRA to resolve your tax debt and mitigate the legal consequences which may occur once CRA Collections is operating. If you have any questions about how the changes to CRA may affect you as a taxpayer, or questions about dealing with CRA Collections, please contact our firm for a free consultation.

In the meantime, we will continue to keep you informed and hope you and your families remain safe and healthy in these uncertain times.

 

**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 Jeff Kirshen

The Canada Emergency Response Benefit – What if CRA wants it back?

The Canada Emergency Response Benefit (CERB) has injected billions of dollars into the pockets of millions of Canadians, to help the country endure the COVID-19 pandemic. It is one of the most ambitious social welfare programs Canada has ever seen, and has certainly been a contributing factor in the country’s success in stopping the spread of the virus. Without the benefit, Canadians would be less likely to be able to pay their rent, stay in their homes and practice social distancing. Many would seek employment despite the virus to support their families. The CERB has provided some stability amidst great uncertainty.

 

Canada Emergency Response Benefit – Eligibility

It seems eligibility for the benefit has expanded every week. At first only those who lost their jobs due to COVID-19 were eligible after meeting other criteria. Then it was expanded to include those with reduced hours and pay. Students and seasonal workers struggling to find work were included after, followed by artists, farmers, and more. It is getting harder to know who is not eligible for the benefit anymore.

This is partly by design. In the current stage, the benefit’s eligibility has been set up as a catch-all system. Following the pandemic the government will take stock and determine who was not actually eligible. Therefore, determining eligibility today based on government statements and reports is difficult; they have not clarified the categories of persons who would be ineligible in recent weeks. Recently there are news reports of individuals that have been claiming the CERB when they are not eligible. While some are doing so intentionally, many are accidental, as the eligibility criteria for the CERB has become increasingly complicated over time.

We would like to help fill the gap. If you match any of the descriptions below, you are almost certainly not eligible for the CERB and may be penalized following the pandemic.

 

Fully Employed

If you are currently employed and are receiving the same salary as before the crisis, you are not eligible. The benefit is intended to help those that do not have a paycheque, or have seen their pay or hours sharply reduced. If you are employed and are making the same salary, then the CERB is not for you.

 

Voluntarily Unemployed

If you quit your job and are unemployed for reasons unrelated to COVID-19, you are not eligible for the CERB. One of the most important criteria for the CERB is that the need for assistance must be as a result of the pandemic. One cannot quit their job to take time off work, rest, take up a hobby, and then claim CERB. It is presumed that those individuals are not suffering from the lack of a paycheque because they already planned to live without earning a salary, and are therefore not in need of assistance.

 

Those who Receive Government Benefits and do not meet the Employment income threshold

Benefits received from the government prior to the pandemic do not count as part of your income calculation for determining if you earned enough to be eligible for the CERB ($5000 since Jan 1, 2019). The income calculation must incorporate employment or self-employment income. For example, someone living solely on disability would not be eligible, as they are already receiving support from the government. That individual’s source of income from the government has not been effected by COVID-19, so they are not eligible for CERB.

 

In essence, in determining your eligibility, the question that must be asked is whether your employment or income has genuinely been affected by the COVID-19 pandemic. If it has not, you are likely not eligible for the CERB.

 

What if I have received the Canada Emergency Response Benefit but I am not entitled to it?

If you are ineligible and received the CERB, the CRA will have grounds to investigate, audit, and assess you. Following an assessment the CRA will attempt to collect on the funds, plus interest and penalties. The interest and penalties accumulate quickly, and can transform into a minor debt into one that is much more substantial. The CRA could also pursue legal action in order to collect on the debt, such as garnishing wages or placing a lien on your property as security until the tax is paid.

 

If you are a CERB recipient but have doubts regarding your eligibility, please feel free to contact our firm for a free consultation. We have extensive experience managing CRA collections, and ensuring that no legal action takes place against you. We can assist in creating a plan of action in order to avoid the worst consequences of owing a debt to the CRA. We are here to help! In the meantime, we will continue to keep you informed and hope you and your families remain safe and healthy in these uncertain times!

 

*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 Jeff Kirshen

What is Considered Tax Evasion?

Tax evasion is where a taxpayer chooses to avoid paying their real tax liability, and either underpays or pays no taxes at all.

Tax avoidance and tax evasion both involve tax reduction arrangements. However:

• If the arrangement is consistent with the intent of the law then it is tax avoidance;
• If the arrangement is inconsistent with the intent of the law then it is tax evasion.

Tax evasion includes transactions that violate specific anti-avoidance provisions as well as situations where taxpayers reduce or eliminate tax through transactions that comply with the letter of the law but violate the intent of relevant provisions. The latter is done through the General Anti-Avoidance Rule (GAAR).

Tax evasion, unlike tax avoidance, has criminal consequences. Tax evaders face the possibility of prosecution in a criminal court.

 

What is the GAAR?

Under the Income Tax Act (ITA), Parliament passed the GAAR in order to allow the CRA to prosecute taxpayers who engage is tax evasion that does not violate the letter of the law but violates the intent behind the law.

The ITA states that a transaction that is found to be an “avoidance transaction” will result in a denial of the “tax benefit” that the person would have obtained if not for the GAAR.

In other words, the GAAR applies as a last resort when the existing laws do not explicitly already deny the transaction.

 

What is an Avoidance Transaction?

Since the GAAR allows the CRA to prosecute people who do not even violate the letter of the law, it is very important to know what sort of transactions could be considered an “avoidance transaction”.

An avoidance transaction will include both a single transaction or a series of transactions that would result, either directly or indirectly, in a tax benefit.

There is an exception if you can show that the transaction was undertaken primarily for purposes other than to obtain a tax benefit.

 

What kind of Transactions can be Included?

These transactions include:

1. Not filing tax returns;
2. Excluding sources of income from your returns;
3. Excluding amounts of income from your returns;
4. Attempting to receive income in a way that would allow the willful exclusion of that income from a tax return; or
5. Categorizing a transaction in a way that disguises the real purpose or benefit of the transaction.

 

What is a Tax Benefit?

It is also very important to know what sort of tax benefit can be included.

A tax benefit will include all of the following:

1. Reduction in taxes or other amount payable;
2. Avoidance of taxes or other amount payable;
3. Deferral of taxes or other amount payable; or
4. Increase in a refund of taxes or other amount.

 

How does the CRA investigate Tax Evasion?

For information on how the CRA investigates tax evasion please click here. This article outlines the difference between an audit and a criminal investigation, your rights when being investigated, what can trigger an investigation, and who is the most likely to be investigated.

 

What are the Penalties for Tax Evasion?

For information on the consequences that you could face if convicted of tax evasion, please click here. This article outlines the fines that you could face, along with possible jail time.

 

Can you correct past Tax Evasion?

If you failed to file taxes or made mistakes on your previous returns, and the CRA is not aware of this, you could try to apply to the Voluntary Disclosure Program. For more information on what the Voluntary Disclosure Program entails, please read our articles on the changes that the CRA made to the program. You can find part 1 and part 2 on our website.

 

If you think you have a CRA tax evasion issue, call us today! We can help! CRA tax evasion could result in fines, penalties, and even jail time. Hiring an experienced tax lawyer to navigate these issues for you is your best way of minimizing potential issues with the CRA.

 

**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 Jeff Kirshen

When Should a Tax Lawyer be Used?

For most, filing taxes and dealing with the Canada Revenue Agency (CRA) can be scary and confusing. Even for those who file their taxes on time and have nothing to hide, the CRA can often make mistakes that lead to unfair enforcement and tax litigation. As such, there may be various times when you may seek legal assistance to navigate your way through a variety of tax issues. We will outline below a non-exhaustive list of when it would be helpful to enlist the expertise of a qualified tax lawyer.

 

Tax Lawyers, Audits, Objections and the Tax Court of Canada

If you are being audited, this is your first chance to prove your filings are correct. Having a tax lawyer right at the start of your tax dispute will ensure your first opportunity to defend the way you’ve filed your tax returns is not wasted.

If you disagree with a CRA assessment or reassessment, you may dispute this through a Notice of Objection. You can do so by writing a letter to the Chief of Appeals at your tax services office, or by filing a T400A Objection form. The success of an Objection often depends on the level of detail and supporting documentation provided. A tax lawyer will be able to assess the validity of your Objection and ensure you follow through with it correctly. If the CRA does not accept the Objection, you may have the option to bring your case to the Tax Court of Canada.

If you are going to tax court, it is a good idea to have a tax lawyer to represent you and may even be necessary. Tax lawyers have been trained in the law and can navigate through the court system to best represent your interests. Similarly, a CRA tax evasion prosecution or prosecution for failure to file tax returns should only be defended by a tax lawyer. It is a tax battle that may end up in the criminal courts, and you want to ensure that you have the right representation. The lawyers at Rosen Kirshen Tax Law understand the ins and outs of the court system as they have litigated a number of cases with both the Tax Court of Canada and criminal court.

 

Tax Lawyers and Tax Residency

Canada taxes based on residency, which is different from the United States where they tax based on citizenship. What this means is that it is possible to pay no Canadian tax. That being said, Canadian taxpayers should ensure that they do this properly to avoid problems with the CRA in future. Tax lawyers are well versed in tax residency, and can best advise you on the proper steps to take to ensure that you are not required to pay Canadian taxes on your worldwide income.

 

Tax Lawyers and the Voluntary Disclosure Program

The Voluntary Disclosures Program (VDP) allows those who have either not filed their taxes, or made mistakes on previous filings, to come forward and correct these errors.

A voluntary disclosure starts with an application to the CRA requesting that you be allowed into the program. If your disclosure is not accepted, your tax returns will still be sent for processing, but you will be hit with major penalties, and interest charges, not to mention possible criminal charges.

Our tax law firm understands the principles of a voluntary disclosure and can assist you with this application, ensuring you meet all of the requirements so that your disclosure is accepted.

 

Tax Lawyers, Tax Debts and Taxpayer Relief Applications

Taxpayers may struggle to meet their tax obligations for a number of reasons beyond their control. Unfortunately, once you have been assessed or reassessed by the CRA, your tax debt may be due immediately and CRA collections may be breathing down your neck. Tax lawyers know the ins and outs of CRA collections, and are in the best position to assist taxpayers who are trying to get themselves on payment plans. Tax debts can also often lead to significant penalties and interest for those who are unable to make timely payments, thereby increasing an already hefty tax debt. Many people find that themselves in this situation and they may apply to the Taxpayer Relief Program to request relief in the form of waiving interest and penalties. An application for relief may be made by completing an RC4288 – Request for Taxpayer Relief.

While the CRA does provide this avenue for relief, relief is often denied to uniformed applicants who fail to meet the confusing CRA policies for relief. This is because each taxpayer relief application is considered on a case by case basis, by different individuals working out of different offices, and as such, there is often a lack of transparency and consistency by the CRA. Therefore, it may be useful to contact a professional who is familiar with the CRA’s administrative policies and procedures to give you the best chance for relief.

 

If you feel overwhelmed with your tax situation, you are not alone. The Toronto tax lawyers at Rosen Kirshen Tax Law have the expertise and experience to assist you in all tax related matters. Call us now for a free consultation!

 

**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 Jeff Kirshen

Canada and COVID-19: Rent Relief and Loans for Businesses

Last week the Canadian government took an additional step towards helping small business owners overcome the impact that COVID 19 is having on their enterprises. The latest assistance program announced by the federal government is being billed as a, “Rent Assistance Program for Businesses”. To ensure that the program will have a positive impact on as many Canadian business owners as possible, the announcement of the new scheme was accompanied by attestations from the Prime Minister that the federal government would be easing restrictions that may presently hinder small and medium sized businesses from accessing loans. Please see our tax blog for additional information on last week’s other Emergency Response updates.

 

Rent Relief – The Canada Emergency Commercial Rent Assistance Program

The Canada Emergency Commercial Rent Assistance Program will assist eligible small businesses with their rent payments for April, May, and June. The program will be administered in conjunction with the provinces and territories, who are typically responsible for overseeing the administration of commercial property in their respective locales. The crux of the program involves providing loans to commercial property loans, some of these will be forgivable in the future, to enable them to reduce or forgo the rent they charge to small businesses.

Tenants who have their rent deferred by their landlord may still input a tax credit even if they have not paid their rent. This makes it important for landlords to record deferrals properly, so as to make them legally binding, and thus the owner of the property will not be burdened by a GST/HST liability before they have received the rent for the property.

However, it is also worth noting that short-term accommodations to tenants will likely not impact a landlord’s GST/HST liability as the federal government has deferred the due date for any GST/HST owing until the 30^th of June 2020.

 

Forgivable Loans – The Canada Emergency Business Account

In addition, there will be expanded access to the Canada Emergency Business Account. This program is aimed to provide small and medium sized companies with loans of up to $40,000 in order to assist with keeping their businesses viable during the COVID 19 crises. As an additional method of assistance, if a company can pay the remaining balance of the loan by the end of 2022, up to $10,000 of the loan may be forgiven.

To qualify for a loan under this program, the company must demonstrate that they paid between $50,000 and 1,000,000 in payroll during their 2019 fiscal year. However, as part of the expanded access programs the eligibility is being extended to companies with a 2019 payroll between $20,000 and 1,500,000.

 

If you have any questions about how these programs above may affect you as a business owner, or questions about applying, contact our firm for a free consultation. We are here to help! In the meantime, we will continue to keep you informed and hope you and your families remain safe and healthy in these uncertain times!

 

*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 Jeff Kirshen

Canada Emergency Response Benefit Updates

On Wednesday, April 15, 2020, the Government of Canada announced that a greater number of Canadians will be eligible for the Canadian Emergency Response Benefit (CERB). The CERB provides $500 per week to Canadians for 16 weeks. In most cases, individuals can only apply for the benefit 14 days after their last paycheque. Applicants must re-apply every four weeks.

The government is actively seeking to fill the gaps created by the original eligibility criteria. The original requirements for qualifying for the CERB were the following:

• The applicant must be at least 15 years old;
• The applicant must have stopped working for reasons due to COVID-19;
• The applicant must have earned employment or self-employment income of at least $5,000 in 2019, or in the 12 months prior to the date of their application; and
• The applicant must not have quit their job voluntarily.

The most important expansion of CERB eligibility criteria is to permit those who make under $1000 per month to apply. This is to help those that are still working and making a paycheque, but at reduced hours. This adds some flexibility to the rule that applicants must wait 14 days since their last paycheque to apply. Now, even though an individual is still earning a salary, if it is under $1000 they can be eligible.

The criteria have also been expanded to include Employment Insurance (EI) exhaustees. If you have completed a claim of EI since January 1st, 2020, you will qualify for CERB. This is intended to help individuals who have not necessarily stopped working because of COVID-19, but are now finishing their EI and are unable to find employment because of COVID-19.

The expansion also benefits seasonal workers, who might use their EI in the off-season, and work in the warmer months. Now, as we approach summer, seasonal workers who cannot find employment due to COVID-19 are also eligible for the CERB.

Additionally, essential workers who are working full time but earn less than the CERB provides are going to get a wage boost. The federal and provincial governments are working together across the country to provide a top-up or wage boost for essential workers that are paid less than $500 per week. The details on this are not finalized yet, but it appears that the government is going to reconsider who are truly “essential workers”, and give them a wage supplement as compensation for working during this pandemic. We will provide further details on this as they become available.

The government has stated that if you select to receive the benefit as direct deposit, you should receive it within one business day. If you choose to receive the benefit by cheque, it can take up to five business days.

If a recipient receives a double-payment, there is no reason to worry. The government has stated they are tracking those cases and those individuals will just have to ration the larger benefit amount over a larger period of time. The government will not retrieve the additional funds. They will just stop providing additional payments once that recipient reaches the maximum benefit amount of $8000.

 

If you have any questions about how the taxable benefit above may affect you as a taxpayer, or questions about applying, contact our firm for a free consultation. We are here to help! In the meantime, we will continue to keep you informed and hope you and your families remain safe and healthy in these uncertain times!

 

*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 Jeff Kirshen

Navigating The Tax Court of Canada

The Tax Court of Canada is typically the third state in the dispute resolution process. First, an audit is initiated by the Canada Revenue Agency to take a look at a taxpayer’s past tax filings. Following the conclusion of the audit, taxpayer’s may file notices of objection stating they disagree with the audit results. After the notice of objection is reviewed and a new decision is made, taxpayer’s now normally file a notice of appeal in Tax Court.

However, the Tax Court of Canada may be the second stage as explained below:

1. Option 1: File a Notice of Appeal to the Tax Court after the CRA Appeals Division review your objection and issues a Notice of Confirmation or a Notice of Reassessment; or
2. Option 2: File a Notice of Appeal to the Tax Court before the CRA Appeals Division finishes reviewing your objection and before a Notice of Confirmation or a Notice of Reassessment is issued.

 

The Tax Court of Canada – Important Deadlines

There are deadlines that need to be met if you want to proceed with each approach described above:

1. In order to file a Notice of Appeal after a Notice of Confirmation or Notice of Reassessment has been issued, you need to file it within 90 days from when the Notice of Confirmation is issued. If you miss this deadline, you may still file a Notice of Appeal for another year, but an Extension Application will be needed.
2. In order to file a Notice of Appeal before a Notice of Confirmation has been issued, you need to wait 90 days after filing your objection before you can “bypass” the Appeals Division and file your Notice of Appeal to the Tax Court of Canada.

 

The Tax Court of Canada – Pros and Cons of the two Different Approaches

There are pros and cons to going through the CRA Appeals Division (Option 1) or bypassing the CRA Appeals Division (Option 2).

Option 1

• Pro:
  • May avoid Tax Court altogether, which will save you money since the preparation and the hearing itself can be expensive;
  • May narrow the issues if agreements are made on some of the items at issue; and
  • May be able to negotiate based on an agreement not to take the matter to the Tax Court of Canada.
• Con:
  • If the CRA denies your claim you will then still need to go to Tax Court and your dispute will therefore take longer than if you went straight to court;
  • May feel like a waste of time if no changes are made from the audit position; and
  • May cost additional fees if you’ve now paid for the objection stage, but still have to take the matter to the Tax Court of Canada.

Option 2

• Pro:
  • Get to the Tax Court of Canada faster by filing a Notice of Appeal as soon as possible;
  • If the matter is complex, it will likely proceed to the Tax Court of Canada anyway;
  • A quicker resolution is possible; and
  • Your dispute is reviewed by lawyers and judges with decades of experience in the field, instead of CRA agents who can have as little as a few months of experience in the field
• Con:
  • The Tax Court of Canada can be an expensive and long endeavour; and
  • By skipping the objection stage, you have given up one opportunity to fight the audit conclusions.

 

The Tax Court of Canada – Informal vs. General Procedure

When you file your Notice of Appeal, you can elect to proceed under the Informal Procedure instead of the General Procedure if you meet certain requirements:

1. The disputed amount of federal tax and penalties is not more than $25,000 per assessment (per taxation period);
2. The disputed loss is not more than $50,000 per determination; or
3. Interest on federal tax and on federal penalties is the only matter in dispute.

If you do not meet these criteria, you will have to proceed under the General Procedure.

The Informal procedure is usually quicker than the General Procedure, and the Tax Court of Canada is more flexible in their application of the rules of evidence. There are no litigation steps in an Informal procedure appeal, a notice of appeal is filed and the Department of Justice issues a Reply. The parties may then attempt settlement while waiting for a hearing date. In addition, you are not charged a filing fee for an appeal under the the Informal Procedure, but you must pay one under the General Procedure.

 

The Tax Court of Canada – Settlement 

It is important to note that settlement discussions may occur at any point throughout these proceedings. Typically, once a Notice of Appeal and Reply are filed, we recommend that the Appellant (taxpayer) prepare a settlement offer in order to begin settlement negotiations.

Most of the time, we encourage settlement as opposed to proceeding with the hearing, because a settlement will usually end the dispute much faster and hearings are often unpredictable whereas with a settlement you know exactly the terms that you are agreeing to.

 

If you are considering going to the Tax Court of Canada or are currently in the middle of a dispute in the Tax Court of Canada and want assistance, 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 Jeff Kirshen

Joint Bank Accounts, the CRA and Third-Party Liability

Section 160 of the Income Tax Act, and its counterpart, section 325 of the Excise Tax Act, gives the Canada Revenue Agency (CRA) broad powers to collect tax where an individual who owes money to the CRA transfers property either directly or indirectly to a spouse, common law partner or a person to whom he or she is not dealing at arm’s length. If you have received an item of value, transferred by an individual with a tax debt, the CRA can and will seize this item from you. The CRA justifies this seizure as the original tax debtor should not have made this transfer and should have instead used the proceeds to pay down their tax debt.

This creates third-party liability because the third-party is now in trouble with the CRA, and liable for the unpaid taxes of the first person. Where this causes serious confusion for many taxpayers, is if families have joint bank accounts. If a tax debtor is depositing funds into that joint bank account, does that mean the CRA can now take action against the other people in the bank account?

 

The CRA and Joint Bank Accounts – A Tax Court Example

White v The Queen, is a recent Tax Court of Canada (TCC) decision that sheds light on the limit of the CRA’s power when assessing third party liability based on deposits into joint bank accounts. This case raised the issue of whether the deposit of funds into a joint spousal account by one spouse constitutes a transfer of property for the purposes of section 160 of the Income Tax Act (ITA) and section 325 of Part IX of the Excise Tax Act (ETA).

Spouses, Mr. and Mrs. White, had been married for over 35 years and owned a joint bank account to pay for their personal and family expenses. Mrs. White used funds from the joint account to make mortgage payments for a home solely owned by her.

Mr. White co-owned a logging company with his brother. However, the company stopped carrying on business and the company assets were sold in 2006 due to a decline in British Columbia’s forestry industry. At the time the company ceased to carry on business, it had an outstanding GST and payroll debt. As a result, Mr. White was assessed with director’s liability for unremitted source deductions, penalties and interest under the ITA and ETA.

Later in 2013, Mr. White was able to find full time employment and deposited his earnings of $89,806.72 into the joint bank account for the period between March 2013 and March 2014. On March 1, 2016, Mrs. White was assessed under section 160 of the ITA and 325 of the ETA for the amounts transferred into the joint account from her husband. Mrs. White appealed this matter to the TCC.

In this case, the TCC found that Mr. White did not divest himself of the funds when he deposited them into the joint bank account. This is evidenced by the fact that he continued to have full access to the funds in the account and used the funds to pay his personal expenses and certain expenses of his family. The TCC further referenced a Federal Court of Appeal decision, Livingston v. R, and noted that the purpose of subsections 160(1) of the ITA and 325(1) of the ETA are to prevent the thwarting of tax owed to the Minister. The Court found that in no way did Mr. White defeat or hinder the Minister’s efforts to collect any tax he owed by placing his remuneration in the joint bank account, as the Minister could have pursued collections activity on money in the joint account at any time.

Therefore, the Court held that the transfer of money by Mr. White into the joint bank account did not constitute a transfer of property for the purposes of section 160 but did occur when Mrs. White later used the funds to pay off a mortgage on a home that she owned alone.

In this case the Crown admitted that the CRA made a blanket decision to include all funds in the joint bank account as transfers of property for the purposes of third-party liability, without conducting an analysis of the actual use of the funds. The Court made it clear that when reviewing a joint bank account for the purpose of issuing third-party liability, the CRA must limit liability to funds used for the benefit of the transferee.

 

Section 160, and Section 325 assessments are very technical, and normally require some professional assistance. If you are being threatened with a section 160 or section 325 assessment, you need to act quickly. Contact Rosen Kirshen Tax Law for an assessment of your options and see what we can do to help you!

 

**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 Jeff Kirshen

COVID-19 and Tax Planning Opportunities

There is no doubt that COVID-19 has caused havoc globally, negatively affecting almost every facet of our lives.  One often highlighted negative outcome has been the steep drop in stock prices as well as the decrease in property and business values.  However, in adversity there is opportunity.  Values of realty and stocks, and most likely your business, will recover over time.  The opportunity lies in the ability to use these temporary low values to pass on wealth to the next generation in a way that would not have been possible absent the decrease we are experiencing.  This will allow for the deferral or reduction in taxes on death, while passing on the soon-to-recover value to your heirs.

 

COVID-19 Tax Planning Example

Take this simple example.  Before COVID-19, Mr. X had a stock portfolio with a cost of $100,000 but worth $1,000,000.00, which would have grown to $2,000,000.00 in the next 10 years.  If an estate plan was put in place before COVID-19, Mr. X would have to pay, on death or during his lifetime, tax on $900,000.00 of capital gains on that portfolio, and his heirs would have inherited, over the next 10 years, $1,000,000 in value.  Assume that COVID-19 caused the value of the portfolio to Drop to $600,000.  If an estate plan is put in place at this point, Mr. X is only liable for capital gains of $500,000.00 while his heirs inherit $1,400,000.00 in value.  This is not including the dividend income from the stock portfolio.

 

In short, there are great tax planning opportunities available, tailored to a person’s of family’s unique circumstances. Give us a call today to learn more!

 

**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 Jeff Kirshen

EI Sickness Benefits and COVID-19

Given the financial uncertainty facing Canadians as a result of the COVID-19 Pandemic, on March 18, 2020, the government of Canada announced additional measures to help stabilize the economy as the fiscal impact of the Pandemic intensifies. For information on the new flexibility afforded to Canadian taxpayers please see our blog post form March 20^th 2020. For more information on the Canada Emergency Response Benefit, please see our previous blog post found here.

The government of Canada has revised their EI Sickness Benefit rules and a detailed discussion is found below.

 

EI Sickness Benefits and COVID-19

One of the most significant components of the March 18 announcement was the waiving of the one week waiting period for EI Sickness Benefits. These benefits are being changed to provide enhanced eligibility for:

1. Those who fall ill with COVID-19;
2. Are forced to isolate as a result of the illness; or
3. Those who must care for a loved one or dependant who becomes ill.

The removal of the waiting period is designed to provide immediate aid to those who would otherwise have to wait too long for these benefits to kick in. Without the ability to earn income, these people would be waiting for their EI benefits for too long during the current crisis. The measure has been deemed in effect from the 15^th of March 2020, onwards.

In addition to waiving the delay period to access the EI Sickness benefits, for those impacted by the COVID 19 crisis, the federal government is also waiving the need for a medical certificate to demonstrate eligibility for EI Sickness benefits. Normally one would need the medical certificate, but because of COVID-19, it is nearly impossible to retrieve one.

 

How to Access the EI Sickness Benefits

The EI Sickness benefits will become available to Canadians in April of 2020. We will post the link as soon as it becomes available.

Canadians will need to demonstrate their eligibility for relief and successful applicants will be required to re-demonstrate their continuing need for relief every two weeks. Once the application process is opened, Canadians will have access to the system through a toll-free phone call, their CRA MyAccount, or their My Service Canada Account. Those who presently lack access to these online accounts, who feel they may qualify for EI Sickness benefits or the Emergency Canada Benefit, should proactively sign up for these services. This will reduce any unexpected delay.

 

If you have any questions about how these taxable benefits above may affect you as a taxpayer, or questions about applying contact our firm for a free consultation. We are here to help during these trying times! In the meantime, we will continue to keep you informed and hope you and your families remain safe and healthy!

 

**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.