Tax

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.

by Jeff Kirshen

What is the Canada Emergency Response Benefit?

On Wednesday March 25, 2020, the Government of Canada announced further measures to help protect Canadians and the economy from the continuing impact of the Covid-19 pandemic. Please see our previous blog post from March 20^th, for general information on the Government of Canada’s action plan.

The announcement included the creation of the Canada Emergency Response Benefit (“CERB”). This taxable benefit will provide $2,000 per month, for up to four months, to workers who have lost their income as a result of Covid-19. Once the application is approved, the CERB will be paid every four weeks and be available from March 15, 2020 to October 3, 2020.

 

How do I Access the Canada Emergency Response Benefit?

The Canada Emergency Response Benefit will be accessible through a secure web portal starting in early April. The website itself has not yet been unveiled. Once it is up and running, it is meant to provide easy access for all taxpayers. Money will be paid out with in 10 days of applying. The CERB is meant to streamline two previously announced benefits, The Emergency Care Benefit and the Emergency Support Benefit, into one plan.

As soon as the website is up and running, it will be added to this Blog. Check back regularly for updates.

 

Will I be Eligible for the Canada Emergency Response Benefit?

The Canada Emergency Response Benefit covers all Canadians who have lost their job, are sick, quarantined, or are taking care of someone who is sick or at home because of school/daycare closures. The CERB covers not only wage earners or employees, but also contract and self-employed individuals who would not otherwise be eligible for Employment Insurance. The CERB would also extend to workers who are still employed but not receiving income due to work disruption caused by Covid-19.

For a detailed listing of who is covered, please see the CRA website found here.

Canadians already receiving employment insurance ought to continue and not apply for this new benefit. Once the employment insurance benefits cease, as long as it is before October 3, 2020 those individuals will be able to apply for the CERB.

 

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 the articles. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

The Canada Revenue Agency Response to COVID-19

In order to alleviate the burden of the ongoing COVID-19 crisis on Canadians, the Federal Government of Canada has introduced changes to the Canada Revenue Agency (CRA) processes and extended the tax calendar for this upcoming tax season. The changes affect all taxpayers, and hopefully will have the effect of relieving some of the stress of the current circumstances.

 

CRA and COVID-19 Personal Tax Changes

The following changes are relevant for individual taxpayers:

1. The filing due date for 2019 tax returns of individuals have been deferred until June 1^st, 2020. However, the CRA encourages individuals who receive benefits under the GSTC or the Canada Child Benefit not to delay the filing of their return if possible. This is to ensure that their entitlements for the 2020-2021 benefit year are properly calculated.
2. The filing date for Trusts with a taxation year ending of December 31 2019 will be postponed until May 1, 2020.
3. Taxpayers are allowed to defer the payment of any income tax amounts that become payable between March 18 and September 2020 until after August 31, 2020. This applies to all balances due, including any instalments. No interest and penalties will apply.
4. The CRA will recognize electronic signatures as having met the signature requirements of the Income Tax Act, effective immediately. Usually, taxpayers are required to sign their tax returns by hand. In an effort to reduce the amount of person-to-person contact between taxpayers and their tax-preparers or accountants, they are now allowing electronic signatures instead.

 

CRA and COVID-19 Corporate Tax Changes

The following changes are relevant for businesses:

5. Similar to individuals, the CRA is allowing businesses to defer the payment of any income amounts that become payable between March 18 and September 2020 until after August 31, 2020. This applies to all balances due, including any instalments. No interest or penalties will accumulate on these amounts owing during this period.
6. The CRA will not contact any small or medium business to initiate any income tax or GST/HST audit for the next four weeks, starting March 18, 2020. Additionally, for the vast majority of businesses, the CRA will suspend audit interaction between CRA agents and taxpayers.

 

CRA and COVID-19 – Collections

Rosen Kirshen Tax Law has successfully negotiated the removal of the vast majority of the legal action taken against our clients. CRA understands that now is not the time to garnish wages, freeze bank accounts or take additional action against taxpayers. If CRA has taken legal action against you, call us to see if we can help get it removed ASAP.

 

CRA and COVID-19 – Situation Moving Forward

If the situation continues to worsen, we expect the CRA to continue loosening its rules and regulations. More importantly, the CRA will likely begin offering credits and benefits that were not necessarily available before the crisis in order to alleviate the financial burden of the COVID-19 pandemic. We will be sure to keep you updated on any changes that could ultimately lower your amount owing.

If you have any questions about how the changes above may affect you as a taxpayer or small-to-medium size business owner, contact our firm for a free consultation. We are here to help! In the meantime, we want to wish everyone a safe and healthy quarantine / self-isolation period. We are truly fortunate to be in Canada during this crisis, where from our government, to our neighbours, we all take it upon ourselves to ensure the well-being of those around us. Let’s get through this together.

 

**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 are the CRA Requirements for Record Keeping?

The Canada Revenue Agency (CRA) requires individual and corporate taxpayers to keep their records in case they are audited, or if the CRA wants a taxpayer to justify their income and / or expenses in another way.

 

CRA Requirements for Record Keeping – Where do I keep my Records?

Unless you have permission from the CRA, you must keep your records at your place of business or your residence in Canada.

Records that are kept outside of Canada and accessed electronically from inside Canada are not considered to be records kept in Canada.

In order to get permission to keep your records elsewhere, you must write to your  tax services office. If you are granted permission, you must make your records available upon request for review by the CRA in Canada.

The CRA will not give permission to keep records outside of Canada to the following:

• Registered charities;
• Registered Canadian amateur athletic associations;
• Canadian municipalities;
• Public bodies performing a function of government; and
• Housing corporations resident of Canada and exempt from tax under Part 1 of the Income Tax Act.

The CRA could give you permission to store your electronic records outside of Canada. If so, the CRA may accept copies if:

• The CRA is satisfied that the copies of the records are true copies;
• They are made available to CRA officials in Canada in an electronic format readable by CRA software; and
• They show enough details to support the returns filed with the CRA.

 

CRA Requirements for Record Keeping – How Long Do I need to Keep my Records?

In general, you must keep all records and supporting documentation for a period of 6 years from the end of the last tax year they relate to. The tax year will be the fiscal period for corporations and the calendar year for individuals.

The 6 year rule applies to the following legislations:

• The Income Tax Act;
• The Excise Tax Act (includes the GST/HST);
• The Employment Insurance Act;
• The Canada Pension Plan;
• The Excise Act, 2001; and
• The Air Travellers Security Charge Act.

However, there are times when you must keep your record for longer. Some of these include:

• If you file an income tax return late, you must keep your records for 6 years from the date you file that return;
• If you have not filed a GST/HST return for a reporting period that ended more than 6 years ago, you are still required to file the return and retain the records to support the amounts reported on the return;
• If you filed an objection or an appeal, you must keep all necessary records until the latest of the following dates:
  • The date the objection or appeal is resolved;
  • The date for filing any further appeal has passed;
  • The six-year record keeping period has passed;
• When a corporation is dissolved, it must keep the following records for 2 years after the date of its dissolution:
  • All records and supporting documents to verify its tax obligations and entitlements;
  • All other records that corporations have to keep;
• When you are the legal representative of a deceased taxpayer or trust, you can destroy the records after receiving a clearance certificate(s) to distribute property under your control.

 

CRA Requirements for Record Keeping – Am I allowed to Destroy my Records?

In order to destroy your records prior to the expiration of the mandatory period, you must get written permission from the CRA.

To obtain this permission, you or your authorized representative can:

• Complete Form T137, Request for Destruction of Records and;
• Apply in writing to your  tax services office.

It is important to note that the CRA is not authorized to approve the destruction of records that you must keep under other federal, provincial, territories, or municipal laws.

If your records were destroyed due to a disaster, you need to contact the CRA to advise them of this.

 

If you are unsure about how long you are required to keep your records, or if the CRA is reviewing or auditing you or your business 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

What is the Non-Resident Speculation Tax?

The Non-Resident Speculation Tax (NRST) is a 15 percent tax imposed on the purchase or acquisition of a residential property located in the following communities: Brant, Dufferin, Durham, Haldimand, Halton, Niagara North, Niagara South, Northumberland, Peel, Peterborough, Simcoe, Toronto, Victoria, Wellington, Wentworth, and York. These communities comprise what is known as the Greater Golden Horseshoe Region (GGH). This tax only applies to purchasers that are (1) foreign nationals, (2) foreign corporations, and/or (3) taxable trustees. The tax does not apply to Canadian permanent residents.

The NRST applies to residential properties containing at least one, but not more than six, single family residence(s). Examples of single-family residences include fully detached homes, semi-detached homes, townhouses, condominiums, and apartment units. Examples of residential properties containing more than one family residence include duplexes, triplexes, fourplexes, etc. For more general information and frequently asked questions about the NRST, please the consult the Ministry of Finance Bulletin.

 

What is the Purpose of the Non-Resident Speculation Tax?

The real estate market in Ontario for the last several years has been characterized by significant price increases for residential homes. The purpose of the NRST was to adjust the real estate market in Ontario and provide affordable housing by discouraging foreign speculators and purchasers of residential real estate in the GGH area.

 

Am I Liable for the the Non-Resident Speculation Tax?

This tax is relatively new, and was introduced in April of 2017, which means if you purchased a property on or before April 20, 2017 and did not assign it to another person after April 20, 2017, you are not subject to the NRST.

 

How Can I get a Refund of the Non-Resident Speculation Tax?

There are three situations where a rebate may be available:

• becoming a permanent resident within four years of purchasing your property;
• having a work permanent for at least a year from the purchase of the property; or
• being a full-time student for at least two years after the purchase of the property.

You will still be required to pay the tax upon purchase or acquisition, but you may seek a rebate at a later late. No application may be made more than four years and 90 days from the date the NRST became payable. To qualify for a rebate, the foreign national must exclusively hold the property, or hold the property exclusively with his or her spouse. All rebate applications must be made using the Ontario Land Transfer Tax Refund/Rebate form for NRST. Supporting documentation will be required to substantiate all applications for rebates.

In accordance with the NRST, the law now requires purchasers to disclose information to the government regarding their residency, citizenship, and intentions for the purchased property. Incorrectly disclosing a purchaser’s residency can result in monetary penalties and/or tax assessments. When seeking to purchase real estate in international markets, it is imperative to seek advice from local professionals. Non-resident buyers need to understand whether the NRST is applicable to their purchase.

 

If you have paid the NRST, and are looking to apply for a rebate, give us a call for a free consultation to make sure you are getting the right legal representation!

 

**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

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 Jeff Kirshen

The CRA and Employment Agency Audits

Recently, the Canada Revenue Agency has created a group project auditing employment agencies located in Ontario, Canada. These audits typically encompass every year of operation for the employment agency. The CRA believes that these agencies have been apart of a group that has been claiming Input Tax Credits fraudulently. The CRA refers to this as a sham issue, which will be discussed below.

 

The CRA and the So Called Sham

A transaction is considered a “sham” for tax purposes where a transaction is conducted with an element of deceit as to create an illusion that leads the tax authorities away from the true nature of the transaction. A very common example of a sham is when there is collusion between parties that are intentionally creating the appearance that they are working at arms-length. Parties might do so to confer benefits upon themselves or related parties that avoid the imposition of additional tax. The CRA and the courts consider the participation in a sham to be tax abuse, and the CRA pursues suspected cases of tax abuse very diligently.

 

Employment Agencies and the Sham

In recent audits, the CRA has alleged that a group of labour-supply companies (employment agencies) are involved in a sham and have denied all their Input Tax Credits (ITCs). Customers would hire these labour companies (employment agencies) to provide cheap workers to fit their needs. If the task required lower skilled labour, the labour companies (employment agencies) would hire a subcontractor to provide the workers, and act as a middle-party. On their tax returns, the labour companies (employment agencies) would expense the cost of hiring the subcontractors and claim ITCs on their GST/HST returns.

The CRA alleges that this business structure is a sham. The CRA alleges the existence of a sham by claiming that the labour-supply companies (employment agencies) created the subcontractors themselves. The CRA believes that the subcontractors do not exist; that the labour supply companies (employment agencies) are providing their own workers to their customers, are cutting cheques to themselves but claiming they were to subcontractors, and are claiming to have hired subcontractors in order to write off ITCs.

 

Why Does the CRA think this is a Sham?

The CRA started investigating the existence of a sham when they were unable to contact any representatives of the subcontractors using the phone numbers and addresses on the invoices issued to the labour supply companies under audit. While the subcontractors have business numbers, GST numbers, and articles of incorporation, their tax-filing history was non-existent.

Basically, because the CRA was not getting the GST/HST collected by these subcontractors, they decided to audit the companies paying the subcontractors.

 

The CRA has now proceeded to deny hundreds of thousands of dollars, even millions, in ITCs of the numerous labour-supply companies (employment agencies) that they allege are involved in a sham. If you are a business owner and are accused of being involved in a sham by the CRA, 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 Jeff Kirshen

Tax Evasion and the CRA

Tax evasion includes intentionally reporting income inaccurately, underpaying or completely ignoring tax debt, claiming tax credits to which you are not rightfully entitled, and falsifying records or supporting documents. Importantly, tax evasion is a crime and the consequences can be severe.

 

An Audit Vs. A Criminal Investigation

The Canada Revenue Agency (CRA) conducts audits to ensure that Taxpayers are not abusing the self-reporting system. CRA powers of investigation for an audit are far reaching and broad, including the ability to inspect and examine documents and property of the Taxpayer, enter any premises and require the production of documents and information.

Criminal investigations must be pursued within the limits of the Charter of Rights and Freedoms, specifically section &, which is the right to life, liberty, and security of the person. If an audit turns into a criminal investigation the Taxpayer is entitled to additional protections. This is why it is important to know when an audit becomes a criminal investigation.

 

Tax Evasion – What are My Rights?

According to the Supreme Court of Canada (SCC) in R v. Jarvis, “there must be some measure of separation between the audit and investigative functions” of the CRA. When the purpose of an investigation is to determine criminal liability, an “adversarial relationship”. When a tax official exercises his or her investigative function, the parties are in an adversarial relationship because of the liberty interest that is at stake. When the predominant purpose of an inquiry is the determination of criminal liability, the Charter of Rights and Freedoms is applicable and all of the protections in the criminal context apply and prohibit tax officials from relying on their “powerful inspection and requirement tools.” Unlike an audit that is based on cooperation, the CRA is required to get a warrant to view the Taxpayer’s information and documents.

 

Tax Evasion – What Normally Triggers a Criminal Investigation?

According to the CRA, the following are sources of information that may result in the opening of a criminal investigation:

• Internal referrals within the CRA, including audit programs;
• Tips from individuals through the CRA informant leads program;
• Information from various law enforcement agencies; and
• Publicly available sources of information such as media articles.

 

Tax Evasion – Am I at Risk of Investigation?

However, not all files trigger a criminal investigation. For instance, a file is typically selected for examination based on the extent of the alleged offence, as well as the likelihood of securing a conviction and the availability of evidence.

The CRA’s Criminal Investigations Program (CIP) places priority on the following types of cases:

• Individuals or businesses that not only fail to report their own income, but also promote others to participate in organized tax schemes aimed at defrauding the government;
• Joint investigations with other enforcement agencies, including cases of tax evasion involving money laundering and terrorist financing;
• Major cases involving income tax and/or GST/HST tax evasion, including the underground economy; and
• Substantial cases of tax evasion with an international element.

Hiding money in foreign jurisdictions is also classified as tax evasion. Canadians are required to report their worldwide income to the CRA and hiding offshore assets may be considered a crime. As such, if you have any foreign assets, you may want to complete a Form T1135, Foreign Income Verification Statement, by the filing due date of your income tax return. Or, if you have failed to include foreign assets in previous years, you may consider applying through the Voluntary Disclosures Program.

 

Tax Evasion, the CRA, and the Consequences

If you are convicted, there can be serious penalties and fines associated with the conviction. The Income Tax Act and the Excise Tax Act both have court fines ranging from 50% to 200% of the taxes evaded and up for five years in prison. The penalty for fraud falls under the Criminal Code and goes up to 14 years. In 2013, the CRA convicted 128 people of tax evasion or tax fraud, and 23 percent of these people served jail time, with the average sentence being 22 months. That being said, the CRA’s main objective is collecting the outstanding debts.

 

If you are being criminally investigated for tax evasion, please contact Rosen Kirshen Tax Law to ensure you have an experienced team of tax professionals to review your case. 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 Jeff Kirshen

What is a Defacto Director’s Liability Assessment?

A Defacto Director is someone who acts as a director, but is not a director on paper.

Directors of a corporation can be found jointly and severally liable for certain tax debts of a corporation under section 227.1 of the Income Tax Act and 323 of the Excise Tax Act. Directors’ liability arises in one of two ways, either in fact or in law. For more background material on this distinction, and on director’s liability, feel free to consult our blog post that discusses the topic at greater length.  

It is possible to become a de facto director by accident, without knowing or recognizing this designation at the time of dealing with the corporation. Officers, employees, and those whom are not legally appointed or elected but who perform the functions that directors would perform, may be liable.  It is imperative that individuals are vigilant and careful in their dealings with struggling corporations, as well as, those that are known to be failing to remit GST/HST or their payroll source deductions.  

 

Defending Against a CRA Director’s Liability Assessment

All directors whether deemed such or those validly elected to the position can use procedural defences to protect against the assessment of liability. Furthermore, de facto directors can use the due diligence defence to prove that they acted responsibly and with due diligence, allowing the director to avoid liability. As well, there is a statutory limitation under section 227.1(3) of the Income Tax Act. This limitation on assessment protects any individual from being assessed on the basis of directors’ liability if they ceased to be a “de facto director” more than two years prior to assessment. The only other way to avoid being deeming such is to prove via the common law that one’s actions should not deem them a director. 

 

Defacto Director Tax Court Cases

There is a test established by jurisprudence to determine whether one’s actions arise to the level of de facto director. As well, the Tax Court of Canada found for a Taxpayer not being de facto director on the grounds of documentary evidence alone.  

In Mosier v. The Queen, 2002 GTC 28, a case where the taxpayer was deemed not to be a de facto director, the Tax Court of Canada Court heavily weighed documentary evidence. Specifically, the court relied on evidence which indicated that the powers and duties of the taxpayer were very extensive. The Court ultimately held that the taxpayer was not a de facto director as only the power and responsibility of running the day-to-day operation of the corporation were conferred to the taxpayer, but the power to participate in pure directorial acts was not.

As well, there is not a single factor which determines whether someone is a de facto director. Instead, the courts consider, as in Soper v. The Queen, a number of different non-exhaustive indicators to determine whether an individual is a de facto director: 

1. Whether the individual has been signing documents as a director;
2. Whether the individual has been signing tax returns;
3. Whether the individual has been attending director’s meetings;
4. Whether the individual introduces themselves to third parties as a director;
5. Whether the individual signs directors’ resolutions; and
6. Whether the individual plays a significant role in supervising the management of the company or otherwise controlling the company.

 

If you have received a pre assessment letter threatening  de facto director’s liability, or an assessment for Director’s Liability, we strongly recommend giving us a call. If found to be a director, you may be held liable for enormous amounts of money due to unpaid GST/HST or source deductions even when it was not your fault. The process can be quite complicated, with many moving parts that are time sensitive, so it is best to have legal counsel helping you navigate through it. Don’t delay, contact us for a free consultation today! 

 

**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

Assigning Property and the Income Tax Implications

Assignment is when you purchase a pre-construction home or property, and sell the property before it is built and before you gain title to it. In other words, you are assigning your purchased rights to a home to another person.

 

Property Assignment and the Income Tax Implications

When you assign a property, you typically earn a profit from the difference in the amount that you originally purchased the property for and the amount that you sold your rights to the property for. This profit needs to be reported to the Canada Revenue Agency (CRA). This is done by including the profit as income for the year in which the assignment occurred.

 

Property Assignment – Income or Capital Gains?

Most people assume that the income earned from property assignment should be reported as capital gains and therefore only 50% of the profit is taxable. However, there are circumstances under which the CRA considers the profits as business income and therefore 100% of the profit is taxable.

It is the intent of the buyer, and not the nature of the property the determines whether the property was capital or inventory. If the CRA concludes that the property is capital, then its assignment (or disposition) would result in a capital gain. If the CRA concludes that the property is inventory, then the disposition of that inventory would result in business income.

The intent of the buyer is the key factor because if the CRA determines that the intention of the taxpayer at the time of purchase was to resell the property for a profit (or “flip it”), then they will classify the transaction as a business transaction and the profit as business income.

 

Property Assignment – What Factors does the CRA Consider?

There is no specific provision in the Income Tax Act that outlines the circumstances under which the proceeds from a sale of property must be reported as either business income or capital gain.

However, a review of court decisions shows that the courts have historically focused on several key factors in determining how to classify sales of property.

These are some of the factors that the courts have looked at:

1. Individuals’ stated or deduced intention with respect to the property at the time of purchase and the feasibility of those intentions;
2. Extent to which this intention was actively carried out by the seller;
3. Geographical location and zoning restrictions of the property;
4. Nature of the business/profession that the seller is involved in;
5. The extent to which borrowed money was used to finance the real estate acquisition, including the terms of the financing;
6. The length of time the property was held by the seller;
7. Whether or not there were other individuals who shared an interest in the property;
8. The factors involved in the sale of the property; and
9. Evidence that the individual and/or their associates have previously dealt with real estate.

Taken together, these factors are used by the courts to determine whether the intention at the time of purchase was to resell the property for a profit.

 

Property Assignment and Other Tax Implications

Property assignment can also result in GST/HST implications. For more information on those implications, please review this article.

The principle residence exemption can also result in tax implications upon the purchase or sale of property.

The CRA has been actively pursuing and investigating real estate transactions due to the fact that this is a significant area of non-compliance.

 

If you have recently assigned a property, or have been assessed for the assignment or sale of a home/property in the course of a business, 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.