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Commission Paid to a Corporation: Any Issues?

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Business Failure: Personal Liability For Corporate Tax Debt

There are special laws which hold a director personally liable for certain amounts that their corporation fails to deduct, withhold, remit, or pay. Most commonly, these amounts include federal sales tax (GST/HST) and payroll withholdings (income tax, EI and CPP). It does not generally include normal corporate income tax liabilities. In a June 22, 2017 Tax Court of Canada case, at issue was whether the director of a corporation could be held liable for $66,865 in unremitted source deductions, related penalties, and interest six years after the corporation went bankrupt. The taxpayer presented various defenses. Two-Year LimitationIn general, CRA must issue an assessment against the director within two years from the time they last ceased to be a director. The taxpayer argued he should not be liable since he was forced off the property and denied access by the Trustee in bankruptcy more than two years before the assessment. However, the Court determined that only once one is removed as dir…

Loans to a Relative's Business: What Happens When it Goes Bad?

You’ve loaned money to a family member’s corporation. Perhaps it was an investment, maybe it was a favor, or both. Or, perhaps, it was made for a completely separate reason. Regardless, sometimes the loan may go bad and you are not able to collect on the debt. What happens from a tax perspective when this occurs?
If the loan was made to earn income and other conditions are met, you may be able to write-off half against your regular income as an allowable business investment loss (ABIL). A recent tax court case shed some light on defining whether the loan was made to earn income.
In a November 3, 2016 Tax Court of Canada case, at issue was whether an ABIL could be claimed in respect of the loan from a taxpayer to his daughter’s start-up company. Within approximately two years, operations had ceased and the daughter had claimed personal bankruptcy.
The loan agreement stipulated that interest at 6% was to be charged from the onset, but no payments would be made for approximately the first t…

Marijuana: A Growing Industry

As the legislation to legalize marijuana for non-medical purposes works its way through parliament (Bill C-45 entered the Senate phase on November 27, 2017), producers, vendors, regulators, enforcement, and potential customers are seriously considering the implications. Although it has been expected legalization would occur by July, 2018, the timeline is not certain (as the Senate has recently been scrutinizing draft legislation and other stakeholders have noted concerns).
Where are we at from a tax perspective? On December 11, 2017, the federal and provincial/territorial Finance Ministers reached an Agreement in principal regarding the taxation of cannabis for the initial two years after legalization. This agreement followed a consultation with stakeholders.
The Agreement noted that in addition to general sales taxes, the combined rate of all federal and provincial/territorial cannabis-specific taxes will not exceed the higher of $1 per gram, or 10% of a producer’s selling price. Of the…

Input Tax Credits: Checking Up On Suppliers

Do I have to check up on a supplier when paying them GST/HST? Yes!In a January 29, 2016 Tax Court of Canada case it was noted that CRA had denied over $500,000 of input tax credits (ITCs), and assessed penalties and interest, in respect of GST and QST paid to twelve suppliers. Unknown to the taxpayer, the suppliers did not remit the tax. The taxpayer, a scrap metal dealer, obtained evidence of prospective suppliers' GST and QST registration prior to accepting them as suppliers. Taxpayer wins – mostlyA taxpayer must use reasonable procedures to verify that suppliers are valid registrants, their registration numbers actually exist, and that they are in the name of that person or business. The Court held that the taxpayer's procedures (reviewing the suppliers' registrations, stamped by Revenue Quebec) were generally sufficient. It was not relevant that some suppliers did not have scrapyards and/or vehicles to carry on scrap businesses, nor that payment was often made in cash, ma…

Income Splitting: Where are We Now?

On December 13, 2017, the Department of Finance released a number of updates relating to the income sprinkling proposals (originally announced on July 18, 2017). Below is a summary of the proposals as they are currently drafted.
Individuals that receive certain types of income derived from a “related business” will be subject to Tax on Split Income (TOSI) unless an exclusion applies. TOSI is subject to the highest personal tax rate with no benefit of personal credits.
Commencing on January 1, 2018 TOSI will potentially apply in respect of amounts that are received by adults, not just those under 18 years. The application of TOSI to individuals under age 18 (commonly known as the “kiddie tax”) would not generally change.
Income Streams at Risk Private corporation dividendsPartnership allocationsTrust allocationsCapital gainsIncome from debt.Related Business
A related business includes any business, where another individual related to the recipient of income does any of the following:
persona…

Support of Refugees: Tax and Filing Requirements

Two Technical Interpretations (May 26 and March 3, 2017) considered whether support provided to a refugee would be required to be reported on a Form T5007, Statement of Benefits.
Essentially, the CRA considered whether the support would constitute “social assistance” which would require a T5007. If the amount is not considered “social assistance”, no T5007 would be required.
CRA opined that amounts would be considered “social assistance” if provided by a government or government agency, or other organization such as a charity (the “source” test”) and the payment is made on the basis of one of the following (the “purpose” test): an “income” test, which is based solely on the income of the applicant;a “means” test, which is similar to the income test but also takes into account the assets of the applicant; anda “needs” test, which not only takes into account income and assets but also financial needs of the applicant.Social assistance payments should be reported on Form T5007, unless a spe…