New laws to take effect this year Over the last half of 2017 there was a flood of information on what was going to take effect in 2018 and how we are to prepare for it all, taking the form of articles and news segments discussing controversial components of what will be implemented as of January 1st and how it will impact Canadians as a whole. To help simplify what to expect for 2018 in Canada and Ontario specifically, here’s a quick summary of some things to expect this year: Parental Leave (Canada) Changes to parental leave in Canada provide Canadians with the ability to spread a years worth of federal employment insurance over 18 months, stay home with their children longer, and allow for a 15-week leave caregiver benefit to assist critically ill or injured adults or 35-week leave for an ill or injured child. Microbeads Ban (Canada) Microbeads are officially banned from being manufactured and imported in Canada. They have been seen and used in many toiletries including toothpaste, facial scrubs, lotions, gels, and other beauty products. The ban has been implemented due to the inability for the microbeads to break down and are too small to be caught by wastewater treatment filters, ending up in our bodies of water. In addition, microbeads have also been added to the list of toxic substances under the Environmental Protection Act. Small-business Tax Changes (Canada) The primary change to small-business taxes is the issue of “income sprinking”. This is one of the many changes that have been implemented by the government in their tax reform plan as they continue to make Canada’s tax system fair and close certain loopholes that exist. Legalization of Marijuana (Canada) July 1, 2018 is the expected date for Canada’s legalization of cannabis to take place and introduce LCBO managed stores (Ontario), personal growth regulations, and licensing of cannabis producers and sellers among many other components to be introduced with the sale of cannabis in Canada. Minimum Wage Increase (Ontario) The Fair Workplaces, Better Jobs Act, 2017 proposed changes to Ontario’s Employment Standards Act, which included an increase of the minimum wage to $14 per hour by January 1st, 2018 and again to $15 per hour by January 1st, 2019. Scalper Bot Ban (Ontario) The scalper bot ban has attracted the most attention. Within the consumer protection bill is the Ticket Sales Act, which will address ticket bots and ticket resale prices. In summary, the Ticket Sales Act would: ban scalper bots ban tickets from being resold at more than 50 per cent of the face value will make it illegal to knowingly resell tickets that were purchased by bots sellers will need to display all fees, taxes, service charges resellers will need to disclose the face value of the ticket The legislation passed at Queen’s Park as of December 13, 2017. The province voted in favour of the bill, with MPPs from the Liberals supporting, while the Progressive Conservatives and the New Democrats opposed it. If you have any questions or concerns about any upcoming changes, or require any legal services please contact our office at 416-449-1400 to speak with a lawyer at Devry Smith Frank LLP. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Cannabis Law, Corporate Law, TaxJanuary 5, 2018June 17, 2020
Postal Code Project – CRA Targets Wealthy Canadians Canada’s wealthiest individuals have been put under a microscope. The Canada Revenue Agency (CRA) has launched a project dubbed the “Postal Code Project” that is targeting taxpayers residing in affluent neighbourhoods across Canada. The Postal Code Project will be an in-depth analysis, using postal-codes in high-priced neighbourhoods, as an indicator of a taxpayer’s lifestyle. The goal of this Project is to conduct taxpayer reviews based on an indication that a taxpayer may be richer than is disclosed through his or her income tax filings; with the intention of discovering evidence of undeclared wealth. Details of this initiative were obtained by CBC News under an Access to Information request and reveal that the “residence focused approach to audit” is intended to further the Government’s stated priority of ensuring “that those who are wealthy pay the tax they owe”. As part of the Project the CRA will: Conduct a targeted audit of income tax filings address by address Conduct in-person assessments Conduct in-person interviews with taxpayers Look into lifestyle (such as boats, cars, houses) Send letters and notices Not only is this an innovative approach on the part of the CRA, this initiative is intended to indicate to the Canadian public that the CRA is committed to its fairness objective, especially after such leaks such as the Panama Papers and Paradise Papers, targeting those who shelter income in offshore accounts and entities. The briefing memo obtained by the CBC states that the Project is intended to serve “demonstrate to the public that the CRA is actively working towards its fairness objective, which speaks to our integrity as an organization”. According to the CRA, it has initiated a review of 1,150 households in 5 targeted neighbourhoods across Canada and have directly contacted 33 taxpayers. The Federal Government, the Minister of Finance and the CRA have come under recent scrutiny as a consequence of the controversial proposed tax changes targeting small businesses , the Minister of Finance’s conflict of interest woes, as well as the recent report from the Auditor General regarding CRA’s abysmal service standards and bad advice. It is a well-established principle of tax law that taxpayers are entitled to arrange their affairs to minimize tax. There are many valid and legal strategies which can be implemented by Canadian taxpayers through effective tax planning. If you have a tax or estate planning question, please contact tax lawyer to arrange a consultation. Devry Smith Frank LLP is a full service law firm with many experienced lawyers in every area of practice. If you are in need of a Tax lawyer, please take a look at our tax law practice page or contact. For more information, please contact us directly at 416-449-1400. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxDecember 5, 2017June 17, 2020
CRA Targeting Tax Avoiders Through Online & Mobile Payment Companies Two online payment companies that operate within Canada have been ordered to turn over information about their account holders to the Canada Revenue Agency (CRA). On November 10, 2017, PayPal received a Federal Court Order requiring them to disclose information relating to Canadian users that hold a business account and have received or sent a payment through their account between January 1, 2014 and November 10, 2017. PayPal Canada says that it has more than 6.4 million active users, although those users with personal accounts are not affected by the CRA Order. This Order follows a similar Order issued in 2016 to online payment processor Square, Inc., requiring it to disclose information to the CRA about its Canadian sellers. Each company has been given specific instructions on what information they must turn over to the CRA including sales transaction data, names, social insurance numbers, and business numbers of affected sellers, bank account details, payroll data and other information. In 2009, the CRA had obtained a similar Order against EBay Canada, targeting its “power sellers”. Both inquiries are related to the ongoing enforcement efforts by the CRA with respect to tax evasion, which we have discussed previously. The Globe and Mail reports that in an emailed statement, CRA spokesman Patrick Samson stated, “To better detect activity in the underground economy, the CRA has increased its use of information from third parties, especially in sectors where cash operations are frequent. The CRA has considerably stepped up efforts to identify individuals and businesses that do not file tax returns and to settle their files”. Affected individuals may face audit and may be required to pay additional tax, penalties and/or interest on any previously unreported income that is subsequently discovered in the course of the audit. Affected individuals or businesses may wish to utilize the CRA’s Voluntary Disclosure Program to make a disclosure of such unreported income, before the commencement of any CRA enforcement action. If a Voluntary Disclosure is made and accepted by the CRA, then the taxpayer can benefit from no penalties, reduced interest, and no criminal prosecution in connection with the disclosure. There is a risk, however, the CRA will not accept that the disclosure is voluntary by virtue of the PayPal Order and as such, the benefits available under this Program will be denied to the taxpayer. If you are concerned that you may be impacted by the PayPal Order, if you wish to make a Voluntary Disclosure to the CRA, or if you have questions on any other tax matter, please contact any member of our Tax Group. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxNovember 20, 2017June 17, 2020
The Paradise Papers: The Risks of Offshore Tax Havens On November 5, 2017, another leak of offshore tax haven information, dubbed the “Paradise Papers”, was disclosed by the International Consortium of Investigative Journalists (ICIJ). As a result of the leak of confidential records comprising the Paradise Papers, a number of the world’s elite have been identified as having offshore accounts and connections including, Queen Elizabeth II, Stephen Bronfman, (Prime Minister Justin Trudeau’s chief fundraiser), Wilbur Ross (U.S. President Donald Trump’s Commerce Secretary), Russian oligarchs and former Canadian Prime Ministers Brian Mulroney, Paul Martin, and Jean Chretien. Last year, the ICIJ released the Panama Papers, for which they won the Pulitzer Prize. The Panama Papers was a leak of more than 11.5 million records and for many, was the first indication of the extent and scope of offshore tax sheltering activity. In a previous blog, we identified some aspects of the Canadian connection to the Panama Papers. The Paradise Papers reveal the names of more than 3,000 Canadian companies, trusts, foundations and individuals who use offshore accounts in tax haven jurisdictions. In the 2017 Federal Budget, the Canada Revenue Agency (CRA) was allocated an additional billion dollars in funding to assist with its tax compliance and enforcement activities. The release of the Paradise Papers will only add to the 990 ongoing CRA audits and 42 criminal investigations that are underway and will likely result in an intensification of CRA’s enforcement efforts. Offshore activities in and of themselves are not illegal. When assets are held offshore, whether in bank or investment accounts, partnerships, trusts or corporations, and income from those assets is not declared in Canada or is underreported, this can constitute tax evasion. The consequences of tax evasion can include the following: Assessed penalties and interest on unpaid amounts Interest on the penalties incurred Administrative penalty of 50% of the income tax avoided Criminal penalties (an additional penalty of up to 200% of the taxes evaded and possible jail time) Third party civil penalties can also apply to any persons, including tax advisers and tax promoters, found to have intentionally engaged in or counselled tax evasion The CRA has a number of measures to crack down on international tax evasion and avoidance, including domestic and international partnerships with entities such as the Organisation for Economic Co-operation and Development and the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC), a collaboration of 37 tax administrations which exchange information for the purpose of developing more effective and efficient ways to deal with tax avoidance. As a consequence of the CRA’s enforcement activities, approximately $25 billion in tax revenue representing unpaid taxes, interest, and penalties have been recovered to date. Notwithstanding the CRA’s enforcement efforts, the CBC reports that the CRA does not have a mechanism to track the billions in potentially lost tax revenues. In reply to a request submitted by Parliamentary Budget Officer Kevin Page for an estimate of uncollected tax revenue, CRA Commissioner Andrew Treusch sent a letter admitting that the CRA “does not generate information or data on the tax gap”. What does this mean for the future of tax in Canada? The Canadian tax system has recently been at the forefront of the news. From the proposed tax measures targeting privately held corporations released on July 18, 2017, which were the subject of intense public debate and resulted in subsequent announcements from the Minister of Finance, to the ethics controversy surrounding the Minister of Finance’s conflict of interest in his failure to divest himself of his personally held assets, to the release of the Panama Papers and the Paradise Papers, there appears to be the perception that the tax system is designed to benefit the most wealthy members of society. Given the Liberal Government’s stated plan to grow and strengthen the middle class, and given the tone of the discourse surrounding the proposed tax changes released earlier this year, the Paradise Papers will likely only strengthen the resolve of the Minister of Finance to increase scrutiny on the tax system with the aim of closing loopholes and tightening tax compliance measures. The full effect of these measures will likely not be known until the Federal Government releases its Budget in the spring. It is a well-established principle of tax law that taxpayers are entitled to arrange their affairs to minimize tax. There are many valid and legal strategies which can be implemented by Canadian taxpayers through effective tax planning. If you have a tax or estate planning question, please contact a tax lawyer to arrange a consultation. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxNovember 13, 2017June 17, 2020
CRA Investigating “Shadow Flipping” of Toronto Condos Due to the booming real estate market in Canada over the past year, the Canada Revenue Agency (“CRA”) is scrutinizing the practice of “shadow flipping” or “assignment sales”. This is a sales technique which involves the purchase of pre-built condos from a developer and subsequent sale to other buyers at higher prices before possession of the condo has been taken. By relying on an “assignment clause” in the agreement of purchase and sale, the potential purchaser can transfer or sell his interest in the property to another purchaser before the closing date at a profit. This practice is very controversial and has drastically affected the housing market, contributing to the increase in home prices, particularly in Toronto and Vancouver, with the original sellers receiving less for their property, and the final purchaser potentially paying an inflated price for the same property. Transactions in both Toronto and Vancouver have seen the greatest incidence of these types of transactions, and are under the most scrutiny by the CRA. Vancouver also seeing another form of shadow flipping, which involves realtors finding multiple investors to be involved in the sale of a property in order for multiple buyers to profit while the realtor takes advantage of commission on each of the sales. The CRA has gained interest in tax avoidance in real estate and is analyzing approximately 3,000 cases of shadow flipping transactions in Toronto to determine whether profits from such sales should be taxed as business income or as a capital gain. Generally speaking, any gain arising on the sale of real property are taxed as capital gains, with an effective tax rate of approximately 25%, significantly lower than the tax rate for business income. We can help. Tax planning opportunities are available to assist Canadian taxpayers in optimizing their affairs to obtain a favourable tax outcome. Contact DSF’s Tax Planning Group for advice and assistance. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxNovember 6, 2017June 17, 2020
UPDATE – Tax Measures Targeting Privately Held Corporations On July 18, 2017, the Department of Finance released a set of proposals to amend the Income Tax Act (the “July 18 Proposals”). The position taken by the Department of Finance and the rhetoric surrounding the July 18 Proposals were that the proposed tax measures were designed to “improve the fairness of Canada’s tax system by closing tax loopholes and amending existing rules to ensure that the richest Canadians pay their fair share of taxes and that people in similar circumstances pay similar amounts of tax”. The July 18 Proposals were roundly criticized by the tax and business communities, with town hall meetings, conferences and consultations held across the country. In addition, over 21,000 written submissions were made to the Federal Government during the consultation period, which ended October 2, 2017. The key elements of the July 18 Proposals were based on changes to the following 4 key areas: Lifetime Capital Gains Exemption (“LCGE”) The LCGE exempts holders of qualified small business corporation shares and holders of qualified farm or fishing property from tax on capital gains of up to million arising from a sale or disposition. The Federal Government was concerned that methods to multiply the LCGE, using family trusts, for example, unfairly permit more than one taxpayer to claim the LCGE and thereby reduce the tax payable on the disposition of private company shares, or qualified farm or fishing property. The July 19 proposals sought to significantly restrict the availability of the LCGE. Income Splitting Income splitting refers to the practice through which income earned through a corporation is “sprinkled” among family members, rather then all paid to one individual. This practice allows a taxpayer to reduce his family’s overall tax bill by shifting income from higher-income taxpayers to lower-income taxpayers. Passive Investment Income Active business income earned in a corporation is taxed at a much lower rate than employment income earned by an individual. Because of the tax deferral available when retained earnings are kept in a corporation, there is more after-tax income available to invest in a corporation than if that same amount of income was earned personally. As such, Finance perceives this to be an inherent unfair “advantage” to private company shareholders. Converting Income into Capital Gains The Government’s proposals seek to address certain transactions that they consider to be abusive, specifically certain post-mortem transactions, which convert income which would otherwise be taxable at higher corporate tax rates to capital gains, which are taxed at significantly lower rates. On October 3, 2017, the Department of Finance issued a Press Release, in which Finance Minister Bill Morneau acknowledged the concerns regarding the July 18 Proposals raised by the public, the tax community, and business owners, and suggesting that the Government may take steps to make amendments to the proposed legislation based on feedback Finance had received. On October 16, 2017, the Department of Finance issued an announcement of changes to the July 18 Proposals in light of the consultations and further to its October 3rd announcement. The highlights of the proposed changes are: 1. Reduction in the federal small business tax rate from 11% to 10% effective January 1, 2018 and to 9% effective January 1, 2019. 2. No changes to the LCGE. Finance stated that “the Government will not be moving forward with the measures that would limit access to the Lifetime Capital Gains Exemption”. 3. Income Shifting. Finance confirmed that it will continue with its proposals to terminate income shifting to lower-income family members who do not contribute to the business. However, Finance stated that it will introduce “reasonableness tests” for adult family members who will be asked to demonstrate their contribution to the business. On October 18, 2017, the Department of Finance issued a further announcement targeting passive income earned within private corporations. In this Press Release, the Government stated that it will continue with its intended measures to limit the tax-deferral opportunities related to passive investments; however, it will provide some relief by allowing business owners to build savings for business purposes or for retirement. The Government has announced that businesses can continue to save for contingencies or future investments based on a threshold of $50,000 of passive income per year. Any income above this threshold will presumably be subject to higher rate of taxation as set out in the July 18 Proposals. Draft legislation implementing these proposed changes will be released as later this fall or as part of Budget 2018. We can help. Tax planning opportunities are available to assist Canadian taxpayers in optimizing their affairs to obtain a favourable tax outcome. Contact DSF’s Tax Planning Group for advice and assistance. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxOctober 19, 2017July 5, 2023
Sears Pension Issues shows a Need for Diversification Sears Canada pensioners are still fighting for a payout, and some are shocked to see what they’re receiving from their pension due to the company’s insolvency process. Sue Earl, a 38-year Sears Canada employee recently found out she would only get 81 per cent of the value of her pension, with the other 19 per cent “up in the air,” and also had her severance payments cancelled. She assumed that her defined-benefit pension was going to be paid out to her regardless of the state and health of the company, which was a risk she took. Experts have said that depending too much on the defined-pension plan is a risk, and that the employer-sponsored pension plans become risky when the employer isn’t healthy enough to fund them. However, James McCreath, associate portfolio manager with BMO Nesbitt Burns (Calgary) says they are also a good thing because it forced people to save. A defined-benefit plan promises members a retirement income usually based on salary and years of service. Sears has been paying $3.7 million a month to top up these plans, and the government has now proposed new rules to not require topping up as long as it is funded 85 per cent or higher. Sears’ troubles which has now started to impact former employees, shows the importance of educating yourself on your finances and retirement planning. Tony Salgado of CIBC Wealth Strategies (Toronto) says, “many don’t even know what kind of pension plan they have, much less what their retirement income might be.” Personal wealth planning is an extremely important part to ensure that you’re prepared for your future retirement and guarantee that you won’t be spending it paying off debt, or having to tightly manage your funds. At Devry Smith Frank LLP, we have experienced lawyers that can assist with personal tax/wealth planning to advise on retirement planning to guarantee you’re getting the most out of your savings. If you have any questions or would like to make an appointment with a personal tax/wealth planning lawyer, please contact one of our lawyers or call us directly at 416-449-1400. By: Nicolas Di Nardo “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxSeptember 19, 2017June 18, 2020
The Panama Papers: Canadian Bank Begins Closing Client Accounts Toronto Tax Lawyer discusses a CBC/Toronto Star investigation that looks into Canada’s tax system, specifically the use of Canadian corporations and limited partnerships as part of a complex offshore money laundering and tax evasion scheme. Known as The Panama Papers, this leak exposed 11.5 million documents detailing global tax avoidance and evasion and identified customers of Canadian banks that are connected to this scheme. Recently, the Royal Bank of Canada jumped into action, recently closing a number of accounts. They are the first Canadian bank to publicly confirm it has severed ties with customers who were named in the leak. They closed “about 40” customer accounts. Making matters worse, they also found out from the leak that they had registered at least 429 offshore companies with the Panamanian law firm Mossack Fonseca. Other financial institutions such as TD, BMO, and CIBC have not provided any information regarding their customers, while National Bank and Scotiabank have investigated and found no links to the Papers, and did not close any accounts. In total, 85 Canadians are being investigated by the CRA, with 60 being audited. To learn more about the Panama Papers leak and its connection to Canada, read The Canada Papers series here: Part 1: Snow Washing Part 2: 9203-9619 Quebec Inc. Part 3: Signatures for sale Part 4: Lessons for Canada Also read our previous blog here: Oh Canada, Our Home and “Snow-washed” Tax Haven?? RBC provided The Star with parts of a letter that was sent to one of their clients named in the Panama Papers database, which read: “Due to the operation of your accounts, we feel that we cannot achieve the requisite level of comfort with you. Therefore, after careful consideration, we must advise you that we are not in a position to continue our banking relationship.” Additional communication in the letter advised the client that he had 30 days to close his accounts and repay loans, one of which is a mortgage close to one million dollars. Letters were also sent to the children of the client, stating that their “risk profile has changed substantially” and the bank would not maintain their accounts. The children are under the age of 19. RBC’s spokesperson issued a response to this action, stating that their “decision that an account is outside of their risk parameters or does not meet our own standards does not mean the clients have engaged in inappropriate activity.” If you are in need of a tax lawyer in Toronto, please contact any of our tax lawyers. For any other legal services, please visit our website for more information or call (416) 449-1400. “This article is intended to inform and entertain. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, TaxMarch 10, 2017June 18, 2020
Important Tax Information for Parents with Shared Custody A recent Canadian Tax Court Case has important implications for parents with shared custody and the way child support is paid and collected. The decision in Harder v. The Queen changes the way parents with shared custody must deal with child support. It is likely that most parents with shared custody will have to change their child support arrangements and the Family Responsibility Office will have to change its procedures to prevent running into tax problems. How Shared Custody, Child Support and Taxes Used to Work The Supreme Courts set the rules for child support in shared custody in it decision in Contino v. Leonelli- Contino. At paragraph 49 of that decision, the Supreme Court said that the starting point for calculating child support in shared custody, which persists unless it results in an unfair sharing of the costs of raising the children, is that the parents calculate what each of them would owe under the Child Support Guidelines Tables and set those amounts off against each other. In the majority of shared parenting situations, consistent with the Supreme Court’s decision, parents agreed to use set-off the child support amount such that the parent with the higher income made a child support payment that reflected the set off amount. Part of the basis of this set-off approach is that each parent gets some of the tax benefits associated with caring for the children in a shared custody situation. The amount of child support under the tables takes into account the tax deductions/benefits available to parents for having children. The CRA’s policy on tax credits and benefits for parents in shared custody situations states that when parents share custody of their children, they must rotate the benefits/credits for the children such that each parent gets the tax benefits for the children for six months of the year. That policy was last updated in July 2015. As a result of this policy, parents with shared parenting set off support against each other and each claimed half the tax benefits for the children for whom they had shared custody. The Significant Changes to Child Support to Avoid Tax Problems According to Justice Block in his tax court decision in Harder v. The Queen, the Courts, Family Arbitrators, Family Mediators, Family Lawyers and separated parents did not properly consider the Section 118(5) of the Income Tax Act in making the above-described child support arrangements. That section of the Income Tax Act states that a person who has to pay support for a dependent cannot claim tax deductions or benefits with respect to that dependent. Children are dependents. So, that means that, notwithstanding the Canada Revenue Agency saying that benefits must be rotated in shared custody situations, a parent paying child support may not claim those benefits. Based on the Supreme Court’s decision in Contino about setting off support in shared parenting, and the CRA’s policy that benefits be rotated in shared parenting, it seemed logical to interpret the “set-off support” paid in shared custody situation as parents notionally paying each other, but simplifying the logistics of that by having the payments flow only one way – from the higher-income parent to the lower-income parent. This is how child support orders and agreements were written and how the FRO processed support. However, in Harder v. the Queen, Justice Block stated that interpretation was wrong under tax law. Where parents set-of child support amounts, this resulted in only one parent receiving support and one parent paying support. Under the wording of section 118(5) of the Income Tax Act, the parent paying support could not claim the benefits and credits in relation to the child or children for whom that parent was paying child support. According to the decision in Harder v. the Queen, the correct thing to do is for each shared custody parent to actually pay the full table child support amount to the other parent so that the full table support is flowing both ways. The Family Responsibility Office should collect the full child support amount payable by each parent and pay it to the other parent, essentially having the support between the parents cross paths as doing a “set off” will have negative tax consequences for at least one of the parents. There are some obvious practical problems with the approach set out in Harder v. the Queen. For example, a lower-income parent may not have the funds available to make the support payment until receiving the support from the higher income parent. That would cause one of the support payments to “bounce” and one parent to “overpay” by not getting the support back to which he or she is entitled. It will also dramatically increase the cost for the Family Responsibility Office, and the support collection agencies in other provinces, to enforce child support in shared parenting arrangements. However, as Justice Block points out, this complicated and tedious approach to child support in shared parenting is required by section 118(5) of the Income Tax Act and it is the way things must be done until Parliament changes the law. 32 – How to Change a Support Order Justice Block’s decision in Harder v. the Queen means that most parents with shared custody will have to change what they are doing for child support. It may also mean that they have to change their child support order or separation agreement to reflect how the Income Tax Act requires child support to be paid so that both parents can get the tax benefits related to raising the children. The Ontario Family Law Podcast and this video give some general advice about how to change a support order or agreement. However, the rules for separation agreements require that separated parents and spouses consult with a family lawyer, and they will probably speak to a lawyer who understands both family law and tax law to make sure the agreement or court order does what they expect. Obviously, parents who have just separated and who are planning on sharing custody of their children will want to make sure that their child support order or separation agreement complies with the requirements to maximize the tax relief for them. Again, they should contact an excellent family lawyer to make sure that happens. To learn even more about child support, get a copy of this easy to understand book on the basics of Ontario Family Law as a paperback, or download it immediately as a $9.99 e-book for Kindle, Kobo, or iPad/iPhone/Mac. You may also want to listen to this podcast or watch this video. You can also use the search on the right to find lots more articles about marriage and divorce. Obviously, there can be a lot of money involved in child support cases and only could really help a child with his or her needs (or not). You need to get the help of a lawyer immediately to avoid financial hardship. Contact Certified Specialist in Family Law (and author of the book above), John Schuman, by emailing him or by calling 416-446-5847. We answer all inquiries promptly and we can arrange for you to come in quickly for a consultation (charged at a reduced hourly rate). By Fauzan SiddiquiBlog, Family Law, TaxJanuary 30, 2017June 16, 2020
Oh Canada, Our Home and “Snow-washed” Tax Haven?? The release of a joint CBC / Toronto Star investigation has made headlines across the world and calls Canada’s tax system into question. Most Canadians would argue that Canada’s tax rates are among the highest in the world and that the Canadian tax system is designed to ensure that income earned in Canada is subject to Canadian income tax, whether that income is earned by an individual, a corporation, a partnership, joint venture, or any other form of organization. In the normal course, a Canadian entity earning income in Canada from a business or property is required to report, calculate, and remit income taxes on such income to the Canada Revenue Agency. The CBC and the Toronto Star used the term “snow washing” to refer to the use of Canadian corporations and limited partnerships as part of complex offshore money laundering and tax evasion schemes, due to the perception of the legitimacy of such Canadian entities and Canada’s reputation as a “whitelisted, respectable jurisdiction”. The Toronto Star / CBC investigation identifies the practice, advocated by some other offshore jurisdictions, of non-residents incorporating companies or setting up other entities (such as Canadian limited partnerships) and installing Canadian “nominee directors”. The Toronto Star article reports as follows: “Canada is a new player in the world of offshore companies,” claims the website of a Swiss firm. “Canada is the most preferable destination for compliant tax planning since it has no negative offshore reputation and no association with tax avoidance or evasion. It is by far one of the best neutral jurisdictions, providing offshore benefits without any of the traditional offshore drawbacks.” In another article in the series, the Toronto Star states the following: Nominee directors are not illegal in Canada, but the secrecy they provide facilitates abuse. The tax haven industry relies on nominee directors to put a legitimate face on companies, masking their real owners and allowing them to evade tax, launder ill-gotten money or bribe corrupt officials. Corporate statutes, both provincial and federal, impose duties and liabilities on directors of Canadian corporations. Directors are regarded as fiduciaries of their corporation, and as such, are required to exercise a duty of care, to act honestly and in good faith, and to ensure that they protect the corporation’s interests. Other statutes (such as the Income Tax Act), impose other responsibilities on corporate directors. The key premise of the Toronto Star / CBC joint investigation is that the opacity of our corporate registry system, whereby it is almost impossible to identify the real owners of companies, creates an environment of secrecy that encourages money laundering and tax evasion. The Toronto Star articles make the assertion that “[t]he use of nominee directors is a key channel of tax evasion”, and that “[s]ecrecy is at the heart of financial crime”. The conclusions reached in the series of Toronto Star and CBC investigative articles, are that, to curb abuse of the system, Canada needs to adopt a more transparent corporate registry system, such as one recently adopted in the U.K., which provides that individuals holding more than 25% of the shares or voting rights in a company are listed on a public database. In addition, the articles conclude that some structures, such as Canadian limited partnerships, help avoid tax because non-resident owners are not required to file a Canadian tax return. This is not entirely correct. Limited partnerships are required to file annual information returns setting out details of their income and the names of the partners who are entitled to such income. Tax evasion, avoidance and abuse of our financial, corporate, and legal system are deplorable and certainly have negative repercussions for all Canadian taxpayers. It is commendable that the CBC and the Toronto Star have undertaken this investigation, exposing the deficiencies in the system and the opportunities for exploitation that such deficiencies create. We can hope that as a consequence of these articles, the Federal and Provincial governments will act to close loopholes in reporting and accountability and minimize opportunities for abuse. That being said, it is a maxim of Canadian tax law that taxpayers are entitled to arrange their affairs to minimize tax. There are many valid and legal strategies that can be implemented by Canadian taxpayers through effective tax planning. If you have a tax question or concern, please contact one of our tax lawyers, for a consultation. If you have any other legal issues, please contact one of our lawyers at Devry Smith Frank LLP. By Fauzan SiddiquiBlog, TaxJanuary 16, 2017June 16, 2020
