Historic Express Entry Draw In Canada’s latest Express Entry draw today for permanent resident candidates, a historic low cut-off of 75 Comprehensive Ranking Score points led to invitations sent out to an astounding 27,332 candidates. This is a clear step toward the government’s promise to ramp up economic immigration to make up for losses in 2020 due to the COVID-19 pandemic. While there is a lot still to makeup, this is a positive sign in the right direction. It is initiatives such as this that seek to aid in Canada’s economic recovery. This unprecedented cut-off score applied to foreign nationals with demonstrated skilled work experience in Canada of at least one full-time year. Those who previously felt they lacked points in one area or another may be pleasantly surprised to receive an invitation to apply for permanent residence today! For more information contact immigration lawyer Maya Krishnaratne at maya.krishnaratne@devrylaw.ca “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, ImmigrationFebruary 13, 2021February 13, 2021
How Section 116 of the Income Tax Act Can Affect Your Real Estate Transaction Overview When real property is sold by a non-resident of Canada, both the buyer and seller and their advisors should turn their minds to the provisions of section 116 of the Income Tax Act (the “ITA”). These provisions impose obligations and liability on both the buyer and seller, which should be addressed well before the date that the transaction is scheduled to close. In brief, section 116 of the ITA provides that a non-resident seller may notify the Canada Revenue Agency (CRA) of a proposed disposition of property, such notice setting out, among other things, the estimated amount of sale proceeds to be received, as well as the adjusted cost base of the property. This notice must be given using form T2062, “Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property”. If the non-resident has not given such notice to CRA prior to the completion of the transaction (or if the notice was given but the details surrounding the transaction have since changed), the non-resident must notify CRA of the disposition no later than 10 days after closing. In the event that the non-resident seller fails to do so, the seller may have to pay a penalty of up to $2,500, even if the sale of the property does not result in any tax owing. Once CRA has received the non-resident seller’s notice and processed the request for a Certificate of Compliance, CRA will advise the seller of the amount of tax required to be paid and will issue the Certificate of Compliance upon receipt of payment. If no Certificate of Compliance has been issued, section 116 provides that the buyer will be liable to pay 25% (or 50% in some cases) of the purchase price to CRA on behalf of the seller, within 30 days after the end of the month in which the property is acquired (“Remittance Deadline”). The buyer will be entitled to withhold this amount from the purchase price for the purposes of remitting this payment. The Ontario Real Estate Association (OREA) standard form Agreement of Purchase and Sale, used in most residential real estate transactions in Ontario, contains a “residency” clause that is intended to address the requirements of section 116 of the ITA. The Holdback In most cases, the Certificate of Compliance will be issued by CRA after the transaction has been completed, as the tax is normally paid out of the proceeds of the sale. This means that the buyer’s lawyer will have to withhold 25% of the purchase price (or 50% for certain types of property) in trust (the “Holdback Amount”). As the Certificate of Compliance may not be available prior to the Remittance Deadline, the non-resident seller may request a ‘comfort letter’ from CRA which will allow the buyer’s lawyer to continue withholding the Holdback Amount in trust beyond the Remittance Deadline, until otherwise instructed by CRA. Once CRA has advised both parties of the amount of tax payable, the tax can then be paid from the Holdback Amount, and upon the issuance of a Certificate of Compliance, the balance of the funds can then be released to the seller. Accordingly, by applying for a Certificate of Compliance well in advance of the closing date and requesting a comfort letter, the seller may be able to avoid a situation where the entire Holdback Amount is remitted to CRA by the buyer, and avoid having to wait until the seller’s tax returns are filed in order to reconcile this amount with the tax payable as a result of the sale. Buyer’s Liability and “Reasonable Inquiry” into the Seller’s Residence Status If the buyer could have or should have known that the seller is a non-resident, or did not take reasonable steps to investigate the seller’s residence status, the buyer may be liable under section 116. The buyer will not be liable, however, if, after making reasonable inquiry, the buyer had no reason to believe that the non-resident person was not resident in Canada. In a typical purchase and sale transaction, a buyer relies on a statutory declaration made by the seller that the seller is not a non-resident of Canada for the purposes of section 116 of the ITA. In certain circumstances, this declaration may not be available, making it challenging for the buyer to ensure that they are not exposed to liability under section 116. Where a property is being sold by a mortgagee under the power of sale, for example, the registered owner of the property is generally not involved or is uncooperative, and the mortgagee will likely not make any representations or warranties in the agreement of purchase and sale with respect to residency. It is then up to the buyer to make ‘reasonable inquiry’ of the seller’s residence status. What constitutes ‘reasonable inquiry’ is highly circumstantial. In Kau v The Queen, 2018 TCC 156, the buyer of a condominium unit in Toronto was held liable for over $90,000 of tax under section 116 after the Tax Court of Canada determined that he failed to make reasonable inquiry as to whether the seller, who lived primarily in California, was a non-resident. This was despite the fact that the buyer’s lawyer had received a signed but unsworn statement from the seller, in which the seller stated that he was “not a non-resident of Canada within the meaning of section 116 of the Income Tax Act (Canada) and nor will [he] be a non-resident of Canada at the time of closing.” The Court held that this unsworn statement was insufficient to satisfy the purchaser’s obligation to make a reasonable inquiry. The court further held that what is reasonable will be fact-specific. In Kau, the purchaser was aware that the seller owned the unit as an investment property and should have noticed that the seller had an address for service in California. Therefore, in those circumstances, the purchaser should have required more than an unsworn statement to confirm that the seller was not a non-resident. The court noted that the outcome would likely have been different had the seller made such a statement in a solemn declaration or under oath. When the residence status of the seller is unclear, and no assurances are provided by or on behalf of the seller, a prudent buyer may try to err on the side of caution by withholding 25% of the purchase price and remitting the funds to CRA. However, section 116 only entitles the buyer to withhold funds if the seller is in fact a non-resident, and not simply because the buyer has not been able to confirm the seller’s residence status. In these circumstances, it is important for buyers to seek legal advice to ensure that their obligations under section 116 are adequately addressed prior to entering into a binding Agreement of Purchase and Sale. There are some exceptions to the above, and how section 116 of the ITA applies will vary depending on the type of property being disposed of and the circumstances surrounding the transaction. The buyer and seller should consult with their respective lawyers regarding their particular transaction. “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 contact 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, Real Estate, TaxNovember 27, 2020March 20, 2024
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 Future of Canada Revenue Agency Enforcement Activities As noted in an earlier blog post, we discussed the joint CBC / Toronto Star investigation and subsequent release of the Panama Papers. In a subsequent Toronto Star article, the CRA states its intention to act more aggressively in pursuing those who commit tax fraud and tax evasion. Notable in its new aggressive stance, the CRA states in the Toronto Star article that those suspected of “aggressive tax avoidance or tax evasion” will be subject to more “severe consequences”, including “a lot more criminal investigations” and the fingerprinting of anyone charged with tax evasion. In Budget 2016, the Federal Government announced almost $500 million in additional funds to the CRA to assist it in its enforcement efforts. This money appears to have been immediately put to use by the CRA. The Toronto Star notes that “230 people have been added to the compliance department and lawyers are now being embedded in investigating teams”. The 2017 Federal Budget pledged an additional $1 billion to assist the CRA in its tax compliance efforts. The funds are being earmarked for increased investigative work, particularly in the “underground” economy, including construction and hospitality sectors, as well as to continue to develop computer programs, systems and algorithms to monitor and track high-risk potentially abusive transactions, such as international electronic funds transfers. Future targets include high net worth individuals who may utilize tax loopholes to gain what the CRA perceives as unfair tax advantages. The CRA has updated its website to prominently feature its efforts in cracking down on international tax evasion and tax avoidance. As part of the CRA’s efforts, they note that they have many tools at their disposal to combat tax evasion including: Reviewing Electronic Funds Transfers over $10,000 as they cross borders to and from Canada and studying specific offshore locations and certain financial institutions. Collaborating and sharing information with international partners such as the OECD’s Forum on Tax Administration and the Joint International Taskforce on Shared Intelligence and Collaboration; Identifying promoters of aggressive tax schemes; Identifying international non-compliance and abuses through its treaty networks; Creation of the Offshore Compliance Advisory Committee (OCAC), an independent advisory committee of experts which, on December 5, 2016, presented the CRA with the OCAC’s report on the Voluntary Disclosures Program (VDP), with its recommendations to improve and enhance the VDP program; Combatting aggressive international tax avoidance strategies of multinational companies through the CRA’s participation in the Base Erosion and Profit Shifting (BEPS) Action Plan and the Multilateral Competent Authority Agreement; Encouraging Canadians to report tax avoidance through the Offshore Tax Informant Program; and Encouraging Canadians to use the VDP to voluntarily correct their tax reporting by correcting a previously filed return or reporting otherwise unreported income or property. We can help. Although most Canadian taxpayers are compliant, sometimes errors or omissions occur. It is still possible to take advantage of the CRA’s VDP to voluntarily report omitted or incorrectly reported tax filings while potentially avoiding penalties. 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 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, Planning and Development LawMarch 30, 2017June 19, 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
Canada Revenue Agency (CRA) Offers Advice for Settling Tax Dispute Claims, Part 1 On June 19, 2014, the Canadian Tax Foundation (“CTF”) held an event titled “Tax Dispute Resolution: an Inside Look from the Government’s Perspective.” Devry Smith Frank LLP (“DSF”)’s tax litigation team attended the event to better assist its corporate and personal clients to resolve their disputes with the Canada Revenue Agency (“CRA”). Part one of this three-part article series begins with Ms. Anne-Marie Lésvesque, Assistant Commissioner of Appeals for the CRA: CRA has a two-year backlog of ongoing donation tax credit disputes Ms. Lésvesque, speaking for the CRA, explained that the timely resolution of disputes is made more difficult by an imbalance between resources dedicated to the CRA’s appeals unit and the number of ongoing disputes. As an example, Ms. Lésvesque explained that the CRA is currently dealing with a glut of 175,000 donation tax credit disputes. In a regular year, the number is closer to 50,000 to 60,000. Ms. Lésvesque estimated that it would take one to two years to eliminate this backlog. In the meantime, tax litigation lawyers like those at DSF can work with you to protect your rights while moving your tax dispute closer to resolution with the CRA. Avoid commonly used arguments that are commonly unsuccessful Speaking from the CRA’s perspective, Ms. Lésvesque also suggested that repetitive appeals such as the “natural persons argument” have increased in popularity but are not succeeding at the appeal level or in tax court. Toronto tax lawyers like DSF’s own save their clients time and money by refusing to put forward “fad” arguments that are unlikely to be successful. Cases of legal interpretation are more likely to go to trial Ms. Lésvesque also shared that while the CRA appeals process must be viewed as impartial, it is legally bound to follow the CRA’s published interpretation of the Income Tax Act(the “Act”). Settlement in cases where the CRA’s and taxpayer’s interpretation of the Act are different are more likely to go to trial. In contrast, the CRA is far less likely to go to trial where the facts are in dispute. Ms. Lésvesque explained that where there are issues of credibility, the taxpayer should have the benefit of the doubt, at least in his or her first dispute with the CRA. Tax lawyers at DSF can help taxpayers put forward their best case when explaining why the CRA has made errors in its tax reassessments or enforcement measures. Ms. Lésvesque suggested that the CRA’s success rate at trial is currently 80%. Having a great lawyer on your side can increase the odds both for early settlement and success at trial in your tax law case. Stay tuned to the Devry Smith Frank LLP tax litigation blog for part two of this series that discusses what the Department of Justice’s former Senior Counsel had to say about settling tax dispute claims at this event. As always, for any tax law related matters in Toronto, Ontario Canada, contact Devry Smith Frank LLP at 1-416-446-1400. “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, TaxJuly 31, 2014June 10, 2020
