UVic LSS
Introduction – Terms, Definitions, Etc.
What Are Some Non-Tax Payments
❖ Fines / Penalties– are not taxes. They often relate to the gravity of the offence and are a punishment for breaking a law (note: Finland has an interesting system of fining you based on your ability to pay)
❖ Prices / Fees – you pay these in exchange for a privilege (fishing license, driver’s license, etc.).
❖ Total Ban - Taxing is only one way that a government can regulate a product (i.e. sin taxes on cigarettes). The government can also place a ban on certain products if they wish to deter them (i.e. marijuana).
❖ Royalties – moneys paid to government for the right to extract oil and gas / exploit natural resources.
What Are Taxes ?
❖ Taxes help to define what individuals should pay for and what the state should pay for.
❖ Tax – a tax is a non-voluntary payment that is a forced contribution that is often a proportional contribution enforced pursuant to legislative authority for collective revenue to be used for public or government purposes such as raising revenues and, to an extent, redistributing wealth (MNR).
a) Types of Tax – taxes can include: Income, consumption (GST & PST value added taxes ), excise tax (alcohol, gasoline, etc…all create “social costs”) and wealth tax (estate or inheritance tax).
▪ Canada is one of the few industrialized countries w/out a wealth tax
b) Tax Expenditures – allowing for tax deductions to promote earning and hence more collectible taxes. Incentives placed in the tax act to convince tax payers to do what the government wants them to do. This can be compared to a direct subsidy. Examples include RRSPs, child care (allows both parents to earn an income), educational expenditures
What Are Some Types of Taxes ?
❖ Progressive Tax – the percentage of income paid in taxes increases as the taxpayer’s income (tax base) increases
❖ Regressive Tax – percentage of income paid in taxes decreases as income (tax base) increases
➢ Example - sales tax – stays constant, but is more burdensome to those with less income. A growing tax exemption also fits in here
❖ Proportional Tax – tax rate that remains the fixed regardless of the amount of the tax base (most sales taxes)
What Are The Attributes of Taxes ?
❖ Tax Base – the tax base is what we actually tax. The ITA uses income (although others can exist) to create a tax base upon which we tax. Income taxes into consideration deductions, credits and xemptions
a) Tax Payer – income tax is attributable to the income recipient
b) Tax Period – the tax period is the time frame over which the base is measured (in Canada it is the calendar year)
c) Tax Rates – a tax rate is the percentage applied to the base to calculate the tax owing
d) Tax Administration – involves the tax collecting system. In Canada, this is done by the Canada Revenue Agency
What Are the Types Of Tax Rates ?
❖ Statutory Tax Rates – statutorily established rate of tax. Federally, they are set out in the ITA.
➢ Nation-Wide Exemption - The basic Federal personal exemption that everyone has this year. This basically exempts from taxation the first $9,600 that you earn regardless of the amount of income that you earn (ITA Section 117)
▪ Current Rates - Federal Income tax - Approx 16% up to 36k, 22% up to 71k, 26% up to 115k & 29% above 115k. Then you have to add all of the provincial taxes, etc. Top bracket is around 43%
❖ Marginal Tax Rate – the rate that applies to an additional dollar a taxpayer earns w/in / when you transcend tax brackets. Thus, each additional dollar is taxed at the highest rate applicable to a TP’s total income
❖ Average Tax Rate – the rate applicable to the taxpayer’s income as a whole (the fraction of the total income paid)
❖ Effective Tax Rate – the percentage in relation to all moneys (transfers, non-taxable earnings). Reveals other sources
How Can the Tax Base & Rate Be Reduced ?
1) Exemptions – Exemptions are amounts that you receive that do not have a recognized origin for income tax law and that you do not have to declare b/c they are outside of the ITA (i.e. strike pay, lottery, gifts, social assistance)
2) Deductions – unlike exemptions, deductions MUST be specifically claimed on your tax form. You must fit the deduction w/in the definition of the ITA (i.e. union dues, moving expenses, etc.)
➢ Theory – deductions apply to your marginal tax rate & are thus worth more to a person in a higher tax bracket
3) Credit – credits are reductions in tax otherwise payable (keep separate from deductions) calculated after you have already applied your tax percentage to your income
What Are the Types Of Accounting Methods Used To Calculate Tax ?
1) Generally Accepted Accounting Principles (GAAP) – the conventions, rules, and procedures that define approved accounting practices at a particular time (but these are not binding on the CRA)
2) Cash method of Accounting – during the accounting period, you ONLY account for revenues actually received by the taxpayer AND expenses actually paid by the taxpayer. Income is usually accounted for this way.
➢ Examples:
▪ 3rd Party - Payments received by a 3rd party on the TP’s behalf are considered received by tax payer
▪ Types of Payment - Payments can be made in cash, kind, or by setting off an existing obligation.
▪ Received Cheques - cheques are considered cash & are accounted for when “received” & NOT when cashed
▪ Farms - expressly permits use of the cash method for computing income from a farming or fishing business (28)
3) Accrual Method of Accounting – income is ONLY recognized in the year in which it was earned, regardless of when payment is actually received, & deductions are claimed in the year in which they occurred, regardless of when they are paid. This is used by most corporations & businesses
What Are The Policy Concerns Governing The Entire Income Tax Act ?
❖ Achieve Government Objectives - Taxes assist governments in achieving their broad objectives. They are evaluated by a number of criterion:
1) Equity – taxes help to promote horizontal equity (people similarly situated should pay the same amount of taxes) and to promote vertical equity (unequals are to be treated differently). Equity tries to ensure that different incomes make the same sacrifice
▪ Normative Theory – a normative theory is applied. A fair system is based upon a TP’s ability to pay
▪ Individual As Tax Paying Unit - The individual is the taxpaying unit, not the family, etc. in Canada. Seemingly unfair. Canada, for the most part, implements the control system of taxation (and taxes people on income they control, regardless of whether they share it with others…i.e. a spouse)
• Example - think 100k family vs. 50/50k family & the extra 10k a year that the 100k family pays in taxes
2) Neutrality – taxes should NOT distort the working of the market mechanism or personal decisions. This lies on the notion that the government should draft laws to minimize the excess burden of taxation.
▪ Seemingly Flawed - People usually respond to tax changes with regard to (1) timing of transactions and (2) financial and accounting changes, (3) least responsive are individual decisions (where to work, how hard to work)
3) Simplicity – simplicity can add to legitimacy. It is important to consider …
▪ Comprehensibility – principles underlying tax rules should give rise to obvious / consistent logic.
▪ Certainty – evident underlying purposes contribute to determinability, predictability and reasonable certainty
▪ Compliance Convenience – compliance should be cheap. It is usually not, however.
▪ Administrative Convenience – administrative costs of collecting and enforcing the law should be reasonable
▪ Difficult to Avoid & Evade – system should offer minimal opportunity for non-compliance (goes to fairness).
4) Tax Expenditure – provisions in the ITA that have nothing to do with equity, neutrality & simplicity. They are subsidies for persons acting in a manner desired by the government or b/c of personal circumstances (tax exemptions, credits, lower rates)
▪ How It Works – the ITA is both a collecting statute and a spending statute. It is functionally equivalent to a direct government spending program. Furthermore, it allows the government to offset their subsidy against tax liability
Canada’s Tax System
What Sections of the Constitution Act Grant Taxation Powers ?
1) Federal Legislators – have exclusive legislative authority over all matters not assigned exclusively to the provinces, including the raising of money by any mode or system of taxation (CA Section 91(3))
2) Provincial Legislators – have exclusive authority over
➢ Direct Taxation – direct taxation w/in the province to raise revenues for provincial purposes (CA Section 92(2))
➢ Provincial Licenses – direct taxation w/in the province for shops, saloons (bars), taverns, auctioneers and other licenses to raise money for provincial, local or municipal purposes
▪ Conflict – if there is conflict, lay out the issue and present all of the argument & counter-arguments for each party
What Are the NON-Exclusive Provincial Taxation Powers That May Be Shared w/the Federal Government ?
1) Provincial:
➢ Natural Resources – the provincial legislatures can make taxes relating to NON-renewable natural resources and forestry resources in and primarily produced in that province (CA Section 92A(4)(a))
➢ Electrical Energy – the provincial legislatures can make taxes relating to electrical energy productions sites for provincial use or exportation BUT provincial law can not impose different levels of taxes on the energy they keep and the energy they export (CA Section 92A(4)(b))
2) Federal:
➢ Public Revenue – tax bills appropriating any public revenue must originate in the HofC (CA Section 53)
➢ National Enactment – ITA provisions extend to provincial legislature as if they were re-enacted in each and every province (CA Section 90)
➢ National Admissibility of Provincial Goods – all articles of growth, produce or manufacture of one province is admissible into any other province (CA Section 121)
➢ Government Land Not Taxable – no land or property (assets) belonging to Canada or to an individual Province is taxable (CA Section 125)
What Tax Collection Agreements Are In Place B/W the Federal & Provincial Governments ?
❖ Bilateral Tax Collection Agreement - all provinces (except QB) entered a bilateral Tax Collection Agreement (TCA) with the Federal Government (1997)
❖ TCA for Corporations - Every province EXCEPT QB & AB have TCA’s for corporations (but follow Feds closely), which means B.C. has them
❖ December 31st Decides Provincial Residency - all provinces have agreed to determine residence of an individual on Dec. 31 of a tax year
❖ Current TCAs – the Canada Revenue Agency (Federal) is the sole collector, administrator & enforcer of income tax law on behalf of the “Agreeing Provinces” (this is an “agreement”). QB collects its own.
➢ Department of Finance – the Department of Finance defines income, credits and exemptions. Federal credits (tuition, spousal, personal, etc.) are usually matched by Provincial credits under the relevant provincial income / corporate tax Acts.
➢ Provinces Set Their Own Rates - Provinces set their own brackets & rates, personal exemption level, provide for provincial tax credits, & apply their own annual inflation indexation rate.
What Are The Federal Tax-Related Departments ?
1) Department of Finance – (tax) they develop, evaluate & recommend (draft) tax policy & legislation in the areas of personal income tax, business income tax & sales & excise (charged on goods produced w/in the country) tax.
2) Canada Revenue Agency (CRA) & Department of National Revenue – collects & interprets tax laws for the Federal governmentt & “most” provinces, international trade legislation, numerous social and economic benefit (redistribution) programs, the registration of charities in Canada.
3) Department of Justice - provides legal advice, litigation services, and drafting services to the Canada Customs and Revenue Agency in respect of all fiscal matters including income tax, excise tax and GST, employment insurance, customs and border services and international trade.
How Does the Tax System Operate With Regard To Assessment & Judicial Review ?
Issue: if a TP disagrees with the Minister’s assessment, it is the TP who bears the burden of proving, on a factual basis, that the Minister has made a mistake.
❖ File a Tax Return – a TP sends their (self-assessed) tax return to the CRA
❖ CRA Assessment – the CRA then checks and/or corrects your return & sends you a notice of assessment. A TP may get a refund or owe some more taxes. Furthermore, the CRA can go back and do a re-assessment.
❖ Notice of Objection – an unhappy TP can send in a notice of objection w/in 90 days
❖ CRA Appeals Division - CRA Appeals division affirms or sends you a new assessment.
❖ TCA then FCA then SCC – the TP can further appeal to the Tax Court of Canada (has exclusive original jurisdiction in income tax appeals), then the Federal Court of Appeal and then the Supreme Court of Canada (TP must apply for leave).
❖ 2 Tax Court of Canada Procedures:
➢ General - similar to normal civil procedure under the BC Supreme Court Rules. Normal pre-trial discovery of documents & parties applies, & formal rules of evidence followed. Costs are awarded against the unsuccessful party. The TP must be represented by a lawyer.
➢ Informal – a TP can elect this, BUT must be under 12k in tax & penalties. There is no pre-trial discovery. The TP can represent himself or get a lawyer.
▪ Limitation - There is no appeal from a judgment under the informal procedure, just judicial review re jurisdiction, fairness, error in law, error of fact made in perverse, capricious manner or without regard for the evidence, that TCC based decision on fraud or perjured evidence, otherwise acted contrary to law (and this procedure does NOT set a precedent)
How To Interpret Tax Legislation
❖ Precise Wording – because tax legislation is so precise, emphasis will be places on a textual interpretation
➢ Multiple Interpretations Available – BUT, if multiple interpretations are available, then the ordinary meaning places less focus on textual interpretation and the contextual and purposeful meaning plays a larger role in interpretation (“latent ambiguities in taxation legislation can arise”) (Placer Dome v. Ontario)
➢ Entire Context – tax legislation is to be read in its entire context and in its grammatical & ordinary sense, harmoniously with the scheme of the Act, the objective of the Act and the intention of Parliament (Placer Dome v. Ontario)
▪ Limit on Purpose – reference to purpose can NOT be used to create and unexpressed exception to clear language, it can only assist in finding the most plausible interpretation (Principles of Canadian Income Tax Law)
The Source Concept of Income: S. 3 of the Act
Income Tax Act
|Section | |
|S. 3(a) |Determine the total amounts each of which is the taxpayer’s income for the year from a source inside or outside of Canada, including, |
| |without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,|
|S. 4(1)(a) |Basically every loss or gain you use to compute income must have a source |
|S. 56(1)(a)(ii) |A retiring allowance, other than, an amount received out of or under an employee benefit plan, a retirement compensation arrangement or |
| |salary deferral arrangement (will be included in income) |
|S.248(1) |Retiring Allowance – (a) received in recognition of service (b) in respect of a loss of employment whether or not in lieu of payment, |
| |damages, or court order |
| |Employment – The position of a person in the service of someone else |
|S. 6(3) |Payments from employee to employer (a) while an officer (b) in lieu of any obligation under K, (c)(d)(e) attempt to catch all “signing” |
| |bonuses. |
| | |
Case Law
Comments:
Bellingham (the 114k additional interest case)
Punitive damage awards qualify as a “windfall” and do not count as source income. The payment in question does not flow from an express or implied agreement b/w the parties. Total lack of consideration or quid pro quo no commercial action. The plaintiff’s gain is the defendants loss.
Court also relied on Cartwright – punitive damage awards have “no income feature”
Generally the court is reluctant to expand 3(a) to add unenumerated sources. The source doctrine serves to limit and exclude certain payments.
Some unenumerated sources:
a) Gambling
b) Gifts and Inheritances
c) Windfalls
Exempt Source: Union dues according to Fries.
Cranswick (guy who gets that random asset bonus from a company he has stock in)
Factors for assessing a windfall gain:
a) TP no enforceable claim to the payment
b) No organized effort on the TP’s part to receive the payment
c) Payment was not sought after or solicited in any manner
d) Unexpected payment
e) No foreseeable element of recurrence
f) Payor was not a customary source of income
g) Payment was not in consideration of any action the taxpayer took
Schwartz (guy who cashes in on like 360k for mental anguish leaving his job and getting rejected at his new one)
Case largely fails on a lack of evidence. If you want to find some amount taxable under S.3(a) you need to identify what portion of the 360k was for compensation under the Employment K. Prove your source.
Also cannot be put under S. 56(1)(a)(ii) b/c he never started working for them.
Curran (guy who gets like 250k to leave his last job, is caught by S.3(a), as consideration for his future services)
S. 6(3) won’t apply b/c B paid him while C employed him. But, they still included it as a payment under S. 3(a).
Savage ($300 prize for completing a work related course can be caught by S.6(1)(a) benefit of employment)
General Principle – If someone is included under a specific provision you cannot use a general one to try and catch it. It would render the specific provision pretty much meaningless.
Tsiaprallis (woman who gets all of her back disability insurance payments at once)
Majority: This is a surrogatum amount and was intended to replace the period payments.
Dissent: The amount was not paid “according to the disability insurance plan”, the payment was actually a liability release.
Surrogatum Principle (London Thames)
1) What was the payment intended to replace? And, provided the answer to this question is sufficiently clear:
2) Would the replacement amount have been taxable in the recipient’s hands?
Receipt and Enjoyment of an Income Amount or “Nexus”
Income Tax Act
|Section | |
|S. 152(7) |A tax assessment is not dependent upon a return of information from the taxpayer, and they may adjust tax payable at their discretion |
|S. 152(8) |Assessment is deemed valid and binding, irrespective of mistakes etc. |
Case Law
Comments:
Buckman (Lawyer who stole a bunch of money from clients, failed to claim that it was illegal and can’t count as income)
Relies on Poynton that establishes the principle that you can be taxed on your illegal gains. Mr. Buckman had the use and enjoyment of the money. Of importance is the fact that he never intended to repay the loans. So, they cannot really be considered such.
Nigro (guy who was laundry money for some guy, Mr. X couldn’t open his own back account)
You have the onus to prove that money that seems to obviously be your’s is in fact not under your control. If you have legal control over it we assume it is yours.
Residence as the Primary Basis of Canadian Tax Liability
Income Tax Act
|Section | |
|S.2(1) |All residents of Canada pay tax on worldwide income |
|S.2(2) |Your taxable income for the year is taxpayer’s income for the year plus additions minus the deductions in division C |
| |Non-residents pay for (a)employment income from a Can source (b) business in Can (c) disposition of taxable property |
|S. 2(3) | |
|S. 250(1)(a) |Deemed to be resident if you sojourned in Can. For 183 days or more |
|S. 250(1)(c) |Ambassador or agent-general |
|S. 250(3) |Ordinarily resident can be subbed in for a resident in Can for the purposes of this act |
|S. 114 |Basically a part-time resident’s tax payable is the excess of their income minus their deductions from sources in Canada during their time as a|
| |resident |
|S. 249(1)(b) |A taxation year is a calendar year |
|S. 250(5) |Deemed not to be a resident if a tax treaty covers the issue |
|S.128.1(4) |When you leave the country you are deemed to have disposed of all of your property |
|S. 250(4)(a) |Corporation incorporated after April 27, 1965 deemed resident |
|S. 250(4)(c) |Before April 27, 1965 you’ll be deemed resident in Can if you were resident in Canada or carried on business in Canada |
|S. 212(1) |Every non-resident shall pay income tax of 25% on every amount that a person resident in Canada pays or credits in lieu of payment or in |
| |satisfaction of; [withholding tax] |
| |Management Fee |
| |Interest |
| |Estate or Income Trust |
| |Rents, Royalties etc. (d)(i) covers IP stuff |
| |h) Pension benefits |
| |j.l) A retiring allowance |
| |l) Registered Retirement Savings Plan |
|S. 215 |If you pay, credit, or provide an amount which is income under Part XIII you are required to withhold and remit tax to the Receiver General on |
| |behalf of the non-resident |
Case Law
Comments: 1) Fact Driven area relies heavily on plain meaning. Availability of home seems very important (Salt, Lee)
Residence
Thomson
Facts: Buddy has a British Passport, declares himself to have a domicile in Bermuda, setup residence in America, has an expensive house in USA, spends summer’s in NB for 134 days, wife’s relatives live in NB and they build a fully furnished home there, there are also a bunch of servants and cars etc in NB.
Residence is held to mean “in the course of the customary mode of life of the person concerned” and it is contrasted with special, or occasional or casual residence
Everyone is assumed to have a residence at all times and you can have more than one residence
Held: Resident
Denis Lee
Facts: The guy who works overseas, comes to Canada on a visiting basis, has a wife here, declared himself a resident, has Canadian accounts and a mortgage. Declaring himself a resident was a big factor, but not determinative.
Intention is not a significant factor in deciding residence
Blob ‘o’ factors See Pages 157-158 of the CB for a long open list of factors for residence
Shows that citizenship and immigration status are not determinative of residence
Held: Resident. Marriage might be a neutral factor but it tipped the balance here, in light of the declaration and the mortgage etc.
R & L Foods
Facts: Shareholders of a company who commute from MI to Windsor for work every day
Dude A: stays in CAN overnight and infrequently, some holiday time in TO with friends, 300 work days in Windsor, no home in Can, member of a bunch of crap in MI, no work in USA, friends and family in MI
Dude B: no home in CAN, all investments in CAN, social clubs in both spots, friends family in MI
Sojourning is to make a temporary stay in a place; or to remain or reside for a time for the purposes of creating a temporary residence.
Held: Both were NOT deemed to be residents
Part-Year Residence
Schujahn
Facts: Dude who goes to TO then gets transferred back to the USA. His wife and son stayed in TO and kept the house etc running until they sold it. Dude only returns like three times, but it was always open to him.
Purpose of ties can be used to frame why things are there.
Held: Sojourning in Canada, brief stays. He had sufficiently severed all ties with Canada.
Reeder
Facts: Guy who works for Michelin and goes to France for training. Sold his home, but kept a bunch of his stuff in Canada in storage, still had Ontario Health Care, family stayed in Canada.
Factors for fiscal residence – not a closed list
1) Past and present habits of life
2) Regularity and length of visits in the jurisdiction asserting residence
3) Ties within that jurisdiction
4) Ties elsewhere
5) Permanence or otherwise of purpose of stay abroad
6) General basket – property, investments, employment, family, business, cultural.
Held: He may have severed ties in Canada on a surface look, but he definitely intended to return to Canada after his training based on conduct. The length of the training was indeterminate, but he was coming back.
Avoidance of Dual Tax Residence
S. 250(5) can be deemed no resident by an applicable treaty.
Article 4 of the US-Canada and the UK-Canada treaty (Supp 69-70) Numbers below are para numbers:
1) Basically establish that you could be a resident in either country
2) Tie breaker factors
a) Deemed to be resident in the place with a permanent home, if home in both, then the place with center of vital interests
b) If center of vital interests cannot be determined, then habitual abode
c) If he has a habitual abode in both states or neither, deemed to be resident in a place you are citizen
d) If citizen in neither the authorities will decide for you (this blows so avoid btw)
Difference: In the UK treaty IF no permanent home SKIP (vital interests) and go to habitual abode.
Salt
Facts: Guy drops pretty much dropped everything in Canada but a few things like a credit cards, leased out a house etc. Was deemed to be a resident in Canada and AUS but can he be excluded from CAN via S.250(5)? Look at the tax treaty...
Permanent Home under the 2(a) must be available to you in order to be a permanent home must be available for year-round occupation, leased to non-arm’s-length party, or leased under an agreement that could not be broken within 3 months.
Held: This guy had a lease on his home, under Que law you need 6months notice for such a long lease, so no perma resident b/c of this 6 months.
Interpretation Bulletin – IT-221R3
Factual Residence
Primary Factors:
i) dwelling place (or places) – CRA will look at your realistic access
ii) spouse or C/L partner
iii) dependents
Secondary Factors:
1) personal property in Canada
2) social ties (memberships etc)
3) economic ties with Canada (savings plans credit cards etc)
4) landed immigrant status or work permits
5) hospitalization and medical insurance coverage
6) driver’s licence
7) vehicle registered
8) leased dwelling place
9) Canadian passport
10) Members in prof organizations
Other Factors (deposit boxes, mailing address, telephone listings, newspaper sub) – of limited importance.
Note: This hierarchy isn’t really seen in the law. Marriage status is considered neutral in Denis Lee. Also, cases have not tended to take this approach, factors are more seen on a balance.
Ordinary Residence
a) Evidence of intention to permanently sever residential ties with Canada – Was your return foreseeable at the time you left?
b) Regularity and length of visits to Canada
c) Residential ties outside of Canada
d) Did you comply with any immigration laws in the Tax Act (departure tax etc)?
Departure tax (S. 128.1(4)): you are deemed to have acquired all of your prop at FMM
Provincial Residence
ITA Regulation 2607 – If you are resident in more than one province on the last day of the year you are deemed to be resident in only that province which could be considered the principle place of residence
BC ITA – S. 2(1)(a) you are seemed to, you are resident in BC on the last taxation day
Mandrusiak
Facts: Probably not ubber important. But, he worked in Van, had a home there and in AB, family in AB, was born raised and educated in AB, but basically works more in BC now.
Thompson is adopted for provincial residence as well. Then Regulation 2607 governs the tie breaker, a large contextual analysis.
Held: They basically say his family is there, he was born there, he grew up there, for all intent and purposes he would die in AB. RESIDENT IN AB
Residence of Corporations
Deemed resident where central management and control is located (De Beers). Rationale where is the real business being done?
Central Manage is where the exercise of power and control by the board of directors is exercised (Unit Construction).
Corporations can have more than one residence (Swedish Central)
Canada-US Tax Treaty
Deemed to be resident where incorpotated. 3(a) Article 4, if this cannot be determined the authorities will decide 3(b)
Canada-UK Treaty
Has the same law as Canada. Central management and control
Source as a Basis of Canadian Income Tax Liability
Basically see the ITA chart at the beginning. S. 212 & S. 215.
Income from Office or Employment
Income Tax Act
|Section | |
|S. 248(1) |Office - position of individual entitling individual to remuneration, includes public offices |
| |Employment - position of individual in service of another |
| |Employer - in relation to officer, person from whom officer receives the officer's remuneration. |
| |Employee - includes officer |
| |Specified Shareholder - (a) person who owns more than 10% of stock- any stock owned by person with whom TP does not deal at arm's length, is |
| |considered to be owned by TP for purposes of this definition. |
|S. 5 |(1) income from office/employment includes salary, wages, and other remuneration to the TP (including gratuities) |
| |(2) losses from employment/office are the amount of the loss from the source as computed by applying the allowable deductions to that source. |
|S. 6(1)(a) |– inclusion in income for benefits ensures the value of all benefits, in cash & in kind, are included in computation of TP's income |
| |– the benefit must be received and enjoyed in respect of, in course of, or by virtue of, office/employment |
|S.8 |Allowable Deductions from Office or Employment |
| |8(1): There may be deducted such amounts wholly applicable to that source: |
| | |
| |Legal Expenses |
| |(b): amounts paid on account of legal expenses to establish a right to salary or wages owed |
| | |
| |Commissioned Sales Employees |
| |(f): where the taxpayer was a commissioned sales employee AND: |
| |(i): required to pay their own expenses under the employment contract |
| |(ii): was ordinarily required to work away from the employer's place of business |
| |(iii): was remunerated in whole or part by commissions |
| |(iv): was not in receipt of travel expense allowances under 6(1)(b)(v) |
| |THEN amounts expended for the purpose of earning income, not exceeding the amount of commissions, are deductible |
| | |
| |Transport Employee |
| |(g): where the taxpayer is an employee of a transport business AND the employment required the employee to regularly: |
| |(i): travel away from the municipality where the employer is located AND |
| |(ii): while away from that municipality bought meals and lodging |
| | |
| |Travel Expenses (That are not Motor Vehicle Expenses) |
| |(h): where the taxpayer: |
| |(i): ordinarily carried on their duties away from the employer's place of business |
| |(ii): was required to pay their own travel expenses, THEN |
| |those amounts are deductible (other than motor vehicle expenses) EXCEPT |
| |(iii): where the taxpayer received an allowance under 6(1)(b)(v) OR |
| |(iv): claims a deduction under (e), (f), or (g) of this section |
| | |
| |Motor Vehicle Expenses |
| |(h.1): where the taxpayer: |
| |(i): ordinarily carried on their duties away from the employer's place of business |
| |(ii): was required to pay their own motor vehicle expenses, THEN |
| |those amounts are deductible in the course of employment EXCEPT |
| |(iii): where the taxpayer received an allowance under 6(1)(b) OR |
| |(iv): the taxpayer claims a deduction under (f) (commissioned sales employee) |
| | |
| |Professional Dues and Expenses |
| |(I)(i): annual professional membership dues, which are required by statute to maintain a professional status |
| |(I)(ii): office rent, or salary to an assistant |
| |(I)(iii): cost of supplies consumed directly in performance of duties |
| |(I)(iv): trade union dues |
|S. 8(10) |Important: any amount deductible under 8(1)(c), (f), (h) or (h.1) shall not be deducted unless a prescribed form signed by the employer |
| |certifying the expense, is filed with the taxpayer’s return. |
|S.8(2) |General restriction, except as permitted by this act no deductions for office and employment |
|S. 153(1)(a) |- withholding of tax by employer |
| |- no need to withhold tax from independent K (they remit this themselves), need to withhold from and remit for employee |
| |- independent contractors don't pay into EI, can't claim EI if business goes under |
| |- income from office/employment calculated on cash basis, business income calculated on accrual basis. |
| |- income from an office is recognized when it is “received” and permitted employment expenses are deductible when “ paid” |
| |- Business income is recognized when “ earned” and business expenses when “incurred” |
|S. 125(7) |Active business carried on by corporation - business carried on by corporation other than specified investment business or personal service |
| |business personal services business and includes adventure or concern in the nature of trade |
| |Personal Services Business - business carried on by corporation as a business providing services where an individual (or person related to |
| |incorporated employee) performs services on behalf of corporation and the person is a specified shareholder, and would reasonably be regarded |
| |as an employee of the persons to whom the services are being provided but for the existence of the corporation, unless corporation has 5+ full |
| |time employees. (this is the Raplh-co inclusion). |
| |Specified Investment Business – A lot like the PSB except it applies more specifically to securities traders and continues to include that 5+ |
| |employees part |
| |CCPC (Cdn Controlled Public Company) is a corporation that is resident in Cda, it's shares are not listed on stock exchange, and it not |
| |controlled by non-residents of Cda, by a corporation whose shares are traded on a stock exchange, or a combination of these |
|S. 18(1)(p) |personal services business cannot deduct an outlay or expense to the extent that it was deducted or incurred for the purpose of gaining income |
| |except |
| |Salary wages etc paid in the year to an incorporated EE |
| |The cost to the corp of any allowance provided to an incorporated EE |
| |If an incorp EE executes a K or sells property AND IT WAS normally deductible for them under office or employment |
| |Legal Expenses |
|S. 6(19)-(23) |(19) – Generally housing losses are included in income |
| |(20) – Eligible housing loss (basically if you satisfy Renko) (a) one half of the amount in excess of $15,000 will be exempt and one half will |
| |be included in income |
| |(21) – How to calculate a housing loss. Pretty much do you sell your house for below the ACB you paid, you must sell it for approximately FMV.|
|S. 251 | |
|S. 6(1)(f) |No inclusion of an ER contribution into a sick leave or disability fund paid in lieu of income fund UNTIL you COLLECT it. |
|S. 6(1)(b) |Allowances: 6(1)(b): included in income is all amounts received as an allowance for personal, living, or any other expenses EXCEPT: |
| |(v): reasonable allowances for travel expenses in respect of when the employee was selling property OR negotiating contracts for their employer|
| |(vi): reasonable allowances received by a minister or clergyman for transportation expenses incident to delivering religious services |
| |(vii): reasonable allowances for travel expenses (OTHER than motor vehicle expenses) received by an employee NOT contemplated by (v) for |
| |traveling away from: |
| |(A): the municipality where the employer's work site that the employee worked at is, AND |
| |(B): the metropolitan area, if there is one, where that employer's work site is |
| |(vii.1): reasonable allowances for the use of a motor vehicle received by an employee not contemplated by (v) for traveling in the performance |
| |of duties |
| | |
| |IMPORTANT: and for the purposes of (v), (vi), and (vii.1), an allowance in connection with use of a motor vehicle is deemed not reasonable if: |
| |(x): the measurement is not based solely on kilometres used, OR |
| |(xi): where the taxpayer receives both an allowance and reimbursement (except where the reimbursement is for supplemental insurance, toll, or |
| |ferry charges and the allowance did not contemplate those charges) |
|S. 6(6) |Notwithstanding (1), there shall not be included in income any amount received that is the value of or a reasonable allowance for: |
| |(a): the taxpayer's board and lodging at: |
| |(i) a special work site (location where work was temporary), if the taxpayer maintained a principal residence at another location THAT |
| |(A): was throughout the special work period, available for occupancy and not rented out AND |
| |(B): by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site OR |
| |(ii): a location at which, by virtue of its remoteness from any established community, the taxpayer could not reasonably be expected to |
| |establish and maintain a self-contained domestic establishment. ITB-91R4 Remoteness is ................
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