CURRENT NEWS

• 1. Tax Legislation

  • 7. Federal Statutory Updates

    To find out the status of yet to be enacted or proclaimed federal legislation, including Income Tax Bills, please go to this link.

  • 6. Personal and Corporate Tax Rates

    For information on tax rates see:     

    CRA - Individual rates and corporate rates

    PwC - Combined Tax Rates link

    Deloitte - Personal and Corporate Tax Rates link 

    Ernst & Young - Personal Tax Calculator and Corporate Tax Rates link

    KPMG - Corporate Tax Rates link, Personal Tax Rates link; Tax Facts link

  • 5. 2011 Budget Commentaries

    For information on the 2011 Budgets see the following sites:

    PricewaterhouseCoopers       

    Deloitte - Alberta Budget commentary

    Ernst & Young (search "Budget 2011")

  • 3. Department of Finance - Summary of Outstanding Draft Legislation 2010 – 2011

    This section of the Department of Finance Website lists the pending, draft tax legislation.  If you are looking for some explanatory notes or the proposed technical language, this is where you will find it.  If you want to know the status of the legislation as it progresses though Parliament to Proclaimed into Force status please see the links under the "Federal Statutory Updates" section below.  For additional details on tax legislation try contacting the Finance official responsible for the particular piece of legislation.  Typically each piece of Draft Legislation provides the name of the responsible official and their contact number.

  • 2. 2012 Budget Dates

    Current as of January 30, 2012

    Jurisdiction - Date

    Federal - To be announced
    Alberta - February 9, 2012
    British Columbia - To be announced
    Manitoba - To be announced
    New Brunswick - To be announced
    Newfoundland & Labrador - To be announced
    Northwest Territories - To be announced
    Nova Scotia - To be announced
    Nunavut - To be announced
    Ontario - To be announced
    Prince Edward Island - To be announced
    Quebec - To be announced
    Saskatchewan - To be announced
    Yukon - To be announced

  • 4. Status of Tax Treaty Negotiations

    For the Status of International Tax Treaty Negotiations on the Department of Finance website, scroll down past the yearly Notices to see the: In Force; Signed but Not Yet In Force and Under negotiation/re-negotiation details. Also included in this section of the Department of Finance website is an update on TIEA's. New this month:

    • Entry into force of the tax information exchange agreement between Canada and Dominica (January 12, 2012)

  • 1. Joint Committee Speaks Out on Technical Deficiencies in Partnership Anti-Deferral Rules

    The Joint Committee on Taxation of The Canadian Bar Association and The Canadian Institute of Chartered Accountants sent a letter to the Department of Finance on November 14, 2011 to address a whole host of issues arising out of proposed Bill C-13 - Corporate Tax Deferral Rules in Sections 34.2, 34.3 and 249.1 of the Tax Act.  These are the amendments that are proposed to deny the deferral of tax by a corporation that has a significant interest in a partnership having a fiscal period different from the taxation year of the corporation.

    And if you don't think these rules are complex, have a look at the 25 pages of recommendations which cover issues included under the following general headings:  Actual Stub Period Accrual and Adjusted Stub Period Accrual; Transitional Reserve for Qualifying Transitional Income; Single-Tier Alignment Election and Multi-Tier Alignment Election; Paragraph 34.2(5)(a) - Sourcing; Paragraph 34.2(8)(b) - Hybrid Surplus; and, Drafting Inconsistencies.

    If you are acting for clients in corporate partnerships you would be well advised to review the myriad of technical problems with these new rules discussed in the linked correspondence!
• 2. CRA's Interpretations

  • CRA's New 2012 Letter Audit Campaign

    This CRA release entitled "Audit" deals with several areas of CRA's audit process including information on their 2012 Letter Writing Campaign. Also discussed are the following topics:

    How we select files to audit

    Delays in the audit and how to avoid them

    GST/HST audit and examination - Combined Audits Discontinued

    How we conduct audits

    Finalizing an audit

     

    In this third year of the letter campaign, the CRA will send 47,000 letters to taxpayers in January and February 2012. There are two types of letters the CRA might send to taxpayers: one to educate them about specific claims they made on their returns, and another to educate and to notify taxpayers in certain sectors of the CRA's intent to audit them.

    Educational letters and intent-to-audit letters are mailed to individuals in sectors where taxpayers or industry segments are at risk of misunderstanding their tax obligations or wilfully avoiding paying their taxes.

    For more info on this subject and the one's m=named above please see the CRA Audit webpage.

     

     

     

     

  • CRA's GST News 83

    In this Excise and GST/HST News Release No. 83 for Winter 2012 there were a number of items highlighted including:

    
    Notice to excise tax licensees in the Canadian fuel industry sector
    Legislative proposals for GST/HST
    Acceptable documentary evidence when making sales relieved of tax to Indians
    Buffalo Point and Songhees First Nations implement the First Nations Goods and Services Tax
    Ontario First Nations point-of-sale relief - reporting requirements for GST/HST registrants
    Tax relief for specially-equipped motor vehicles
    Automated messages to new GST/HST registrants and new employers
    Online services built for businesses
    New online account enquiries service
    Prescribed rates of interest
    What's new in publications
    Enquiries

    While we don't purport to provide to provide coverage of GST/HST news in this newsletter, we do try to bring to your attention useful information in the area.

     

  • Charities Connection No. 11 - Jan. 2012

    In this January 2012 Charities Connection NO. 11 CRA provides a summary of the Budget 2011 affecting charities. These include:

    
    Budget 2011 - Changes for qualified donees
    What is a qualified donee?
    New requirements for other qualified donees
    Changes for registered Canadian amateur athletic associations

    Please go to this CRA publication for more information.

  • CRA To Commence Processing of T1s on Feb. 13, 2012

    In this recent announcement, CRA advises that it will begin processing T1 returns (2011 tax year) on February 13, 2012.

    Commencing January 23, 2012, providing you have met the previous requirements and are using a certified software, you will be able to submit T1 returns through our EOL+ (batch) filing system. These returns will be placed in a stockpile inventory until we open for processing on February 13, 2012 at 8:30 a.m. (eastern (Ottawa) time).

    We will accept the T1 batches submitted in XML format from one to thirty returns. The Form T1013 may be submitted in batches from one to thirty.

    For more information please see the CRA News item.

     

  • CRA - Information for Canadians Receiving Social Security Pensions from Germany

    In the January 2012 edition of Toronto Centre Canada Revenue Agency & Professionals Group Newsletter CRA provides Information for Canadian residents who receive social security pensions from Germany.

    Under German law, Canadian residents who receive German social security pensions must file a German tax return to determine their tax liability to Germany. Germany is issuing "requests to file" to Canadian residents who received such pension in the 2005 to 2009 tax years.

    Taxpayers are requried to report their German social security pension on form ESt1C including annex R. For more information on completing forms, go to the German Web site
    http://www.finanzamt-rente-im-ausland.de/en/ or
    contact the German tax office in Neubrandenburg.

    For more details and examples, please go to the newsletter.

     

  • Major Tax Changes for your 2011 Tax Return

    The following is a list of the Major Changes for the 2011 T1 Return:

    - Split income of a child under 18 - now includes Capital Gains
    - Taxable capital gains - 50% inclusion for certain flow-through shares
    - Volunteer firefighters' amount - $3000 on line 362
    - Children's arts amount of $500 on  line 370
    - Allowable amount of medical expenses for other dependants on line 331
    - Investment tax credit - Mineral Exploration Credit extended for flow-through entered into before April 1,2012
    - Canada Child Tax Benefit - notification of change of marital status by end of month following month of change - and shared custody to get one-half credt as of July 2011
    - Canada Pension Plan - As of Jan. 2012 changes for 60 to 70 employed or self-employed and receiveing CPP or QPP
    - Students - more exam fees to qualify for the Tuition Amount and the minimum duration of courses taken at universities outside Canada reduced to 3 weeks

     

    For more details on these chages please see the link to CRA's website page entitled "What's new for 2011" .

  • CRA Guides and Releases

    For more information check the specific guide or go to our link below for new releases.  Numerous forms were updated this month, some of which are linked here and the full list can be found at Recently Added Forms and Publications under: What's New on the CRA website.  Some of the more interesting releases in this category over the past month include:

    • P102 - Support Payments - Includes Form T1158
    • T4001 - Employers' Guide - Payroll Deductions and Remittances
    • RC4092 - Registered Education Savings Plan
    • T4012 - T2 Corporation - Income Tax Guide 2011
    • RC4409 - Keeping Records

  • Technical Interpretations Note

    NOTE: Technical Interpretations ("TIs") are not published on CRA's website although inquiries regarding such items may be made directly to the Rulings Directorate in Ottawa at their general number (613) 957-8953, by facsimile at (613) 957-2088 or by e-mail: mailto:itrulingsdirectorate@cra-arc-gc.ca.

    It is also useful to note that CRA maintains reading rooms across Canada where their internal policies set out in their Taxation Operations Manuals, amongst other publications, may be reviewed - see link: http://infosource.gc.ca/inst/nar/fed11-eng.asp

  • Treatment of Additional Payment Arising from Price Adjustment Clause

    TI2011-0422191E5 - 2011/11/21 - Corporate Reorganization Division of the Rulings Directorate

    This TI is in response to an enquiry on the treatment of an additional payment made pursuant to a price adjustment clause that became operative. The TI was written in French (summary in English). We have translated the French to English and have used the translated version in drafting this write-up.

    The facts are as follows:

    1. An Estate Freeze was effected which resulted in the taxpayer exchanging his common shares for preference shares.
    2. The preference shares had a redemption value equal to the FMV of the common shares at the time of the exchange. The share rights for the preference shares included a price adjustment clause ("PAC"). The PAC would cause the redemption value of the preference shares to be adjusted if the FMV at the time of issue is subsequently determined to be incorrect.
    3. The preference shares were subsequently redeemed and the taxpayer was paid the redemption value.
    4. CRA subsequently challenged the FMV, resulting in an upward adjustment to the redemption value of the preference shares. Since the preference shares had already been redeemed, the corporation remitted the difference to the taxpayer by way of an additional payment.

    The taxpayer sought to know the treatment of the additional payment and in which taxation year the income should be included - in the year of the redemption, or the year of receipt of the additional payment (the additional payment was made a number of years after the redemption).

    CRA advised that the additional payment is to be treated as a dividend and is to be included in the taxpayer's income in the year of receipt (s. 84(3)).

  • Testamentary Gift to a Registered Charity

    TI2011-0428021E5 - 2011/12/14 - Business and Trusts Division of the Rulings Directorate

    This TI provides some clarification on the treatment of charitable donations made by way of an individual's Last Will and Testament. Specifically, the taxpayer sought clarification on the treatment of a charitable donation that is made on the death of the spouse from the residue of a spousal trust (the spousal trust was created by the individual's will).

    CRA stated that the treatment is dependant on the terms and conditions of the will. In general, when an amount given to a registered charity constitutes a gift "by the individual's will", a tax credit may be claimed in the final T1 return of the individual (s. 118.1(5)).

    With a spousal trust, a gift of an equitable interest in the trust may be regarded as a gift by the individual's will. Where the will directs the trustee to make a donation to a charity of a specified amount, property, or percentage of the residue, and it is clear from the terms and conditions of the will that the trustee is required to make the gift, it would likely constitute a gift by the individual's will. A power of encroachment in favour of the spouse should not change this treatment as long as the specified amount or property to be donated is clearly excluded from the possible encroachment.

    Where the terms and conditions of the will leaves with the trustee the decision whether or not a gift to a registered charity is to be made, and it is clear that the gift was completed after the death of the spouse, it would likely be a tax credit to be claimed by the spousal trust.

    As the above illustrates, the terms and conditions of a will are essential in determining the tax treatment of a gift made to a registered charity. Where a donation tax credit is best utilized in the final T1 return, compulsory language should be use and any powers of encroachment should be limited.

  • Retrospective Application of Accounting Policies under ASPE and the SBD

    TI2011-0425511E5 - 2011/01/04 - Business and Trusts Division of the Rulings Directorate

    This TI is in response to an enquiry on the effects, if any, of the retrospective application of accounting policies under the Accounting Standards for Private Enterprises (ASPE) on the small business deduction. Specifically, the taxpayer is concerned that a restatement of the closing balance of retained earnings (resulting from reporting assets at FMV) in the comparative financial statements for the preceding fiscal period in the first year ASPE is adopted may increase the small business limit reduction.

    CRA responded as follows:

    "A CCPC's access to the SBD may be restricted by subsection 125(5.1) of the Act through the reduction of its annual business limit.  One of the components used to determine the corporation's annual SBD business limit reduction in subsection 125(5.1) of the Act (as proposed for taxation years that begin after December 20, 2002) is "the taxable capital employed in Canada ...of the corporation for the preceding taxation year."  It is the CRA's view that the reference to the preceding taxation year's taxable capital employed in Canada in the first year ASPE is adopted by the corporation would essentially be based on the amounts reported in its financial statements filed for that preceding year (based on GAAP) and not the restated amounts for that preceding year as presented under ASPE for comparative purposes only."

  • Lump-Sum Child Support Payments

    TI2011-0407661E5 - 2011/12/12 - International Division of the Rulings Directorate

    This TI (follow-up) is in response to an enquiry on the treatment of a lump-sum payment for arrears support and arrears interest.

    CRA advised that the principal portion of the lump-sum payment for arrears support would be included in income in the year of receipt under s. 56(1)(b), while the lump-sum payment for arrears interest would be included in income in the year of receipt under s. 12(1)(c).

    To provide relief to the bunching of income from a lump-sum payment, CRA advised that an income averaging mechanism is available under s. 110.2 to "average" income over the years the income should have been received. The mechanism allows for a deduction in the year the lump-sum payment is received, and a calculation of the "notional tax payable" for the years the income should have been received.

    The taxpayer, as the recipient of the support payments, sought from the CRA a conclusion that the support payments were not required to be included as income on the basis that there was a variation of the original order/agreement or there was a subsequent order/agreement. The original order/agreement was made before May 1997. CRA was not able to make the conclusion, as it was not supported by the facts.

    This TI is a good reminder that one must consider the tax consequences of varying or obtaining a subsequent order/agreement for child support. Orders/agreements made prior to May 1997 are grandfathered under the prior rules that allow for a deduction to the payor and an income inclusion for the recipient. Depending on the particular circumstances, it may be best to preserve the grandfathered provisions, or perhaps it may be more advantageous to be subject to the new provisions.

  • Joint Venture – Calculation of Stub Period Income

    TI2011-0431271E5 - 2012/01/10 - Business and Trusts Division of the Rulings Directorate

    This TI clarifies CRA's position on the calculation of the stub period income for participants of joint ventures. The calculation of the stub period income is necessary due to the change in CRA's administrative policy that participant taxpayers can no longer compute income as if the joint venture had a separate fiscal period.

    The change in administrative policy on separate fiscal periods is summarized in TI2011-0429581E5:

    "...participant taxpayers who entered into joint venture arrangements will no longer be eligible to compute income as if the joint venture had a separate fiscal period. For taxation years ending after March 22, 2011, income from a joint venture will be required to be calculated for each participant taxpayer based on the fiscal period of the particular participant taxpayer."

    The taxpayer enquired whether the stub period income for participants of joint ventures could be calculated using the formulaic method provided under legislation for partnerships. The formulaic method results in an estimated income for the stub period based on a pro-rated amount of income that was allocated from the partnership for the fiscal period of the partnership that ended in a partner's taxation year.

    CRA stated that although it would allow, on an administrative basis, transitional relief similar to the relief as provided for members of partnerships, it will not also allow for a formulaic method to compute the stub period income for participants of joint ventures. Hence, the stub period income for participants of joint ventures must be calculated using the actual income.

  • Greater Certainty in the Interaction of S. 84.1(1) and S. 85(2.1)

    TI2011-0412121C6 - 2011/10/07 - Roundtable on Federal Taxation (APFF Conference 2011)

    This TI is in response to an enquiry on the interaction of s. 84.1(1) and s 85(2.1). The taxpayer wanted to know whether the s. 85(2.1) PUC reduction would apply to a disposition even if the fact scenario puts that disposition into the realm of s. 84.1(1). The TI was written in French (summary in English). We have translated the French to English and have used the translated version in drafting this write-up.

    The taxpayer is to effect a basic reorganization by transferring shares of Opco to Holdco under s. 85(1). The facts are as follows:

    • Individual owns 100 common shares in Opco (the "Opco Shares"). The Opco Shares have a PUC of $100,000 and an ACB of $100.
    • Individual transfers the common shares to newly incorporated Holdco, receiving 100 common shares of Holdco as consideration (the "Holdco Shares"). The Holdco Shares have a PUC of $100,000.
    • The transfer is to be effected under s. 85(1), with an agreed amount of $100. From the facts, there does not appear to be any non-share consideration.
    • The taxpayer has stated that the conditions for the application of s. 84.1(1) have been satisfied.

    The preamble to s. 85(2.1) states:

    "Where subsection 85(1) or 85(2) applies to a disposition of property (other than a disposition of property to which section 84.1 or 212.1 applies) to a corporation by a person or partnership (in this subsection referred to as the "taxpayer"),..."

    The conditions for the application of s. 84.1(1) can be summarized as follows:

    • The shares transferred are capital property of the vendor.
    • The vendor is not a corporation.
    • The vendor is a resident of Canada.
    • The purchaser is a corporation.
    • The vendor and the purchaser do not deal at arm's length.
    • The corporation whose shares are sold is resident in Canada (the "Target Corporation").
    • The Target Corporation is connected with the purchaser corporation immediately after the transfer.

    If these conditions are satisfied, the possible consequences are a PUC reduction and a deemed dividend.

    The taxpayer stated that the conditions for the application of s. 84.1(1) have been satisfied. However, although the conditions have been satisfied, there was no PUC reduction or deemed dividend as the facts did not require it (i.e. no non-share consideration).

    Although s. 84.1(1) applied in the fact scenario, because there were no consequences to the application of s. 84.1(1) (no PUC reduction or deemed dividend required), the taxpayer wanted to know whether the PUC reduction in s. 85(2.1) would consequently apply. CRA stated that it would not. Although there were no consequences, the fact scenario did put the disposition into the realm of s. 84.1(1), and that was sufficient to take it out of s. 85(2.1).

    This TI is a good reminder of the distinction between the application of a provision and its possible consequences - just because the possible consequences did not apply does not mean that the provision itself did not apply.
• 3. Tax Court Cases
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• 4. Practitioners' Forum
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