October 2018 Newsletter

An allowable business investment loss (“ABIL”) is a special form of allowable capital loss (“ACL”), which is half of a capital loss. However, unlike an ACL, which can normally only be deducted against taxable capital gains, an ABIL can be deducted from all sources of income such as income from employment, business, or property.

Capital gains or losses on property are normally triggered only when there is a “disposition” of the property (i.e., you sell it). In other words, accrued but unrealized gains are not taxed unless and until there is a disposition.

As a result, you can own property for years with large accrued gains, and not pay any tax until you sell the property.

General deemed disposition rule

However, ultimately, the tax rules will catch up to you. In particular, the Income Tax Act provides that when you die, you are deemed to have disposed of your capital properties immediately before your death, for proceeds equal to their fair market value. As a result, your accrued capital gains will be triggered (as well as any accrued capital losses). Similar rules apply to land inventory and certain resource properties that you own at the time of your death.

There are various income tax rules that apply when two or more corporations are “associated” with each other. Unfortunately, the rules tend to be detrimental rather than beneficial, and the associated corporation rules must always be considered when dealing with closely-held corporate structures.

For example, associated corporations face the following restrictions or limitations:

Of course, the simple answer is no. Normally, you do not have to file a tax return for the year if you have no income tax payable for the year. (Note that having no tax payable at year-end because of source withholdings does not get you out of your filing obligation. For this purpose, "tax payable" includes amounts you have already paid or that were withheld from payments to you.)

However, even if you have no tax payable, you may need to file a return for the year. For example, you must file a return if you have a taxable capital gain in the year or dispose of capital property in the year. You must file if the CRA sends you a demand to file a return. You must file a return if you have withdrawn money from your registered retirement savings plan (“RRSP”) under the Home Buyers’ plan or Lifelong Learning Plan and have an outstanding balance payable in respect of the repayment of those amounts to your RRSP.

Car Allowances Based on Estimated Travel Taxable

The Income Tax Act provides that a car allowance paid to an employee is not taxable if it is reasonable. If it is unreasonable, it is taxable.

A further rule provides that a car allowance is deemed to be unreasonable, and therefore taxable, if the allowance is not based solely on the number of kilometres driven in the course of employment.