January 2020 Newsletter

The Federal basic personal credit is a non-refundable tax credit. ("Non-refundable" means that it's not paid to you if you have no tax to pay for the year. It can create a refund of tax withheld at source or that you paid by instalments.)

Every individual is entitled to the credit, which equals 15% multiplied by the “basic personal amount”, which is indexed annually for inflation. For your 2019 return, the credit is 15% of $12,069. The 15% rate, which is equal to the lowest Federal marginal tax rate, was chosen to ensure that everyone is treated the same regardless of their tax bracket; that is, until 2020, as discussed below.

The basic personal amount will continue to be indexed for inflation, as was the case before. Therefore, in 2020, the basic personal amount is $12,298, and will continue to be indexed thereafter. Based on its projections, the government estimates that the 2021 through 2023 amounts will equal $12,554, $12,783, and $13,308, respectively.

Some readers who trade in securities may be aware of the “superficial loss” rules that apply for income tax purposes. The rules are intended to prevent a taxpayer from selling a property at a loss (say, to use against capital gains you have), in cases where the loss is deemed to be “superficial” because the property or a similar property is re-acquired within a set period of time.

General rules

Basically, the rules apply in the following circumstances:

You sell a capital property at a loss, and in the period beginning 30 days before the day of the sale and ending 30 days after the sale, you or an “affiliated person” acquire the same or identical property and own it at the end of that period. The period is therefore a total of 61 days (including the day of the sale).

The section 85 “rollover” under the Income Tax Act is a provision that allows you to transfer property to your corporation without immediate tax consequences. That is, you can transfer it in without realizing a gain, or with realizing a partial gain.

When the rollover applies

The rollover applies if you transfer a property (eligible property, as described below), to a taxable Canadian corporation, and you receive at least one share back as consideration for the transfer.

You and the corporation must file a joint election, by the earlier of your filing-due date and the corporation’s filing-due for the year of the transfer. A late election is allowed if made within three years of the earlier date, or later if the CRA allows it. However, a late election is subject to monetary penalties.

Eligible property includes:

Deduction allowed for legal fees incurred by former employee

Under paragraph 8(1)(b) of the Income Tax Act, a taxpayer may deduct legal fees incurred to collect or establish a right to receive an amount that would be considered employment income if it were received.

In the recent Kurnik case, the taxpayer Mr. Kurnik was promised an employment bonus from his former employer corporation upon the closing of the sale of the corporation. After the sale, the corporation refused to pay the bonus. The taxpayer sued for the bonus. The corporation countered with two parallel lawsuits of its own – one a counterclaim against the taxpayer and the other a lawsuit against the taxpayer’s family trust for amounts paid to it while the taxpayer was employed there.