March 2020 Newsletter

In past years, various promoters marketed schemes to enable taxpayers to “profit” from the charitable donation credit. (The promoters would also earn huge profits.)

The early schemes were art donations: you would buy art that came with a professional valuation, but you would pay a steeply discounted price, and then donate the art to a charity, which would issue you a tax receipt based on the valuation price. So you might spend $20,000 to buy art supposedly worth $100,000, and claim a charitable donation credit for a donation of $100,000, which would be worth about $50,000 depending on your province of residence.

These shelters expanded to other products, such as software and pharmaceuticals. Some shelters were “leveraged donation” schemes where you donated cash, but most of the cash came in the form of an interest-free loan that you never actually had to pay back. The schemes became more and more complex. Some were outright shams, with no real donation to the charity at all. Most of them resulted in relatively little new charitable work being done.

Under the Income Tax Act, interest expense can be deducted from business income or property income if certain conditions are satisfied:

If you are the trustee of a trust, or otherwise responsible for filing a “T3” trust income tax return, you need to be aware of the effect of 2020 being a leap year.

The deadline for filing the return for a trust with a December 31 year-end is often thought to be March 31, but it is not. It is 90 days after the year-end.

Because 2020 is a leap year, there were 29 days in February. As a result, the deadline is Monday March 30, not Tuesday March 31.

As is well known, the Tax Free Savings Account rules allow you to invest a substantial amount of money in a TFSA, and all interest, dividends and capital gains earned in the account are tax-free.

For 2020, another $6,000 is added to the amount you can contribute.

Since TFSA eligibility starts at age 18 and TFSAs started in 2009 (originally at $5,000 per year, now $6,000), your cumulative TFSA contribution limit as of 2020 is, based on your birthdate:

Most disputes between taxpayers and the Canada Revenue Agency, if not resolved, can be appealed to the Tax Court of Canada (after first filing a Notice of Objection with the CRA). That is the appeal route you use if the CRA issues an “assessment” or “reassessment”, and you take the position that the (re)assessment is incorrect.

However, some matters are for CRA discretion: the CRA can choose to grant you relief, or not. One example is waiving, or cancelling interest and penalty: the Income Tax Act gives the CRA discretion to do that, and the CRA has “Taxpayer Relief” guidelines that it will apply in deciding whether or not to waive some or all of the interest and penalty.

Another example is a request to open up an old tax year to allow deductions or credits not previously claimed. The Income Tax Act allows this for up to 10 years, but the CRA has discretion as to whether to do so (and again will apply its “Taxpayer Relief” guidelines).

The international tax law has been subject to massive upheaval in the past few years.

For example, foreign bank secrecy has disappeared. Over 100 countries now exchange financial information with each other, so if you (with a Canadian address) have a significant bank account in, say, France, the French government will send details of that account to the CRA, and of course the CRA does the same for French residents with accounts in Canadian financial institutions. This is done using something called the "Common Reporting Standard”, coordinated by the OECD.

Lawn and garden care allowed as home office deduction

In the recent case of Hébert v. The Queen, 2019 TCC 266, Mr. Hébert was a civil engineer who had sold his business and provided consulting services from his home. He used the basement of his home as his office (with a separate entrance), and he had clients in the office. He also conducted arbitration session at his home.

As part of his deductible “home office” expenses, Mr. Hébert claimed 35% of the expenses that he paid to have the lawn mowed and annual flowers planted. This fraction was the same 35% as for his other home office expenses, based on the proportion of the home that he used for his business.