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September 2015 Newsletter

Other than “approved” shelters such as RRSPs, TFSAs and flow-through shares, there are few if any tax shelters that still work to reduce your tax bill.

Taxpayers should be aware of some of the dangers of investing in a scheme designed to reduce income tax, quite aside from whether the scheme technically “works”:

If you are considering emigrating from Canada, tax considerations will be extremely important. The tax implications can be (and are) the subject of a whole book; below we review just some of the  most important highlights. It is generally wise to obtain professional advice that is tailored to your specific situation.

Will you become a non-resident of Canada ?

If you become non-resident, you will no longer be subject to Canadian tax on all of your worldwide sources of income. You will generally be taxed only on certain “Canadian-source” income (e.g., income from rent on property in Canada, dividends from Canadian corporations, or capital gains on Canadian real estate). From a Canadian tax point of view, it may therefore be desirable to become non-resident. Of course, taxes should not be an overriding consideration; other issues such as health care, cost of living, safety, political stability, civil rights and quality of life must not be overlooked.

Aside from not using charity donations for tax-shelter purposes (see the first article above), you should be aware of the stringent requirements for donation receipts in section 3501 of the Income Tax Regulations.

Receipts may be issued on paper, and mailed or delivered to you; or electronically, and sent by email or web link pickup. Regardless of which form is used, you should check every receipt to make sure it complies with the list below, and ask the charity for a replacement receipt if it does not. Otherwise your donation could be denied when your claims are audited months or years after filing your return.

If you have more than one corporation under your control, what happens for purposes of the Goods and Services Tax (GST), Harmonized Sales Tax (HST) or Quebec Sales Tax (QST), if they charge amounts to each other?

(GST, HST and QST all follow the same rules. This discussion does not apply to the provincial retail sales taxes in B.C., Saskatchewan and Manitoba. For simplicity, we will refer simply to “GST” below.)

For example, Xco might charge Yco management fees, or Xco might charge Yco rent for use of Xco’s office building. These charges might be done for tax purposes, or for creditor proofing, to ensure that an operating company does not have too many assets in case of unexpected liabilities.

An unexpected cost of filing a tax return late

In the October 2014 case of Yuet Yi Fung v. The Queen, a taxpayer suffered a significant penalty for filing her return late, even though no tax was owing.

In spring 2012, Ms. Fung was caring for a premature newborn baby as well as a four-year-old. She did not owe any tax for 2011. She was busy at home, and put off filing her return.

When she eventually filed her return in October 2012, Ms. Fung included a Form T1135, “Foreign income verification statement”, reporting that she owned more than $100,000 of foreign assets.

In our August Letter, there was an error in the last sentence of the second paragraph under the heading “Sale Of Building With Terminal Loss And Land With Gain”. It should read:
“In general terms, a terminal loss on the sale of a building occurs when you sell the building for proceeds that are less than the undepreciated capital cost (UCC) of the building – normally meaning that the building was previously under-depreciated for income tax purposes relative to its actual value”. (Emphasis added to correct the error.)