November 2016 Newsletter

On October 3, 2016, the Department of Finance released draft legislation that proposes to amend the principal residence exemption. Most of the amendments relate to non-residents owning or acquiring homes in Canada, and to trusts claiming the exemption.

Related to the changes discussed in the preceding section, the Canada Revenue Agency (CRA) is changing its administrative policy with respect to the designation of a principal residence. The changes apply to all taxpayers, including those who have always been resident in Canada.

The income attribution rules prevent many forms of income splitting among family members. But for the rules, a high-income spouse could easily shift investment income to a low-income spouse or lowincome minor child and save tax (since lower tax rates apply to lower levels of income).

The so-called kiddie tax is not an income attribution rule because it applies to a minor child rather than attributing income back to a parent of the child. However, since it applies at the highest marginal rate of tax, it is just as detrimental as (or worse than) the attribution rules.

The March 2016 Federal Budget proposed new rules that deal with the taxation of “linked notes”. In general terms, a linked note is a debt obligation, often issued by a corporation, which pays “interest” that is linked to a reference point such as the value of a stock market index, commodity index, or some other index or property. The interest on the note is typically paid on maturity rather than on an annual basis.

The CRA recently announced the new prescribed interest rates that apply to amounts owed to the CRA and to amounts the CRA owes to individuals and corporations. The amounts are subject to change every calendar quarter.

Employee pharmacist could not deduct legal fees to preserve employment

Under the Income Tax Act, an employee can deduct legal fees that are incurred to collect, or to establish a right to, an amount that would otherwise be in-cluded in the employee’s income from employment. For example, if you take legal action against your employer or former employer for wages that are owed to you, the legal fees are deductible.