July 2017 Newsletter

If your employer provides you with a car, there are two potential taxable benefits that will be included in your income to reflect your personal use of the car. These benefits are added to your employment income and are fully taxable.

On the other hand, any employment use of the car should not be a taxable benefit for you since it does not benefit you personally.

Capital dividends are a delightful thing to receive. They are completely tax-free. Generally speaking, a private corporation can pay a capital dividend out of its “capital dividend account”. Public corporations and non-resident corporations cannot pay capital dividends.

The corporation paying the capital dividend must make an election on Form T2054 and file it with the Canada Revenue Agency (CRA) no later than when the dividend becomes payable. A late-filed election can be made, but with a late filing penalty which is generally $500 per year or 1% of the dividend (whichever is lower), prorated for the number of months of lateness.

Until recently, there were two different tax credits that applied in similar situations – the in-home caregiver credit and the infirm dependant credit.

You could claim the in-home caregiver credit if a related infirm dependent 18 years or older was dependent on you and lived with you. A credit was also allowed if your non-infirm parents or grandparents lived with you and were 65 or over.

An allowable business investment loss (ABIL) is one-half of a business investment loss (BIL). The BIL is a capital loss incurred on dispositions of certain types of shares or debt. An ABIL is more useful in tax terms relative to a capital loss, in that it serves to offset all sources of income and not just capital gains. (Regular allowable capital losses normally only offset taxable capital gains.)

ABIL can arise on a disposition in the following circumstances:

The Income Tax Act provides a fairly generous income tax credit for donations to registered charities (as well as other “qualified donees” such as the federal and provincial government, many foreign universities and colleges, municipalities and others).

No capital loss upon losing former client base

In the Martin case (2015 FCA 204), the taxpayer was a financial advisor and broker for several years. He was quite successful and established a large and loyal client base. However, his employment with his employer brokerage firm was terminated when the firm was taken over. The taxpayer was unable to become an independent financial advisor or to establish his own firm. As a result, his former clients did not continue business with him and instead stayed with his former firm.