June 2018 Newsletter

If you are listed on the provincial or federal public registry of companies as being a “director” of any corporation (including a non-profit or a charity) — or even if you are not a director but are effectively responsible for an incorporated company — you need to be aware of the tax risks and of the steps you can take to insulate yourself. Every year, the Canada Revenue Agency (CRA) and Revenu Québec (RQ) assess hundreds of directors to collect debts owing by their companies. In many of these cases, the director was not aware of this risk and of what they could have done to avoid personal liability. Countless Canadians have had their assets confiscated and their lives ruined though this mistake.

In the discussion below, references to the CRA apply to RQ as well, in Quebec where RQ administers not only provincial income tax and Quebec Sales Tax (QST), but also the GST/HST.

Under the Income Tax Act (ITA), a business can generally deduct any expenses that are incurred to earn business income, except where specifically prohibited.

Employees, by contrast, are only allowed to deduct expenses that are specifically allowed by the Act. Most of the rules allowing expenses contain various conditions and restrictions.

One condition that applies to many deductible employee expenses is that the employee be “required under the contract of employment” to pay the expenses. Normally, to claim such expenses the employee needs to be able to demonstrate that the employment contract states that the employee is required to incur the costs in question. Generally the employer needs to certify on Form T2200 that this condition is met, as required by Income Tax Act subsection 8(10).

In the 2016 Budget, the newly-elected Liberals announced a large increase in the Child Tax Benefit, renamed the Canada Child Benefit. It is now $6,400 per year for each child under 6 and $5,400 for each child age 6-17. It is gradually phased out once the parents’ net income exceeds $30,000, but the phase-out is quite slow. For example, with 4 children age 6-17 the benefit disappears entirely only when the family net income reaches $211,375.

As originally announced, the Canada Child Benefit was not going to be indexed to inflation. Possibly the Liberals wanted future political credit for announcing increases, or else wanted the real cost eroded over time to reduce the federal deficit. However, the Parliamentary Budget Officer, in September 2016, publicized the fact that the new program would cost the government less than the old program by about 2025. As a result, indexing was restored, but it would not start until July 2020.

Do you ever want to look up and read legislation (passed by Parliament or a provincial legislature), or Court cases that you have read about? Here is a useful and free Web site to know about: canLii.org.

CanLII is the Canadian Legal Information Institute, a project of Canada’s law societies. It provides free and very efficient access to virtually all of Canada’s legislation, regulations and case law. You can search by title or case name, or search the full text of all the documents or a subset of them (e.g., just Tax Court of Canada cases, or just your province’s legislation).

Charitable donation receipts must meet every technical requirement

Two recent decisions of the Tax Court of Canada demonstrate how important it is to check your charitable donation receipts, in case the CRA challenges them on audit.

The Income Tax Regulations (subsection 3501(1)) state that every receipt must contain the following: