Category Archives: Corporation

Happy Birthday to my blog – Week 4 (Business Support)

May 31, 2021

I started this blog because I wanted to help business owners.  So, it only seems fitting that I am rounding out the month of celebrations by highlighting some of my posts over the last year that were aimed at supporting business-owners:

Also, I have taken some time to reflect on the last year and the purpose and reach of “The Tax Chick Blog” and “The Tax Chick Podcast”.  I have made the decision to move from writing a weekly blog, to a monthly blog, starting in June 2021.  My plan is to supplement monthly blog posts with other sources of information provided on my LinkedIn page, Instagram page and through the podcast!

Here are the other places you can find “me” and my content:

Thank you from the bottom of my heart for your support over the last year.  Creating “The Tax Chick” brand has opened me up to so many new opportunities and has allowed me to meet and connect with some wonderful people.  I am excited to continue sharing this content with all of you.  As always, if there are topics you would like to see covered in the blog, or podcast – or if you would like to be a guest on my podcast, please send me an email: thetaxchickpodcast@gmail.com.

But my home is my office! De-coding the 2020 WFH expense rules

January 18, 2021

Like the rest of the world, I also packed up my office and moved home in March 2020.   My new office was located somewhere between my living room and my kitchen.  Thank goodness for the Costco folding table we had purchased a number of years ago.

Over the next couple of months, I amassed some new office supplies – a new standing desk, a scanner, a printer.

I had previously reviewed the rules in the Income Tax Act (Canada) regarding home office expenses – albeit for my clients.  But there is definitely a renewed interest in the topic in light of the more recent changes to the home office expense rules for 2020.

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The Capital Gains Exemption

December 7, 2020

“It’s OK Amanda, I will just use my capital gains exemption.”

In keeping with the theme of the last couple of blog posts, I thought it might be timely to move from a discussion of the “rollover” rules to a discussion of the “Capital Gains Exemption”.  A quick recap:

  • A “rollover” is when property is transferred at cost, and a gain is not triggered at the time of transfer.  The person receiving the property receives it at cost.
  • In contrast, it is possible to transfer property at fair market value and trigger the gain.  But then offset the gain with the “capital gains exemption”.
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Rollover does not mean tax free – Part II

November 30, 2020

In last week’s blog post, I introduced the concept of a tax “rollover” – and explained that a rollover is not truly a “tax free” transaction.  It is better characterized as tax “deferral” (a.k.a. Future Amanda’s problem).

When working on an estate plan for someone with farming or fishing assets, it is important to consider the intersection of the “rollover” rules with taxation on death.  In today’s blog post, I wanted to continue the rollover discussion and address shares of a family farm corporation.

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Tax Chick Tips on Surviving an Audit

September 28, 2020

Last week, I was arguing an appeal in the Tax Court of Canada. The case was about the application of the specific anti-avoidance rule found in ss. 256(2.1) of the Income Tax Act (Canada) to a set of corporate taxpayers. I will give you an update on how that turned out once the decision is released…

In the meantime, we return to our regularly scheduled programming.  Today, I wanted to talk a bit about audits.

Audits are generally not a fun thing to endure.  An audit is a bit like going through security screening at an airport – the whole environment has the ability to make you feel guilty, even if you have not done anything wrong.

But if you are an honest person and have done your best to file your taxes properly, then you should not have much to fear with an audit.  At worst, the auditor might find a mistake that was made, which might result in some additional tax to pay.   You will also lose time dealing with the audit, which could otherwise have been spent with family, relaxation or perhaps on your business.

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I Object! An overview of the internal appeals process at Canada Revenue Agency

September 7, 2020

It is an otherwise happy Monday afternoon, and you stop by your mailbox on the way home. You open the mailbox and pull out… the dreaded brown envelope.

I do this for a living, and my heart still skips a beat when I see an email from Canada Revenue Agency, or open up one of those brown envelopes.

Step #1.  Do not panic.  Open the envelope and see what it says.  Sometimes, you get a letter informing you of a refund that will be deposited into your account.  High five to you!

However, I am guessing that you are not surprised to get this letter.  Because you likely just filed your tax return, or have been dealing with a CRA auditor for the last couple of months.  I am also guessing that the letter probably is telling you that you owe some money to CRA.

In last week’s blog post, I provided you with some helpful tips for dealing with CRA Collections division.  One of those tips was to determine whether you agreed with the amount owing.  If you do not, consideration should be given as to whether it is appropriate to file a “Notice of Objection”.

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Presto Chango – the role of rectification in tax law

August 10, 2020

Mistakes happen. 

Often, when a mistake occurs, there is a desire to invoke what I like to call the “self-help” remedy – fix the document internally and hope for the best.

In last week’s blog post, I explored the concept of “backdating”, and why this not a good solution to a problem.  One of the issues with backdating, is that an internal change to a document is not binding on third parties – i.e., Canada Revenue Agency (CRA).

So, what can you do if you need to fix a mistake on a set of documents?  One potential option is an application for rectification.

What is rectification?

Rectification is an equitable remedy.  It allows a transaction to be amended retroactively.  Rectification is different from rescission which allows a transaction to be retroactively annulled, cancelled or set aside.  More about rescission in next week’s blog post.

In order for rectification to be binding on a third party it requires a court order.  The relevant court in this instance is the superior court of a particular province.  For example, in Saskatchewan, an order for rectification would be sought from the Saskatchewan Court of Queen’s Bench.  This is the case even if you are seeking rectification because of a tax issue – the Tax Court of Canada does not have jurisdiction to grant rectification.  As a result, sometimes it is necessary to have two open court applications at the same time – one to the superior court of the province for rectification, and the second to the Tax Court of Canada to appeal the underlying reassessment.

What are the requirements for rectification?

There are four requirements that must be met in order to get rectification:

  1. There must be a prior agreement.  This agreement needs to be in writing – you cannot “fix” a verbal agreement through rectification.  The terms of this agreement need to be “definite and ascertainable”.  In other words, it needs to be clear what the agreement was.
  2. The agreement had to have been in effect at the time the written document was prepared and signed (i.e., no backdating).
  3. The written document must be inconsistent with the agreement of the parties.  For example, the parties could have agreed to sell Class “A” shares, but the document says they are selling Class “B” shares.
  4. There must be a written document that can be amended to carry out the prior agreement.

There must be evidence of the original intention of the parties – and this intention must be specific. It is not enough to say, “We intended that there would be no tax consequences.” Instead, there needs to be evidence of the specific intention. If we continue with the example noted in point 3 above, there would need to be some evidence that the parties intended to sell Class “A” shares. Not just that they intended to sell shares or that they intended to sell the shares without triggering any tax consequences. In addition, someone needs to admit to making the mistake. Finally, there needs to be a document that can be fixed. As mentioned above, if there is no written document to fix, rectification is not possible.

The scope of rectification was narrowed significantly following the release of the Supreme Court of Canada decisions in Fairmont Hotels and Jean Coutu. The big concern addressed in those decisions was whether or not rectification was being used to engage in retroactive tax planning. It is now suggested that rectification is only available to fix clerical errors. The Courts have not necessarily been consistent in their interpretation of the Supreme Court of Canada decisions.

What is the process for obtaining rectification?

As indicated above, rectification needs to be obtained by court order if it is going to be binding on third parties.  When the error that is discovered results in a tax consequence, it will be necessary to involve CRA in the application.  Similarly, if the error involves a filing with the provincial or federal corporate registry, or Land Titles office, it may be necessary to involve that particular office as well.

CRA has a National Rectification Committee that reviews and considers all rectification applications across the country.  In my practice, I typically consult with this Committee early on in the process and provide sworn affidavit evidence and a proposed court order to the Committee for review.  I also name the Minister of National Revenue as a party to the application.  Provided that the evidence is sufficient, the Minister (through the Committee representative) will provide a letter of “non-opposition” to be filed with the Court.

Once the Court order is issued, it is important to obtain signature on the newly “fixed” or “rectified” documents, to provide a copy of those documents to CRA, and to update the corporate records. 

Time Travelling Documents – why backdating is always a bad idea

August 3, 2020

Question: “So, my partner and I sat down this morning and we decided that the agreement has to be dated January 1, 2020.”

Me/Answer: “I need a bit more information before we can decide that January 1, 2020 is an appropriate date.”

Question: “What is the big deal?  Just use that date!  No one will ever know!”

I wish I could say that I made up this conversation, but I did not.  I have had this conversation several times in my career.  There are often attempts by others to “bully” advisors into preparing documents on terms that do not squarely match reality.

The purpose of today’s blog post is two-fold:

  1. What is backdating, and when is it appropriate (if ever)?
  2. A quick discussion of the ethical responsibilities of advisors.
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Planes, Trains and Automobiles: Taxation of Travel

July 27, 2020

One of the most common audit issues that I run across on a regular basis is a disallowed travel expense.   If you are claiming travel expenses as an employee or as a business owner, it is important to know the parameters of a valid expense and what documentation is required to prove validity. 

Let’s break down the rules for some of the more common travel-related claims:

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Large Corporations: What are they and why do we care?

July 20, 2020

Picture this:  You have set up a successful corporation and are up to date with all your tax filings.  One morning, you get a phone call from Canada Revenue Agency advising that you have been selected for an audit.  The audit happens and it results in a reassessment.  You do not agree with the reassessment and plan to object.  However, before you have a chance to call your lawyer, you find out that $50,000 was just scooped from your corporate bank account by CRA to pay a portion of the amount owing on the reassessment.

You are so confused and really mad.  You call your lawyer to ask how this could have happened!  You remember reading somewhere that CRA is prohibited from taking collections action until the deadline for filing an appeal has passed.  Your lawyer asks, “Are you a large corporation?”  You respond, “I don’t know – what does that have to do with anything???”

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