Proposed changes to private corporation taxation in Canada - July 18,2017

Proposed changes to private corporation taxation in Canada:

1) Dividends and other amounts received from a business, by an adult family member of the principal of the business, may be subject to a reasonableness test, which will be stricter for 18-24 year olds. Reasonableness will be based on the contributions made by the family member to the business. Top tax rates would apply.

2) Measures are also proposed to address other income sprinkling issues, including the multiplication of claims to the Lifetime Capital Gains Exemption. No LCGE in respect of capital gains from a disposition after 2017 (subject to the transitional rules) for minors, for gains while the corporation was held by a trust, and where income relating to the gain period was caught by point 1) .

3) Several proposes issued to discourage passive investments in corporations. This includes a new "elective" taxation method.

4) An expansion of Section 84.1 to reduce the ability to strip value out of corporations as capital gains rather than dividends.

Get your submissions in!

Source - http://www.fin.gc.ca/n17/17-066-eng.asp

Watch! Video Tax News video commentary on the proposed changes to private corporate tax planning.

Curious about CRA thoughts on employment benefits? Watch CRA's various Payroll Podcasts.

CRA has released a number of Payroll Podcasts which deal with common payroll concerns. 

Episode 1 – Introduction to taxable benefits – This podcast reminds employers to reflect benefits at fair market value (not the cost to the employer). Various examples of benefits are provided, such as when parking would and would not be a taxable benefit. CRA Guide T4130 is also referenced.

Episode 2 – Automobile and motor vehicle benefits – This podcast reminds taxpayers that travel between home and a regular place of employment is personal, while travel from home to a point of call is employment. It also discussed the benefits associated with employer-provided vehicles.

Episode 3 – Parking as a taxable benefit – This podcast discussed a number of concepts such as when parking is required for business, the fair market value of a parking spot, and scramble parking.

Episode 4 - Gifts and Awards - This podcast discussed CRA's Gifts and Awards policy, noting the definition of gifts, awards and rewards, and differentiating cash/near-cash and non-cash gifts and awards.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 427

CRA's My Account now linked to My Service Canada Account. Easily switch between tax and other benefit (ex. EI, CPP, OAS).

In “What’s new for the 2017 tax-filing season.” release, CRA noted the following new services:

• Account alerts – A new service which notifies individuals by email when an address has changed, banking information for direct deposit has changed, or if mail sent by CRA was returned.
   
• Link between My Account and My Service Canada Account – Individuals can now access these two accounts through a single sign-in session. When switching between Accounts, users must authorize their SIN to be transmitted to the other department. This service is not available within Represent a Client.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 427

Effective July 1, ride sharing services are considered 'taxi businesses' and therefore will need to register for GST/HST.

Budget 2017 proposed change the definition of a taxi business to include all persons engaged in a business of transporting passengers for fares by motor vehicle within a municipality and its environs where the transportation is arranged for or coordinated through an electronic platform or system, such as a mobile application or website. This will end the uncertainty over whether drivers for Uber and other ride sharing services are taxi businesses, effective July 1, 2017. This has been included in Bill C-44.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 428

Loan to Limited Partner - CRA opines that could constitute a draw, and therefore reduce the Partner's ACB immediately.

A June 27, 2016 French Technical Interpretation (2016-0637341E5, Gagnon, Robert) examined whether a loan to a limited partner could constitute a draw.

In the case, the limited partnership had a limited partner (LP), entitled to 99% of the partnership’s profit, and a general partner (GP), entitled to 1% of the partnership’s profits. The partnership earned income evenly throughout the year. At the beginning of the year the LP’s ACB was nil. Quarterly, the LP took a loan from the partnership equal to ¼ of the partnership’s annual profits. At the beginning of the following year, the partnership distributed profits in the form of a promissory note. The note and the loan were then immediately set-off.

CRA opined that the loan to the LP could constitute a draw as the scope of Subparagraph 53(2)(c)(v) is very broad. A review of the partnership agreement would be required to determine whether the draw was “on account or in lieu of… partnership profits.” If, the loan did constitute a draw, the ACB would be reduced immediately. As, in this case, the ACB at the start of the year was nil, a reduction would bring the ACB into a negative position, and, therefore, Subsection 40(3.1) would apply to deem the LP to realize a capital gain.

CRA also opined that there is a question as to whether a partner could in fact “loan” money from the partnership as a partnership is not a legal entity in and of itself.

For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 426