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Canadian Tax Free Savings Accounts – Canada Revenue Agency Audit Project

As we have previously written, the Canada Revenue Agency (“CRA”) is aggressively reviewing certain Tax Free Savings Accounts (“TFSAs”). Subsection 146.2(6) of the Canadian Income Tax Act provides that if a TFSA “carries on one or more businesses,” then Part I tax is payable on its business income. This provision, little noticed until recently, has been the basis for a wave of CRA tax assessments issued to TFSAs in respect of income allegedly earned from carrying on a securities trading business inside the TFSA. Generally, the assessments are issued to TFSAs with high balances whose annuitants are investment advisors or have significant knowledge and experience in the securities industry, particularly (but not always) where the TFSA has traded frequently in speculative stocks. There is usually no limitation period for the CRA to assess because TFSAs generally do not file a tax return under Part I of the Act.

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United States Limited Liability Limited Partnerships – Are you ready for the Canada Revenue Agency’s new hybrid creation?

Canadians who thought they had invested in a partnership when they invested in a US Limited Liability Limited Partnership (LLLP) may be surprised in the coming weeks to find they actually own a “hybrid entity”. No, this isn’t some new genetically modified plant or Frankenstein monster. It’s, for example, an entity which is treated as a partnership in one country, but taxed like a corporation in the other country. Another common hybrid entity Canadians may be familiar with is the US Limited Liability Corporation (LLC). Basically, a hybrid entity is one that is fiscally transparent in one country and not in another. An entity is fiscally transparent if profits are taxable directly in the owners’ hands, regardless of whether any distributions were made to the owners. Based on Canada Revenue Agency (CRA) comments, it appears the CRA is soon going to decree that a US LLLP is a corporation for Canadian tax purposes, thus turning US LLLP interests held by Canadians into investments in hybrid entities. Does our firm agree with the CRA’s comments? No… but we will not debate that conclusion here. Instead, we discuss the challenge that Canadians will face if the CRA’s position is correct.

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The attack on the collaborative relationship between tax professionals and tax administrators

For those of you who know me, you’ll know that I’m not shy about expressing my views. While some may not agree with them, I’m okay with that. I enjoy healthy, respectful debate on issues of tax administration and tax policy. However, the media, particularly the CBC, has recently been taking aim at the tax profession with “investigative reports” suggesting “inappropriate planning” is being done by certain professionals. While the “investigations” might make for good media for the average viewer, such “investigations” are, in many cases, simply wrong or misleading and sweep in organizations and individuals that have nothing to do with the particular case. These reports further exaggerate the situation with provocative language to embellish the reporter’s story.

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2016 federal budget summary and comments

The new Liberal government introduced its first federal budget (the budget) today. This blog provides an executive summary, in-depth analysis, and commentary on the tax measures announced by the federal government that will significantly impact taxpayers.

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The end of the tax return?

Could the end of tax return preparation — or so-called “tax season” for accountants — really happen? Or to paraphrase Mark Twain, is the demise of the income tax return greatly exaggerated? Technology is an amazing thing. As governments continue to expand data collection and improve their use of technology, it is not beyond the realm of possibility that the tax return could evolve into something very different than it is today. So, while the income tax return certainly isn’t dead yet, its demise may be in the not-so-distant future.

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Twelve Canada-US tax tips for 2016

By now the 2015 holiday season is a distant memory, as are most of those well-meaning 2016 resolutions. For those individuals with both Canada and US tax issues, tax filing season is a few months away; however, there are several steps you can take that will ease your burden in the next few months… or at least ease it next year.

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2016 Canadian federal budget predictions

In what’s becoming our firm’s annual tradition, the purpose of this blog is to gaze into the crystal ball to predict what the tax goodies might look like when the 2016 federal budget is released. The timing of such a release is anyone’s guess, but some prognosticators are suggesting the third week of March 2016. We certainly can’t add any credibility to that guess since the timing of the budget release is usually a carefully guarded secret – and rightly so.

With the above in mind, here are our predictions and a bit of a wish list.

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New legislative proposals for trusts – dealing with the subsection 104(13.4) problem

On Nov. 16, 2015, I wrote about the ongoing saga regarding subsection 104(13.4) and some good news that was released by the Department of Finance. Today, the Department of Finance released legislative proposals as a follow-up and are seeking comments on such proposals no later than Feb. 15, 2016. While we are still absorbing some of the material, here are the very quick observations.

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Half a loaf is better than none!

The Federal Court of Appeal’s (FCA) recent French language decision in the appeal of Gervais considered the use of a sale structure commonly referred to as the “half loaf.” In general, this planning technique provides an opportunity to spouses to increase the use of the capital gains deduction (CGD) in cases where only one spouse owns property (and a disposition of which would give rise to an opportunity for use of the CGD). The Tax Court decision in Gervais of Jorre J. was largely based on the finding that a transfer of capital property from one spouse to another, that was immediately resold to an unrelated party, was on account of income and not capital.

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US citizenship renunciation – inheritance tax proposal update

On Dec. 9, 2015, Roy Berg, Paul Barba, and Kevin Kirkpatrick submitted our firm’s comments to the IRS regarding the proposed regulations to section 2801 and will be providing oral comments to the IRS at a hearing in Washington, D.C., on Jan. 6, 2016.

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Canada Revenue Agency releases new Form T1135 to report foreign property

On Dec. 9, 2015, the Canada Revenue Agency (CRA) released a new version of prescribed Form T1135 for taxpayers who own specified foreign property (SFP). The new form allows taxpayers who own SFP that have a total cost between $100,000 and $250,000 a more simplified reporting option.

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