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Federal tax rate increases for Canadians

On December 7, 2015, Canada’s new Finance Minister, Bill Morneau, tabled measures to reduce the federal individual income tax rate for the $45,282 to $90,563 tax bracket from 22% to 20.5%, and introduced a new 33% top rate bracket for taxable income over $200,000, effective Jan. 1, 2016. Additionally, the Tax-Free Savings Account (TFSA) annual contribution limit will be rolled back to $5,500 after 2015. While these amendments were not unexpected as they were part of the Liberal’s election platform, the proposal also includes subtle but important consequential amendments affecting tax rates/credits for trusts and estates, “kiddie tax”, charitable donations, corporate refundable taxes on investment income for Canadian-controlled private corporations (CCPCs), and Part IV tax. This short blog summarizes these changes and offers some thoughts.

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CRA comments on proposed amendments to subsection 55(2): a new planning era and new opportunities

It is no surprise that the proposed legislation on subsection 55(2) released on July 31, 2015 was a hot-button topic at the Canadian Tax Foundation’s 67th Annual Tax Conference last week in Montreal. What is a surprise was the Canada Revenue Agency’s (CRA) increasing willingness to comment on this draft legislation in Round Table sessions (both at this conference and the APFF Conference on October 9, 2015), when they have largely refrained from doing so with proposed legislation in the past. Accordingly, we will discuss these invaluable comments from the CRA, as well as some insights and planning ideas with respect to proposed subsection 55(2).

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Good news update from the Department of Finance regarding subsection 104(13.4)

On November 4, 2015, I wrote a short blog on the status of the discussions that the CBA/CPA Canada Joint Committee on Taxation, STEP, and CALU (the “Working Group”) have had with the Department of Finance regarding significant issues of concern raised by many tax, trust, and estate practitioners regarding subsection 104(13.4) of the Income Tax Act.

Today, I’m pleased to share with you a letter that the Department of Finance just released. In short, it states the Department of Finance has heard our concerns and is prepared to continue further discussions relating to specific recommendations made by the Working Group to amend subsection 104(13.4) to deal with the misplaced tax liability and charitable donation mismatch concerns.

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Update on new Canadian trust taxation legislation – subsection 104(13.4)

Almost a year ago, I wrote about a piece of draft legislation – subsection 104(13.4) – that was introduced as part of the proposals to eliminate graduated rate taxation for Canadian resident testamentary trusts. I explained how troublesome subsection 104(13.4) will be when planning the affairs of Canadians who want to utilize “life interest trusts” such as alter ego, joint spousal/common law partner, or spousal trusts. Subsection 104(13.4) has since become law and will become effective January 1, 2016.

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Tax rates, politics, and why you can’t hate your brother-in-law

Regardless of your political affiliation or philosophy on tax policy, change is coming. While we don’t have to welcome the change with loving arms, we do have to figure out how to productively work with it. We cannot, however, take up arms, become entrenched in our positions, and curse the new reality.

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US citizenship renunciation could mean a steep inheritance tax

Renouncing US citizenship or giving up one’s long-held green card does not necessarily mean forever severing all ties with the US. Many former Americans, especially those in neighbouring Canada and Mexico, also have family and friends who are still US residents or US citizens, and to whom they want to eventually gift or bequeath assets. Under section 2801 of the Internal Revenue Code, US citizens or US residents who received gift or inheritance from “covered expatriates” (as defined in 877) are subject to an inheritance tax imposed at 40% of the value of the gift or inheritance. Regulations recently proposed by the US Treasury have clarified how and when this tax will be imposed. The new proposed regulations underscore the importance of carefully planning renunciations, gifts, and bequests.

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Canadian Challenge to FATCA

On August 4 and 5, 2015, the FC heard oral arguments in a lawsuit – commenced on August 11, 2014 by two Canada-US citizens – that challenges the law implementing the Canada-US intergovernmental agreement (IGA) relating to FATCA (Virginia Hillis et al. v. The Attorney General of Canada et al., court file no. T-1736-14). I attended the hearing. Surprisingly, the court said that it would rule on the plaintiffs’ motion by September 30, 2015, which is the deadline for the first transfer of information from Canada to the United States under the IGA. the FC decision may profoundly affect FATCA’s application and Canada’s ability to implement the OECD’s common reporting standard for the automatic exchange of information. The FC decision on the substantive issues will mark the first time that a court in an IGA-partner jurisdiction has decided the domestic legality of an IGA’s implementing legislation: the 115 IGA-partner jurisdictions await both the FC decision and the US treasury comments if the court decision is favourable to the plaintiffs.

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Tax and AC/DC

Those of you who know me well will know that my first career choice was to be a music teacher. I studied and played music classically well into my teens. When I realized that my talents would likely not provide me a stable living, I switched gears and became a Chartered Accountant. I still love music – all types of music with a few exceptions – but I have a soft spot for classic rock which is often playing in my office. One of my all time favorite bands is AC/DC. Their straight-ahead blues rock with very simple (almost comical) lyrics is exactly what I like to listen to when I need to turn my brain off (which doesn’t happen very often). Accordingly, I couldn’t pass up the opportunity to attend AC/DC’s concert in Edmonton on September 20, 2015, with my fellow directors of Moodys Gartner Tax Law – Greg Gartner, Dale Franko, and Roy Berg.

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Beware of wolves in the Canada Revenue Agency’s clothing

Telephone calls by fraudsters posing as Canada Revenue Agency (“CRA”) representatives who threaten immediate legal action unless a purported tax debt is paid continues despite warnings published by the CRA, media, and others. The fraudsters are often reported to have South Asian accents and to use aggressive and threatening language unless the fictitious tax debt is paid immediately (often by wire transfer or pre-paid credit card).

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News analysis: decision in Canadian challenge to FATCA expected soon

The Canadian Federal Court heard oral arguments on August 4 and 5 in a lawsuit that challenges the law that implements the intergovernmental agreement between Canada and the US relating to the Foreign Account Tax Compliance Act. This author attended the hearing. Surprisingly, the court committed to rule on the plaintiffs’ motion for summary trial by September 30, the date by which the first transfer of information from Canada to the US is required under the IGA.

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Donation of private corporation shares and real estate – new Canadian legislative proposals released

A number of years ago, the government introduced legislation (under paragraph 38(a.1) of the Income Tax Act – the “Act”) that exempts from taxation realized capital gains when publicly traded securities are gifted directly to registered charities. Subsequent to the introduction of such rules, many commentators have suggested that donations to charities from proceeds realized upon the disposition of real estate and private corporation shares should also be subject to a similar capital gains exception. The government has resisted introducing such measures until the 2015 Federal Budget (the “Budget”) which was released on April 21, 2015.

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A rare example of a one-client business found by the Tax Court to not be a personal services business

On August 12, 2015, the Tax Court of Canada (“TCC”) released its judgment in C.J. McCarty Inc. v The Queen1. McCarty is one of many personal services business (“PSB”) reassessment cases published in the recent years, but what makes this case interesting is that it is one of few where the taxpayer emerges successful despite having only one significant client and being compensated at a fixed hourly rate. In this short article, we will examine the unique facts that led the court to its judgment.

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