Category: Tax

Cryptocurrency and Taxes

While merely holding bitcoin, dash, or other cryptocurrency does not give rise to tax, the sale will result in a capital gain or full income inclusion. The use of bitcoin in a transaction will also be considered a disposition for Canadian income tax purposes and will result in income that has to be reported.  If you sell digital currency in 2017 your profits will have to be declared when you file your 2017 tax return by April 30, 2018.



Tax on Split Income Rules that tax capital gains as Dividends

Tax on Split Income Rules that tax capital gains as Dividends

The Income Tax Act (Canada) (the “Act”)2 deems a person to dispose of his or her capital property, such as shares of a Canadian private or public corporation, as a result of death or emigration from Canada (collectively, “Deemed Dispositions”). These Deemed Dispositions create taxable events where the value of the shares at the time of the Deemed Dispositions is in a gain or loss position even though the shareholder will still own the shares and will not have received any proceeds from the sale that he or she can use to pay the Deemed Disposition taxes.

Under the Proposals, Deemed Dispositions of corporate securities (for this discussion we’ll focus on shares only) of Canadian private corporations will be taxed as top tax rate dividends rather than as capital gains taxed at the shareholders marginal tax rates, regardless of the age3 of the shareholder unless the owner can establish that his or her personal contribution of human and/or financial capital met certain uncertain and difficult-to-meet hurdles in the discretion of the Canada Revenue Agency (CRA).4

The effect of this aspect of the Proposals will be to eliminate marginal tax rate taxation for adults who are subject to this element of the Proposals and to increase the tax rates on Deemed Dispositions for many shareholders of Canadian private corporations from the top marginal tax rate of 26.76% to the top marginal tax rate applicable to dividends of 45.30%.5  This tax increase will apply if the affected shareholder acquired their interest in the Canadian private corporation with no or nominal consideration and, in many cases, the tax increase will also apply even where the acquisition has been made with their own assets and/or borrowed funds.  In their current form, the Proposals will apply to all existing or accumulated value in Canadian private corporations – not just on value that appreciates after July 18, 2017.

The Proposals do not impact the capital gains rate realized by investors in public corporation shares in any way or form.6 As a result, Deemed Dispositions of such shares will continue to attract tax at ordinary marginal capital gains rates subject to a maximum tax rate of 26.76%. This will be true whether the person acquiring the shares received the shares as a gift,7 with his own wealth or whether he acquires the shares with borrowed funds, including borrowed funds from non-arm’s length persons at favourable interest rates.8


Read More from Mondaq

Donations to Charity

The First-time donor’s super credit (FDSC) supplements the value of the charitable donations tax credit (CDTC) by 25% on donations made after March 20, 2013, by a first-time donor.

For the purpose of the FDSC, you will be considered a first-time donor if neither you nor your spouse or common-law partner (if you have one) have claimed and been allowed a charitable donations tax credit for any year after 2007.

The FDSC applies to a gift of money made after March 20, 2013, up to a maximum of $1,000, in respect of only one taxation year from 2013 to 2017.

If you have a spouse or common-law partner, you can share the claim for the FDSC, but the total combined donations claimed cannot be more than $1,000.


This is a non-refundable tax credit. As such, it can only be used to reduce tax owed; if you don’t owe any tax, you don’t get a refund. Generally, your tax savings will be equal to the amount of the charitable tax credit calculated. The following are exceptions:

  • If you are a resident of Quebec and are entitled to a refundable federal tax abatement, then your actual federal tax savings will be reduced.
  • If you are required to pay provincial income surtax, then your actual saving will be more than the charitable tax credit calculated as the credit will reduce both your base income taxes and provincial surtax.
  • If you made a donation of publicly traded securities, you may increase your tax saving by reducing your capital gains tax.

For a quick estimate of your charitable tax credit for the current tax year, try out the Charitable donation tax credit calculator.

For more information about claiming your charitable donations, see the General Income Tax and Benefits Guide.


Renouncing U.S. Citizenship Or Giving Up A Green Card: Why And How To Consider It

Unique among global powers, the United States taxes the worldwide income of its citizens and permanent resident status holders no matter where they live. Additionally, the requirement that a U.K-U.S. citizen or green card holder file an annual U.S. income tax return is not waived by the fact that the United States grants a credit for taxes paid to the U.K. In fact, many U.S. citizens living abroad do not actually owe U.S. tax, but they can face very stiff monetary penalties for failing to file required disclosures about non-U.S. assets in a timely manner.


Read More from Mondaq

Limits on CRA Collections – GST/HST

Canada’s Excise Tax Act gives sweeping powers to the Canada Revenue Agency (“CRA”), and by extension its tax collection officers, to collect the tax debts of taxpayers. In many cases, taxpayers are taken by surprise when their bank accounts are frozen, assets liened or seized and wages garnisheed. However there are certain limitations on when the CRA can legally take action to collect GST/HST tax debt, which are both situational and based upon strict timeframes. Unlike most debts under the Income Tax Act, there is no initial 90 day period where collection action is barred after a GST/HST assessment. There is however a 10 year limitation period that applies to GST/HST tax debts. This limitation period is ‘restarted’ whenever the CRA takes action to collect the debt or the taxpayer acknowledges the tax debt, which can mean that a GST/HST debt more than 10 years old is still collectible. If you need help dealing with CRA tax collectors, one of our expert Canadian GST/HST tax lawyers can help.

Read More from Mondaq

Federal Budget 2017 Proposed Changes

  1. Using private corporations to sprinkle income among family members who are in lower personal tax brackets;
  2. Holding a passive investment portfolio inside a private corporation which may be financially advantageous for owners of private corporations compared to other investors due primarily to the fact that income, once taxed at a lower rate, can be accumulated in private corporations before being paid out as dividends to the shareholders; and
  3. Converting a private corporation’s regular income into a capital gains, presumably through selling the shares of the corporation rather than distributing its income.
  4. Read More from Mondaq

Shareholder Loans

Tudor Sales Ltd. (Re), 2017 BCSC 119 is a case from British Columbia that dealt with whether shareholder loans, as a non-arm’s length transaction, are properly characterized as debt, or as equity. The Court explained that the critical determination between debt and equity requires an examination of the circumstances surrounding the economic reality of the transactions and not the superficial appearance arising from the loan documentation. The Court considered the nature of the bankrupt’s liabilities and found that the loan was more consistent with equity than debt in that there was no schedule for repayment of advances, and no certain formula to determine the amount of interest.

Read More from Mondaq

Tips For Small Business

File a tax return – even for loss years

Many new businesses experience start-up losses in the first few years. If you personally carry on a business, you should file a return for every year, even in the loss years. That’s because your business’s loss can be used to reduce income from other sources in the current year, or it can be carried back three years and forward 20 years. The loss will reduce income from any source – e.g., the business itself or from employment – even from investment income. But to claim the loss, you must file a tax return for the year.

The year-end of an individual who is a sole proprietor or an active partner in a partnership created since 1995 is December 31. Self-employed taxpayers and their spouses (if not separated) have until June 15 to file a return, although any taxes owing must be paid by April 30.

Lower your tax instalments

If  you pay taxes on an instalment basis, you’ve probably received several notices from the Canada Revenue Agency (CRA) informing you of how much your tax instalments should be. If your income has gone down in the last couple of years, think twice before you send in your cheque. The CRA’s instalment calculations are based partly on your income tax position from two years ago and partly on last year’s.

Instead of using the CRA’s method, you are legally entitled to base your instalments on last year’s tax position. You can even base your instalments on the current year’s estimated tax position, if lower; but in this case be careful. Penalties may apply if you underestimate your taxes and your instalments turn out to be lower than the other two options.

If your income has gone down in the last couple of years, using one of the other two options could mean a reduction in your quarterly instalments without suffering interest penalties. But if you under-pay, the CRA will start to charge you interest. currently set at 5%. However, this rate is compounded daily. Worse still, it’s nondeductible, so this is an expensive way to enhance your cash position.

For seriously delinquent instalments, there is a 50% interest surcharge slapped on. If during the year it becomes apparent that you have paid more instalments than you need to, you might consider the possibility of purposely not following the instalment schedule by paying deficient or late instalments. Actually, this is quite “legal.”

If you’ve overpaid instalments or paid early, the CRA gives you a credit (known as offset, or contra-interest) against interest on late or deficient installments for the year. Very basically, the rule works as if you had deposited the instalment in a bank account and earned interest (at CRA’s prescribed rates, currently set at 3% for individuals and 1% for corporations) to the extent that the instalment is early or excessive. These “credits” can then be used to apply against interest penalties on deficient or late instalments. The flip side of this, of course, is that you can reduce interest charges on a late or deficient tax instalment by overpaying other instalments, or paying them before their due date.


Deductions for most normal business expenses are based on whether the expense has been incurred by year-end, rather than whether the item has actually been paid for, e.g., office supplies, auto and other repairs, etc. Exceptions include compound interest charges (regular “simple” business interest can be expensed when payable), site investigation and utility service connection charges, and disability-related equipment and building modifications.

Consider accelerating purchases of equipment, capital, and other expenditures before year-end. Examples include auto and equipment purchases (half of the normal depreciation can be claimed this year; next year, you claim the full depreciation rate), auto repairs, and so on.

Note: even though the depreciation rules restrict the writeoff on capital purchases, you can claim a full GST credit for the year of purchase. So if you buy by the end of the year, the credit will allow you to reduce the GST you owe.

If you “accrue” a salary to family members (this must be reasonable in relation to the business service they perform), you can claim a deduction as long as you actually pay the expense within 179 days of your business’s year-end. This may allow the recipient to defer tax on the amount until next year.


Read More from Mondaq

Taxable Benefits And The GST/HST

The registrant employer is required to report and remit this tax annually (see the filing and remittance section below). Note that the employee does not pay the GST/HST, as it is already included in the calculation of the taxable benefit reported on the employee’s T4 or T4A slip.

Section 173 effectively ensures that the GST/HST cost is borne by the employee, rather than the registrant employer. However, as with any rule, there are exceptions. The registrant employer is not considered to have collected tax under section 173 in these situations:

  • The supply of the property or service that gave rise to the taxable benefit is exempt or zero-rated for GST/HST purposes or is supplied outside of Canada;
  • The registrant employer is restricted from claiming an input tax credit (“ITC”) under section 170 on the GST/HST paid or payable on the property or service that gave rise to the taxable benefit;
  • The taxable benefit is in respect of an allowance that is included in the income of an employee under paragraph 6(1)(b) the ITA;
  • The registrant employer is an individual or partnership and the GST/HST paid is in respect of a passenger vehicle or the aircraft that is not used exclusively (90% or greater) in the registrant’s commercial activities; or
  • The registrant employer is not an individual, partnership or financial institution and the GST/HST paid is in respect of a passenger vehicle or the aircraft that is not used primarily (50% or greater) in the registrant’s commercial activities.

Read More from Mondaq

Employee vs. Independent Contractor

When providing services for a corporation in Canada, there are certain Canadian income tax and non tax advantages in being considered an independent contractor as opposed to an employee.

The advantages to the employer are as follows:

No obligation to deduct Employment Insurance (EI) and therefore not required to pay an employer’s portion
Canada Pension Plan (CPP) costs, including the employer’s portion, are passed on to the contractor
Employers don’t need to include contractors in company benefit programs or offer a severance package when the contractor’s services are no longer needed.

Read More