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Canada: Ceasing To Be A Director – Directors’ Liability For Tax – Toronto Tax Lawyer Analysis

Under Canadian law, the directors of a corporation have a number of legal responsibilities and legal liabilities. One of them is how a corporation’s directors are held responsible for the payroll remittance and the withholding tax arrears according to the Canadian Income Tax Act. Through the Canadian Excise Tax Act, the corporation’s directors can be held liable for the GST/HST that a corporation may incur that go unpaid, and then expected to make payment on,any tax liability the corporation doesn’t cover from its own corporate coffers. This is a powerful encouragement the Canadian Revenue Agency can use to ensure corporate taxes are not left in arrears.

“Directors are jointly and severally liable for some of the tax debts of the corporation of which they are a director.”

What to do if your taxes are under CRA review or audit

Tax time can bring stress and anxiety, but it doesn’t have to be something that leaves you cowering in fear of the dreaded tax audit. Canadian Revenue Agency conducts reviews of tax returns according to regulation, and just because an audit or tax review notice has been sent doesn’t necessarily mean trouble is looming for your finances. Anyone contacted by CRA should simply respond to the notice and work through the process in a calm and orderly fashion, however tempting it might be to try to ignore the notification.

“Your income tax file may be selected for review randomly, or for reasons such a discrepancy between the figures you cited and those of a third-party, such as your employer. An unusual change in your activities, such as an increase in medical expenses or child care costs, may also trigger a closer look from the tax collector.”

The smart way to invest for your kids’ inheritance

Alex, a 65-year-old widow, asks what is the best way to give an inheritance to her kids. Her plan is to transfer money annually from a RRIF into an investment brokerage account shared with her kids. By not waiting to transfer her wealth, she hopes to avoid having her kids pay the 30-40% tax on her RRSP/RRIF upon her death. Overall, her plan is a reasonable strategy, but it’s important to consider all the implications. For instance, has she thoroughly considered how much money she may need for herself in the years to come, in addition to the implications for her children. Below are some additional items to consider.

Key Takeaways:

Determine how much to withdraw from a RRIF by factoring in the amount of your pension and any other income you have to ensure the government doesn’t claw back OAS.
Ensure your financial needs planning includes high-cost items like healthcare. You don’t give away so much that you don’t have enough for healthcare at 90.
Giving legal ownership of your money to your kids means exposing the money to the kids’ issues: lawsuits, bankruptcies, stealing, divorces and influential spouses, so it’s best to reflect on any potential risks.

“I plan to convert a portion of my RRSP to a RRIF and withdraw $10,000 annually starting 2019…Is this a good strategy?”

Mi casa, su casa: Home sharing and the taxman

Home sharing sites, like Airbnb, have become an increasingly popular way of making extra income on your home in this sharing economy. Money earned through renting out your home has not gone unnoticed by CRA, and taxes are owed on any revenue you receive on these short-term rentals. Depending on what services you provide with your rental, it may be taxed as rental income if you only offer basic services or business income if you offer additional services like meals, cleaning or security. Each type of income comes with the ability to make certain deductions, and if it qualifies as business income, then you may also need to charge taxes like GST. If you want to maximize your available deductions and clarify your tax position, consult an accountant who can help you determine which kind of income your rental falls under.

“When you earn money from renting out part of your home, it may qualify as either rental or business income for taxation purposes, which is why it’s important that you know which category your income falls under come tax time.”

Chinese classes, chess programs qualify for child-care deduction, judge rules, provided they really involve child care

Under Canadian tax regulations, certain child-care expenses are deductible from your tax return. While some are obvious, such as the cost of caregivers or schools, others might seem less obvious even though they’re every bit as valid as deductions. A recent case the Canadian Revenue Agency (CRA) brought before a judge has established this deduction extends to educational extracurricular activities a child engages in, and where the primary goal of the camp is to provide care for the child while a parent works. This can include after-school programs, tutors, and out-of-school lessons such as sports or language classes. $8,000 can be claimed annually for children under the age of seven, $5,000 for children seven to 16, and up to $11,000 for children who qualify for the disability tax credit.

“If you’re a parent who pays for child care that enables you to work, you may be entitled to some tax relief when you file your 2018 tax return.”

Do You Believe In Magic | RIA

David Robertson asks us if we believe in Magic. What he really means is that stock prices do not always align with underlying fundamentals. This is the lesson of some of the great financial crashes. Despite all the evidence that the fundamentals do not justify the price, people continue to believe in what the price appears to be saying. But these are illusions. Market strength creates the illusion of strong fundamentals, because people wrongly see the former as a product of the latter. But this is not reality.

Key Takeaways:

Stories are conjured about more than just exciting new stocks and industries, and sometimes they define a narrative about the economy or the market as a whole.
A discrepancy between real growth and perceived growth arises, and often the whole story is more complicated and less alluring than the headlines of ‘blockchain’ or ‘cannabis’.
Charlie Munger coined the term ‘febezzle,’ or ‘functionally equivalent bezzle,’ to describe the wealth that exists in the interval between the creation and the destruction of the illusion.

“One of the great lessons of history is that it is not so much periodic downturns that can cause problems for long term investment plans so much as it is specious beliefs about supporting fundamentals that can really wreak havoc. Often, we have decent information in front of us but we get distracted and focus on, and believe, something else.”

How to manage your money like an NHL hockey player

Upcoming NHL players are showered with fame and fortune, often leading them to trust the wrong people with their money and declare bankruptcy at the end of their careers. NHL players need to carefully budget their money so that they can enjoy a comfortable retirement, something the average person should do as well. Tips include living within your means and planning for a longer than anticipated retirement. Don’t spend money as you make it and only be generous with others after you have planned for yourself. These and other tips will help you retire like an NHL player.

“Think longer-term, as saving now means more flexibility in the future.”

The CRA is cracking down on aggressive manipulation of TFSAs and all other registered plans

Registered accounts, and particularly TFSAs, are being scrutinized by the CRA because of abuses in which taxpayers earned tax-free interest as well as tax-free withdrawals from these accounts. Anyone caught violating the recently published “advantage rules” for registered plans could be responsible for up to 100 percent tax penalty. The CRA provided examples of how the anti-avoidance rules in the Income Tax Act work to prevent manipulation, including when they might apply. A recent court case ruled against a taxpayer who fought a tax penalty of $125,000 dollars involving his TFSA account.

Key Takeaways:

There are several anti-avoidance rules in the Income Tax Act to prevent abuse and manipulation of all registered plans, including not only TFSAs, but also RRSPs, RRIFs, RESPs and RDSPs.
The CRA can impose up to 100 percent penalty tax on the fair market value of any ‘advantage’ received.
An example is a deliberate over-contribution to a TFSA where the rate of return outweighs the cost of the regular 1 percent per month TFSA over-contribution tax.

“Registered plans must avoid investments or transactions that are structured so as to “artificially shift value into or out of the plan or result in certain other supplementary advantages.” “

TFSA vs RRSP: How to decide between the two accounts

Tax Free Savings Accounts and Registered Retirement Savings Plans can be complicated, and sometimes confusing when trying to decide which of the two might best suit your tax needs. RRSP contributions and their tax benefits depend on your earnings, and how much you invested into the RRSP, but generally speaking is more beneficial for people with higher incomes. A TFSA is a better way to fund medium to long-term expenses, especially since TFSA withdraws are not taxable whereas RRSP withdraws are taxable.

“When saving and planning for retirement, it pays to take a long-term approach with today’s decisions – and to personalize them.”

Top 5 habits successful family enterprises have in common

Family businesses are thriving because the people that run them care about the company and who they hand it down to. There are some things that some of the most successful family businesses have in common. They are good networkers and build a community of other good businesses to work with. They also face problems head on, embracing rather than avoiding difficult conversations. They function as a strong family unit while focusing on building the business and networking to promote it.

“The tide is shifting and there is a new wave of family business owners coming along: those that recognize the value gained from an external support network.”