2/3 Isn’t Bad…It’s Criminal!

On April 16, 2024 the Federal Government released Budget 2024.  Of particular interest is the increase in the capital gains inclusion rate from 1/2 to 2/3, effective for dispositions realized after June 24, 2024.   As a quick refresher, capital gains are taxed differently from other types of income.  When a capital gain is realized, only a portion of the …

Employee Ownership Trusts

Budget 2023 proposed amendments to the Income Tax Act (“ITA”) to allow for the sale of a “qualifying business” to an Employee Ownership Trust (“EOT”). The rules are effective as of January 1, 2024.   There must be a qualifying business transfer to the EOT, which occurs when a taxpayer disposes of shares of a subject corporation to an EOT …

Reportable Transactions

Bill C-47 received Royal Assent on June 22, 2023, bringing into effect the new expanded reportable transaction rules. A failure to report as required by the new rules could result in substantial penalties for both taxpayers and their advisors.   The reportable transaction rules require certain persons to file information returns with the Canada Revenue Agency (“CRA”) in respect of …

Intergenerational Business Transfers

Generally, the rules introduced in Bill C-208 were designed to allow a sale of shares that otherwise qualify for the capital gains exemption to be sold to a non-arm’s length corporation (referred to here as the “business transfer rules”).  The business transfer rules allow the vendor to benefit from the capital gains exemption without being recharacterized as a dividend under …

THE REVISED GENERAL ANTI-AVOIDANCE RULE – THE END OF CAPITAL GAINS PLANNING?

Budget 2023 The Federal Budget 2023 introduced several amendments to strengthen and modernize the General Anti-Avoidance Rule (“GAAR”).   Some of the more notable amendments include the changes to the definition of “Avoidance Transaction” as well as the introduction of the concept of “Economic Substance”.   Avoidance Transaction – This test has been significantly broadened by replacing the “primary purpose” test with …

Anti-Flipping Deeming Rule

Principal Residence Exemption – Overview   Canadian residents who dispose of their family home and realize a gain may claim an exemption when computing the tax on that gain.  The exemption will eliminate all or part of the taxable capital gain, depending on the circumstances.  This is the “principal residence exemption” (PRE).   To qualify for the PRE, an individual …

Income Splitting Is Getting More Expensive…..Again.

The Canada Revenue Agency’s prescribed rate of interest will increase from 2% to 3% on October 1, 2022.   A prescribed rate loan strategy allows high-income earners to income split with their family members (spouses, children, grandchildren, etc.) who earn income taxed at a lower marginal tax rate or earn no income at all.   The strategy requires the high-income individual …

Budget 2022 – Will this be the end of capital gains planning?

With a top personal tax rate in Ontario of 53.53%, the tax spread between dividend income and capital gains is significant.  As a result, planning has evolved over the last number of years whereby a taxpayer creates a capital gain as a means of extracting corporate funds in lieu of or in combination with paying themselves a dividend/salary, which would …

Section 231.4 and its Implications for Taxpayers

The Canada Revenue Agency’s (CRA) audit powers in section 231 to 231.5 in the Income Tax Act[1] (and mirror provisions in the Excise Tax Act[2]) provide the CRA with broad powers to compel information from taxpayers.   The CRA’s powers to compel information under section 231.4 are perhaps the broadest of all their powers to compel information.   Subsection 231.4(1) …

Departure Tax – Becoming a Non-Resident of Canada

Canada levies tax on the basis of an individual’s residency.  Generally, an individual is subject to Canadian tax on his/her worldwide income if he/she is a resident of Canada.  The residency status of an individual is a question of fact to be determined by taking into account all of the circumstances of the individual.  The most important factor in determining …