Allowable Business Investment Loss

While a capital loss can only be deducted against taxable capital gains, an allowable business investment loss (ABIL) may be deducted against all other ordinary income including capital gains – making an ABIL a very unique and favourable type of loss.   What is considered a business investment loss? A business investment loss is a specific type of loss that …

Capital Cost Allowance

It is important to understand that there is a difference between an immediate expense, which is fully deductible in the year that it is incurred, and a depreciable expense, which can only be deducted over time. Depreciation expenses are costs that, while also part of the expenses used to calculate net income (or loss), are subject to the Capital Cost …

FAPI: Foreign Accrual Property Income

Foreign Accrual Property Income, or FAPI for short, refers to a set of rules in the Income Tax Act (the “Act”) that deal with foreign (i.e. non-Canadian) corporations with Canadian-resident owners that earn passive income. Generally speaking, the passive income referred to in this article is in reference to income from property, rental/royalties/investment income, or taxable capital gains from the …

Amalgamations

An amalgamation occurs when two or more corporations merge and form a new corporation. From a legal and commercial perspective, an amalgamation has the advantage of being a relatively straightforward transaction in that if the requisite conditions are met, the assets and liabilities of the predecessor corporations automatically become the assets and liabilities of the amalgamated corporation on the effective …

Novation and Its Impact on Debt Forgiveness

What is Novation?   Novation is a concept that can be important in the context of shareholder benefits, debt forgiveness, deemed income on loans to non-residents, and exemptions from withholding tax. According to the Oxford Dictionary, novation is defined as the substitution of a new contract in place of an old one. A novation ordinarily arises when a new individual …

What Can be Done Before Your Trust Turns 21?

What is the 21-year rule?   Family trusts created during someone’s lifetime are deemed to dispose of their property every 21 years. Although the trust is deemed to have disposed of property for tax purposes, an actual disposition typically does not occur. This 21-year deemed disposition occurs at fair market value (FMV) and results in the realization of any inherent …

160 Assessments – Can CRA Take Back My Gift?

Subsection 160(1) of the Income Tax Act (the “Act”) is a powerful tool that allows the CRA to go after family members and other non-arm’s length persons who have received gifts (and other transfers where fair market value consideration is not paid) from a non-arm’s length person who has an outstanding tax debt. Subsection 160(1) of the Act applies to transfers …

The Importance of a Clearance Certificate from the CRA

An individual may deal with the business, property or estate of another person as a representative.  That business, property or estate may owe amounts to the Canada Revenue Agency (CRA).  The amounts can include federal income taxes, provincial and territorial taxes administered by the CRA and outstanding Canada Pension Plan and Employment Insurance premiums, including any interest and penalties.  If …

New Rules for Claiming the Principal Residence Exemption

Canadian residents who dispose of their family home and realize a gain may be eligible to claim an exemption when computing the tax on that gain.  The exemption can eliminate all or part of the taxable capital gain, depending on the circumstances.  This is known as the “principal residence exemption” (PRE) which has been a part of the Canadian tax system for many …

Canada Revenue Agency’s Collection Powers

The Canada Revenue Agency (CRA) collects amounts owing such as: individual and corporate income tax, payroll deductions, GST/HST remittances, benefit overpayments (eg, Canada child benefit and GST/HST credit), etc. The CRA can also collect amounts owing for other government programs, such as: defaulted student loans, EI overpayments and penalties, CPP overpayments, etc.   If a taxpayer has failed to pay …