Tax Traps to Avoid


Issue 22 – February 2013 (to be emailed Tuesday, February 5, 2013)

The topics for this month’s newsletter are diverse. From Director Liability to providing children with salaries to reporting net income for Joint Ventures.

Even if these topics don’t affect you personally, it reveals that the rules and obligations of Canada’s Tax Act are diverse and multi-faceted. To minimize your personal and business taxes, it’s advisable to have a plan in place. The last thing you want is an unforeseen tax present itself. For guidance on how best to proceed for either your business or personal affairs, please call me at 506-657-4067 or 1-800-650-4067.

As a favour to a friend or business colleague, feel free to forward this email to those who you think could benefit from the information below.

Donna Mazerolle
www.DonnaMazerolle.com

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OWNER-MANAGER REMUNERATION


DIRECTOR LIABILITY

Some points to consider with respect to director liability include:

  1. The Excise Tax Act and the Income Tax Act hold directors personally liable for unremitted GST/HST, payroll withholdings, and interest and penalties. Directors are not necessarily liable for unpaid tax of the corporation.
  2. A director is not defined in the Act and could include both de jure directors (lawfully and validly appointed according to corporate legislation) and de facto directors (persons that are acting as directors).
  3. CRA may only take action against the director if they do so within two years of the resignation of the director. Therefore, resignation is very important as it limits liability and starts a two-year limitation period running.
  4. It is important to stop acting as a director or manager, after resignation, such as not signing corporate documents. Also, appointing a new director further establishes that you have resigned your position as a director.

Legal advice may be needed.

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BUSINESS INCOME


SALARIES TO CHILDREN

In a September 6, 2012 Tax Court of Canada case, the Appellant operated a business that specialized in supplying custom window coverings and, in 2007 and 2008, deducted the amounts of $18,000 and $7,000, respectively, for wages paid to her two children (aged 15-16 and 13-14) for services that they provided to the business.

Rather than pay wages, the Appellant paid for some of the children’s extraordinary expenditures to reflect the wages.

Taxpayer wins-partly

The Court concluded that it is likely that the expenditures have both business and personal elements.

Based on the evidence, the Court allowed a deduction for 50% of the amounts claimed.

Editor’s comment

It usually reduces the risk if regular salaries are paid to provide reasonable remuneration to family members who provide services to your business.

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BUSINESS INCOME


JOINT VENTURES

In a June 25, 2012 Technical Interpretation, CRA notes that their new administrative policy requires each participant in a joint venture to calculate its net income from the joint venture for the period ending on the participant’s fiscal period end. This new administrative policy, which came into effect for taxation years ending after March 22, 2011, means that a participant in a joint venture is no longer eligible to compute income as if the joint venture had a separate fiscal period.

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Donna Mazerolle & Associates provides:

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The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.


Do you have questions… give us a call at 506-657-4067 or 1-800-650-4067 (outside Saint John).