Taxation ITA Quick-Reference Outline

Taxation ITA Quick-Reference Outline

Asif Abdulla

RESIDENCY:

s. 2(1) – Tax payable by persons resident in Canada – tax on all taxable income

s. 2(3) – Tax payable by non-resident, for: employment in Canada; business in Canada; disposal of property in Canada

s. 249(1)(b) – Taxation Year – is, in the case of an individual, a calendar year

Ordinary Residence:

s. 250(3) – Person Resident in Canada - includes those ordinarily resident in Canada (broader than just full-time residents)

- Thompson – Where, in the settled routine of T’s life, he regularly, normally or customarily lives

- Lee – Factors to consider when determining ordinary residence

- IT-221R3 – Temporary absence vs. severance of residential ties to Canada – intention to permanently sever

----- Dwelling in Canada; spouse or CL partner in Canada; Dependents in Canada – see also secondary factors

Deemed Resident:

s. 250(1) – Deemed resident of Canada – (a) sojourned for 183+ days; (b) armed forces; (c) public servant of Canada

- R&L Food Distributors – commuting to a place and not staying overnight is not sojourning

- IT-221R3 – Nature of temporary stay must be established to be akin to temporary residence

Part-Year Resident:

s. 114 – Part-Year Residents – Where T is a resident for part of the year T is taxed on income from that part of the year

- Schujahn – Must establish factual circumstances are indicative of a severance of Canadian residence

- Reeder – Temporary departure is insufficient to counter long-standing Canadian residency

Dual Tax Residences:

s. 250(5) – Deemed Non-Resident – where under any tax Treaty, T is found to be a resident elsewhere and not Canada

- Article IV Can-US – place of permanent residence then centre of vital interests; habitual abode; citizenship; agreement

- Article 4 Can-UK – similar to Can-US, but see wording for subtle differences

- Salt – Decided without first showing dual-residency exists. Demonstrate residency in Can and elsewhere first

Immigration and Emigration (see deemed dispositions):

s. 128.1(1) – entering – deemed disposition and reacquisition of property at FMV prior to entering Can

----- except for taxable Canadian Property (real property or shares in a company with primary income from real property)

s. 128.1(4) – leaving - T deemed to have disposed of each property owned by T at FMV, except for real property in Can

- NOTE: remember if permanent residence is disposed of; apply PRE (s. 40(2)(b))

Corporate Residence:

s. 250(4) – Deemed Corporate Residence – in Canada if: (a) incorporated in Canada after 1965 OR (c) if before 1965, it was incorporated in Canada and was common law resident in Canada or carried business in Canada

- De Bears – CL residence is based on where the company keeps house and does their business

INCOME FOR TAXATION YEAR – NON-CAPITAL INCOME

s. 3(a) – Total of all positive income (non-capital only) from sources including office, employment, business and property

- Bellingham – new sources are allowed by the Act, but none found to date – win-fall gains are not a source

- Curran – closest new source – advanced payment for future services

- Field – T must be the actual person who owns the income or the loss from each specific source

----- Buckman – Strict ownership is not exclusive test – must have regard to surrounding circumstances – Illegal business

- LeBlanc – Lottery is pure chance – not a source – not taxable

s. 4(1)(a) – calculate income/loss from each source separately

s. 249(1)(b) – Taxation Year – is, in the case of an individual, a calendar year

Retiring Allowance:

s. 56(1)(a)(ii) – Retiring Allowance our of an employee benefit plan, retirement plan, or salary deferral included in income

s. 248(1) – “Retiring Allowance” – amount received (other than pension/death benefit), for T’s retirement from office or employment in recognition of T’s long service OR in respect of loss of office/employment whether or not damages

Surrogatum Principle:

- Tsiaprailis – Test: 1. What was the payment intended to replace (clear)?; 2. Would the replaced amount be taxable?

- IT 365R2 – Damages for personal injury are excluded from income unless reasonably considered employment income

- Siftar – apportionment of lump sum payments can be made for portion that is surrogatum for taxable income

3(a) - OFFICE OR EMPLOYMENT

s. 5(1) – income for tax year from office/employment is T’s salary, wages and other remuneration, including gratuities

s. 5(2) – loss for tax year from office/employment is T’s loss, if any for the tax year

s. 6(3) – (a) payments made while T was an officer/employee … shall be deemed income from an office or employment under s. 5, UNLESS payment IS NOT made (c) as consideration for accepting office/contract/employment; (d) as remuneration for services as an officer or under K of employment OR (e) in consideration for a covenant with reference to what officer/employee can/can’t do before/after termination

Canada Employment Credit

s. 118(10) – 15% of the lesser of $1000 or T’s income for the year is provided as a tax credit against income from O/E

Inclusions – Section 6

Allowances: MacDonald – an arbitrary amount, without specific reference to any expense or cost – generally for a specific purpose – discretion of the recipient, in that need not account for expenditure of funds

Reimbursement: Huffman – payment in satisfaction of an obligation to indemnify someone to defray actual expenses

Benefits:

s. 6(1)(a) – Include value of board, lodging and other benefits any kind whatever received or enjoyed by T

- EXCEPT any benefit (i) from contributions of T’s employer to RRSP, group sickness or insurance, benefits, etc

- Savage – Need only be a material acquisition which confers benefit upon the employee

- Lowe – is there a measurable economic benefit? If so, is the primary benefit to the employer or employee?

- IT470R – Non-cash gifts/awards to arms-length employee, regardless of numbers not taxable up to $500

- IT470R – no longer taxed on work social functions given to all employees (Dunlap was taxed on dinner)

Personal or Living Expenses

s. 6(1)(b) – include all amounts received for personal or living expenses or allowance for any purpose EXCEPT – below

Exception – Automobile and Travelling Allowances

s. 6(1)(b)(v) – Sales Work; In-town or Out of Town – reasonable allowances for travel expenses not to be included

s. 6(1)(b)(vii) – Non-Sales; Out of Town Only; No Car – reasonable allowance for travelling out of town not included

s. 6(1)(b)(vii.1) – Non-Sales; In/Out of Town; Vehicle – reasonable allowances for use of vehicle for work not included

- For (v) and (vii.1), vehicle allowance is deemed unreasonable if (x) not based solely on KMs OR (xi) T receives both an allowance and is reimbursed in whole or in part for the use of the vehicle

- Regulation 7306 – (actually for 18(1)(r)) – vehicle allowance max deduction: 52c/km – 5000; 46c/km after 5000

Exception - Special and Remote Worksite

s. 6(6) – NOT include in allowance for board and lodging expenses for a period at special work site (temporary) or remote work site for no less than 36 hours OR transportation between site and home or place of regular employment

- IT470R – Remote – must consider transportation, distance, time – if 80k from nearest 1000pop location, then remote

Deductions – Section 8

s. 67 – No deduction shall be made except to the extent that the outlay or expense was reasonable in the circumstance

s. 8(2) – except as permitted by this section, no deductions shall be made against income from office/employment

s. 8(1) – listed subsections are deductable from income from office or employment in so far as they are reasonable

Travelling Expenses:

s. 8(1)(f) – Sales Expenses of Commission Employee – where required to pay own expenses; ordinarily travelled for work; remunerated by commission; and not in receipt of allowance under s. 6(1)(b)(v) – see limitations

- s. 8(4) applies – meals not included unless travelling for more than 12 hours

- s. 8(10) applies – certificate of employer must be filed with tax return

- s. 67.1(1) – food/meals/entertainment are only deductable at 50% of their value or reasonable amount thereof

s. 8(1)(g) – Transport Worker’s Expenses – where duties include travel for transport of goods/people and employment requires T pays for expenses relating to food AND lodging, to the extent not already reimbursed

- s. 67.1(1) – food/meals/entertainment are only deductable at 50% of their value or reasonable amount thereof

- Renco – refused BC Ferries employees due to “AND lodging” – specific literal interpretation

s. 8(1)(h) – Travel Expenses – work-related travel expenses other than vehicle – N/A if (f) or (g) is used

- EXCEPT where received allowance NOT included in income under s. 6(1)(b)(v-vii)

- s. 8(4) applies – meals not included unless travelling for more than 12 hours

- s. 8(10) applies – certificate of employer must be filed with tax return

- s. 67.1(1) – food/meals/entertainment are only deductable at 50% of their value or reasonable amount thereof

s. 8(1)(h.1) – Motor Vehicle Expenses – work-related travel expense deduction for vehicles – N/A if (f) used

- EXCEPT where received vehicle allowance NOT included in income under s. 6(1)(b)

- Martyn – Travel to and from work is not deductible; even where work-related security concerns exist (Hogg)

NOTE – could always opt to try 6(6) to try to not include allowance to start with instead of using a deduction

Legal Expenses:

s. 8(1)(b) – Legal Expenses of Employee – amounts paid for legal expenses to collect/establish right to salary/wages

s. 60(o.1) – may also deduct the total legal expenses paid by T in recovery of a benefit under pension plan

Professional and Union Dues:

s. 8(1)(i) – Dues and Other Expenses of Performing Duties – amounts paid as: (i) annual professional membership dues necessary to maintain professional status recognized by statue; (iv) membership in trade union or association of public servants to improve work conditions; OR (v) dues retained by employer, pursuant to collective agreement, paid to union or association of public servants of which T was not a member

- Swingle – Strict interpretation – (i) requires that membership be required to maintain profession BY STATUTE

Cost of Supplies (s. 8(1)(i) contd):

s. 8(1)(i)(ii) – office rent or salary to assistant

s. 8(1)(i)(iii) – Supplies consumed directly in the performance of duties of office/employment

Home Office Expenses

s. 8(13)(a) – Work Space in Home – notwithstanding 8(1)(f) and (i), No amount deductable from home office

- EXCEPT where home office is either the principle location of duties OR used exclusively for earning income AND used regularly to conduct meetings in the ordinary course of business

s. 8(13)(b) – amount shall not exceed income from that office/employment AND

s. 8(13)(c) – losses can be carried forward until income from employment exceeds the losses

- McCreath – home office to primary office travel is not a deductable transportation cost

----- Maybe if home office is the primary office – no case law on that

**See universal deductions below Business or Property deductions

3a – BUSINESS OR PROPERTY

s. 9(1) – T’s income for a tax year for business/property is T’s profit from that business or property – net profit

s. 9(2) – T’s loss for a tax year from business/property is T’s loss from that business or property

s. 9(3) – Income/Loss from property does not include capital gain/loss from disposition of that property

Income from Business

s. 248(1) – “Business” – profession, calling, trade, manufacture or undertaking of any kind whatever and…an adventure or concern in the nature of trade, but does not include an office or employment

- Smith – anything which occupies the time, attention and labour of a man for the purpose of profit

- LeBlanc – gambling winning not a source; BUT Luprypa – specific expertise or system makes it a business

- Stewart – Test for Business – page 31 of outline | ACNT also in outline page 32

Income from Property:

s. 248(1) – “Property” - any kind whatever whether real or personal or corporeal or incorporeal and without restricting generality of the forgoing; right of any kind whatever; money; time resource property and work in progress of a business

- Business vs. Property – pg 34 of outline

Inclusions – Section 12

s. 12(1) – Listed amounts received and receivable to be included in income for a tax year from business or property

- J Colford Contracting – Receivable amounts must be included in income – where T has legal right to the payment

- Benaby Realties – An amount is not receivable until the actual amount owed is ascertained

----- West Kootnay Power – Absolute certainty is not required – sufficient certainty is all that is required

Interest

s. 12(1) – any amount received/receivable as interest

- (3) / (4) – anti avoidance – 3: corporations must report interest owed each year even where unpaid yet; 4: persons

s. 16(1) – Interest and Capital Combined – where amount is blended income/capital, include the part reasonably regarded as interest (Minister can assess the blend, does not necessarily reflect paperwork blend)