Effective. Accessible. Responsive
The following article appeared in the February, 2011, edition of the Hamilton Law Association Law Journal.
The CRA likes to stir things up every now and then with this project or that initiative to ensure compliance among various groups of taxpayers. The latest stirring relates to trusts and their administration, and it serves as a sharp reminder to lawyers that tax compliance is not only the province of accountants.
A casual reading of subsection 63(1) of the Income Tax Act suggests that a taxpayer claiming childcare expenses is required to produce receipts from the person providing the care. The subsection seems to permit the deduction of expenses “the payment of which is proven by filing with the Minister one or more receipts each of which was issued by the payee and contains, where the payee is an individual, that individual’s Social Insurance Number”.
In Morrison v. The Queen, 2010 TCC 429 (an informal procedure appeal), the individual taxpayers were employees of a corporation of which they were the controlling shareholders. The corporation purported to pay salary to the taxpayers by remitting amounts on account of source deductions to CRA and crediting the appropriate balance to the shareholders’ loan accounts. The taxpayers, however, didn’t include any amounts in income for the year in which the credits and remittances were made. The CRA reassessed to include all amounts credited and remitted in income; the taxpayers appealed to the Tax Court of Canada.
Professionals who advise their clients to enter into creditor-proofing transactions need to think twice in light of Abakhan & Associates Inc. v. Braydon Investments Ltd., 2009 BCCA 521. In this case, the B.C. Court of Appeal dismissed an appeal from a judgment that, in effect, set aside a species of butterfly transaction under the Fraudulent Conveyance Act, 1996, R.S.B.C. c.163, even though the principal of the distributing corporation “had no dishonest intent, or mala fides, and acted on professional advice to effect legitimate business purposes” [¶2].