Corporations – Page 10 – Loukidelis PC

Notes on a Price Adjustment Clause

The following article will appear in the next edition of the HLA Journal.

Almost every tax-driven reorganization requires the lawyer implementing it to draft a price adjustment clause (a “PAC”). Most lawyers will have their favourite precedent for such a clause, but a lawyer needs to understand the nature and purpose of PACs—and how the CRA interprets them—so that he or she can use them appropriately in the context of any given set of transactions. This article does not purport to be a complete review of the theory and practice of PACs; it is more like a collection of notes on some of the more important features of a PAC precedent.

Requirements

The following article appeared in the latest edition of the HLA Journal.

CRA “requirements” (a “Requirement”) are a form of garnishment for unpaid taxes, and they can be quite troublesome for a business, especially if its systems aren’t what they should be. Businesses are used to acting as tax collectors for the federal and provincial government, of course: businesses withhold and remit amounts from wages and they collect and remit sales taxes. A Requirement, however, applies whenever a business is liable to pay an amount to another person; it is an obligation to act as a tax collector that applies in a broader variet of circumstances, not just when wages are payable, or goods or services are sold.

Safe income

The CRA has released the latest edition of its Income Tax Technical News (number 37). This issue is devoted solely to the question of the effect of non-deductible expenses on the calculation of safe income on hand in light of…

Eligible dividends

As readers of this blog know, Joe Monaco and I prepared a presentation last spring on eligible dividends. “Eligible dividends” are taxable dividends paid by a corporation resident in Canada after 2005 that are received by a person resident in Canada and that are designated as eligible for the purposes of the Income Tax Act (Canada). An individual who receives an eligible dividend is entitled to claim an enhanced dividend tax credit. As a result, the effective tax rate on an eligible dividend for an individual otherwise subject to tax at the highest marginal rate is only about 25%.

What are the corporate procedures that a Canadian-controlled private corporation (a CCPC) should follow to pay and designate an eligible dividend?

Amalgamation IT corrected

Karen Wilkinson at Deloitte was kind enough to point out to me that the CRA has reversed itself on whether a 116 certificate is necessary when Canadian corporations with non-resident shareholders amalgamate. IT-474R2, issued on December 17, 2007, contained the…

IT-474R3

The CRA recently released Interpretation Bulletin IT-474R3 (“Amalgamations of Canadian Corporations”). One of the big changes relates to the requirement to obtain a certificate under section 116 of the Income Tax Act. Previously, the CRA took the position that a…

Corporate information reporting

The Ministry of Government Services has issued a notice to clients that discusses the effect of the single administration of Ontario corporate income taxes (which will be implemented by January 1, 2009) on the process for filing annual corporate returns…

Income-splitting gone wrong

In Demers c. La Reine, 2006 CCI 504, the taxpayer tried to split income with his minor daughters. The Court ruled against the taxpayer, in part because it considered artificial the payment of thousands of dollars of dividends on shares that were issued for only $1.

Classes of shares

As readers of this blog know, the Ontario Business Corporations Act was amended late last year to provide that

The articles [of a Corporation] may provide that two or more classes of shares or two or more series within a class of shares may have the same rights, privileges, restrictions and conditions.

Robin MacKnight, writing in the Canadian Tax Foundation’s Tax for the Owner-Manager in July, pointed out that:

At the 2007 STEP National Conference, the CRA was asked how it would interpret this change in the context of the attribution and income-splitting rules. Not surprisingly, its response was that tax consequences depend on more than just a name, and it would not necessarily recognize a distinction between classes of shares on that basis alone.

Revival

Subsection 227.1(1) of the Income Tax Act (Canada) (the “Act”) permits the CRA to assess a director of a corporation for the corporation’s failure to remit source deductions. Subsection 227.1(4) of the Act, however, provides that

no action … to recover any amount payable by a director of a corporation under subsection [227.1(1)] shall be commenced more than two years after the director last ceased to be a director of that corporation.

What happens if a director, who is otherwise potentially liable under section 227.1, fails to resign, but the corporation of which he is a director dissolves involuntarily and more than two years passes before the CRA issues an assessment under section 227.1?

Category: Corporations (page 10)