We Are Moving!

We are excited to announce that our office will be moving to a new Grande Prairie location this summer. Later this month you will find Deverdenne Davis Cyr LLP in our new location at #103, 10501 67^th Avenue in Grande Prairie, south of the Eastlink Centre and east of the Four Points Sheraton hotel. To view the new location on the map on our webpage click here. Our phone numbers and email will remain the same.

In Our Community

Deverdenne Davis Cyr LLP is proud to be a long time supporter of the 3D Children’s Society. This Grande Prairie charity hosts an annual spring hockey and soccer tournament where students from the Grande Prairie Public, Grande Prairie Catholic and Peace Wapiti School Districts all participate in a weekend tournament that benefits seriously ill children in our community. 

We have also sponsored the Valleyview & Districts Agricultural Society Annual Fair & Rodeo. In addition to hosting this fun weekend event, the rodeo is a fundraiser which helps implement programs that benefit their community.

Have You Repaid Your Canada Emergency Business Account (CEBA) Loan?

The deadline to repay your CEBA loan is December 31, 2023. In order to obtain the benefit of the forgivable portion, arrangements should be made to repay the non-forgivable portion before December 31, 2023. If you received a $60,000 CEBA loan, the required repayment amount is $40,000. If you received a $40,000 CEBA loan, the required repayment amount is $30,000. 

If you do not repay the non-forgivable portion of your CEBA loan by December 31, 2023, you will no longer qualify for forgiveness for early repayment, and must repay your total loan amount. Any amount that remains unpaid after December 31, 2023 will continue for an extended 2-year term, with a 5% annual interest rate payable monthly.

Contact your financial institution for instructions on how to make payments towards your CEBA loan. For more CEBA loan information read the FAQ section here https://ceba-cuec.ca/ceba-faq/

Tax Tidbits

Some quick points to consider…

• New federal rules have been proposed that would prohibit arrangements designed to restrict competition in the labour markets. These include, for example, wage-fixing arrangements intended to fix, maintain, decrease or control salaries, wages or terms and conditions of employment.
• Financial institutions began offering tax-free first home savings accounts in April. The plans are a valuable tool for first-time home buyers as contributions (up to $8,000/year and $40,000 over a lifetime) are deductible, while eligible withdrawals (including growth in the account) are not taxable.
• It is possible to borrow funds from your RRSP for various purposes, such as using the home buyers plan to assist in buying your first home and the lifelong learning plan to fund education and training.

Underused Housing Tax (UHT): Increased Disclosures and Taxes

UHT is a 1% federal tax intended to apply to the value of vacant or underused residential real property owned by non-resident non-Canadians. However, many Canadian individuals and other entities are also required to file UHT returns and may even be liable for the tax. Numerous exemptions from the tax itself exist, but significant penalties can apply where the required return is not filed, even if no tax is payable.

UHT was first applicable to the 2022 year, with the first filing deadline being April 30, 2023. On March 27, 2023, the CRA announced that penalties and interest for the 2022 calendar year will be waived for any late-filed UHT return and any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023. The late filing penalties start at $5,000 for individuals and $10,000 for corporations.

In general, UHT returns must be filed by all persons (which include both individuals and corporations) that are on title of a residential property on December 31 of each year, unless that person is an excluded owner. No tax is applicable if there is no filing obligation.

From an individual perspective, the only excluded owners are Canadian citizens and permanent residents. However, individuals that are on the title of a property in their capacity as a trustee of a trust, or a partner of a partnership, cannot be excluded owners, even if they are Canadian citizens or permanent residents.

From a for-profit corporate perspective, the only excluded owners are public corporations (i.e. listed on a Canadian stock exchange). That is, a private Canadian corporation is not an excluded owner.

Even if a filing obligation exists, an owner may still benefit from one of fifteen exemptions from the tax liability. The exemptions broadly fit into four categories: type of owner; availability of the property; occupant of the property; and location and use of the property. Even though the exemption eliminates the tax, the person still has a filing obligation. The exemptions are listed in Parts 4 through 6 of the UHT Return and Election Form (UHT-

2900).

Some of the more common questions and concerns related to the UHT are noted below.

• Is my property a “residential property”? In general, a “residential property” is a property that contains a building with one to three dwelling units under a single land registry title. A unit is considered a dwelling unit if it contains private kitchen facilities, a private bath and a private living area. CRA provides various examples of properties that they view as residential properties in Notice UHTN1, such as: detached houses, duplexes, laneway houses, condominium units and cabins. Apartment buildings, commercial condominiums, hotels and motor homes would not be residential properties. Properties provided through accommodation platforms are likely residential properties (see Notice UHTN15).
• How would an income-earning property (such as an Airbnb property or long-term condo rental) that is held by two or more individuals, such as a married couple, be treated? Although both individuals may be Canadian citizens or permanent residents, there is a possibility that the property is being held in their capacities as partners of a partnership. In that case, the individuals are not excluded owners. The analysis generally starts with determining whether the operating relationship for the income-earning activity constitutes a partnership, which can be complicated. In general, a partnership is a relationship between two or more people carrying on a business, with or without a written agreement, to make a profit. See Notice UHTN15 for guidance.
• A parent or child is on title of a property for probate or mortgage purposes. Where a person is on title but is not a beneficial owner (such as where a relative is on title only for probate or mortgage purposes), they may be holding an interest in the property in their capacity as a trustee of a trust, even if no formal trust agreement is in place. As such, filing may be required even if the individual is a Canadian citizen or permanent resident. Professional advice may be required.
• Properties sold before year-end. UHT may apply in respect of a property sold prior to December 31 if the applicable land title registry has not been updated by the year’s end.
• Multiple returns to file. One return must be filed for each of the properties owned by the person, potentially resulting in multiple filings by a person. Likewise, if multiple persons are on title for a single property, each has their own filing obligation.
• Private corporations that own residential property. Most private corporations that are on title of a residential property will have filing obligations, even if they are holding the property in trust and even if they are exempt from the tax liability.
• Owner of residential property passes away. Usually, some time is needed to transfer title of a property from a deceased person to a beneficiary or executor/trustee of an estate. In cases where an individual has died but is still on title of the property, a filing obligation may still exist. However, if the owner was an excluded owner before their death, CRA has indicated that they will continue to consider them excluded after death. Where the property title has been transferred to a personal representative of the deceased (such as an executor), a special provision applies which allows the new holder to be an excluded owner for a limited period even though they are holding the property in their capacity as a trustee.

TFSA: Carrying on a Business Within It

Earnings in a TFSA are typically not taxable. However, earnings in a TFSA become taxable when they are earned from carrying on a securities trading business.

In a February 6, 2023 Tax Court of Canada case, CRA had assessed the TFSA on the basis that it was carrying on a business and was therefore taxable on its income for the 2009 through 2012 taxation years. The TFSA holder was a professional investment advisor who had engaged in aggressive trading in non-dividend-paying speculative penny stocks, all of which were qualified investments. The total income assessed was $569,481, earned from annual contributions of $5,000 in each of 2009, 2010 and 2011.

The taxpayer argued that the TFSA should be treated in the same manner as an RRSP and not taxed on income from a business of trading in qualified investments. The taxpayer further argued that the traditional tests used to determine whether a business of trading in securities was being carried on were inappropriate for application to TFSAs. The taxpayer referred to an earlier Court case that had suggested registered accounts trading in qualified investments are not carrying on a business.

Taxpayer loses

The Court noted that TFSAs are one of several statutory schemes, each with its own detailed provisions. Their components are not interchangeable. In comparing TFSAs to RRSPs specifically, the Court cited ten significant differences between the two schemes other than the treatment of business income.

The Court further noted that the judicial test for carrying on a business of securities trading was well established when TFSAs were introduced in 2008 and would have been known to Parliament when they legislated taxation of income from carrying on a business in a TFSA. This indicated that the existing test was considered appropriate for this purpose.

Parliament provided that income earned from carrying on a business within a TFSA would be taxable to the TFSA. If Parliament intended to exclude a business of trading qualified investments, it would have included the same exception provided for RRSPs.

The TFSA, directed by its holder, traded frequently, had an extensive history of buying and selling shares that were speculative in nature and held the shares for short periods. The holder was a knowledgeable and experienced investment professional and spent considerable time researching securities markets. There was no doubt that the TFSA carried on a business of trading qualified investments throughout the period at issue.

Unreported Capital Trades Included on a T5008: CRA Policy

Traders or dealers in securities must report to CRA the disposition of securities, such as publicly traded shares, mutual fund units, bonds and T-bills, of their clients on a T5008. A November 4, 2022 French Federal Court case summarized CRA’s administrative policy where a taxpayer has not filed a tax return, but a T5008 was issued, reporting the disposition of property that does not include the cost of the property disposed. In this case, CRA will assess the taxpayer with unreported income by estimating the capital gain to be a percentage of the total proceeds of disposition based on the stock market performance for the year in question (details on how the calculation was made were not provided in the Court case).

In 2015, CRA applied this policy and assessed the taxpayer for his 2008 year with a $967,806 capital gain (taxable capital gain of $483,903) computed as 20% of all proceeds of disposition reported on the T5008. CRA assessed the taxpayer’s income for 2009 at $141,798. The taxpayer did not object to either of these assessments.

In 2019, the taxpayer filed his 2008 and 2009 returns reporting much lower income than CRA had assessed in 2015. As the 2008 return was filed (essentially requesting adjustments to the original assessment) more than10 calendar years after the end of the

year (December 31, 2008), no adjustments could be made to this year. The taxpayer relief provisions only allow an individual to request an adjustment up to ten calendar years after the relevant year. As such, CRA confirmed their 2015 assessment.

The taxpayer then tried to argue that the excess of capital gains assessed by CRA over his actual gains for 2008 should be treated as a capital loss carried forward to offset his gains realized in 2009. CRA refused to reassess the 2009 return for this adjustment.

Taxpayer loses

The Court found that the taxpayer could not indirectly reduce the impact of the capital gain on his 2008 return by claiming a capital loss on his 2009 return.

Editors' comment

It is typical for brokers not to include the cost base of securities disposed on the T5008 as they may not have the accurate information. Also, even if an amount is reported on a T5008, the transaction may not always result in a gain; some dispositions may be in a loss or break even position. For example, money market fund dispositions are often reported; however, there is normally no gain or loss.

Employment Expenses for Commissioned Employee: Sponsorship

In a January 23, 2023 French Court of Quebec case, a commissioned salesperson deducted nearly $600,000 over 2015 and 2016, in sponsorship expenses of a professional cycling team in Canada. The individual was an investment advisor and reported commission income of $1,493,910 and $1,263,360 and taxable capital gains of $2,276,374 and $99,767 in the respective years.

The taxpayer argued that the sponsorship promoted his services as an investment advisor. As the main sponsor of the cycling team, the taxpayer explained that he benefited from enhanced visibility, as follows:

• the taxpayer’s name was in large letters on the front of the cyclists’ jerseys, on both sides of the cyclists’ shorts and on the team’s cycling shoes;
• the investment institution’s name and logo were on both the front and back of the cyclists’ jerseys; and
• the team’s website (www.silberprocycling.com) incorporated the taxpayer’s name (Silber) into the website domain.

The Court noted that neither the taxpayer nor any of his family members benefited from the cycling team’s equipment, advice or products.

The Minister argued that the sponsorship expenses were unrelated to the taxpayer’s employment as a commissioned salesperson and that the expenses were unreasonable.

Taxpayer wins

The Court found a sufficient link between the advertising from the sponsorship and the taxpayer’s investment advisory services from which he generated his commission income. In addition, the Court opined that the taxpayer’s sponsorship expenses constituted a much lower portion of his total income (e.g. 5% for 2015) than in other cases. For example, in a 2010 case, the Court found that employment expenses constituting 65% of the taxpayer’s income were reasonable. The deduction was allowed.

Editors' comment

The scope of deductible commission employment expenses is much broader than for non-commission employment expenses. Expenses incurred to earn commission income are deductible provided that they are not specifically prohibited (for example, personal expenses or payments that reduced a taxable employment benefit) and provided that the other standard conditions for deduction are met. In contrast, only expenses specifically listed as deductible in the Income Tax Act can be deducted against non-commission employment income.

Small Business Succession: Many Business Transfers Coming Shortly

The Canadian Federation of Independent Businesses (CFIB) released a report on January 10, 2023, focused on succession expectations for small businesses. It included the following survey responses:

76% of small business owners (constituting $2 trillion in business value) are planning to exit their business in the next 10 years;

9% have a formal business succession plan in place;

obstacles to succession planning include:

• finding a suitable buyer (54%),
• business valuation (43%), and
• over-reliance of owner in day-to-day activities (39%);

considerations that owners selling their businesses found to be very or somewhat important were:

• ensuring current employees are protected (90%),
• getting the highest price (84%), and
• finding a buyer who will carry forward their way of doing business (84%)

business owners reach out to the following individuals to develop a succession plan:

• accountants (43%),
• lawyers (24%), and
• only themselves (39%);

business owners plan to sell to the following persons:

• unrelated buyers (49%),
• family members (24%), and
• employees (23%).

There are many hurdles and opportunities in selling a business. Many can be addressed in advance, leading to significant improvements in the sale process and an increase in sale price. Often, several years are needed to position the business for sale or transition sufficiently, so planning should start as early as possible, even if the owner has not definitively determined if and when the sale will occur. In many cases, simply preparing for a sale can lead to increased profitability, efficient processes and reduced stress for the owner, such that they are in a better position even if they eventually decide not to sell.

Employee Time Theft: Some Challenges

A January 11, 2023 BC Civil Resolution Tribunal case addressed a claim for wrongful dismissal. The employer filed a counterclaim in respect of a 50-hour discrepancy between the employee’s timesheets and tracking software data over a period of about a month during which the employee was working remotely.

The employee argued that significant hours were spent working from hard copies; however, this was rebutted by records of printer usage and a lack of evidence of such work being uploaded to the employer’s electronic system. The Tribunal accepted the

software evidence of time theft, and indicated that this was a “very serious form of misconduct” which justified the employee’s dismissal. The Tribunal further awarded the employer damages of over $2,600, plus interest, for the unaccounted-for time and an unrepaid advance.