We represent and advocate on behalf of clients in matters including: negotiating and dealing with federal & provincial government agencies and tax authorities; responding to audit inquires; obtaining advance tax rulings and technical interpretations; preparing assessment appeals; and, with support from our Business Litigation Team, representing clients at all levels of appeal tribunals and courts.
Our experienced tax lawyers serve clients located within and outside of Canada on matters concerning all aspects of taxation including corporate tax, personal tax, and commodity tax. Based in Halifax – Dartmouth, we also support other professional service providers, including lawyers, by providing tax advice and service to the clients of these professionals.
Our focus is on providing the appropriate structures and solutions for our clients’ needs. For example, we have years of experience working with Unlimited Liability Companies (“ULCs”) which can be an effective way for American investors to set up operations in Canada.
Almost every business transaction or decision has a taxation component, and we have the experience to provide advice on matters such as:
- Designing compensation arrangements for executives and employees;
- Designing structures for the distribution of profits to shareholders;
- Planning to finance corporations including issuing securities;
- Structuring transactions to utilize losses, deductions, and credits;
- Protecting the preferred tax status of not-for-profit and charitable organizations;
- Taking advantage of changes in residence to minimize tax, including providing advice for for soon-to-be residents and soon-to-be non-residents;
- Utilizing advantageous effects of bilateral tax treaties;
- Designing systems for holding Canadian property; and
- Designing systems for carrying on business in Canada.
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Areas of Focus
Advocacy
Advice to Registered Charities, Non-Profit Organizations & Tax-Exempt
BOYNECLARKE LLP acts for more charities, non-profits and tax-exempt entities than any other law firm in the province on taxation matters. We advise on tax planning with respect to receiving donations and other income, significant purchases and sales and disbursement of fundraising revenues. We ensure our clients comply with their income tax, GST/HST and municipal tax requirements but we also implement solutions so they can recover tax expenditures through means such as GST/HST rebate claims.
Cross-border Tax Planning & Advice
Our clients operate in Canada, the United States and around the world so we have experience in cross-border transactions and the application of tax treaties. We can assist with the unique income tax, GST/HST and customs law requirements that must be considered with investment, people, goods and services cross borders. The US is becoming increasingly focused on US citizens who reside outside of the US and we ensure that our clients are fully compliant with US tax law.
Regulatory Matters - Responding to Taxation Authorities
Government taxation and enforcement agencies, such as the Canada Revenue Agency, the Canada Border Services Agency and provincial tax authorities, play a crucial role in our economy. However, Canadian taxpayers have rights which must also be respected. We assist clients when they have to deal with the Canada Revenue Agency on matters such as Voluntary Disclosure of taxes to be paid, and requests for cancellation of interest and penalties. We also assist clients when the Canada Revenue Agency is collecting amounts through means such as garnishments and directors’ liability assessments.
Succession Planning
A well thought out succession plan allows business owners to pass on their business in a tax-effective manner. There are many ways to pass on your business such as transitioning it to family members or selling to a third party. Advising family and privately owned businesses, both small and large, in relation to succession planning involves more than just knowing the law. We get to know you and your business in order to develop a plan that suits your unique needs. Selling or transitioning your business can carry some serious tax implications, therefore by developing a succession plan early we ensure that you benefit from the tax advantages when you decide to sell, including maximizing the personal capital gains exemptions. We use family trusts, professional corporations and estate freezes that are tailored to you in order to maximize tax savings and finance your retirement. When we develop succession plans we include reorganization of corporate structures and holdings to ensure that the business is structured in a tax efficient manner now and for the future.
Tax in Corporate Transactions
BOYNECLARKE LLP’s Taxation Team also provides advice and solutions with respect to transactions such as mergers and acquisitions; inbound and outbound capital investment; transfer pricing; tax disclosures for public transactions; reporting on transactions and commodity tax issues.
FAQ
What is a ‘small supplier’ for the purposes of GST/HST?
The basic structure of the Excise Tax Act, which is the legislation governing the collection of GST/HST in Canada, is that GST/HST should be charged on any supplies of personal property, real property or service unless there is a specific exception in the Excise Tax Act. One such exception is the ‘small supplier’ exception. Generally a small supplier is a person with annual sales less than $30,000 (this is commonly referred to as the ‘Small Supplier Threshold’). However, a public service body (a non-profit organization, a municipality, a school authority, a hospital authority, a public college or a university) remains a small supplier until its annual sales exceed $50,000. If a person is approaching the Small Supplier Threshold, the specific provisions of the Excise Tax Act should be consulted to determine whether the person remains a small supplier and when, specifically, they must begin to charge GST/HST.
One important restriction is that the Small Supplier Threshold is shared between associated persons. This prevents a business from setting up multiple corporations which are all below the Small Supplier Threshold. However, divisions of a public service body can apply to the Canada Revenue Agency to be treated as separate persons with their own Small Supplier Threshold.
If a person is a small supplier, they do not have to collect GST/HST on most of their supplies of property and services. However, they must collect GST/HST on:
Sales of real property;
Sales of capital property by a municipality; and
Sales of designated municipal property by a designated municipality.
It is also possible for a person who is below the Small Supplier Threshold to voluntarily become a GST/HST registrant. Once a person becomes a GST/HST registrant, they must charge GST/HST on all supplies of personal property, real property or services. By becoming a voluntary registrant, a small supplier can recover HST incurred in the course of commercial activities by claiming input tax credits. However, it is important to determine whether this is beneficial. If a small supplier is selling mainly to businesses (which can recover the HST charged) it is likely advantageous for the small supplier to voluntarily register. However, if the small supplier is selling to consumers who cannot recover the HST charged, it may be more advantageous for the small supplier remain unregistered. Even though the unregistered small supplier is unable to recover HST incurred, it will not have to add HST to the final price so it may have a price advantage over a registrant who must charge HST.
Finally, a small supplier who carries on a taxi business must become a GST/HST registrant with respect to that business. Therefore, the person will have to charge GST/HST with respect to their taxi business.
One important restriction is that the Small Supplier Threshold is shared between associated persons. This prevents a business from setting up multiple corporations which are all below the Small Supplier Threshold. However, divisions of a public service body can apply to the Canada Revenue Agency to be treated as separate persons with their own Small Supplier Threshold.
If a person is a small supplier, they do not have to collect GST/HST on most of their supplies of property and services. However, they must collect GST/HST on:
Sales of real property;
Sales of capital property by a municipality; and
Sales of designated municipal property by a designated municipality.
It is also possible for a person who is below the Small Supplier Threshold to voluntarily become a GST/HST registrant. Once a person becomes a GST/HST registrant, they must charge GST/HST on all supplies of personal property, real property or services. By becoming a voluntary registrant, a small supplier can recover HST incurred in the course of commercial activities by claiming input tax credits. However, it is important to determine whether this is beneficial. If a small supplier is selling mainly to businesses (which can recover the HST charged) it is likely advantageous for the small supplier to voluntarily register. However, if the small supplier is selling to consumers who cannot recover the HST charged, it may be more advantageous for the small supplier remain unregistered. Even though the unregistered small supplier is unable to recover HST incurred, it will not have to add HST to the final price so it may have a price advantage over a registrant who must charge HST.
Finally, a small supplier who carries on a taxi business must become a GST/HST registrant with respect to that business. Therefore, the person will have to charge GST/HST with respect to their taxi business.
Does a non-resident who receives Canadian rental income have to file any Canadian income tax returns or pay any income tax in Canada?
Yes. The tenant or property manager who pays rent to the non-resident (the ‘Payer’) must withhold and remit non-resident withholding tax. The general rule is that this withholding tax is 25% of the gross rental income. However, the withholding tax can be reduced to 25% of the net rental income if the Canada Revenue Agency approves a Form NR6 (discussed below).
Please note that there other taxes should be considered, especially with respect to vacation properties, such as the Goods and Services Tax/Harmonized Sales Tax and in some cases provincial sales tax.
The non-resident withholding tax must be remitted on or before the 15th day of the month after the rent is paid to the non-resident.
In addition, the Payer must provide the non-resident with a NR4 slip and file a NR4 information return (this includes NR4 slips and the related NR4 Summary) with the Canada Revenue Agency by the last day of March following the calendar year in which rent was paid to the non-resident.
In most situations, the non-resident will pay less Canadian tax if they voluntarily file a return under section 216 of the Income Tax Act (the ‘Section 216 Return’). This will likely be beneficial because the Section 216 Return taxes the net rent, not the gross rent. The Payer must still withhold and remit non-resident withholding tax, but if the tax liability calculated under the Section 216 Return is lower than the non-resident withholding tax which had been remitted, the Canada Revenue Agency will refund the difference to the non-resident.
Rather than wait for this excess non-resident withholding tax to be refunded, the non-resident can request permission from the Canada Revenue Agency so that the Payer calculates withholding tax as 25% of net rent, not gross rent. The non-resident and their Canadian agent request this permission by completing Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Immovable Property or Receiving a Timber Royalty. The Canada Revenue Agency grants permission for one year at a time. Therefore, Form NR6 should be filed before the end of each year (such as November) so CRA has the opportunity to review the request and grant permission before the start of the next year.
By filing the Form NR6, the non-resident undertakes to file a Section 216 Return by June 30 of the year following the calendar year in which rent is received. Further, the Canadian agent agrees that if the Section 216 Return is not filed on time, the Canadian agent will have to pay the full amount of non-resident tax required. For example, if gross rental income was $20,000 and net rental income was $5,000, the agent would have withheld 25% of $5,000 or $1,250. If the Section 216 Return is late, the Canadian agent must pay the difference between 25% of gross rent and the withholding tax actually remitted. In this case, that would be $5,000 less $1,250 or $3,750. Please note that while the Section 216 Return is due by June 30, any taxes are due by April 30.
The Canada Revenue Agency also imposes additional obligations when the non-resident disposes of the Property (see FAQ below)
Please note that there other taxes should be considered, especially with respect to vacation properties, such as the Goods and Services Tax/Harmonized Sales Tax and in some cases provincial sales tax.
The non-resident withholding tax must be remitted on or before the 15th day of the month after the rent is paid to the non-resident.
In addition, the Payer must provide the non-resident with a NR4 slip and file a NR4 information return (this includes NR4 slips and the related NR4 Summary) with the Canada Revenue Agency by the last day of March following the calendar year in which rent was paid to the non-resident.
In most situations, the non-resident will pay less Canadian tax if they voluntarily file a return under section 216 of the Income Tax Act (the ‘Section 216 Return’). This will likely be beneficial because the Section 216 Return taxes the net rent, not the gross rent. The Payer must still withhold and remit non-resident withholding tax, but if the tax liability calculated under the Section 216 Return is lower than the non-resident withholding tax which had been remitted, the Canada Revenue Agency will refund the difference to the non-resident.
Rather than wait for this excess non-resident withholding tax to be refunded, the non-resident can request permission from the Canada Revenue Agency so that the Payer calculates withholding tax as 25% of net rent, not gross rent. The non-resident and their Canadian agent request this permission by completing Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Immovable Property or Receiving a Timber Royalty. The Canada Revenue Agency grants permission for one year at a time. Therefore, Form NR6 should be filed before the end of each year (such as November) so CRA has the opportunity to review the request and grant permission before the start of the next year.
By filing the Form NR6, the non-resident undertakes to file a Section 216 Return by June 30 of the year following the calendar year in which rent is received. Further, the Canadian agent agrees that if the Section 216 Return is not filed on time, the Canadian agent will have to pay the full amount of non-resident tax required. For example, if gross rental income was $20,000 and net rental income was $5,000, the agent would have withheld 25% of $5,000 or $1,250. If the Section 216 Return is late, the Canadian agent must pay the difference between 25% of gross rent and the withholding tax actually remitted. In this case, that would be $5,000 less $1,250 or $3,750. Please note that while the Section 216 Return is due by June 30, any taxes are due by April 30.
The Canada Revenue Agency also imposes additional obligations when the non-resident disposes of the Property (see FAQ below)
Does a non-resident who disposes of a home or a vacation property in Canada (the “Property”) have to report this disposition to the Canada Revenue Agency or pay any income tax in Canada?
Yes. It is important to note that these comments apply not only to a sale of the Property to a third party but other dispositions such as a gift of the Property (or an interest in the Property) as well as to the transfer of the Property from an estate to the beneficiaries.
The non-resident vendor is taxed on the capital gain earned from the sale of the Property. The capital gain is the increase in the value of the Property so it is calculated as the difference between the proceeds of disposition (the sale price) and the total cost of the Property to the non-resident vendor (being the purchase price, capital improvements and outlays and expenses). Because non-residents are not ordinarily obligated to file Canadian tax returns, there are provisions in the Income Tax Act which ensure that the non-resident vendor notifies the Canada Revenue Agency about the sale and remits an amount as security for any tax on the capital gain. One important provision is the purchaser can be liable for the tax on the capital gain if the non-resident vendor does not remit an appropriate amount as security for any tax on the capital gain. Therefore, the purchaser’s lawyer ensures that 25% of the gross sale proceeds are held back until the lawyer is satisfied that the purchaser is not liable for this tax.
In order to notify the Canada Revenue Agency about the sale, the non-resident vendor must file a Form T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Property, within 10 days from the date of sale. The non-resident must also remit 25% the net gain calculated as the sale price less the adjusted cost base (cost of acquisition and capital improvements). This payment is security for any tax on the capital gain.
In addition to providing information about the capital gain on the property, the T2062 also allows the Canada Revenue Agency to determine whether any rental income received from the Property was reported properly (see FAQ on non-resident rental income above)
If the non-resident reported any rental income with respect to the Property, the CRA will likely require the non-resident to file a Form T2062A Request by a Non-resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Resource or Timber Resource Property, Canadian Real Property (Other Than Capital Property), or Depreciable Taxable Canadian Property. The purpose of the T2062A is to determine if there should be any recapture of capital cost allowance.
If the non-resident does not have a Social Insurance Number, a Temporary Tax Number or an Individual Tax Number, the non-resident must also file a Form T1261 Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.
Once the Canada Revenue Agency is satisfied with the amount remitted by the non-resident vendor, it issues a Certificate of Compliance. The vendor then provides this to the purchaser’s solicitor who will permit the release of the holdback.
Even though the non-resident has remitted an amount on account of the capital gain, the non-resident may still be required to file a Canadian income tax return. The good news is that the non-resident vendor will likely receive a refund because the capital gain calculated on the Canadian income tax return should be lower than the amount reported on the T2062 because on the Canadian income tax return, the capital gain is reduced by outlays and expenses associated with the sale (such as real estate commissions and legal fees).
The non-resident vendor is taxed on the capital gain earned from the sale of the Property. The capital gain is the increase in the value of the Property so it is calculated as the difference between the proceeds of disposition (the sale price) and the total cost of the Property to the non-resident vendor (being the purchase price, capital improvements and outlays and expenses). Because non-residents are not ordinarily obligated to file Canadian tax returns, there are provisions in the Income Tax Act which ensure that the non-resident vendor notifies the Canada Revenue Agency about the sale and remits an amount as security for any tax on the capital gain. One important provision is the purchaser can be liable for the tax on the capital gain if the non-resident vendor does not remit an appropriate amount as security for any tax on the capital gain. Therefore, the purchaser’s lawyer ensures that 25% of the gross sale proceeds are held back until the lawyer is satisfied that the purchaser is not liable for this tax.
In order to notify the Canada Revenue Agency about the sale, the non-resident vendor must file a Form T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Property, within 10 days from the date of sale. The non-resident must also remit 25% the net gain calculated as the sale price less the adjusted cost base (cost of acquisition and capital improvements). This payment is security for any tax on the capital gain.
In addition to providing information about the capital gain on the property, the T2062 also allows the Canada Revenue Agency to determine whether any rental income received from the Property was reported properly (see FAQ on non-resident rental income above)
If the non-resident reported any rental income with respect to the Property, the CRA will likely require the non-resident to file a Form T2062A Request by a Non-resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Resource or Timber Resource Property, Canadian Real Property (Other Than Capital Property), or Depreciable Taxable Canadian Property. The purpose of the T2062A is to determine if there should be any recapture of capital cost allowance.
If the non-resident does not have a Social Insurance Number, a Temporary Tax Number or an Individual Tax Number, the non-resident must also file a Form T1261 Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.
Once the Canada Revenue Agency is satisfied with the amount remitted by the non-resident vendor, it issues a Certificate of Compliance. The vendor then provides this to the purchaser’s solicitor who will permit the release of the holdback.
Even though the non-resident has remitted an amount on account of the capital gain, the non-resident may still be required to file a Canadian income tax return. The good news is that the non-resident vendor will likely receive a refund because the capital gain calculated on the Canadian income tax return should be lower than the amount reported on the T2062 because on the Canadian income tax return, the capital gain is reduced by outlays and expenses associated with the sale (such as real estate commissions and legal fees).
What are input tax credits?
The GST/HST is a value added tax which means that in addition to the tax being charged to the ultimate consumer of a good or a service, GST/HST is charged at every stage of production. In order to avoid tax being charged on tax as goods and services are bought and re-supplied in the production process, businesses are able to recover GST/HST they pay when they purchase inputs for production. This GST/HST is recovered by claiming input tax credits (‘ITCs’).
Therefore, it would be preferable to be considered a ‘producer’ rather than a consumer as a producer can recover the GST/HST they pay. Under the Excise Tax Act, the legislation that imposes GST/HST in Canada, a person is a producer only when they are engaged in a ‘commercial activity’, a term with a specific meaning under the Excise Tax Act. In general, a commercial activity is a business, an adventure or concern in the nature of trade or the supply of real estate. However, for an individual, a personal trust or a partnership of individuals, the business or the adventure or concern in the nature of trade must have a reasonable expectation of profit in order to be considered a commercial activity. Regardless of the nature of the supplier, a commercial activity does not include the making of exempt supplies. Some examples of exempt suppliers are dental services, residential rent and child care services. The complete list of exempt supplies is contained in a schedule to the Excise Tax Act.
In addition to being engaged in a commercial activity, the person claiming the ITC must be a GST/HST registrant when the GST/HST becomes payable or is paid. If registration is optional because the person is a ‘small supplier’, it is usually beneficial to voluntarily register if your customers are businesses which can claim ITCs. For more information, see question “What is a ‘small supplier’ for the purposes of the GST/HST?”
There are also rules in the Excise Tax Act with respect to the amount of GST/HST that can be recovered. The general rule is that the amount of GST/HST that can be recovered is based on the extent to which the good or service was used in a commercial activity. Special rules apply if the input is capital property, real property, a passenger vehicle or an aircraft. In addition, there are also distinct rules for specific inputs such as club memberships and meal and entertainment expenses.
In most situations, the person or business has four years to claim the ITCs. Some financial institutions and large suppliers have two years to claim ITCs.
There are also important documentary requirements (see What documents are required to support a claim for input tax credits?) The Canada Revenue Agency frequently requests the documents supporting the claim for ITCs.
Therefore, it would be preferable to be considered a ‘producer’ rather than a consumer as a producer can recover the GST/HST they pay. Under the Excise Tax Act, the legislation that imposes GST/HST in Canada, a person is a producer only when they are engaged in a ‘commercial activity’, a term with a specific meaning under the Excise Tax Act. In general, a commercial activity is a business, an adventure or concern in the nature of trade or the supply of real estate. However, for an individual, a personal trust or a partnership of individuals, the business or the adventure or concern in the nature of trade must have a reasonable expectation of profit in order to be considered a commercial activity. Regardless of the nature of the supplier, a commercial activity does not include the making of exempt supplies. Some examples of exempt suppliers are dental services, residential rent and child care services. The complete list of exempt supplies is contained in a schedule to the Excise Tax Act.
In addition to being engaged in a commercial activity, the person claiming the ITC must be a GST/HST registrant when the GST/HST becomes payable or is paid. If registration is optional because the person is a ‘small supplier’, it is usually beneficial to voluntarily register if your customers are businesses which can claim ITCs. For more information, see question “What is a ‘small supplier’ for the purposes of the GST/HST?”
There are also rules in the Excise Tax Act with respect to the amount of GST/HST that can be recovered. The general rule is that the amount of GST/HST that can be recovered is based on the extent to which the good or service was used in a commercial activity. Special rules apply if the input is capital property, real property, a passenger vehicle or an aircraft. In addition, there are also distinct rules for specific inputs such as club memberships and meal and entertainment expenses.
In most situations, the person or business has four years to claim the ITCs. Some financial institutions and large suppliers have two years to claim ITCs.
There are also important documentary requirements (see What documents are required to support a claim for input tax credits?) The Canada Revenue Agency frequently requests the documents supporting the claim for ITCs.
What documents are required to support a claim for input tax credits?
Under the Excise Tax Act, before input tax credits (“ITCs”) can be claimed the claimant is required to have supporting documentation. In most cases this will be a receipt, but it can include a variety of forms such as a computer record. The specific information required depends on the amount paid for the supply.
If the amount paid is less than $30, the required information is:
the name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or the intermediary does business,
where an invoice is issued in respect of the supply or the supplies, the date of the invoice,
where an invoice is not issued in respect of the supply or the supplies, the date on which there is tax paid or payable in respect thereof, and
the total amount paid or payable for all of the supplies.
If the amount paid is $30 or more but less than $150, the required information is the information set out above and:
the GST/HST registration number of the supplier or the intermediary (Canada Revenue Agency’s GST/HST Registry can be used to validate the registration number: http://www.cra-arc.gc.ca/gsthstregistry/)
the amount of tax paid (or a statement that tax was included in the amount paid and the rate of tax), and
if there is more than one supply, an indication of which supplies were taxable.
If the amount paid is more than $150, the required information is the information set out above and:
the recipient’s name, the name under which the recipient does business or the name of the recipient's duly authorized agent or representative,
the terms of payment, and
a description of each supply sufficient to identify it.
The Canada Revenue Agency has relaxed some of these requirements in specific situations as follows:
vending machines,
computerized records,
contractual arrangements,
reimbursements and allowances, and
taxi fares.
Please see GST New Memoranda Series, chapter 8.4, “Documentary Requirements for Claiming Input Tax Credits” (August 2012), for further information about these specific situations. This can be found at http://www.cra-arc.gc.ca/E/pub/gm/8-4/README.html ;
If the amount paid is less than $30, the required information is:
the name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or the intermediary does business,
where an invoice is issued in respect of the supply or the supplies, the date of the invoice,
where an invoice is not issued in respect of the supply or the supplies, the date on which there is tax paid or payable in respect thereof, and
the total amount paid or payable for all of the supplies.
If the amount paid is $30 or more but less than $150, the required information is the information set out above and:
the GST/HST registration number of the supplier or the intermediary (Canada Revenue Agency’s GST/HST Registry can be used to validate the registration number: http://www.cra-arc.gc.ca/gsthstregistry/)
the amount of tax paid (or a statement that tax was included in the amount paid and the rate of tax), and
if there is more than one supply, an indication of which supplies were taxable.
If the amount paid is more than $150, the required information is the information set out above and:
the recipient’s name, the name under which the recipient does business or the name of the recipient's duly authorized agent or representative,
the terms of payment, and
a description of each supply sufficient to identify it.
The Canada Revenue Agency has relaxed some of these requirements in specific situations as follows:
vending machines,
computerized records,
contractual arrangements,
reimbursements and allowances, and
taxi fares.
Please see GST New Memoranda Series, chapter 8.4, “Documentary Requirements for Claiming Input Tax Credits” (August 2012), for further information about these specific situations. This can be found at http://www.cra-arc.gc.ca/E/pub/gm/8-4/README.html ;