James Piper - Entries on Tax Law

Saturday, January 24, 2009

Ontario May Harmonize Sales Tax With GST

...It's about time....

read in the Toronto Star Ontario Premier Dalton McGuinty and his government may harmonize the Ontario sales tax with the federal GST. To that I say, it's about time.

Currently the three N provinces (Nfld., NB & NS) have a harmonized sales tax with the federal government. Quebec has something similar, but Ontario has maintained its antiquated Retail Sales Tax and it's all about politics and getting votes.

Sales taxes are visible and annoying to voters and changing them usually means trouble. The Ontario government needs the revenue from a sales tax and the best solution is a consumption tax on most goods ands services and not just on goods.

A harmonized tax will significantly reduce administration and compliance costs for businesses. One tax return to complete instead of two. One set of laws to follow instead of two.

It will also result in a fairer tax in that people who consume more, pay more.

It will also result in a slightly more competitive business economy. Under the current RST, businesses pay RST unless there is an exemption (e.g., buying a good for resale to a customer), but many times the RST is paid and becomes a cost of the business. It reduces their profits or is passed on to customers with higher prices. With a HST, businesses would recover these costs as an input tax credit. They can earn more profits or reduce their prices or both.

Let's hope the Ontario government has some sense and acts on this issue.

Posted 2009/01/24 at 13h37ET in Tax Law. [View single entry]

Thursday, January 22, 2009

...A major victory for the Canada Revenue Agency from the Supreme Court of Canada...

n January 8th, 2009, the Supreme Court of Canada issued its decision in the case of Lipson v. Canada. For tax practitioners across the country, the earth swayed, thunder rumbled and some checked their insurance coverage.

Lipson is an individual resident in Canada who purchased a home, in part with borrowed money, and structured his affairs in such a manner to allow for a deduction on interest paid on the debt. Normally, debt used to acquire personal property is not deductible, but some taxpayers in the past have structured the purchase and debt to allow for an interest deduction against business income and income from property. This is what Lipson tried to do, but the government argued against it citing ITA 245--the General Anti-Avoidance Rule.

Prior to Lipson, the courts held up such structures, but that was before the GAAR was law. Not so with Lipson and all courts involved in the case ruled against the taxpayer and in favour of the government.

If you know 20(1)(c) doesn't relate to the size of an engine, you can read an excellent summary of the facts and arguments as written by UoT Tax Law Prof. Ben Alaire. Click here to read it. I assume no liability if you hurt your brain reading it.

And if you want to read the court decision, click here.

So what does it all mean? Be very careful in trying to turn personal non-deductible debt into deductible debt. Your deduction maybe denied.

Further, look for more supreme court decisions relating to the GAAR. There have been several already and there will be more. It's an area of tax law that is uncertain and open to debate, just what the SCC looks at when deciding to hear tax cases.

The good news is that interest paid on debt used to earn income from a business or property is still a valid tax deduction provided you meet the requirements under the ITA and common law. That's where a tax advisor can help with this complex area of tax law.

Posted 2009/01/22 at 20h26ET in Tax Law. [View single entry]

Tuesday, March 6, 2007

...Online Tax Services Suspended by CRA...

received an email press release from the Canada Revenue Agency late on Tuesday stating they were shutting down the computer that processed e-filed personal tax returns. For many tax preparers the announcement means they will have to file paper returns or wait for the system to come back on, but it could be a long wait.

Until we can announce a business recovery date, the Agency will provide daily updates to the media on the steps we are taking.

On the surface, e-filing a return makes sense because it is more efficient, but at present it only makes sense for simple returns.

If you file a return beyond a T4 and an RRSP deduction, you can expect follow-up letters requesting original receipts. For accountants, this hassle means additional time—time that usually can't be recovered. As result, many accountants file paper returns for their benefit.

What is required is a system that allows the receipts to be e-filed along with the return. No more requests for donation receipts or tuition receipts. I don't know how it would be accomplished without opening holes for fraud, but I'm sure it could be done and until it is, many accountants will file paper tax returns.

Posted 2007/03/06 at 19h38ET in Tax Law. [View single entry]