Small businesses, Trudeau govt headed for autumn tax showdown

Ottawa's fall parliamentary session is a couple of weeks away and Canadians are already getting a preview of what could be the season's main event: a scrap over the Liberals' proposed tax changes. The Trudeau government's controversial plan is designed to close loopholes that it says give a growing number of wealthy, small-business owners an unfair tax advantage over other Canadians. Prime Minister Justin Trudeau himself has rejected criticism over the plan, arguing Friday he “will make no apologies'' for his commitment to fairness. But when it comes to the tax proposals, his Liberals have left themselves room to manoeuvre, if necessary. The mid-July announcement launched a 75-day consultation period, ending Oct. 2, to allow people to digest the complex proposals and provide feedback that could lead to adjustments. At the time, Finance Minister Bill Morneau admitted he anticipated some push back. His prediction is coming true. Opposition has been growing through the summer and it's clear critics of the plan won't watch the changes go through without a fight. An organized movement argues the tax incentives targeted by the Liberals are critical for Canada's economically crucial small-business sector. It insists the current tax structure is necessary for entrepreneurs, including those in the so-called middle class, who take personal financial risks when they decide to open a company. The backlash has been led by a coalition of more than 40 industry associations as well as the government's Conservative rivals. Individuals, including tax professionals, doctors and engineers, have also spoken out against the changes. At the centre of the storm is a three-part plan to eliminate tax loopholes and even out what Morneau describes as an “unfair playing field.'' One change seeks to eliminate an incentive that enables small-business owners to use their corporations as a way to shift some their income to family members who face lower personal tax rates, even if those relatives are not active in the business. Ottawa says addressing unfair “income sprinkling'' with these changes would provide an estimated $250 million per year in additional federal revenue. Another change would limit the use of private corporations to make passive investments in stocks or real estate. The proposed change is designed to ensure that taxes on passive investments inside a corporation are treated the same way as those outside the company. The third reform would limit the ability to convert a corporation's regular income into capital gains that are typically taxed at a lower rate. The Liberals have maintained the changes are aimed at creating more fairness in the system, while many opponents have described it as a cash grab. Read more

All taxpayers feel impact of construction sector's cash economy

For the average homeowner, it is important to pay contractors via cheque or credit card and receive a receipt, as participating in the underground cash economy can have severe implications for all taxpayers, Canadian tax lawyer David J. Rotfleisch writes in Canadian Accountant . Read more

Proposed changes would lead to demise of CRA's VDP

If enacted, recently proposed changes to the Voluntary Disclosures Program (VDP) will have the effect of ultimately killing what is arguably one of the most effective initiatives administered by the Canada Revenue Agency (CRA), Canadian tax lawyer David J. Rotfleisch writes in The Globe and Mail . Read Canadian Accountant Read more

Loopholes likely to remain after tax act amendments

Although the government recently announced plans to tighten a number of tax rules — including a move to prevent ‘income sprinkling’ amongst family members — there are likely to be loopholes in these new provisions, Canadian tax lawyer David J. Rotfleisch tells BNN . Read The Lawyer's Daily Read Financial Post Read more

Voluntary disclosure in offshore case 'business as usual' for CRA

Although reports that the Canada Revenue Agency (CRA) entered into secret deals with several KPMG clients over an offshore tax “sham” last year may have shocked many Canadians, this resolution was business as usual for the agency and followed its policy for voluntary disclosure, Canadian tax lawyer David J. Rotfleisch writes in Canadian Accountant. Read more

Proposed changes to the Voluntary Disclosures Program

By David J. Rotfleisch . Voluntary Disclosures Program (VDP) – current rules Read more

Treaty signifies further clampdown on international tax evasion

The federal government’s recent move to sign a multilateral convention aimed at preventing companies from ‘treaty shopping’ between jurisdictions represents a further crackdown on international tax avoidance and evasion, Canadian tax lawyer David J. Rotfleisch tells Read more

Government warned about perils of tightening tax amnesty program

OTTAWA — Within weeks, Ottawa is expected to unveil proposed restrictions to an income tax amnesty program that has raked in millions for federal coffers, but experts are warning the government to tread carefully so that the changes don't siphon off the revenue flow. Under the voluntary disclosure program , Canadians are allowed a second chance to make changes to their tax returns before auditors come calling. People can also apply to the Canada Revenue Agency for relief of prosecution and penalties. The federal government has been loud in its plans to crack down on wealthy tax cheats and ensure Canadians pay their fair share. But tax lawyers say any changes to the program should strike a balance between tightening the rules and keeping it attractive. “I understand why the government wants to improve and continue to evolve the program, but on most objective measures, the program is a success,'' said Michael Friedman, who co-chairs the tax group at the law firm McMillan. “If you make the program too narrow or you make it more uncertain to a taxpayer whether they will get relief, they are less likely to come forward. ... If they impose too many hurdles, taxpayers will simply say there is too much risk here or I'm not going to incur the expense and time of coming forward.'' The spring budget included $523.9 million over five years for the CRA to enhance its resources to catch tax cheats. Last spring, National Revenue Minister Diane Lebouthillier set up the offshore compliance advisory committee to recommend strategies in dealing with offshore tax compliance. In its report in December, the committee recommended less generous provisions for the voluntary disclosure program in certain circumstances. “The minister welcomed the proposed overall tightening of the VDP to ensure fairness of the tax system, notably in order to limit the repeated use of this program by sophisticated taxpayers who wish to minimize what they owe and restrict the circumstances in which it can be used,'' the CRA said in a statement. Among the report's suggestions was a recommendation that taxpayers who sought expert advice and used complex offshore structures to evade significant amounts of tax over several years see their benefits from the program reduced. The committee also said that anyone making a voluntary disclosure should be required to disclose the identity of advisers who helped them with their non-compliance. The CRA is expected to release draft changes to the program later this spring. Gabe Hayos, vice-president of taxation at Chartered Professional Accountants of Canada, said he's supportive of the committee and its recommendations. Hayos said it will be important that the changes make clear when taxpayers qualify under the rules and when they do not. “The government and CRA have this responsibility to have a fair and equitable system,'' he said. “Even if it is a few people, nobody wants to see a few people take advantage of the system.'' But tax lawyer David Rotfleisch said the government shouldn't make any changes that would toughen the program. As it is, Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation , said he has people coming into his office for an initial meeting and deciding against making a disclosure, even though the provisions are “extremely generous'' with the way the system is set up. “If the relief is less attractive or not available in some circumstances, then clearly there are going to be a larger percentage of Canadians who decide they are not going to go ahead and come forward,'' he said. “Then CRA is back to relying on audit resources and other techniques to try to find these people, and really, a lot of them are not going to be found.'' According to the CRA's 2014-15 annual report to Parliament, there were 19,134 voluntary disclosures received in the 2014-2015 fiscal year, an increase of 21 per cent over the prior year. Total unreported income from all voluntary disclosures was over $1.3 billion. Read more

Advice from tax lawyer, accountant crucial during CRA audit

For taxpayers on the receiving end of one of the thousands of audit letters the Canada Revenue Agency (CRA) sent this year, it is essential to first understand what the taxman is asking for — and seek professional advice, Canadian tax lawyer David J. Rotfleisch tells Global News. Read more

Success of CRA crackdown on offshore tax evasion unclear

Although the Canada Revenue Agency (CRA) claims the Panama Papers scandal has allowed it to showcase how the agency has changed its tactics, Canadian tax lawyer David J. Rotfleisch tells it remains to be seen how effective the taxman’s measures will be when it comes to fighting international tax evasion. Read more

Voluntary disclosure wise for restaurateur with unreported sales

Although the food sector is a common target of Canada Revenue Agency (CRA) auditors, there is an option available to restaurant owners who have engaged in unreported cash transactions and want to proactively correct their back tax filings, Canadian tax lawyer David J. Rotfleisch writes in Canadian Restaurant News. Read more

Voluntary disclosure deal 'made sense' in KPMG matter

Although recent reports raise interesting points about the actions of accounting giant KPMG in an alleged offshore tax “sham,” criticisms of the use of the Voluntary Disclosures Program are not valid, as this option appears to make sense in this case, Canadian tax lawyer David J. Rotfleisch tells Read more

Crucial to retain records when deducting Airbnb expenses

Taxpayers hoping to claim expenses related to their Airbnb activity should know that some will be fully deductible, but others need to be prorated — and the key to claiming any of these costs is to keep proper receipts and records , Canadian tax lawyer David J. Rotfleisch tells Global News. Read more

The position of executor: from cradle to grave – Part III

By Avi Dahary . Taking inventory of estate assets Read more

Fingerprinting may lead to border issues for accused tax evaders

As they do not fall under the Criminal Code of Canada, tax evasion charges have not historically resulted in individuals being denied entry to the United States — but with the Canada Revenue Agency’s (CRA) reported new plan to fingerprint individuals accused of these offences, this could change, Canadian tax lawyer David J. Rotfleisch tells . Read more