Monthly Archive: September 2018

The Segal Team has Moved!

We are very pleased to announce that Segal has moved to our brand-new offices at York Mills Centre.

segal-office


Our New Address:
4101 Yonge St., Suite 502
P.O. Box 202
Toronto, ON  M2P 1N6
Main Number:  416-391-4499 (same)


Conveniently central for clients and staff, we are 1-minute south of the 401 and minutes from downtown on the subway, at the northeast corner of Yonge and York Mills.

Our new office overlooks a beautiful green space with natural light throughout, underground guest parking, GO/TTC bus and subway access at York Mills station.

Valuations for Income Tax Purposes

income-tax

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.

Valuations for Income Tax Purposes – What Does the Canada Revenue Agency (“CRA”) think?

Tax planning and corporate restructuring have become an integral part of the services provided by professional advisors to their clients. A key component of any plan is establishing the fair market value (“FMV”) as the valuation represents the first step towards assessing the tax consequences of any transaction.

Given the increased level of complexity in many tax plans, “cutting corners” by not obtaining independent valuation advise may lead to unintended consequences such as income tax penalties or failure to achieve the desired after tax results.

In practice, a Chartered Business Valuator (“CBV”) may be engaged to assist you in the following tax related situations:

  • Estate Freezes where the FMV of various classes of shares may need to be determined;
  • Corporate Reorganizations where business assets and related debt are being transferred from one entity to another;
  • Death of a shareholder where FMV of assets is required for the Terminal Tax Return;
  • Emigration, where under certain circumstances a taxpayer is deemed to dispose of their worldwide assets at FMV;
  • Defending a FMV previously filed in a tax return under audit by CRA.

So what is CRA’s position on valuation?

Information Circular 89-3 (“IC 89-3”), Policy Statement on Business Equity Valuations, outlines the general valuation principles and policies adopted by CRA in the valuation of securities and intangible property of closely held corporations for income tax purposes.

There are no formal requirements in IC 89-3 for a valuation by a CBV, however this should not be taken as a recommendation to apply a “do-it-yourself” approach to valuation, as IC 89-3 requires:

  • The standard of value to be used is FMV;
  • All relevant factors of the entity being valued must be considered;
  • The approach to valuation must be justified;
  • Factors used in determining the valuation multiple applied must be disclosed;
  • Reasonable Judgement and Objectivity must be used.

In addition to IC 89-3, IT Folio S4-F3-CI provides CRA’s policy on Price Adjustment Clauses which states:

  • FMV must be determined by a fair and reasonable method;
  • FMV does not have to be determined by a valuation expert, BUT it is not sufficient to rely upon a generally accepted valuation method;
  • It is necessary to perform a complete examination of all relevant facts and valuation methodology must be properly applied.

Finally, there are provisions in the Income Tax Act to apply gross negligence penalties to third parties (preparers) making, or participating in the making of, false statements or omissions in matters of valuation where there is a substantial difference between the FMV as filed and the FMV attributed by CRA. These penalties can be substantial depending on the circumstances.

In light of the above, best practice dictates engaging a CBV or at least having a CBV review a non-valuation practitioner’s valuation to avoid potential pitfalls including a challenge of your FMV by CRA.

A CBV will apply the proper application of generally accepted valuation methods and use their experience and professional judgement essential in any situation where there could be doubt about the value of a private corporation.

If in doubt, consider consulting a CBV for guidance.

Contributed by Michael Frost and Andrew Dey from Mowbrey Gil. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

New Quebec sales tax and e-commerce

quebec

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.

Measures relating to the Quebec sales tax and e-commerce

The rise of e-Commerce created QST collection difficulties for suppliers with no physical or significant presence in Quebec. This situation negatively affected Québec’s supplier competitiveness, and it’s shorting the provincial government necessary revenue. The policy response to this was the Mandatory Registration System (MRS).

About the MRS

In its 2018-2019 budget, the Quebec government introduced the MRS (also known as the “specified registration system”) for non-resident suppliers. The rules require non-resident suppliers to collect and remit the QST on taxable incorporeal movable property and services supplied in Québec to people who live in Québec but who are not registered for the QST. Moreover, Canadian suppliers will be required to collect and remit QST on corporeal movable property supplied in Québec to a Quebec consumer.

To establish residency and location, non-resident suppliers can refer to a customer’s billing address, IP address or banking information. And customers who falsify this information could face stiff penalties.

MRS and eCommerce

Digital property and services distribution platforms (“digital platforms”) are now required to register under the MRS in cases where the digital platform controls the key elements of transactions with specified Québec consumers (billing, transaction terms & conditions and delivery).

Mandatory registration will apply to non-resident suppliers (NRS) when the value of taxable goods and services exchanged in Québec exceeds $30,000 a year. As NRSs registered under the new MRS are not subject to other QST provisions, claiming an input tax reimbursement is not possible. However, an NRS can register under the general QST if it meets registration requirements.

The Québec government’s goal is the make the MRS simple and easy to use. The return must be filed electronically on a quarterly basis and the remittance can be paid in USD and EURO.

The MRS comes into effect on January 1, 2019, for non-resident suppliers outside Canada, and September 1, 2019, for non-resident suppliers located in Canada.

For more information about the MRS, what it means for your business and how it may or may not affect how you do business, book a consult with us and we’ll get you prepared for continued success in Québec.

Contributed by Benoit Vallée from Demers Beaulne. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

Cannabis Update

cannabis

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.

Cannabis Update

On June 19, 2018, the Senate passed Bill C-45, the Cannabis Act, which legalizes the consumption of recreational cannabis across Canada. The Act comes into force on October 17, 2018.

Consumption of cannabis will continue to be forbidden in public places, workplaces and vehicles, with some possible exemptions for people who consume marijuana medicinally.

So what does this mean for employers?

Impairment in the workplace is still unacceptable

While employers have a legal duty to accommodate medical cannabis, there is no such obligation with respect to recreational cannabis. It should be treated in the same manner as alcohol or other drug-related use or impairment in the workplace.

Accommodating medical cannabis is still recommended

Employers have a responsibility to take every reasonable precaution in the interests of employee safety. This includes accommodating an employee’s disability to the point of undue hardship. However, employers can (and should) ask for supporting medical documentation addressing medical cannabis use during work hours, including but not limited to a copy of the licensing documentation.

However, a cannabis prescription does not give workers the right to compromise their safety or the safety of others. If the essential duties of a position are safety-sensitive, no amount of impairment is tolerable. If the essential duties of an employee’s position are not safety-sensitive, some degree of impairment may be acceptable. Employers will need to prove tangible safety risks to refuse accommodation.

Also, employers are not obligated to let employees smoke cannabis in their workplace’s designated smoking area. If an employee needs to smoke prescribed marijuana during the workday, a place and time should be established to not expose other employees to cannabis smoke.

Finally, dependence on recreational marijuana may be a disability.  Employers should encourage their staff to report any cannabis addictions they may develop so that they can be accommodated in compliance with the Human Rights Act.

Drug and Alcohol Policy – The Next Steps

Employers are encouraged to be proactive by reviewing and updating their policies and procedures regarding cannabis use. If intoxication in your workplace poses a risk to safety, you likely already have a policy in place to forbid consumption of any substance that causes impairment at work.

Remember that testing for substances is acceptable only in limited circumstances. Any related policy should be reviewed by a lawyer, as should any cannabis-related termination to ensure human rights requirements are met.

Key Canadian Cannabis Contacts

Contributed by Chantal Roy from Marcil Lavallée. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.