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

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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.

Accounting Technician, Non-Assurance

The Accounting Technician is responsible for providing accounting and income tax services to our small and medium sized clients. Reporting to Partners, Principals and Managers, the Accounting Technician is a self-managed professional motivated to provide clients an outstanding level of client service and to work in a supportive team-based culture.

Key Responsibilities

  • Preparation of Notice to Reader Engagement working paper files including all required forms, draft financial statements and corporate tax returns
  • Preparation of regular external filings including HST, GST, T4’s & T5′s
  • Performing bookkeeping including reconciliations of bank accounts, accounts payable and accounts receivable
  • Provide support to clients on general questions regarding year end and bookkeeping issues
  • Responding to CRA enquiries and requests on behalf of clients
  • Preparation of T1 Personal Income Tax Returns
  • Compilation and organization of supporting documentation required to prepare income tax returns

Professional Skills and Education

  • Strong technical expertise in accounting and tax; experience with investment bookkeeping preferred
  • Two or more years’ experience in a public accounting firm
  • CPA or post-secondary diploma or certificate in Accounting or equivalent practical experience
  • Must have experience with income tax preparation
  • Comfortable working with Caseware® and Taxprep®; proficiency in accounting related software
  • Prioritizing workload with the flexibility of managing multiple tasks
  • Strong working knowledge of MS Office suite
  • Ability to grasp new technology tools as they evolve
  • Strong communication skills, both verbal and written (grammar, spelling & formatting)
  • Must be well organized with a high attention to detail
  • Excellent analysis, critical thinking and problem solving skills

We Finally Grew Into Our Dream Space

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2005 Sheppard East treated us well for 17 years. But it was never meant to be a forever address. We wanted to be conveniently central for clients and staff and no more than 20 minutes from Bay Street. We wanted an open-concept space to suit the modern working world. And we wanted a brighter, more collaborative environment.

So the goal was to grow big enough to warrant looking for an office like that and pulling the trigger on it. Well, we did. And then we did.

In August, we’ll be moving to the corner of Yonge and York Mills. We’ll be 90 seconds from the 401 and 17 minutes by subway from King and Bay. We’ll be surrounded by green space and close to great lunch options onsite and at Yonge and Lawrence, Yonge and Sheppard and Yonge and Eglinton. We’ll have underground guest parking, GO/TTC bus and subway access, and beautiful natural light in the office. You’ll love being here and we’ll love having you, just like we always dreamed.

Growing the Segal Team

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Giles Osborne CPA, CA joins the Segal team as a Principal with a focus on information technology.

Giles is a financial and tax advisor to private corporations and not-for-profits, with a concentration on clients in Toronto’s tech and start-up space. He has been involved in all stages of his clients’ development, from start-up through funding rounds and growth to business sale.

Drawing on 4 years’ consulting experience with Deloitte and 8 years as the Director of Professional Services, Americas, for Systems Union/Infor, a mid-market accounting vendor, Giles is also involved in the firm’s IT initiatives, including systems selection, implementation and integrative advisory services.

Giles received his accounting education at the University of Ottawa, and his CA designation from the Institute of Chartered Accountants of Ontario in 1994. He is a member of the Canadian Tax Foundation and has completed the Canadian Securities Course. His community and social involvement includes roles as Treasurer of Bellwoods Centres for Community Living and Vice-Commodore Finance of Ashbridges Bay Yacht Club.

We are very excited to welcome Giles and his unique IT, accounting and tax background to the firm.

Foreign Corporations in Canada: Permanent Establishment and Taxes

By Howard Wasserman, Principal—Taxation at Segal LLP 

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Any non-resident that has sales in Canada is taxable in Canada on the profit on those sales.

A number of treaties state that a non-resident corporation is only taxable in Canada if the non-resident corporation has a permanent establishment in Canada: a fixed place of business through which the business of a resident of one country is carried on.

In the Canada-US tax treaty, a permanent establishment is defined to be a place of management, a branch, an office, a factory or a workshop. Building sites or installation projects are also considered permanent establishments if they last more than 12 months. So too are people in Canada habitually exercising the authority to conclude contracts in the name of the non-resident.

And what’s not a permanent establishment?

1. The use of facilities for storage display or delivery of goods.
2. The maintenance of a stock of goods.
3. The purchase of goods or merchandise or the collection of information.
4. Advertising.
5. The use of a broker commission agent or any other independent agent.

Tax implications of permanent establishments

Once a permanent establishment has been created, the non-resident is taxable only on the profits earned in Canada, not the revenues. This can be calculated using foreign expenses that relate to the activity in Canada. For example, a non-resident corporation could allocate some management or administration costs if they can be clearly tied to the activities in Canada.

Additionally, the non-resident corporation must meet Canadian filing requirements even if no taxes are payable. More specifically, the foreign corporation should file schedule 91 and schedule 97 that would be attached to the jacket of a T2 corporate tax return. In this filing, the non-resident corporation is stating that the corporation earns Canadian revenue but is not taxable in Canada because there is no permanent establishment.

Tax implications of doing business in Canada in general

All payments to the non-resident corporation doing business in Canada are subject to 15% withholding tax on the work done in Canada. If it has been determined that the non-resident corporation is not taxable in Canada, then the non-resident corporation can file the treaty-based tax return and request a refund of the withholding taxes.

There is an opportunity to request a waiver for the 15% withholding tax on work done in Canada before the work commences. In order to get a waiver, a submission must be made to CRA, which often includes the contract related to the work being done in Canada. This gives CRA an opportunity to examine the situation to determine if the foreign corporation is taxable in Canada.

If the non-resident corporation receives a waiver, the corporation can give this waiver to its customers to ensure the no withholding tax is payable. Even if a waiver is received, the non-resident corporation must still file a treaty-based Canadian income tax return because of the Canadian revenues earned.

There are a number of issues to be dealt with on carrying on business in Canada, but the first one is always the determination of whether the company owes Canadian corporate income taxes. For help or advice, you can contact me directly.

Tax Relief for the Cost of Driving

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It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre in Manitoba to 148.5 cents per litre in British Columbia. On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

Unfortunately, for most taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving as the cost of driving to and from work and back home. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel.

Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might be required to see clients at their premises for meetings or other work-related activities and be expected to use his or her own vehicle to get there. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses and that no tax-free allowance was provided, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include:

  • fuel (gasoline, propane, oil);
  • maintenance and repairs;
  • insurance;
  • license and registration fees;
  • interest paid on a loan to purchase the vehicle;
  • eligible leasing costs for the vehicle; and
  • depreciation, in the form of capital cost allowance.

In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. As well, receipts must be kept to document all expenses incurred and claimed.

While no limits (other than the general limit of reasonableness) are placed on the amount of costs that can be deducted in the first four categories listed above, limits and restrictions do exist with respect to allowable deductions for interest, eligible leasing costs and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website.

No amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.

Deciphering the Notice of Assessment

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By the middle of May 2018, the Canada Revenue Agency (CRA) had processed just over 26 million individual income tax returns filed for the 2017 tax year. Just over 14 million of those returns resulted in a refund to the taxpayer, 5.5 million required additional payment and about 4.4 million returns were “nil returns” where no tax was owing and no refunds were claimed, but the return was used to provide income information to determine eligibility for tax credit payments (like the federal Canada Child Benefit or the HST credit).

No matter what the outcome of the filing, all returns filed with and processed by the CRA have one thing in common: they result in the issuance of a Notice of Assessment (NOA) by the Agency, outlining income, deductions, credits and tax payable for the 2017 tax year, whether you will be receiving a refund or you have a balance owing. The amount of any refund or tax payable will appear in a box at the bottom of page 1, under the heading “Account Summary.”

On page 2 of the NOA, the CRA lists the most important figures resulting from their assessment, including your total income, net income, taxable income, total federal and provincial non-refundable tax credits, total income tax payable, total income tax withheld at source and the amount of any refund or balance owing. Page 2 also includes an explanation of any changes made by the CRA to your return during the assessment process and provides information on unused credits (like tuition and education credits) that you earned and can claim in future years.

On page 3 of the NOA, you will find information on your total RRSP contribution room (i.e., maximum allowable RRSP contribution) for 2018.

Finally, page 4 provides information on how to contact the CRA with questions about the information provided on the NOA, on how to change the return filed and on how to dispute the CRA’s assessment of the individual’s tax liability.

In a minority of cases, the information presented in the NOA will differ from what you provided on your return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a good day! If the NOA will swing the other way, that’s less good.

When that happens, you must figure out why, and to decide whether or not to dispute the CRA’s conclusions. In that case, your best bet is to consult a tax or accounting professional at Segal LLP.

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