March 2014
TaxMatters@EY
Personal tax-filing tips
for 2013 tax returns
Janna Krieger, Toronto
With the 2013 personal income tax return filing deadline fast approaching, you may be
wondering what you can do to minimize your tax bill as well as the stress involved with
filing your return. While tax planning is best done early in any given year, we offer you
this reminder of things to think about as you prepare your return. Some will save you
time, some will save your nerves and — best of all — some may even save you money.
In this issue
tax-filing tips
1 Personal
for 2013 tax returns
Snowbird alert: changes to
9 information sharing at the
Canada-US border
11
Failure of charitable
donation scheme upheld by
Federal Court of Appeal
File on time
Generally, your personal income tax return has to be filed on or before 30 April. For
the self-employed and their spouse/partner, the return deadline is 16 June (for 2013),
but any taxes owing must be paid by the 30 April deadline. Note that if all of your
business operations are undertaken through a corporation, you are not personally
“self employed,” so the usual 30 April deadline applies.
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understanding your tax situation and how
the ever-changing global tax landscape
affects you. TaxMatters@EY is a monthly
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tax news, case developments, publications
and more. For more information, please
contact your EY advisor.
Failure to file a return on time can result in penalties and
interest charges. Even if you are not able to pay your tax
balance by the deadline, you should still file your return
on time to avoid penalties. On the other hand, even
though late-filing penalties and interest are based on the
amount of tax owing, you should still file on time even if
you expect a refund for the following three reasons:
• I f a tax liability does arise, perhaps as a result of an
error in the return or a denial of certain deductions,
you may suddenly be in a position where penalties
and interest apply.
• I f you expect a refund, it’s in your best interest to
file as early as possible to get your refund. Although
the Canada Revenue Agency (CRA) does pay interest,
the interest clock does not start until 30 days after
the later of the 30 April due date (even for the
self-employed) and the date the return is actually
filed. Late filing could mean a loss of potential
refund interest.
• I n the worst case, delaying too long can result in the
refund being lost. Filing more than three years after
the end of the year (later than 31 December 2016
for a 2013 return) means the refund is not payable,
although the CRA has discretion to issue the refund
provided the return is filed within 10 years (by
31 December 2023 for the 2013 return).
Use software
Using software to prepare your tax return offers many
benefits. Return preparation is generally quicker, easier
and less prone to mechanical error. Plus, the programs
often allow you to optimize credit or deduction claims
between spouses or common-law partners, and include
helpful tax-filing hints based on the information you input.
Using software may also give you the option to file your
return electronically. The CRA’s processing time of
electronically filed returns is generally shorter than that
associated with paper returns. Electronic filing options
include Netfile and Efile. In order to Netfile, you will have
to use approved tax return software. Alternatively, you
can have your return filed electronically, for a fee, by an
approved Efile agent.
While paper-filed returns are still acceptable, the
CRA encourages electronic filing, and requires tax
preparers to Efile most returns prepared for a fee
(with a few exceptions).
If you file electronically, keep your receipts. The CRA
routinely asks taxpayers to provide support for various
deductions or credits claimed on their tax return. Note
that this is for routine verification, which is not the same
thing as an audit. It is a common misconception that
electronic filing increases the likelihood of an audit. In
fact, the CRA has stated that the method of filing is not
a factor in its selection of returns for audit.
In addition to electronic filing, the CRA has been
encouraging online payment of tax and offers various
ways to do so. (See “How to pay your taxes.”)
How to pay your taxes
Adapted from the CRA website,
www.cra-arc.gc.ca/mkpymnt-eng.html.
• You can pay your taxes the same way you would
pay your phone or hydro bill — using online or
telephone banking:
– In the list of payees, look for the Canada Revenue
Agency, Revenue Canada, CRA Payment on
Filing, Receiver General or a similar term. Make
sure you correctly identify the type of account,
your social insurance number and the tax year
of your payment.
• You may qualify to make your payment using
My Payment, the CRA online payment service,
if you have an online banking account with one
of the following institutions:
– BMO Bank of Montreal
– TD Canada Trust
– Scotiabank
– RBC Royal Bank
• You can make your payment at your financial
institution in Canada. To do this, you will need
a personalized remittance voucher, which you
can ask for online through My Account or Quick
Access. You can also request a remittance voucher
by calling 1 800 959 8281.
• If you want to mail your payment to the CRA,
send your cheque or money order (payable to the
Receiver General), along with your remittance
voucher, to: Canada Revenue Agency,
875 Heron Road, Ottawa ON K1A 1B1.
• If you are a nonresident who does not have a
Canadian bank account, you can pay by wire transfer.
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TaxMatters@EY March 2014
Foreign property reporting
requirement
If you hold, at any time in the year, certain property
outside Canada with a total cost amount of more than
$100,000, you must file form T1135, “Foreign Income
Verification Statement.” Such foreign property includes
(but is not limited to) amounts in foreign bank accounts,
shares of foreign companies (other than foreign
affiliates), interests in certain nonresident trusts, bonds
issued by foreign governments or foreign companies
(other than foreign affiliates) and real estate situated
outside Canada. It does not include personal-use property
or assets used only in an active business. For example,
if you own a property in Arizona that you use for
vacationing, but do not rent this property when you are
not there, a T1135 form is not required. This falls under
the definition of personal-use property.
An individual with investments in foreign affiliates, as well
as an individual who has loaned or transferred funds or
property to a nonresident trust, may be required to file
other information returns.
Failure to report foreign property on the required
information return will result in a penalty.
Note that even if you disposed of the property during the
year and no longer meet the reporting threshold at the
end of the year, as long as you met the threshold at any
time in the year you must file form T1135 for the year.
This form is due at the same time as your tax return, and
as of yet cannot be filed electronically, so if you file your
return electronically, be sure to mail this form to the CRA.
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TaxMatters@EY March 2014
New details required for 2013
2013 transitional relief
New for 2013 and going forward, the T1135 form has
been expanded to require more detailed information on
your foreign investments, including:
On 26 February 2014, the CRA announced new
transitional relief for Canadians who must comply
with more detailed Form T1135 information reporting
requirements for foreign property with a cost of
over $100,000. The transitional relief, which applies
only for the 2013 taxation year, is intended to assist
taxpayers in transitioning to the more onerous reporting
requirements, and responds to concerns raised by
taxpayers and various stakeholders.
• The name of the specific foreign institution or other
entity holding funds outside Canada
• The specific country to which the foreign property
relates
• Income generated from the foreign property
Subject to the transitional relief discussed below, an
exception from this detailed reporting is provided where
a T3 or T5 is received from a Canadian issuer in respect
of income of a particular foreign property. If several
investments are held in one account, only the specific
investments for which a T3 or T5 was issued would meet
this reporting exclusion, so you will still have to review
your portfolio for details of each foreign property to
ensure the exemption applies. In fact, an investment may
be excluded under this exemption in one year and not in
another year, depending on whether it earned income for
which a T3 or T5 was issued. Even if your property meets
the reporting exemption, you’re still required to file Form
T1135 claiming the exemption.
It’s important to file accurately and on time, because in
addition to assessing penalties for late-filing the form,
beginning in 2013 the CRA has also extended by three
years the period within which it can reassess your return
if you fail to report income from a foreign property on
your return and Form T1135 was not filed on time, or a
property was omitted from or improperly identified on
Form T1135 for the year.
The relief comprises two elements:
• Transitional reporting method — The CRA will allow
a taxpayer who holds specified foreign property in
an account with a Canadian registered securities
dealer to report the combined value of all such
property at the end of the 2013 taxation year, rather
than reporting the details of each specified foreign
property. A taxpayer who chooses to follow this 2013
transitional reporting method must use this reporting
method for all accounts with Canadian registered
securities dealers. The T3/T5 reporting exception
may, however, be relied on for investments held with
foreign investment brokers/dealers.
• Filing extension — The CRA is extending the 2013
filing deadline for Form T1135 to 31 July 2014 for
all taxpayers.
For additional information, read our Tax Alert 2014
Issue No. 17, Revised Form T1135: CRA announces new
transitional relief for 2013.
Claim all your credits
Remember to take advantage of the various tax credits
that might apply to you. These include the following:
• Child tax credit for children under 18
• Children’s fitness credit and children’s arts credit
• Public transit credit (for you, your spouse/partner
or minor children)
• Adoption expense credit
• Tuition, education and textbook credits transferred
from a child
• Credit for the costs of exams for accreditation
as a professional or tradesperson
• Credit for individuals performing at least 200 hours
of volunteer firefighting service
• Family caregiver amount
Consider deferring deductions
If you are unable to use all applicable non-refundable
tax credits in 2013 (and they cannot be transferred
or carried forward), or if you expect to earn higher
income in the future, consider deferring the deduction
of certain discretionary amounts, such as registered
retirement savings plan (RRSP) contributions and capital
cost allowance, to increase the tax benefit of these
deductions at a later date.
Charitable donations
There are a number of filing suggestions relating to
donations. The federal tax credit for donations is available
in two stages ― a low-rate credit on the first $200 of
donations and a high-rate credit on the remainder.
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TaxMatters@EY March 2014
To benefit from the high-rate credit and save a small
amount of tax, only one spouse or partner should
claim all of the family donations. If your family’s annual
donation amount is not high, consider accumulating
donations over a few years and claiming them all in one
year to increase your benefit from the high-rate credit.
The donation credit is available for donations made
within the five preceding years.
If you donated stocks, bonds or mutual funds to a
charity, none of the related accrued capital gain is
generally included in your income, although some gains
on donated flow-through shares are subject to taxation.
New for 2013 and only available until 2017 is the firsttime donor’s super credit. This is a temporary one-time
credit that supplements the regular donation credit for
donations made on or after 21 March 2013. A first-time
donor will be entitled to a one-time federal credit equal
to 40% for money donations of $200 or less, and 54%
for donations between $200 and $1,000. An individual
is considered a first-time donor if neither the individual
nor the individual’s spouse or common-law partner has
claimed a charitable donation tax credit since 2007. The
maximum donation amount that may be claimed per
couple is $1,000.
And remember that if you are claiming a donation credit
for a tax shelter gifting arrangement, the CRA will not
assess your return until the tax shelter has been audited.
Also, if you object to an assessment of tax, interest
or penalties because a tax credit claimed for one of
these arrangements has been denied, the CRA will be
allowed to collect 50% of the disputed amount while the
objection is being processed.
Capital losses
Remember that capital losses realized in the year may be
applied only against capital gains. Net capital losses for
2013 may be carried back three years and applied to net
gains in 2010, 2011 and 2012. File form T1A, “Request
for Loss Carryback,” to carry the loss back to those
years and recover the related tax. Losses that cannot be
carried back may be carried forward indefinitely. Where
capital losses are incurred on certain shares or debt of a
small business corporation, they may qualify as business
investment losses that may be claimed against any
income in the year, not just capital gains.
Carryforward amounts
Review your prior-year return and 2012 notice of
assessment, or access your records online to determine
if you have any carryforward balances that may be
used as deductions or credits for your 2013 return.
Such carryforward amounts could include net capital
losses or other losses from prior years, unused RRSP
contributions, unclaimed charitable donations (as
described further below), unused tuition, education and
textbook amounts, interest on student loans, resource
pool balances and investment tax credits.
Interest expense
If you’ve borrowed money for the purpose of making
an income-earning investment, the interest expense
incurred should be deductible. It’s not necessary that
you currently earn income from the investment, but it
must be reasonable to expect that you will. Interest on
the money you borrow for contributions to an RRSP,
registered pension plan or tax-free savings account, or
for the purchase of personal assets such as your home
or cottage, is not deductible.
Medical expenses
Rental properties
The claim for medical expenses is limited by an income
threshold. In other words, the lower your net income, the
more you can claim.
If you own property and rent it as a source of revenue,
the income or loss must be reported on your tax return.
If a net rental loss results, it can generally be deducted
against other sources of income for the year.
As a result, it’s generally beneficial to claim all family
medical expenses in the lower-income spouse’s/partner’s
return. Remember, though, this is a non-refundable
credit, so the individual who makes the claim should
have sufficient income tax payable — both federal and
provincial — to absorb the entire credit.
Family medical expenses include those for you, your
spouse/partner and your minor children. Expenses for
other family members who are dependent on you for
support, including adult children, parents, grandparents,
siblings, aunts, uncles, nieces and nephews, can also be
claimed, subject to reductions based on their income.
Pension income-splitting
If you received pension income in 2013 that is eligible for
the pension income credit, remember that up to half of
this income can be reported on your spouse’s or commonlaw partner’s tax return. You’ll reap the greatest benefits
when one member of the couple earns significant pension
income while the other has little or no income.
However, benefits may also be available in other, less
obvious circumstances. In some cases, transferring
income from a lower-income pension recipient to a
higher-income spouse can carry a tax benefit. If you’ve
overlooked this opportunity in a previous year, you should
be aware that the CRA is generally willing to accept a
request to file a late election up to three years after the
assessment date of the returns in question.
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TaxMatters@EY March 2014
Expenses you incur to earn rental revenue can generally
be deducted against this revenue. These expenses can
include mortgage interest, property taxes, insurance,
maintenance and repairs, utilities, advertising and
management fees.
Capital expenses, such as the cost of the building (but not
land), furniture and equipment, may be deducted through
capital cost allowance (depreciation) over a period of
years. However, capital cost allowance may only be
claimed to the extent of rental income before any claim
for capital cost allowance. In other words, you cannot
create or increase a rental loss through the deduction of
capital cost allowance.
If you change all or part of your principal residence into
a rental property, or move into a rental property that you
own, you will be considered to have disposed of all or part
of the property at the time you change its use from either
personal to business or business to personal, as the case
may be. As a result, you may have to report a capital
gain on your tax return. However, you may qualify for a
“no change in use” election, which allows you to extend
principal residence treatment and either reduce or defer
the tax on the gain under certain conditions.
Making changes to your return
Reproduced from the CRA website, www.cra-arc.
gc.ca/nwsrm/txtps/2013/tt130423-eng.html.
It’s easy to make a correction to your income
tax and benefit return if you realize you made
a mistake after filing.
Old receipts
In gathering your information, you may stumble across old receipts that may have value in your 2013 return.
Specifically, charitable donations can be carried forward and used in any of the five years after the year the gift is made. You
can claim medical expenses for any 12-month period that ends in 2013 if you haven’t claimed them previously.
In addition, under the taxpayer relief provisions, the CRA has the discretion to make adjustments to previously filed
returns (10 years back) in relation to certain errors or omissions, on the taxpayer’s request.
Old slips
On the other hand, if you stumble across old income slips that you may have missed, or if you receive a slip after filing
your return, you may be tempted to leave it for the next year or let the CRA assess you based on its records. This is
not a good idea because it would be considered a failure to report income, and if you have also missed any income in
any of the three preceding years, you will be subject to a penalty for repeated failure to report income, which could be
significant. Report any missed income as soon as you find it by sending the relevant details to the CRA with a letter.
Depending on the nature of the omission, you may want to consider filing a voluntary disclosure. Speak to your EY
advisor about whether you are eligible.
You can also make other changes to your return (including claiming missed deductions) after it has been assessed.
(See “Making changes to your return” for details on how to do this).
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TaxMatters@EY March 2014
You will need to wait to receive your notice of
assessment from the CRA before you can make
a change to your return.
Once you receive your notice of assessment,
you can do one of the following:
• Use the Change my return option found
in My Account, one of the CRA’s secure
online services
• Send a completed T1 Adjustment Request
form (T1-ADJ) to your tax centre
• Send a signed letter to your tax centre asking
for an adjustment to your return
If you send a letter, be sure to give your name,
address and social insurance number and indicate
which tax year you want to adjust. You will also
need to provide any supporting documents for
your change. For example, if you want to change
the amount you claimed for charitable donations,
you have to submit all your charitable donation
receipts to support your claim.
New 2013 requirement to report
internet business activities
If you earn business income from one or more
webpages or websites (whether it is your own website
or a profile or page on anyone else’s blog, portal or
directory) you must report the following:
• The

number of webpages/websites your business
earns income from
• The

addresses of your top five internet
income-generating sites
• The

percentage of income generated from
the internet
You will be considered to earn income from a webpage
or website if you do any of the following:
• Sell

goods or services through a webpage or
website that are processed online, even if the
processing is done by a third-party service
• Sell

goods or services through a webpage or
website that requires the customer to call,
complete and submit a form, or email you to make
a purchase, order or booking
• Sell

goods or services on auction, marketplace or
similar websites operated by others
• Earn

income from advertising, income programs
or traffic generated by the website
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TaxMatters@EY March 2014
Business owners
Moving
If you’re self employed (that is, you carry on an
unincorporated business, the income from which is
reported directly on your personal tax return), there are
a number of business-related expenses you can claim.
File form T2125 to report your business income and
expenses, and be sure to complete the new part of the
form to report internet business activities. (See “New
2013 requirement to report internet business activities.”)
If you moved in 2013 to start a new job or a new
business, or to attend university or college on a fulltime basis, you may be able to claim expenses relating
to the move.
Ensure that you take advantage of all available
deductions, including automobile expenses, parking,
business association fees, home-office expenses (if
you qualify), entertainment, convention expenses (a
maximum of two per year), cell phone, depreciation on
your computer and salaries paid to assistants, including
family members.
Remember that in many cases, you can deduct private
health-care premiums as a business expense instead of
a medical expense, and one-half of Canada Pension Plan
paid in respect of self-employed earnings is deductible
instead of creditable.
A word of caution: if you claim home-office expenses,
you’re likely better off not to claim the depreciation on
the home-office portion of your home. Although this will
give you a deduction in the current year, you will lose
some of the capital gains protection available from the
principal-residence exemption.
And finally, if you have business losses from prior years,
you may only want to use sufficient losses to offset
income taxed at the higher tax brackets and keep some
losses to offset similar high-rate income in the future.
You should not use losses to reduce income below your
non-refundable tax credits.
In addition to the actual cost of moving your furniture,
appliances, dishes, clothes and so on, you can claim travel
costs, including meals and lodging while en route.
Lease-cancellation costs, as well as various expenses
associated with the sale of your former residence,
are also deductible, including up to $5,000 in costs
associated with maintaining a former residence that
was not sold before the move.
The expenses are only deductible to the extent of income
from the new work or business location (or, for students,
taxable scholarships or research grant income). If this
income is insufficient to claim all the moving expenses in
the year of the move, you can carry forward the remaining
expenses and deduct them in the following year, again to
the extent of income from the new work location. Expenses
paid after the move cannot be carried back.
Home purchasers
If you acquired a home in 2013, you may qualify for a
federal tax credit worth $750 if neither you nor your
spouse/partner owned a residence from 1 January 2009
to the date you purchased your new home.
However, if you bought your new home for the benefit
of a family member eligible for the disability tax credit
so they could be more mobile or functional in an
environment that’s better suited to their personal needs
or care, the credit is available regardless of your history
of home ownership.
Update your instalment calculation
to manage your cash flow
If you earn income that is not subject to withholding
(e.g., rental, investment or self-employment income), you
may be required to pay your 2014 income tax liability
throughout the year in quarterly instalments. You must
generally submit your instalments by 15 March, 15 June,
15 September and 15 December. Late remittances may
result in an interest charge.
The CRA sends notices to individuals who may have to
pay tax by instalment, setting out the payments required
according to their records. However, there are three
allowable methods of calculating instalments and you are
entitled to select whichever method results in the lowest
quarterly amounts:
• No-calculation option – The CRA’s instalment notice
uses the method that requires each of your first two
2014 instalments to be one-quarter of your balance
due for 2012, and your second two instalments
to aggregate to your 2013 balance due, less the
amounts payable in your first two instalments.
• Prior-year option – You may choose instead to
calculate each instalment as one-quarter of your
2013 balance due.
• Current-year option – A third alternative allows you
to calculate each instalment as one-quarter of your
anticipated 2014 balance due.
The third alternative can result in a lower instalment
requirement if your tax is expected to be lower in 2014
than in 2013. But if you underestimate your 2014
balance due and pay insufficient instalments, you will be
charged interest.
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TaxMatters@EY March 2014
Filing returns for children/students
In many cases, there may be benefits to filing tax returns
for children even when it’s not required.
Get a head start on 2014 savings
If your children had part-time jobs during the year or
earned some money for small jobs, such as babysitting,
snow removal or lawn care, by filing a tax return they
report earned income and thus establish contribution room
for purposes of RRSP contributions, which they can make
in a future year.
• Contribute early to your RRSP or RESP to
maximize tax-deferred growth, and to your
TFSA to maximize tax-free growth.
Another advantage in filing a return for teenagers is the
availability of refundable tax credits. Several provinces
offer such credits to low- and no-income individuals. When
there is no provincial tax to be reduced, the credit is paid
to the taxpayer. There is also a GST/HST credit available
for low- and no-income individuals over age 18 that is
generally only paid if an income tax return is filed. The
2013 return will determine credits for July 2014 to
April 2015, so anyone who will turn 19 prior to April 2015
should file their 2013 return.
Finally, university students should always file tax returns
and claim eligible tuition, education and textbook amounts.
Unused amounts are transferable to a supporting spouse,
parent or grandparent up to a maximum of $5,000
(federal) per person. Once established, credits that cannot
be used or transferred in the current year can be carried
forward and claimed by the student in a later year.
Learn more
Speak to your EY advisor for additional advice or
assistance regarding your personal tax return.
For many more helpful tax-saving ideas and handy
tips throughout the year, download your copy of
our annual guide Managing Your Personal Taxes:
a Canadian Perspective. •
• Consider income-splitting opportunities such
as prescribed-rate loans, or reasonable salaries
to a spouse or child for services provided to
your business.
• Consider tax deferral opportunities using
corporations (such as revisiting your salary/
dividend/remuneration needs) or other planning
opportunities involving corporations.
• If you’re planning on selling an investment or
earning income from a new source in the year,
consider opportunities to realize and use losses
to offset that income.
• Maintain your logbook to support business use
of automobile expenses throughout the year.
• Consider converting non-deductible interest
into deductible interest by using available cash
(perhaps a tax refund) to pay down personal
loans, and then borrowing for investment or
business purposes.
• If you expect to have substantial tax deductions
in 2014, consider requesting CRA authorization
to decrease tax withheld from your salary.
Snowbird alert: changes to information
sharing at the Canada-US border
Alex Israel, Toronto
It’s trite to say that Canadian “snowbirds” travelling
south to the US enjoy what they cannot here in Canada:
palm trees, warm winter weather and deep discounts at
US retailers.
With this luxury, however, comes a price – the increased
sharing of travel information between Canada and
the US, and the possible exposure to US income tax.
New rules coming into effect on 30 June 2014 will
change the way US and Canadian immigration and tax
authorities are able to monitor the comings and goings
of their respective residents. In June, the final phase
of the Entry/Exit Initiative of the Perimeter Security
and Economic Competitiveness Action Plan will be
implemented.
With the new rules, for the first time US immigration and
tax authorities will be able to independently tally the
number of days a Canadian resident has spent in the US
when travelling to and from the country.
From an immigration perspective, what does this mean to
the US-bound traveller?
• US immigration authorities will have greater access
to information regarding the comings and goings of
Canadian residents. For those travelling frequently
to the US on business, this means that the US
government will have a better understanding of how
much time was actually spent in the US. We anticipate
that this will mean greater scrutiny at the border for
frequent US-bound business travellers. Expect more
questions about what exactly you’ll be doing as you
travel to the US. •
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TaxMatters@EY March 2014
• The new rules will also provide enhanced access to
government authorities relating to information on
those who have been removed from, or who have
been refused admission to or a visa from, either
country, as well as those who have been removed
from their respective countries for criminal reasons. In
other words, this may lead to an increased number of
inadmissible Canadian travellers whose criminal past
is now being shared more broadly with US authorities.
• Should a Canadian traveller remain in the US beyond
their authorized stay, authorities in that country will
be better able to identify such infractions, which could
lead to adverse penalties for snowbirds and other
travellers. Generally, Canadian citizens are authorized
to remain in the US for business or pleasure for up
to six months. A stay beyond the authorized period
of admission, depending on the facts, could have
consequences, including the inability to be readmitted
to the US if found to have been unlawfully present
in the US.
As such, for frequent visitors (business or pleasure), we
recommend reviewing your travel patterns to the US.
Frequent business travellers should also look at their
activities and travel needs to determine whether they
should consider obtaining work authorization in the US.
Finally, travellers should be ready to be confronted on any
criminal past: for those who have one, we recommend
that you consult with an Egan LLP immigration attorney
to prevent your past, if disclosed to authorities, from
leading to an adverse finding of inadmissibility to the US.
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TaxMatters@EY March 2014
US tax for Canadians
If you’re a Canadian resident (but not a US citizen) who spends significant amounts of time in the US
for either work or leisure, you may be required to file US federal income tax returns.
That’s because, under US law, you may be considered a US resident as well as a resident of Canada.
You’re considered a US resident if you hold a green card or if you meet the “substantial presence” test.
You have a “substantial presence” in the US if you spend at least 31 days there during the year,
and the result of a prescribed formula for presence in the US is equal to or greater than 183 days.
The prescribed formula for 2013 is as follows:
• The sum of the days you spent in the US in 2013
• Plus one-third of the number of days spent there in 2012
• Plus one-sixth of the number of days spent there in 2011
This means that people who regularly spend four months a year in the US will be considered a resident
under this test and should be filing the easy-to-complete Internal Revenue Service (IRS) closer
connection statement (form 8840) before 15 June of the following year. (If you have certain types of
US-source income and must file a US federal tax return, the filing deadline will be 15 April if you have
employment income that is subject to US withholding tax, or 15 October where a filing extension has
been requested. In these cases, form 8840 should be filed with the 1040NR.)
Form 8840 should be filed even if you have no income from US sources, in order to avoid reporting
your worldwide income on a US tax return (and other US filings).
For additional information regarding US tax for Canadians, see Managing Your Personal Taxes:
a Canadian Perspective.
Failure of charitable donation scheme
upheld by Federal Court of Appeal
Kossow v The Queen, 2013 FCA 283
Brian Studniberg and Al-Nawaz Nanji, Toronto
Background
At issue in this case was whether the taxpayer was
entitled to a tax credit in respect of charitable donations
made in 2000, 2001 and 2002 ($50,000, $60,000, and
$50,000, respectively). The charitable donations were
made as part of a leveraged donation scheme under
which the taxpayer funded her donations by 20% cash
and 80% by a 25-year non-interest-bearing loan she
received from one of the promoters of the scheme.
The Crown argued that the donations did not constitute
“gifts” within the meaning of the Income Tax Act (the Act)
and that the general anti-avoidance rule (GAAR) of the
Act also applied to deny the tax credits to the taxpayer.
Tax Court decision
Justice Valerie Miller stated that she viewed the Federal
Court of Appeal’s (FCA’s) decision in Maréchaux v The
Queen (2010 FCA 287) as determinative of whether the
donation constituted a “gift” and, therefore, the Tax Court
did not need to address the GAAR issue. Maréchaux dealt
with another leveraged donation scheme. The trial judge
in the case relied on an earlier FCA decision, The Queen v
Friedberg (92 DTC 6031) for the description of a “gift” for
the purposes of the Act: “a gift is a voluntary transfer of
property owned by a donor to a donee, in return for which
no benefit or consideration flows to the donor.”
On the facts, Justice Miller noted that the taxpayer’s
donation was conditional on her application for the noninterest-bearing loan being accepted. The Tax Court also
determined that the tax savings on account of the tax
credit for charitable donations was the principal reason
11
TaxMatters@EY March 2014
for the taxpayer making the donation. Moreover, Justice
Miller observed that the taxpayer’s donation was not
separate from the financing she received. As such, the
25-year interest-free loans were “significant benefits”
she received for making her donation.
While that reasoning would have disposed of the matter,
counsel for the taxpayer argued that a “gift” is only
vitiated where there is evidence of consideration from the
donee to the donor, relying on a recent Ontario Court of
Appeal decision, McNamee v McNamee (2011 ONCA 533).
Justice Miller responded that this argument misconstrued
what the Ontario Court of Appeal had stated in McNamee
and that that decision was made in the context of a family
law dispute. Moreover, Justice Miller added that the
statement from McNamee as to a gift being called into
question where there is consideration from the donee
was not intended to be one of general application. Justice
Miller confined McNamee to its particular facts in a family
law context.
Federal Court of Appeal decision
The FCA observed the charitable donation program in
Maréchaux was “strikingly similar” to the program in this
case, and particularly so with respect to a substantial part
of the purported gift being funded by an interest-free
loan provided by the program’s promoters on terms that
formed “part of a series of inter-connected contractual
arrangements.”
Maréchaux stands for two propositions:
• A long-term interest-free loan is a significant financial
benefit to the borrower.
• A benefit received in return for making a gift will
vitiate the gift, whether the benefit comes from the
donee or another person.
The FCA stated it was evident the long-term interest-free
loans formed a part of the leveraged donation program
that the taxpayer participated in, with the result being that
she received a significant benefit as the recipient of the
loans. The interest-free loan and the taxpayer’s donation
were two components of one interconnected transaction.
The taxpayer’s counsel argued that the significant benefit
received by a donor must come from the donee rather than
from a third party, drawing on McNamee. However, the FCA
did not agree, explaining that McNamee did not change the
generally accepted definition of a gift per Friedberg.
Conclusion
The FCA observed McNamee was decided in respect of
an estate freeze situation and did not involve a leveraged
donation program or the interconnected transactions
present in Kossow. It would be a mistake, then, to read
McNamee out of context. Moreover, there was no need to
revisit the Maréchaux decision in light of the McNamee
decision from the Ontario Court of Appeal.
Interestingly, the FCA also strongly emphasized the
continued relevance of Maréchaux to evaluating whether
a gift was made at law in charitable donation cases. The
FCA emphasized as well that there is no conflict between
Maréchaux and McNamee, and it would therefore be
instructive for taxpayers and their advisors to consider
both when contemplating whether a gift has been made. •
Publications and articles
Tax Alerts – Canada
New Brunswick budget 2014-15 – 2014 Issue No. 7
Northwest Territories budget 2014-15 — 2014 Issue No. 8
Canada and the US sign intergovernmental agreement to
implement FATCA — 2014 Issue No. 9
On 5 February 2014, Canadian Finance Minister
Jim Flaherty announced that Canada has signed
an intergovernmental agreement (IGA) with the US
regarding the enhanced exchange of tax information in
connection with the Foreign Account Tax Compliance
Act (FATCA). The Department of Finance also released
legislative proposals to implement the IGA under
Canadian law, related explanatory notes and a selection
of FAQs with responses.
Federal budget 2014-15 — 2014 Issue No. 10
Invoices of accommodation: TCC decision in Salaison
Lévesque Inc. — 2014 Issue No. 11
On 4 February 2014, the Tax Court of Canada rendered
a key decision in Salaison Lévesque Inc. on whether the
Quebec Revenue Agency was correct in refusing the
taxpayer’s claim for input tax credits in respect of GST
paid to certain placement agencies that had not remitted
the GST to the tax authorities.
British Columbia budget 2014-15 — 2014 Issue No. 12
Quebec budget 2014-15 — 2014 Issue No. 13
OECD releases standard on automatic exchange of
financial account information — 2014 Issue No. 14
On 13 February 2014, the Organisation for Economic
Cooperation and Development (OECD) released a model
Competent Authority Agreement and Common Reporting
Standard designed to create a global standard for the
automatic exchange of financial account information.
12
TaxMatters@EY March 2014
Publications and articles
Federal budget introduces new international tax
measures — 2014 Issue No. 15
Global Corporate Divestment Study: strategic
divestments drive value
The federal budget includes a number of measures
targeting specific elements of Canada’s international tax
system including insurance, offshore regulated banks,
back-to-back loans and immigration trusts. The budget
also announces new public consultations on a broader
range of international tax issues, and confirms the
government’s intention to proceed with certain previously
announced reforms.
Companies can create shareholder value by regularly
assessing whether each business unit in their portfolio
is contributing to strategic goals and long-term growth.
Our latest study found that more than half of surveyed
companies have made a major divestment in the last two
years.
Related party R&D/design costs dutiable in Canada —
2014 Issue No. 16
In one of the most important customs cases in years, the
Canadian International Trade Tribunal has just confirmed
an aggressive interpretation by the Canada Border
Services Agency concerning additions to the transaction
value for inter-company payments outside of the
invoice amount or transfer price relating to design and
development costs allocated to the importer.
Revised Form T1135: CRA announces new transitional
relief for 2013 — 2014 Issue No. 17
On 26 February 2014, the CRA announced new
transitional relief for Canadians who must comply
with more detailed Form T1135 information reporting
requirements for foreign property with a cost of over
$100,000.
Cloud taxation issues and impacts
As a linchpin of the global digital economy, cloud
computing is now pervading businesses across all
industries. But it’s technology companies that have not
only created this transformational technology but also, in
turn, pioneered its use to transform their own businesses.
Technology companies need to bring tax planning to the
table early on and ask the right questions to avoid highimpact surprises — for themselves as customer service
providers, for their business customers and for the cloud
customers.
2014 Global tax policy outlook
Across the world, tax policies are adding tax burdens
to virtually every type of tax imaginable. Whether it’s
corporate, personal or indirect taxes, there’s been a
rapid slowdown in the number of headline rate changes
compared to 2012 and 2013. The Outlook for global tax
policy in 2014 provides information on 60+ countries as
well as a review of the trends in legislation and known
proposals for 2014.
Websites
Business immigration alerts and updates
For the latest information on Canadian and US
business immigration issues from Egan LLP, a business
immigration law firm allied with EY in Canada, visit
EganLLP.com.
Focus on private business
Because we believe in the power of private mid-market
companies, we invest in people, knowledge and
services to help you address the unique challenges and
opportunities you face in the private mid-market space.
Online tax calculators and rates
Frequently referred to by financial planning columnists,
this popular feature on ey.com lets you compare the
combined federal and provincial 2013 and 2014 personal
tax bills in each province and territory. The site also
includes an RRSP savings calculator and personal tax
rates and credits for all income levels. Our corporate
tax-planning tools include federal and provincial tax
rates for small-business rate income, manufacturing
and processing rate income, general rate income and
investment income.
Tax counsel and litigation
For news and thought leadership from Couzin Taylor
LLP, a tax law boutique allied with EY in Canada, visit
CouzinTaylor.com.
13
TaxMatters@EY March 2014
CPA Canada Store
EY’s Federal Income Tax Act, 2014
(12th) Edition
Editors: Greg Boehmer, Fraser Gall,
Jay Hutchison
Complete coverage of Canada’s Income
Tax Act and Regulations. New with this
edition — interactive online features!
Purchase of a print book includes access to an online,
updated and searchable copy of the Federal Income Tax Act.
EY’s Guide to Preparing 2013
Personal Tax Returns
Editors: Maureen De Lisser,
Janna Krieger, Gael Melville,
Yves Plante
This is the guide busy tax professionals
rely on for quick answers, practical
examples and relevant reference materials when preparing
personal tax returns. The guide contains everything you
need in one searchable collection with full coverage of the
latest tax measures. Available as an internet collection
or PDF e-book.
EY’s Guide to Capital Cost Allowance,
5th Edition
Editors: Allan Bonvie, John Chan,
Lokesh Chaudhry, Maureen De Lisser
Takes you through the capital cost
allowance and eligible capital expenditure
rules in Canada with commentary and
illustrative examples. Unique CCA lookup tables (by class
and by item) are included.
Learn more
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