From all of us at Parker Garber & Chesney, LLP to you and your family we wish you a Happy New Year and hope that 2012 will be a good year for all.


There has been much media coverage in the last six months concerning the IRS’ new aggressive actions to achieve compliance with US reporting requirements. This has included issuing requirements to non-US financial institutions to provide the IRS with the names of any potential US filers that have accounts. Since all foreign institutions have assets in the US the IRS has leverage and will apply it. In addition the failure to report by corporations and individuals subject to US reporting will be assessed substantial penalties for failure to comply.

Some US filers have expressed an interest in renouncing their US citizenship to avoid US tax reporting. Expatriation can be an expensive and complex process. The new requirements affect individuals who’s average net income tax for the five years preceding application exceeds $147,000; whose net worth is $2 million at the time of application; or cannot provide evidence that they have complied with all US tax obligations for the five preceding years.

Anyone falling into the above categories will be subject to an exit tax similar to Canada’s where you are taxed on the fair value of all assets except for a few exceptions.

The choice then becomes continue to meet the filing requirements of the IRS or pay the cost for expatriating. In addition, although never having been knowingly enforced, the Reed Amendment enacted in 1996 gives the US the ability to bar an ex-citizen from ever entering the US.


Most people in business are aware that they may have some personal liability for certain tax balances owing by corporations. This liability also extends to directors of volunteer organizations and can include those who act as officer or management or hold themselves out to be directors or take the kind of actions normally attributed to directors.

In addition to joint and several personal liability for balances owing for source deductions, GST/HST, Retail Sales Tax and EHT these individuals can also face criminal sanctions.

Recent court decisions have upheld that CRA is not required to assess a corporation first in order to proceed against a director, including penalties and interest and they are not required to take action against all directors.

The most common defences available are the 2-year limit for directors in that CRA is barred from pursuing collection action for any amounts owing after the resignation of the director and anytime two years or more after the resignation as well as the “due diligence” defence where the director can prove that he or she took appropriate action to ensure payment is made.

In order for a director’s resignation to be consummated they must do so in writing and file the appropriate information with the provincial ministry. The assignment in bankruptcy of a corporation does not automatically result in the dissolution of the Board.

While criminal sanctions are unusual in such cases the law is clear and a director can be held criminally liable and therefore subject to various criminal code sections such as fraud, if the amount is greater than $250,000 and includes up to 14 years in prison and substantial financial penalties. Other offences can include Principals and parties to offences, conspiracy, counselling to commit an offence and attempting an offence.


Most Canadian businesses render payments at some point to non-residents. In most cases it is for the purchase of goods and there is not usually any problem related to withholding taxes. However, payments for fees, commissions or other amounts in respect of services rendered in Canada by a non-resident are subject to a 15% withholding tax under regulation 105. The non-resident has the ability to file a tax return in Canada in order to obtain a refund.

Failure to withhold and remit will result in the Canadian customer being held liable for the tax.


As the result of the harmonization in Ontario it should be noted that supplies made to provincial governments and agencies are no longer exempt or zero-rated. HST must be charged to government or agency.


In Smith v The Queen the CRA challenged the taxpayer’s reporting of payments received on the sale of his business to a third party. The sale price was to be paid over a four year period with an annual adjustment on the price based on revenue. The taxpayer treated the payments received as payments against the sale of the goodwill which would have been taxed on a similar basis to a capital gain. CRA assessed the payments as income from property which is taxable at full marginal rates. The Court decided in favour of CRA on the basis that the “sale” price was not definitive and that the price adjustment clause, which resulted in receiving higher payments than in the original agreement, made all of the payments taxable as income from property.

The lesson from this case is that price adjustment clauses should not be subject to future events such as earnings retained over a period of time. It may have been a better result if the purchase price was fixed and that any additional payments would be separate from the instalments.