AUTOMOBILE DEDUCTION LIMITS FOR 2011

Once more the Ministry of Finance has failed to recognize the increased costs of owning and operating a vehicle as they announce the new numbers (that are the same as the old numbers from 2010) which are as follows:

The maximum price of a vehicle for capital cost allowance remains at $30,000 before tax.

The maximum lease amount that can be deducted remains at $800 before tax.

The maximum deductible interest expense on a loan to purchase a vehicle remains at $300 per month.

The tax-exempt allowance per kilometer remains at $0.52 per kilometer for the first 5,000 kilometres and $0.46 for each additional kilometer.

Maybe when the Minister has to pay for his own car then he will realize how low these numbers truly are.

NOVA SCOTIA CORPORATE TAX RATES

Nova Scotia’s small business tax rate fell to 4.5% effective January 1, 2011 on the first $400,000 of small business taxable income.

EI AND CPP RATES

For 2011 the EI rate is increased to 1.78% from 1.73% and the maximum EI is now $786.76.

The CPP rate remains at 4.95% but the maximum has increased to $2,217.60.

IN THE COURTS – SMALL BUSINESS DEDUCTION CHALLENGES

We are beginning to see more challenges by CRA related to the claim for a small business deduction and their position that certain corporations are personal service businesses. The main position taken by CRA and supported by the Court is that the shareholder would have been reasonably regarded, but for the existence of the contractor, to be an employee of the company retaining the contractor. The Court also looks at factors such as risk for losses from operations, control of the work and hours of the employee/shareholder and who provides the work environment and tools needed to complete the work. If the Court finds that the contractor had no risk/reward opportunities and did not truly work as an independent then they will uphold the CRA assessment and this will not only apply tax at the highest rate for the contractor but also result in a disallowance of most of the expenses claimed by the taxpayer corporation.

IN THE COURTS – WHEN A TRUST IS A TRUST

In the case of Davis et al v. The Queen the issue was a trust that was created for the purpose of holding shares for a class of shareholders of a corporation. There was a declaration of trust prepared but no shares were ever transferred into the names of the trustees. CRA argued that no trust had actually been created because of the lack of documentation and because the alleged trust property had never been properly transferred. The Court ruled that the existing documentation, although somewhat sketchy, was enough to constitute a trust and that all parties had acted consistently with the idea that a trust in fact existed.

While a brief reading may make people feel that informal trusts are supported by this decision we would caution that CRA will continue to attack informal trusts as well as those they consider not to have been properly constituted.

PGC NEWS

We would like to welcome our latest staff addition, Ariel Fan, who has joined our condominium audit team.