The Income Tax Act allows for employers to pay scholarships to the children and grandchildren of employees for attendance at a post-secondary institution that has been designated by CRA or to an elementary or secondary school. The scholarship amount will be deductible by the corporation and non-taxable to the employee and the recipient child. The amount that can be paid as a scholarship includes tuition, related materials and living costs such as room and board. There does not have to be an academic standard to determine the qualification for a scholarship but the scholarship must be available for a class of employee that should be pre-determined and there should be an application system in place.

US TAX ISSUES – Moving to the US

Many people still consider leaving Canada for the US for various reasons including employment or simply retirement. Many think that if they are going to be long-term snowbirds, spending a substantial portion of the year in the US then they will have to obtain a green card or US citizenship. This is a fallacy and full of potential tax pitfalls.

A Canadian will normally be welcome to spend long periods of time in the US without a green card or visa if they are not working. However, it is important that, if you are to spend 120 days or more per year in the US that you take precautions, including filing form 8840 with the IRS annually in order to announce your position with the US that you are a resident of Canada for tax purposes.

The problem for many is that to consider yourself a resident of the US, Canada will likely then consider you a non-resident of Canada and you will be required to file a tax return that includes departure tax on many of your Canadian assets. In addition, US residency will make you subject, not only to US income tax, but to US gift and estate tax, which can be substantially higher, in total, then the tax in Canada.

There are a number of factors used to determine residency including physical presence (number of days in the US), intending to reside permanently in the US by selling your Canadian home and purchasing a US residence with no permanent residence remaining in Canada, location of family, social and business contacts, location of possessions, investments, vehicles, bank accounts, memberships, health cards and driver licences.

IN THE COURTS – Frequent Flyer Points

The case of Johnson v. The Queen is an example of the taxpayer’s win being a bad omen for taxpayers as a whole. Mr. Johnson required medical treatment that was not locally available and had to fly to another city for treatment. He used Aeroplan points to purchase the airline ticket plus paying cash for the taxes on the ticket. He claimed the value of the points plus the cash paid for the taxes as a medical expense. The taxpayer produced an Air Canada website printout indicating the value of an economy class ticket at the time he was travelling and also used the calculation of $0.03 per point, which is the cost of purchasing points from Aeroplan.

CRA took a position that was interesting in that it was directly the opposite of their previous statements about frequent flyer points in that the points had no determinable.

The Court ruled in favour of the taxpayer. Although this hearing was in “Informal Procedure” and therefore has little precedent value, the impact on future cases may be costly for taxpayers who use points accumulated on business for personal use.