The study and practice of tax is tough. I have said it before
and I'll say it again, I believe that tax is one of the most
difficult areas of practice in existence.
In my many years of being a tax specialist, there have been no
shortages of "tax myths" that I have run across and dealt
with in practice. Here are my answers / rebuttals to some of the
more popular ones:
Yes, the imposition of income tax in Canada IS legal in Canada
and anyone who states otherwise is leading you down the wrong
No, the Canada Revenue Agency (the "CRA") has not
accepted your filing positions simply because you received a notice
of assessment. The CRA generally has three years, with many
exceptions that can extend this time, from the date of the notice
of assessment to review and make changes to your return. We talk
generally about this topic in one of our recent blogs
Filing On The Basis Of Proposed Tax Legislation.
No, the CRA does not "allow" say $10,000 of salaries
to be paid to minor family members. The law provides that only
reasonable salaries in the circumstances with a business purpose
are deductible to the business.
No, you can't avoid tax on death by simply gifting property
to the next generation. There are taxes that can arise, such as
capital gains taxes, by virtue of such property being deemed to
have been disposed of at fair market value. If you're a US
citizen, then US gift tax might apply.
So, someone is saying that if you buy a charitable tax shelter
you will be able to save more in taxes than the actual cost of the
"investment" that will be "donated"? Dream
on.....if it's too good to be true it likely is. The CRA has
been successfully attacking charitable tax shelters for years. The
CRA has written on this often.
So you're buying a vacation property and someone has told
you that you can save a lot of tax by purchasing it through a
corporation? Get some advice on this.....such a "plan" is
usually ripe for disaster.
Read what we've written on this.
So someone has told you that you don't pay Canadian tax on
investment earnings on offshore bank accounts. Wrong...dead wrong.
As a Canadian resident, you must pay income tax on your world-wide
income. You may also have reporting obligations on your foreign
assets as discussed below.
So you think the disclosure of foreign assets does not include
US securities like Microsoft, Apple, Cisco, etc. right? Wrong. It
does. The definition of "specified foreign property" in
subsection 233.3(1) of the Income Tax Act (the
"Act") (which is the section that requires foreign
property disclosure by virtue of the requirement to file prescribed
form T1135) specifically includes a share of the capital stock of a
We have previously written about this.
So you've lived in a house that you just constructed or
otherwise acquired for just one day since someone has told you that
if you live it in for a day it will be considered your principal
residence and thus any gain realized on a sale will be tax
free.....right? If it was only that simple. The definition of
"principal residence" in section 54 of the Act is very
lengthy and requires very detailed conditions to be met. One of the
requirements is that the housing unit must have been
"ordinarily inhabited" in the year by the taxpayer, the
taxpayer's spouse or common law partner or by a child of the
taxpayer. Will one day occupancy meet the test of being
"ordinarily inhabited"? Each situation will need to be
reviewed for the facts and circumstances but it would be highly
unlikely that one day occupancy would meet the test of being
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