Top Five Canadian And International Income Tax Stories Of 2017
The past year has seen more tax stories hit the front pages of newspapers than in most years; here are our “Top 5” picks for 2017 income tax stories.
1. Paradise Papers Tax Leaks
The top international tax story is the Paradise Papers tax leak. The leak was from the Appleby law firm of Bermuda, which revealed a plethora of high profile names who made use of their offshore services, including the names of more than 3,000 Canadians, more than five times the 625 Canadian companies and individuals released in last year's Panama Papers leak.
The leak consisted of more than 13 million documents comprising about 1.4 TB of data and secret papers. As in last year’s Paradise Papers leak from Mossack Fonseca, a law firm based in Panama, the Appleby law firm was at the centre of this leak, documents otherwise subject to solicitor-client privilege have been released. Documents also came from two offshore service providers and corporate registries of 19 tax havens.
2. Changes To The Taxation Of Small Business
The most intriguing tax development in Canada was the fate of the small business changes quietly proposed in the dog days of summer which made headlines for a day or two in July and then disappeared from the public radar until after Labour Day, when an unprecedented level of public backlash began.
The proposal that was probably least sensible was making retained income in a Canadian Controlled Private Corporation subject to an additional level of tax. The changes that probably garnered the most condemnation were to income sprinkling as well as the curtailment of the lifetime capitals gains exemption. The icing on the cake was rules to prevent the conversion of income into capital gains.
The public outrage was so loud that the government orchestrated a campaign of backtracking over the course of a week.
The first announcement was that the anti-income sprinkling proposals would not affect the lifetime capital gains exemption. Then Finance Minister Morneau announced a “tweak” to the suggested passive income tax changes by allowing a reinvestment of income earned from an active business without an increase to corporate tax up to a limit of $50,000 per year. Finally, he announced that the Department of Finance will not pursue proposed measures targeting transactions which are intended to convert income into capital gains.
So, what was left at the end of the day? Some form of attack against income splitting or sprinkling that will be introduced in the future, probably in the federal next budget.
3. Proposed Changes To The Voluntary Disclosure Program Rules
In June, Canada Revenue Agency (CRA) announced proposed amendments and a 60-day public consultation period for proposed changes to the Voluntary Disclosure Program (VDP).
The proposals reduce eligibility for the VDP in some cases including large dollar amounts and multiple years of non-compliance. Voluntary Disclosure Program relief will be completely unavailable in some cases, including the reporting of proceeds of crime.
While numerous submissions were received from the public, CRA has not responded to any of them.
The proposed implementation date is January 1, 2018 and despite the lack of response by CRA, our tax lawyers have been advised by the CRA VDP employees with whom they deal that the CRA systems are being updated for the proposed changes, with an expected January 1 start date.
4. PayPal Releasing Client Data To CRA
PayPal was served with a Federal Court of Canada order in November requiring them to release to CRA details about PayPal Business accountholders who sent or received a payment between January 1, 2014, and November 10, 2017.
PayPal had 45 days in which to comply with this order and have indicated that they intend to do so. HST/GST may also be payable on undeclared business transactions that use PayPal as the method of payment.
5. CRA Now Fingerprinting Tax Evasion Suspects
A policy that was introduced early in the year with no formal announcement or other fanfare that CRA would begin to collect the fingerprints of Canadians who are accused of tax evasion before any conviction and knowing that they may never be convicted.
The fingerprints are transferred to the Canadian Police Information Centre (CPIC) database, accessible by Canadian police departments as well as foreign law enforcement services such as the U.S. Department of Homeland Security, which has implications for travelers to the US.
David J Rotfleisch, CPA, CA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax litigation.