Tuesday, December 8, 2015


Not all litigation is about money. As a result, the advisability of some court action like criminal defence or family proceedings can't simply by evaluated by comparing the likely legal expense versus the likely amount of money to be recovered or saved. Defending your freedom or your family can be priceless.

But outside the criminal, family and a few other speciality areas of the litigation world, most litigation is about money at the end of the day. Thus whether you call it property litigation, construction litigation, contract litigation, tort litigation, or estate litigation, it can usually all be fit under the common umbrella of "civil litigation" and will mostly result in a monetary reward for or against you.

It's thus easier to measure success in civil litigation than in non-monetary types of litigation. Success is largely a function of getting (or saving) more than you spend to get that result. It's simple economics. As litigation costs rise, so needs the amount of money likely to be recovered to grow ever bigger in order for the effort to be worthwhile. Low leal costs can justify pursuing or defending quite small sums - such as in small claims court - whereas astronomic predicted costs can only justify pursuit or defence of astronomic sums.

I thus offer you five commandments for cost-effective civil litigation which will maximize your chances of coming out on the winning side every time - meaning spending less than you get or save.

1. CHOOSE SMALL CLAIMS COURT IF YOUR DEBT IS LESS THAN TWO TIMES THE LIMIT OF SMALL CLAIMS. Small Claims Court is much, much cheaper than Superior Court, so make sure you go to Small Claims if the amount you're claiming is anywhere under double the limit of Small Claims. Small Claims Court uses a much simplified procedure than higher courts so that you get to trial much more quickly, which will save significantly on legal fees. This means in Ontario at anything under $50,000 you should be looking at Small Claims Court. True, as a plaintiff you'll be limited to getting $25,000 plus costs, rather that $45,000 or something similar. But you'll potentially save tens of thousands in legal fees. If you spend $5,000 to get $25,000 in Small Claims, you'll be far better off at the end of the day than spending $40,000 to get $50,000 in Superior Court. It's simply a question of math.

2. THINK TWICE BEFORE COMMENCING ACTION IF YOUR LEGAL FEES COULD APPROACH THE VALUE OF YOUR DEBT. This means that if you believe you're reasonably entitled to $75,000, but you might spend $60,000 in legal fees getting that $75,000 judgment, it just might not be worth it. First, you might lose your case outright. Second, you might not get the "costs" against the other side that you are hoping for. And third (most importantly), the defendant might be judgment proof - meaning there are no assets against which you can collect your winning judgment. If your potential claim value is in the millions of dollars, it will be far easier to justify legal costs than for a $100,000 claim. The legal work involved in pursuing each claim might be similar, but fees will be far easier to justify where the amount is dispute is many times the likely legal fees.

3. CONSIDER IF YOU HAVE A PROVABLE CAUSE OF ACTION OR DEFENCE. Although you might firmly (and correctly) believe yourself to be morally in the right, if you can't legally prove a party you are suing is at fault in your claim (or can't adequately defend against a claim of fault made against you), you aren't going to succeed in your case. You need evidence. Cold hard documents work best. But expert reports, or even neighbours to testify in backing up your story could help. If it's just your word against the word of the other party, it's time to worry (regardless of whether you are plaintiff or defendant).

4. ENSURE YOU CAN PROVE (OR DISPROVE) YOUR DAMAGES. Proving the other guy is "at fault" isn't enough. You also need to prove what he owes you. This means that even if its abundantly clear that a party is liable, proving only nominal damages (which might be as low as a dollar) lead one to wonder what's the point of going to court? You might feel justifiably outraged about a situation, but that by itself won't get you "punitive" damages in Canada. Generally you'll be stuck with compensatory damages, meaning damages sufficient to place you back in the position you were in before the other party did what he or she did. Thus you might not like that you neighbour pushes his driveway snow five centimetres on to your property when he plows after each winter storm, but how are you going to quantify the loss this supposedly caused you? By comparison, wind up in an auto accident and lose an arm, and everyone will agree you're owed significant money by a party at fault, even if there remains debate over exactly how much.

5. NAME ALL REQUIRED PARTIES. Thus avoid suing small corporations by themselves; rather, try to add individuals like the President of a corporation as a party so long as there is a plausible legal basis for doing do. This avoids a named party claiming that other unnamed parties are really the ones at fault, and further avoids you possibly getting a hollow judgment against a shell corporation.

Tuesday, November 24, 2015


The Three-Thirds Rule

I once read somewhere that 1/3 of all cases settle after getting lawyers involved but before any court action is started, another 1/3 settle after the start of court action but prior to the case going to trial, and another 1/3 are only resolved during or after the trial (or motion or application or other type of contested hearing). I'm not sure if these figures are accurate for Ontario courts, but I do believe they provide a good guide for determining when and how you should resort to professional legal help and the courts when you're involved in a contentious legal dispute.

Make sure you take full advantage of that first 1/3 of settlements without court chance before you rush off to court. And even when you are in court, don't rush off to trial without maximizing that second 1/3 of settlements prior to trial chance. 

A Modest Legal Investment at the Pre-Court Stage

Some disputes are always going to settle without any lawyer involvement, because all parties to the dispute are reasonable, and there's not much need for legal advice about respective rights. These could involve business or personal debts, or simpler disputes over property rights. 

Other disputes might still have reasonable parties involved, but require a little nudge from the lawyers in the advice department because of the stakes at play. A good example is family law situations where, regardless of how amicable the split, spouses will need solid legal advice on asset split, spousal and child support, and child custody in order for any agreement arrived at to be later defensible in court if one of the parties subsequently decides he or she is unhappy with the arrangement. 

Still other conflicts could need a lot of lawyer involvement prior to the court phase in order to reach a settlement, with the lawyers playing the roles of negotiators, mediators and advisors on next steps. You should always bear in mind what is the best alternative to a negotiated agreement. That extra lawyer involvement at the pre-court stage will usually come at a fraction of the price of lawyer-led court action. 

A couple of hours of lawyer time, or even a dozen hours depending on stakes, can be a total bargain if it solves your legal issue for you. As soon as the court action ball starts rolling, the lawyers will start to burn through time. Court action is expensive not because of the fees the courts charge - they only amount to a few hundred dollars, with your tax dollars covering the vast majority of court judge, clerk, reporter and building time - and not even because of lawyer hourly rates, but because of the amount of time lawyers need to devote to becoming properly prepared for court, and then appearing for you in court. 

Four Tips for Deciding When to Proceed to Court

1. Wait as long as is humanly possible. Even if it feels almost impossible to wait any longer, because your situation has become intolerable, it may pay to wait even longer. Once you pull that court action trigger, the positions of parties harden, lawyer bills shoot up on both sides, and it becomes difficult for any party to disengage from the action. 

2. Start court action if there is a true stalemate in negotiations. I'm not saying you should wait forever to go to court. Eventually, enough is enough, and sometimes initiating court action may break a stalemate, causing the opposing party to immediately settle in order to avoid legal fees and the possibility of losing in court. But you shouldn't count on that settlement. 

3. Start court action sooner if the stakes are so high that they justify the cost, and you have the resources to fund such action. If you're fighting over $10,000, you should be much more cautious over initiating court action than if you're fighting over $1,000,000. In the first fight, your legal fees could exceed the sum in dispute. In the second fight, the legal fees might be just a few percent of the amount of loss. Non-monetary high stakes that also could justify sooner court action might involve child custody arrangements, or if your own personal liberty is at stake. 

4. Immediately start court action if your position is going to be significantly prejudiced by waiting. If assets that could compensate you for your loss or evidence that can prove that loss is at risk of disappearing, because the opposing party might hide them or destroy it, you might need to immediately go to court to freeze those assets and preserve that evidence. A Mareva Injunction or Anton Pillar Order are interlocutory remedies that a court can give you to preserve assets and seize evidence. An injunction can generally force a party to do or not do something on a temporary basis when there is a risk that you will suffer irreparable harm if the injunction is not granted. 

Friday, November 6, 2015


Other than being charged, making or not making bail may have a greater affect on the outcome of your criminal case than any other factor. Greater than the evidence investigators claim to have amassed against you. And even greater than what transpires at your trial.

Our constitutional law is rife with assertions that you are presumed innocent until proven guilty, and that you've got a right to a trial within a reasonable time. There's a less well known provision contained in s-s. 11(e) of the Canadian Charter of Rights and Freedoms which affirms that "Any person charged with an offence has the right ... not to be denied reasonable bail without just cause." But don't make the mistake of thinking this provision means that you're almost guaranteed to make bail if you don't have a horrible criminal record and aren't already out on multiple other bail releases.

The Crown frequently demands that people accused of offences be detained in custody pending trial. Even for people with no criminal records. Even for people not already out on another bail. And even for people not accused on the most serious criminal offences. The ultimate release decision rests with the Court, not the Crown, but if the Crown demands your detention then you're facing a contested bail hearing. You should make sure you have a lawyer for such a hearing, regardless of whether it is legal aid duty counsel, or a privately retained lawyer (I serve in both roles from time to time).

Unfortunately, Parliament has set up a complex set of provisions in the Criminal Code governing the tests which must be met to make bail, the evidence admissible at a bail hearing, and on whom the onus falls - Crown or defence - to establish the tests. What this means for you or your loved one who is locked up awaiting a bail hearing is that you need a strong bail plan to present to the court, and you need evidence to back up it. Promises simply to behave usually just won't cut it alone.

So the tips I can offer you to maximize your chances for that get out of jail free card are:

TIP #1: Contact one or two "sureties" who can be present at the bail hearing to vouch for you, and agree to supervise you during your release pending trial. They're like civilian jailers, who keep an eye on whether you're obeying your conditions, and pledge to call the police if you breach. They also usually pledge a sum of good conduct money, but usually without any upfront deposit. If you're able to, start calling potential sureties as soon as you've been arrested, as you might have trouble getting hold of them, and everyone you call might not want to act. Or ask your lawyer to make the calls.

TIP #2: Figure out if you have some cash available for a bail deposit. While we don't do massive bail bonds in Canada as happens in the U.S. (where a bondsman essentially lends you a large amount for bail), the courts do always appreciate some cold hard cash as a behaviour incentive while on bail. It's almost always required if you're from out of province or out of country from the place you're accused of committing an offence in. Any amount from $1,000 to $100,000 can be useful (higher amounts of cash are possible, I suppose, but I have only personally seen no deposit sureties go higher, like when someone pledges a house).

TIP #3: Present a release plan that will keep you out of trouble while on bail. This plan could range from anything like where you will be working or attending school, up to a curfew, and even 24 hour per day house arrest with never leaving the house without your surety. Generally, the more serious the accusations, and more of a record or other releases you have amassed, the more the need for stricter release conditions.

TIP #4: Gather together documentary evidence to support your sureties and release plan. So if you claim to be working somewhere full time, ask your boss for a letter to confirm this. If your mother intends to pledge $20,000 in your favour for your release, obtain her title documents for her house proving what she owns, how much it is worth, and how much of a mortgage sits on it - great precision here isn't required, but something is usually necessary beyond the simple word of your surety.

Tuesday, November 3, 2015


Everyone agrees the "best interests of the child" test trumps all in child protection proceedings. However, the innumerable child protection court cases which reveal five versions of children's best interests - the Children's Aid Society (CAS) version, the Office of the Children's Lawyer (OCL) version, the father's version, the mother's version, and the court's version - demonstrate the often highly subjective nature of children's best interest assessments. Child protection law is more "art" than "science." Which is why expert reports, while helpful, are never definitive in presenting the one ideal plan of care that will be in the children's best interests. 

If one even looks at basic children's law principles like children are generally better off residing with their parents, parental contact should be maximized in access situations, and wishes of older children should be taken into account when making best interests assessments, competing views of best interests quickly turn the conversation into a quagmire if CAS insists neither parent is fit, both the mother and father insist it is the other parent who is unfit, and the OCL expresses the children's views that they want to live equally with each parent. 

The demand you hear most often from child protection judges is for more evidence of best interests. Judges don't want to guess, they want to decide on facts. So if you - whoever you are - are putting forward a particular plan of care for a child, you're going to need some cold, hard facts to back up why that plan is feasible, rather than just wishful thinking. 

Rules of evidentiary admissibility are pretty loose in child protection, so you don't need to get too hung up on legal formality. Letters written by relatives, or social workers, or medical professionals, or addiction counsellors can all work, though usually they should be appended as exhibits to someone's affidavit sworn to present the overall version of the facts. But each of those people don't need to file their own affidavits, and usually would not be required to attend court to testify. Getting your own expert witness would be best of all, but don't make the mistake of hiring an expert, and then rejecting his findings. 

Showing up in court asserting your rights as a father or mother, arguing that a particular plan is in your children's best interests, and having no evidence whatsoever to back you up other than your own promises, usually isn't going to cut in in the face of conflicting CAS sworn evidence. 

As a lawyer who represents fathers and mothers in child protection proceedings, I firmly advocate for my client's rights, and their views of what is in their children's best interests. However, my clients need to give me evidence that permits me to sell the court on the correctness of their arguments. So as soon you as father or mother learn that CAS is showing interest in your family, you should start compiling evidence that will assist you and your children in court much later. 

Sunday, November 1, 2015


In the "good old days" (which often weren't so good), most of us died relatively poor. We might hopefully have been rich in life accomplishments, and family or friends, but financially speaking there often wasn't a whole lot left to divvy up among those who survived us. 

With significant increases in home ownership, and especially significant rises in the equity held in those homes in Canada's major urban centres, if you die owning a mortgage-free house, you now often die rich. Plus there may be life insurance and investments to distribute. This is all great for one's survivors, but not so great if family relationships are already a little strained at the time of passing. 

In the old days, even if beneficiaries of estates were inclined to squabble over who got what, they did not often retain legal counsel to do so if the legal fees would outweigh the money in dispute. But now with estates frequently running into the hundreds of thousands of dollars (or more) in value, "lawyering up" is becoming more common. 

As an estate litigation and dispute settlement lawyer, I've found having some background in drafting wills and powers of attorney for clients has helped me assist families in deescalating disputes before they start, and managing disputes if they are already ongoing. Here I offer you five basic but key tips to deescalating actual or potential estate family feuds.

Tip #1: Picking the right executor for your will may be more important than picking the right beneficiaries. I find people often spend months of time debating who should or should not receive that prized china tea cup in a will, but spend about five minutes (literally) determining who should act as executor and estate trustee. Your executor is THE key player who will determine whether your estate is distributed hassle free, or with acrimony and lawyer involvement. Picking someone who is relatively impartial (and ideally not a major beneficiary, but who is compensated for his or her effort), and has people skills, is the usually the best strategy. 

Tip #2: Don't completely exclude anyone who is deserving from your will. The more people you "cut out" of your will who might usually be expecting a gift, the more you heighten the chances for one of them challenging the will. You definitely don't need to treat everyone equally (at least under Canadian common law, as in Ontario), but if you have three children, and you give two of them $100,000 each, and the third one nothing, you are asking for trouble. Even if you have good reasons for doing so. 

Tip #3: Once a dispute has started, quickly get legal advice but try to prevent it going to court. A lawyer's opinion is a bargain compared to the hassle and expense it can later save you. However, dragging a case (or being dragged) into court is never a bargain, and will take at least months and possibly years to resolve. Once that litigation freight train starts heading down the track, it can be very difficult to apply the brakes. 

Tip #4: If you are in court, keep open a dialogue with the other side(s). While this tip might appear obvious, my experience is that many assume that once a matter is in court, they should just "let the court sort it out" and stop speaking to the other parties. It's unlikely a court will actually be able to sort it out in a definitive way - a court might clarify the issues, and resolve some of them, but definitive resolution could require many, many years since even if you are successful at trial, an appeal is possible, so keep the lines of communication open.

Tip #5: If you are involved in a contested court hearing, ensure you have solid evidence to support your position beyond just your oral testimony. It's reasonable to assume that judges want to make "just" and "fair" decisions, but they can only do so based on the law and evidence before them. Even if the law is on your side (for example, that a properly executed will is valid), prepare to back up your position with lots collateral evidence. Judges love documents - as they're less likely to lie than witnesses - so try to produce some supporting your position. Other witnesses backing up testimony will also help. You might also need expert witnesses. You will make your legal bill lower and greatly increase of your chances of success in court by helping you lawyer locate the documents and witnesses you need to present a compelling case. 

Monday, June 29, 2015



Canada is filled with quaint, picturesque, historic courthouses. I've previously done a post asking for your favourites. As you can see from the above photo, Alexandria's courthouse might unfortunately not count among the quaintest, nor most picturesque of historic courthouses of Canada (it is, after all, a former grocery store converted to court purposes). But I do maintain that its case and user composition is among the most diverse you'll find anywhere in the country. 

While the courthouse in theory was established to serve Alexandria's population of 4000 people and greater North Glengarry Township and South Glengarry Township populations totalling about 26,000 people, a constantly changing interprovincial and international cast of tens of thousands of people travel daily through its southern stretches running just north of the mighty St. Lawrence River. 

Approximately 19,000 vehicles per day (according to MTO stats) pass through its jurisdiction along the Highway 401 (from the Quebec border in the east to the City of Cornwall limits in the west), including the last chances for cheap gas before Quebec or the first chances for cheap gas after entering Ontario. Those vehicles range from commercial trucking traffic to college students headed down for fun weekends in Montreal to families off on summer camping adventures across Canada. 

You'll see a range of vehicle plates from Nova Scotia to British Columbia to Ohio. 

What brings them all together at the Alexandria Courthouse is their misfortune of being stopped on the 401 and charged with a criminal or highway traffic offence. Their first of many court appearances will be at the Alexandria Courthouse. And their next appearance. And the appearance after that as well. All the way up to trial day. 

Criminal and provincial offence systems in Ontario are based on in-person appearances. Regardless of whether you're from Halifax, or Sept Isles, or Brampton, or Vancouver, you'll be stuck coming back to Alexandria. Again. And again. And again. 

That is, unless you hire a lawyer who can appear as your agent. Appear to request disclosure, analyse your case, propose how to proceed, and deal with adjournments. Appear to handle Crown pre-trial negotiations. And appear to conduct judicial pre-trials. 

You'll still eventually need to appear in person for any guilty plea or trial (though for highway traffic offences you won't even need to do that). But a lawyer appearing for you at any stage can save you a whole lot of travel and waiting around for your case to be called hassle. 

My office is right across the street from the Courthouse (that above photo is taken from my front office steps). I'd be pleased to help you out with your court appearances and court cases in Alexandria, Ontario. I've been involved in criminal and regulatory law for twenty years, have worked in every province and territory of Canada (except for the Yukon), and litigated criminal and civil cases up to the level of the Supreme Court of Canada. But I especially like living and practicing in this particular far eastern corner of Ontario. 

If you're an out of area lawyer (be you from Toronto or Montreal or elsewhere) who has a client with court appearances in Alexandria, I'd likewise be pleased to assist you so you don't have to run out here every 30 days (the usual cycle of appearances at the Alexandria court) pending your settlement negotiations or setting of trial dates. 

Don't hesitate to contact me at the coordinates to the right of this post. 

Saturday, June 6, 2015


The Controlled Drugs and Substances Act and the courts make huge distinctions between drug users and drug traffickers. From a sentencing perspective, drug trafficker punishments could be 100 times more severe than drug user punishments.

Being accused of "simple possession" of a drug will usually lead to diversion (out of the judicial system), a discharge (avoiding a criminal record), a suspended sentence (with no additional punishment) or a small fine. By comparison, being accused of trafficking (or possession for the purpose of trafficking) could land you in a federal penitentiary for many years, depending on the type and quantity of drug trafficked.

Because of this huge distinction between possession and trafficking, a strong defence to any possession for the purpose of trafficking charge is that the drugs - regardless of their quantity, packaging and surrounding circumstances - are solely for personal use.

This defence isn't going to work for you if there is strong evidence that you actually sold or gave drugs to someone else, like an undercover officer, because then your tiny amount of possession will transform itself into a not so tiny amount of trafficking. Practically speaking, there's no such thing as a huge amount of simple possession (you'll always be accused of possession for the purpose of trafficking if found with huge quantities of a drug), and there's no such thing as a tiny amount of trafficking (while multiple traffickings and trafficking in large quantities will net you more prison time, the starting point for even smaller amounts of trafficking in "serious" drugs can be quite significant jail time).

But if you're one of the many who are found to have drugs on their person, in their vehicle, or at their home or business, and there's no evidence that you trafficked, the "they're for personal use" defence might work for you. There are a few especially good features of this defence.

First, it's one your lawyer might be able to negotiate for you with the Federal Crown, without your having to take your chances with a judge or jury by running a trial. If the Crown becomes convinced that there may be no "reasonable prospect of conviction" against you on the possession for the purpose of trafficking charge, perhaps because the quantity of the drug is fairly low, or there aren't lots of other indicia surrounding its possession which they can point to in support of a trafficking conviction, then a deal may be possible. The Crown may prefer the certainly of a possession conviction - certain because you will plead guilty - in preference to the iffiness of running a PforP trial that could end in an acquittal on all charges.

Two, if you do need to run a trial, in order to prove the charge the Crown will be dependant on the qualification and opinion of an "expert" who will testify that such a quantity of such a drug, together with any other indicia of trafficking surrounding its seizure from you, inevitably leads to the conclusion in his or her expert opinion that your purpose for the possession must have been trafficking. The problem with experts from the Crown's perspective is that it can be tough to find ones who are truly qualified to demand the opinion that is being asked of them. Sometimes the Crown will be forced to pull any detective constable out of the drug squad who's been running drug investigations for a few months, and seek to convince the court he can be an "expert."

Some "experts" may have minimal knowledge of drug use, and the amount an addict might reasonably keep for personal use purposes. Yes, if you're found with one metric tonne of cocaine, the expert's job then might be easy. But many cases involve grey areas for quantities that might be trafficking, and might not be trafficking.

Likewise, the so-called hallmark "signs" of drug trafficking that experts will testify about have no science behind them. When I started prosecuting drug cases back in 1995, we argued that everyone with a cell phone and a moderate amount of drugs must be a dealer. Because really, what were cell phones good for other than for doing drug deals? If you had a cell phone and a pager, or two cell phones, we argued there could hardly be any doubt at all over the intent of the accused! Times change.

Thus your lawyer can challenge the qualifications of an expert, challenge the weight threshold at which point one can start making claims that it can't be for personal use, and challenge the significance ascribed to items found in your possession as being probative of trafficking.

Lastly, to be successful at a possession for the purpose trial you don't need to convince the court that there's a reasonable doubt about you being in possession of the drugs. You only need to raise a reasonable doubt about the purpose of that possession.

Monday, May 18, 2015

Access Easements: What to Do if you get Walled In to (or Out of) Your Property

As a real property dispute resolution lawyer, I'm often consulted by folks who own property either subject to an easement or in whose favour an easement does or should exist. An easement is generally a right to do something concerning a piece of land, that's short of a right to possess the land. 

An easement is usually set up to benefit an adjoining piece of land, and will "run with the land" to successors in title. Perhaps the most common form of easement is a right to traverse land in order to access adjacent land. Access easements are especially common in cottage situations, where water, rocks, woods and remoteness may make other road access difficult. 

Sometimes a woodlot owner or farmer will sever small waterfront vacation lots off a larger lot, keeping the back woods or fields for his own harvesting use. The key to making this arrangement work is often the construction by the lot vendor of a common shared road from a public highway through the remaining woods or fields, to connect up with the cottages. What's supposed to happen from a legal perspective is that each of the cottage lots has an access easement registered in its favour against the parcel of land that the access road crosses. 

Problems can arise when those easements don't get formally registered on title, or when a new owner buys the larger parcel and fails to maintain or attempts to block the access through it. Problems can also arise if all of the cottage lot owners are supposed to jointly contribute to the upkeep of the access road, and one or more of them repeatedly refuses to pay. 

A court application might be necessary to establish and enforce access rights. A court action could also be required to collect the maintenance debt for the non-payors. 

In Ontario, access "applications" go before the Superior Court of Justice, and a full blown "action" (which can involve drawn out discoveries and considerable expense) may not be necessary as the Rules of Civil Procedure permit a much simpler "application" to determine questions of rights in land. For non-payment of maintenance costs, an action is necessary (as it involves the collection of a money debt), but it could proceed before the relatively inexpensive Small Claims Court so long as the claim doesn't exceed $25,000 in value. 

While an access easement clearly registered on title is the clearest of rights since all the public has notice of it, the holder of such a right still might wind up in court seeking an injunction to prevent blocking of the access if someone further up the access road decides to erect a locked gate or plants trees in the middle of the road. However, you shouldn't be deterred even if you don't have an easement registered in your property's favour if you and others acquired the property believing there was an access easement, and in fact have been regularly using such a road/driveway/trail/path for access since you purchased it. 

An "easement by implication" can be established in court if you can present evidence that you purchased your property thinking you had an access easement because the access road that's now in dispute in the obvious (and perhaps sole) way of accessing your property, and it's clear the original purchaser (and vendor) likely believed the same thing. These easements by implication don't require that you establish adverse possession over a period of many decades. And they don't even require absolute "necessity" - meaning no other way of accessing your property - since with waterfront property it might be possible for your opponent to claim that you're able to access the property from the water by boating into it. 

If a court does find that you've got an easement by implication, you should be able to register it in your local land registry office, thus hopefully avoiding future doubts over its existence by subsequent purchasers of your property or the property over which the easement passes. 

Monday, May 11, 2015


Now that tax season is over, and I made it through to the end of my Canadian Taxes A to Z series of posts, I offer you something from another line of law practice that I engage in: criminal defence. I've spent of lot of my legal career first prosecuting and then defending drug offences. Along a the way I've written a few books touching on how they should be investigated, and also witnessed the defences that stand the best chance of success in leading to an acquittal.

Here are the first two of my top five list of drug trial defences that work (the other three will follow in future posts):  

1. The drugs aren't mine. In order to convict you of drug possession or possession for the purpose of trafficking, the court needs to be convinced beyond a reasonable doubt that you had legal possession of the drugs in question. Generally, that requires "knowledge" and "control."

Meaning, that if you truly didn't know the drugs were where the police found them, and such knowledge can't reasonably be inferred from the surrounding circumstances, then the court must acquit you. Likewise, even if you knew about the drugs but had no control whatsoever over the location in which they were found, the court must again acquit you.

For this defence to work, your claim that the drugs don't belong to you must be reasonable, and must completely negate knowledge and control. Meaning, the "I was just holding them for a friend" story doesn't cut it, because you'd would still have knowledge and control ("ownership" isn't a required element here). Likewise, the defence will fail if you admit to smoking a joint as a passenger in a vehicle, since you clearly had some knowledge and control. 

Where it works best is if: 
  • the drugs are found in a vehicle that isn't registered to you, and you aren't driving, or can reasonably say you just borrowed the vehicle from a friend;
  • the drugs are found in clothing that doesn't belong to you (but you happen to be wearing), and you can again reasonably say you just borrowed that clothing from a friend; 
  • the drugs are found in a bag that doesn't belong to you, and you have a reasonable explanation for why you have no knowledge of its contents but are are nonetheless holding it;
  •  the drugs are found in a residence where you have no access to the part of the residence where the drugs are located.

Anyone hoping to make "the drugs aren't mine" claim work as a defence will probably need to testify in their own defence. In order to be believed, it will help if you don't have a criminal record. 

I've seen the defence work best in front of juries in the international airport importing context, where for example an accused with no criminal record and good background gave heartfelt honest sounding testimony that she really didn't know how something like a kilo of cocaine wound up in her luggage. 

2. The Police Needed a Warrant to Search

Because drug offences are largely "victimless" crimes, meaning there's usually no one in whose interests it is to report them to the police, authorities rely heavily on intrusive investigative techniques to discover these offences. These intrusive techniques are also needed to obtain samples of the alleged "drugs" in order to test that they aren't in fact drywall compound or icing sugar. 

While warrants and privacy interests existed prior to 1982, the adoption and constitutional entrenchment in 1982 of s. 8 of the Canadian Charter of Rights and Freedoms (the protection against unreasonable search and seizure), combined with s. 24 of the Charter (authorizing a court to exclude evidence obtained in violation of the Charter) placed a new emphasis of the protection of privacy interests of Canadians against state intrusion. The most fundamental way to protect privacy is to require the state to obtain a warrant from an independent judicial official prior to conducting a search. 

Like a lot of legal things, when a warrant is and isn't required is not black and white, but rather occupies a realm of shades of grey. However, there is a clear pecking order of privacy interests where the greater the privacy, the more likely a warrant will be needed. In any situation where drugs are discovered through a search leading to criminal charges, it's possible to argue as part of a pre-trial Charter motion that a warrant should have been obtained prior to conducting the search, and that therefore the drugs should be excluded from evidence at trial. The usual consequence of no drugs in evidence will be a collapse of the prosecution's case. 

The most common situations of drugs being discovered through a police search are: (1) in a vehicle; (2) on a person or in something a person is carrying; (3) in a building. A warrant might be required to search any of those places. 

Warrant needed for a vehicle
For vehicles, police often claim that their search is "incident to arrest" and therefore a warrant isn't needed. But the law limits the scope of such searches to only relate to the reasons for the arrest. Thus police can't conduct a traffic stop, issue a speeding ticket for which no arrest would occur, and then poke around in a vehicle on a fishing expedition looking for drugs. 

Police will often claim a vehicle is being searched pursuant to "consent" from the occupant. While I completely understand the psychological pressure you might be under to say yes to the police question "do you mind if I take a peek in your trunk," just say no. Either they have authority, or they don't. Saying yes won't earn you any brownie points. 

Warrant needed for a person 
Searches of persons or the things they're carrying are also often justified under the "incident to arrest" banner. They key here to legality is there must be a valid arrest to start with. If not, a warrant may be required to search things being carried, like a gym bag. Usually one wouldn't obtain a warrant to search a person's clothing, but personal searches involving bodily integrity (like taking blood samples or x-rays) would almost always require a warrant.

Warrant needed for a building
Other than the human body, buildings or portions of buildings which the public usually don't have any access to tend to have the highest expectation of privacy. This is particularly so with residences. Even if the police are already in a building for another legitimate purpose, they can't just go poking around looking for evidence - they need to get a warrant. In extreme situations, they should be "freezing" the scene and getting a warrant, rather than later claiming exigent circumstances didn't permit obtaining a warrant. 

So arguing that a warrant was needed to search wherever drugs or related evidence was located remains a key part of any strong drug charge defence. You should consult a lawyer with experience in search warrants to obtain advice about whether such a defence could work for you. 

Tuesday, April 28, 2015

Canadian Taxes A to Z (2015): U is for UCC, V is for V-Day, W is for Withholding Tax, X is for X-Mark, Y is for Year End, Z is for ZBB

Today is the last in the series of Canadian Taxes A to Z (2015) posts. Yes, I know you're sad. I'm sad too. But at least you can look forward to receiving that big tax refund generated through your newfound interest in Canadian tax law. 

I know I'm combing the last six letters of the alphabet into one post, rather than stretching them out into six separate posts. But we're down to the wire in Canadian Tax Filings And Payments are Due Week (CTFAPADW), and I haven't filed my own taxes yet. Plus I do have a law practice to run. So I hope you'll forgive me for the combination of the last six tricky letters of the alphabet. 

U is for for Undepreciated Capital Cost (UCC). It's very important to keep track year to year of your UCC for each capital asset (within each class) that you own. It's not enough to simply know how much you paid for the capital item, and what percentage of depreciation can be claimed each year, since each year the depreciation claimed will be a slightly smaller figure (the same percentage of a lower number), whereas in the first year the depreciation claimed will be a much small number (half the normal depreciation rate) because of the half year rule. Keep all your UCC receipts organized by class, and year of acquisition. 

V is V-Day. No, not Victory Day. No, not Victoria Day. Definitely not Valentines Day. V-Day stands for Valuation Day in tax speak. V-Day is any day when you needed to determine a fixed financial value for something that you'd owned for a while, and planned to own for a while longer, but which didn't have a readily apparent value (like a share price). 

For example, if you bought a commercial property back in the 1960's prior to capital gains being taxable, and then planned to sell it now, you'd need to establish a value for it as of the end of 1971 after which capital gains became taxable. There may be other tax reasons for a V-Day, like making a particular election under the Income Tax Act. In any case, you may need to later defend your V-Day value if challenged by the CRA, so ideally you'll employ a professional to establish a fair market value. 

W is for Withholding Tax. Canadian law stipulates many situations where a payor of money is required to withhold a certain percentage of that money, and instead of paying it over to the person to whom it is owed, must remit it to the government for estimated taxes owning. The most common type of tax withholding is that of employers who are required to withhold a percentage of employee wages as income taxes, with the percentage of withholding rising with the level of the employee's wages. Other kinds of common withholding taxes are those required by financial institutions on RRSP withdrawals, and those required on foreign residents for Canadian income. 

At tax filing time, the government may determine that there was too much or too little withholding, leading to a refund or additional taxes owing. The trick to navigating withholding rules is to try to bring yourself within the conditions where no withholding is required, or to keep the payments you receive below the threshold where a higher level of withholding is triggered. 

X is for .... well ... er .... I don't know what X is for. I've look in the Income Tax Act. I've studied accounting term glossaries. And none are big on the letter X. Perhaps Taxgirl (who gave me the inspiration for all these Canadian taxes A to Z posts) can help out? Her X word this year is 1040X (the name of an IRS form), so that doesn't really help in the Canadian context. In 2014 and 2013 she cited financial terms involving X, but I like her 2012 post the most: X is for X-Mark (Signature): http://www.forbes.com/sites/kellyphillipserb/2012/03/28/taxes-from-a-to-z-x-is-for-x-mark-signature/

Taxgirl quite rightly points out that a tax return in the U.S., just like a return in Canada, isn't valid unless it's signed! It's easy to forget that last step, after putting in all the up front work on the numbers. Electronic returns also need to be "signed" but there are deeming rules that you signed it if you submitted it in the correct way through the electronic portal. 

Y is for Year End. Many organizations (including corporations) have off-calendar fiscal years. Often, the timing of the year-end is to coincide with a time of the year when business is slow and employees are not on holiday, and thus there are more resources available to close the year-end books. Tax consequences of having a non-calendar fiscal year can be to shift some income to a future taxation year, and thus defer tax. 

However, unincorporated individuals operating as sole-proprietors or partners can generally no longer benefit from a permanent income/taxation shift. While they might initially defer some tax in the first year of business, that tends to get picked up in the second year of business (possibly pushing the businessperson into a higher tax bracket by capturing more than 12 months of income). Definitely get professional accounting advice prior to deciding to go with a Year End other than December 31.

Z is for Zero Based Budgeting (ZBB). Yes, not really a tax term. But like the letter X, there aren't a whole lot of Z tax terms. And zero based budgeting could ultimately affect your tax situation by increasing (or decreasing) your net revenues. The concept was first deployed on a large scale in the private sector by the Texas Instruments corporation in the 1960's in the private sector, and later championed in the public sector by Jimmy Carter (prior to his becoming U.S. president). 

It's another of those looks great on paper, not so easy to practically implement concepts. For any business (or government), the theory goes that instead of a new fiscal year's budget starting with the previous year's budget as a base (and thus being prone to incremental budget creep), each year should start with zero, with every line item being required to be justified all over again year after year. The theory is that ZBB is a great way to eliminate waste. If you can't justify why you've got a budget line, then "poof" you're eliminated. 

The problem with ZBB is the rebuilding a budget every year from the ground up can become an overwhelming, all consuming task. And valuable parts of an organization with less tangible outputs could get snuffed out, to the detriment of the entire organization. 

Monday, April 27, 2015

Canadian Taxes A to Z (2015): "T" is for Terminal Loss

In today's Canadian Taxes A to Z (2015), T is for Terminal Loss. Twenty letters down, six to go!

For some reason, I've always liked the term Terminal Loss. Maybe because it conjures up travel images of train and bus terminals. Perhaps because of its finality. It's another of those "tax terms" that if you're not in the know, you'd never guess at what it means.

When depreciable capital property is sold for a value lower than its undepreciated capital cost (UCC) at the end of a fiscal year, then it can general a terminal loss if there are no other assets left in the class. A terminal loss is fully deductible against other income.

Say you buy a Big Purple Machine, take some depreciation over a couple of years that reduces its UCC to $10,000, but then sell it for only $5,000. Perhaps because Big Purple Machines were an industry fad for a couple of years, but ultimately didn't make anyone any money. Thus the low resale value. If nothing is left in the Big Purple Machine class, you can claim another $5,000 terminal loss deduction for the difference between the UCC and what you sold it for. Pretty good, eh?

But watch out. Terminal Loss has an evil twin called Recapture. If you sell the Big Purple Machine for $11,000, but have already depreciated it to a $10,000 value, and nothing is left in the class, then you wind up with a $1,000 recapture that you've got to include in income!

The moral of the story is to try to sell used business assets for amounts lower than the depreciation you've taken on them. You'll be able to deduct any loss you take, and won't wind up getting stuck with paying taxes on any sale profit.

Sunday, April 26, 2015

Canadian Taxes A to Z (2015): S is for Small Business Deduction

In today's Canadian Taxes A to Z (2015), we finally get to the letter "S". Arguably the most useful of Scrabble letters, and not too shabby from a tax perspective either. S is for Small Business Deduction.

The Small Business Deduction reduces taxes for Canadian Controlled Private Corporations (CCPCs). It unfortunately does nothing for you if you're operating as a sole proprietor or partnership. The reduction is available on the first $500,000 of income. For 2015, it results in a tax reduction of 17% off the base corporate tax rate. This amount is going up by 1/2 a percent every year until 2019, when it will result in a 19% reduction.

This Small Business Deduction is in addition to the already generous 10% Federal Tax Abatement knocked off the base 38% corporate tax rate. What this means is an incredibly low 11% tax rate for 2015, falling to an even more incredibly low 9% by 2015. This rate can make United States taxes look high by comparison.

So what's the catch? First, the corporation must be private (meaning not publicly trading shares) and controlled by Canadian residents. Neither of these are very onerous requirements for incorporated small businesses.

The bigger catch is that you'll get taxed again as an individual when you withdraw income from the corporation, such as being paid as an employee. There are various ways to structure the means through which you pay yourself from the corporation to minimize the taxes paid, but there is always a risk of double taxation: once in the hands of the corporation, and then again when the money passes into your own hands.

The most important factor to keep in mind in considering whether incorporating your business is going to do much for you from a tax perspective is whether you'll be in a position to shelter net income in the corporation, or will need to withdraw all the profits each year for your own living expenses. If you're able to shelter income, then you'll be able to invest those excess profits after losing only between 9% and 11% of them to tax. So it's kind of like an RRSP, but one where you lose a small amount off the top. Unlike an RRSP, you aren't claiming a deduction for the income you shelter in the corporation, but the effect is the same because you won't personally pay any tax on that income until you take it out of the corporation and place it in your own hands.

While there can be other legal benefits to incorporation, like limiting your personal liability, you should get accounting advice on whether incorporation is really going to save you any money at tax time. It's possible that it might actually cost you money (after increased legal and accounting fees are taken into account) if you aren't able to shelter any income inside the corporation.

Saturday, April 25, 2015

Canadian Taxes A to Z (2015): R is for RRSP, RRIF & RESP

Today in Canadian Taxes A to Z, we come to the letter R. Unlike that stumper letter Q, R presents an embarrassment of riches when it comes to choosing tax-relevant words starting with R. I've chosen to present you with three R acronyms today, because they're all very important to your taxes, and there's sometimes confusion among them when it comes to knowing how they save you on taxes.

Eighteen letters down, eight to go! And only five days left to tax filing deadline. Clearly I'm going to have to double up on posts for a couple of days. And figure out what in the world I'll do with X, Y and Z!

First up, RRSP, probably the best known and understood of the three acronym terms. Most know it stands for Registered Retirement Savings Plan. This (and all the other acronyms) is a tax deferral vehicle, not a tax free vehicle. Meaning, you get to save on tax when you deposit money to it, and the taxman gets you when you later withdraw money from the plan. 

In theory, RRSPs are supposed to save you money in two ways. First, because the dollars you deposit to your RRSP are pre-tax dollars, there are more of them to deposit, and thus more of them available to earn a return on investment. That's probably going to mean you have somewhere between 50% and close to 100% more money invested up front (depending on the level of your marginal tax rate). 

Thus if you've got $100 to invest, and you put it into an after-tax outside of RRSP investment account, you'd really only be investing $75 dollars (if you're paying tax at 25% - many of us pay at a higher rate). If you're able to invest at a 5% annual rate of return, that $75 investment would be worth only $78.75 after one year. Whereas, if you had placed it into an RRSP you'd have $105 after one year. And all the benefits of increased compounding in future years. 

The second way RRSPs may save you money is that when it comes time to withdraw from the plan, you'll be retired, and earning a lower income (and thus be in a lower tax bracket) than when you originally contributed to the plan. The important word to focus on here is "may." Many people don't realize that it's entirely possible they could actually be earning more money later in life than earlier in life, such as if they're collecting a pension and also still working full or part time. Also, the government could decide at some point to raise marginal tax rates. You'll get hit with whatever rate is in force and applicable to your current income at the time you make the withdrawal. The up front tax saving is probably still worth it, but be careful.

RRIFs are essentially forced withdrawal from RRSP plans, starting at age 71. The government won't force you to withdraw too much each year, but your RRSP must be converted to a RRIF by age 71 at the latest, and the withdraws increase as you get older. The idea seems to be to force you to pay some tax on all the RRSP accumulation while you're still alive, rather than leaving it to your heirs to be hit with the tax (which might be at the top marginal rate if all those RRSPs become income to you in the year of your death).

RESPs, in contrast to the other two vehicles, don't result in a tax saving to the person contributing in the year of contribution, but do permit the accumulation of investment returns tax free within the plan, which can then later be withdrawn tax free. 

Both RRSPs and RESPs are subject to annual contribution limits, and tax free withdrawal limits. You can even temporarily get tax free money out of an RRSP for specific purposes, like buying a home, but you'll be required to pay it back. 

It's important to consult an accountant or carefully study Canada Revenue Agency material each year that you intend to contribute to or make a withdrawal from a RRSP or RESP (and withdraw from a RRIF), as the limits, rules and exceptions continually change. But all three remain important tax saving instruments. 

Tuesday, April 21, 2015

Canadian Taxes A to Z (2015): Q is for QuickBooks

In today's Canadian Taxes A to Z, Q is for Quickbooks. Seventeen letters down. Nine to go!

If you're running any kind of business that takes in more than a few thousand dollars a year in revenue, you should be thinking about electronic bookkeeping. Quickbooks is likely the leading small business electronic bookkeeping program, though it certainly isn't the only one. To be frank, it's featured in my title today because there aren't a whole lot of tax terms that start with the letter Q. And electronic bookkeeping will make your accountant and the Canada Revenue Agency happy, because you'll be able to defend any kind of later audit of your books be presenting well organized and balanced ledgers.

Accountants hate the "shoebox" school of bookkeeping, because it's very difficult to figure out based on a shoebox of papers exactly how much money you made after expenses for tax purposes. With electronic bookkeeping, each expense and revenue is precisely accounted for long before the accountant starts working on your taxes.

The main small business alternative to Quickbooks is Simply Accounting. Simply is a Canadian product, whereas Quickbooks comes out of the U.S. Medium and larger businesses use different (and much more expensive) bookkeeping and inventory control programs produced by other vendors, but for the small business world Quickbooks and Simply are the two leaders.

Good old Microsoft Excel spreadsheets can also serve you well, so long as they're properly set up for double entry bookkeeping. I used them for several years when starting my law practice.

Even old school double entry hand written ledger bookkeeping can still work, but it's a lot of hassle to find and fix mistakes. I know a few lawyers whose bookkeepers still use the method, but it comes with some inherent risks.

There are other software programs out there which sound like bookkeeping solutions, but aren't, even though they may have other nifty features. For instance, Canadian FreshBooks has a great cloud-based invoicing and billing program. But it's not a bookkeeping program, notwithstanding the use of the word "Books" in its name. Maybe one day it will do bookkeeping, but for now lacking a double entry systems and required ledgers means you can't get a full picture of your business financials from it.

There's also personal finance software out there, one of the most popular being Quicken from the Intuit makers of Quickbooks. It does a great job with household finances. Just don't confuse it with bookkeeping software.

Monday, April 20, 2015

Canadian Taxes A to Z (2015): P is for Principal Residence Exemption

Today, P for for Principal Residence Exemption. Sixteen letters down. Ten to go!

The principal residence exemption may be the best tax break going for Canadians who own a home. As I've mentioned under earlier alphabet letters, you've usually got to pay tax on capital gains just like on income gains (though at half the normal rate). However, any capital gain on your principal residence is tax free. With home values in Canada generally rising at much faster rates than investment values, this can be a very profitable exemption!

Prior to 1981, each spouse in a couple could designate a principal residence for the purpose of the exemption. So one could choose the cottage, and one the city home, and no one would pay tax on capital gains on either of them. However, since that time couples can only have one joint principal residence.

A couple could pick the cottage as the principal residence if they wish to avoid tax when it comes time to sell it, but for the years of its designation they would lose the exemption on their city home. So designating the cottage would probably only make sense if it had experienced a larger capital gain during the relevant period than the city home. For a couple with a tiny city condo and a palatial waterfront cottage, picking the cottage sale to be tax free would make sense. But for most people, the city home is going to have risen more in value because it was more expensive to begin with. Picking the cottage as the principal residence would help defer tax payments for a while if it is sold prior to disposition of the city home, but if you plan to sell the city home at any time in the future the taxing of its capital gain would eventually catch up with you.

The most important requirement of the principal residence exemption is that the home must have been your principal residence for the entire time you owned it, not just at the time you are selling it. Otherwise, you'll need to take a percentage of a capital gain exemption equivalent to how long the home was your principal residence as compared to the total amount of time you owned the home.

Sunday, April 19, 2015

Canadian Taxes A to Z (2015): O is for Offence

Today, "O" is for offence. We've got 15 letters down, and 11 to go in our 26 letter tax race. 

Offence is a generic term used to refer to a lot of different contraventions of regulatory legislation in Canada which don't qualify as "crimes." Generally, you only find crimes in the Criminal Code or Controlled Drugs and Substances Act. So contraventions of the Income Tax Act are usually termed "offences."

It's important to distinguish between getting just a little too creative in your tax accounting which leads to you making statements in your tax return which the CRA won't accept but which don't amount to offences, and outright lies or obstruction which may potentially lead to offence charges against you. Make a few math errors, make an honest mistake about claiming a deduction you erroneously thought you were entitled to, have some bookkeeping errors leading to you claiming too much mileage on your vehicle? The CRA might administratively penalize you for any of these errors by charging you interest on the tax balance owing and assessing civil penalties. But it's unlikely any of these mistakes will lead to allegation of offences. 

However for more blatant actions (or inactions) like "forgetting" to file tax returns for ten years, ignoring repeated information demand letters sent to you by the CRA, and understating your real income by $100,000 are all good ways to be accused by the CRA of offences. Since the Income Tax Act is a regulatory statute, you can be liable for most of its offences (other than tax evasion) even if you didn't wilfully intend to commit the offence. Thus it's a bit like speeding on the highway: you might not have intended to drive 40 km over the limit, but if you got a bit distracted and your foot got a little heavy on the gas, saying you didn't mean to speed isn't going to help you in court. Same with taxes: saying you didn't mean to forget about filing your tax returns and ignore all those demand letters the nice people at the CRA sent to you won't really help you when you're charged with an offence. 

The CRA tends to have a fairly high offence charging threshold. Meaning, they'd much rather go after you for more minor contraventions through administrative means by imposing administrative monetary penalties, rather than hauling you into court on offence charges. So not filing your return for a year or two, or "forgetting" to report $10,000 in income on your return isn't likely to lead to you facing an "offence." But don't file for many years, or forget to report a few hundred thousand dollars on your return, and you might wind up with a court date. 

Sometimes the CRA's charging threshold will be lowered if there are other aggravating features of tax misconduct. For instance, if your non-reporting income is from a criminal sources, the CRA might charge you even if it's only a few thousand dollars that are unreported. 

The message here is that the best way to avoid any allegations of tax offences is to avoid any hint of impropriety when filing your return. I'm not suggesting that with sound accounting advice you shouldn't push the envelope in aggressively claiming deductions. Just be sure you can later defend those deductions when challenged, certainly don't "forget" about any income, and make sure you file your return on time, year after year, even if you can't afford to pay your full tax bill. tThe CRA will make payment arrangements, and the prescribed rate of compound interest remains a quite reasonable 5.1%. 

Friday, April 17, 2015

Canadian Taxes A to Z (2015): N is for Non-Refundable Tax Credit

Today, N is for non-refundable tax credit. Fourteen letters down, twelve to go!

Why the qualifier "non-refundable" and not just the term "tax credit"? Because some tax credits can actually result in the government sending you a cheque, such that in a way you make a profit off the credit. Non-refundable credits can at best reduce your payable tax to zero, but you'll never get a dollar back directly from the government (unless you've overpaid your tax instalments or deductions, leading to a refund).

You can receive non-refundable tax credits against both federal and provincial payable income taxes. The credit equals a "base amount" times the applicable tax rate. So, for example, the spousal credit can net you a $1699 credit federally, and an even greater $1821 credit against Alberta provincial tax, but only a tiny $423 credit against Ontario provincial tax.

Some non-refundable taxes credits can be claimed by either spouse. Usually it will be the higher earning spouse who claims the credit. These include:
  • amount for infirm dependants 18 or older;
  • public transit amount;
  • children's fitness amount;
  • children's arts amount;
  • home buyer's amount;
  • adoption expenses;
  • caregiver amount;
  • tuition and education amounts.
The Dividend Tax Credit for Canadian Dividends is an important one for investors, as it effectively reduces the tax rate payable on dividend income. But foreign dividends don't qualify for the dividend tax credit. And even within Canadian dividends, there is a split between:
  • Canadian public corporations which are eligible for the enhanced dividend tax credit (commonly known as "eligible dividends";
  • Canadian-controlled private corporations (CCPCs) which are eligible for the regular or small business dividend tax credit.
You'll probably be able to figure out many of the available personal non-refundable tax credits yourself when completing your return, but if you've got significant investments then getting the advice of an accounting professional would be prudent. In either case, make sure you carefully go over the fairly lengthy laundry list of available non-refundable credits to ensure you don't miss one you might benefit from!

Thursday, April 16, 2015

Canadian Taxes A to Z (2015): M is for Marginal Tax Rate

Okay, so maybe I was the marathon runner who shot out the gate a little too fast. Managing to knock off post after post, day after day, in the Canadian Taxes A to Z (2015) odyssey, only to start to slow down as the mid-alphabet range of the race was entered.

Today, 14 letters down, 12 to go! I'm past the half-way point. And promise to finish prior to tax deadline time.

To know your marginal tax rate is to know how many cents of every dollar you make will stay in your pocket if you continue to earn more income throughout the year. The reason we don't just use the term "tax rate" without the word "marginal" is because we don't use a flat tax system in Canada (nor does any country with a "progressive" tax system).

Marginal tax rate is the percentage rate that will be applied to the next dollar you earn. To take Ontario as an example, your combined federal and provincial tax rate on the first $40,922 you earn is 20.05%. That doesn't mean you'll necessarily lose that much of your income, since you'll be entitled to various deductions, but the "margin" bump up to the next tax bracket (24.15%) happens when you earn more than $40,922.

The top bracket in Ontario of 49.53% kicks in at over $220,000 in net income (there are several in between brackets). Meaning you get to keep just slightly over 50 cents of every dollar you earn. A lot of countries now try to keep their top marginal rates under 50%, since they saw that income tax rates which used to range about 80% at the top end simply encouraged a flight of the wealthy (and their capital) to lower tax jurisdictions.

Other provinces have different rates at different marginal brackets. The finishing top marginal tax rates tend to be somewhat similar among the provinces, but may kick in much sooner than in Ontario. In Quebec, for example, on the first $41,935 of income you pay at a rate of 28.53% (almost 50% higher than in Ontario). The top marginal rate of 49.97% is very similar to Ontario's top rate, but kicks in at $138,587 income, much sooner than Ontario's top marginal rate.

The other thing to know about marginal tax rates in Canada is that you only pay tax on capital gains at 50% of the normal rate. So even if you're in the top tax bracket, your marginal tax rate for capital gains would only be 24.76%. You'll also get a bit of a tax break on marginal rates for Canadian dividend income.

Some think it unfair that those with active income (from employment or self-employment) pay taxes at a higher rate than those with passive investment gains. But like a lot of things tax, that's just the way it is. Not unlike it being potentially unfair that those whose primary owned residence goes up massively in value pay no tax at all on those capital gains, whereas those who rent get no similar tax break.

Monday, April 13, 2015

Canadian Taxes A to Z (2015): L is for Listed Personal Property

Today, L is for Listed Personal Property. Most Canadians, even those who run businesses, will never have heard of Listed Personal Property (LPP). But if you're a "collector" you're probably all too familiar with its taxing limitations.

Like Capital Cost Allowance (CCA), LPP is a term unique to the Income Tax Act, rather than one in common accounting use. LPP is personal chattels (meaning not real estate) that usually appreciated in value over time. Most chattels depreciate, and thus you can claim CCA on them. You can't claim CCA on LPP.

LPP includes:
  • prints, etchings, drawings, paintings, sculptures and other similar works of art;
  • jewellery;
  • rare folios, manuscripts and books;
  • stamps;
  • coins. 
Profits on the sale of LPP are reportable capital gains. However, the base value of CPP for capital gains purposes is $1000. So if you buy stamps for $700, and sell them for $1200, you only have a $200 capital gain to report (the increase from the $1000 deemed based value). 

LPP losses can only be used to offset other LPP gains, not other income. 

What this all means is that you can't invest crazy sums in art, hoping that it will create all sorts of losses for you when you go to sell it that you can deduct against other income. Likewise, you can't spread high end art all over your office, hoping to depreciate its value as regular CCA. Though less expensive pieces should be deductible as regular office expenses. 

Sunday, April 12, 2015

Canadian Taxes A to Z (2015): K is for Know Your Income

Yeah, Yeah, so I needed to stretch a bit today to find a "K" word. In the U.S., Tax Girl has a huge advantage for some of these tricky letters in writing her [American] Taxes A to Z for Forbes because the I.R.S. seems to love appending letters to the end of its endless list of forms and instruments. Like 401K fund. I mean, really, how easy it that to find a "k" tax word to write about! ( I concede she has to come up with new letters every year, whereas this is my first time around, but still).

In Canada, I can't even find an appropriate "K" word to talk about in a dictionary of accounting, far less in the Income Tax Act. But K does stand for knowledge. And as we all know, knowledge is power. In the tax context, and otherwise.

While for those who are self-employed, "know your expenses" is also an important point, for ALL Canadians "know your income" is the fundamental principle for getting your taxes right and avoiding hassles from the CRA. In Canada's self-reporting, self-assessment system, you tell the government how much you made and how much tax you owe, rather than the government telling you.

It's easy to forget about all your sources of income. Lots of us have several jobs in the course of a taxation year. Maybe a series of consecutive full time jobs that are seasonal. Maybe several concurrent part time jobs that equal a full time income. Perhaps a little bit of independent contractor work. Plus some interest income from investments. And a capital gain from an empty lot that you inherited years ago, and just never got around to selling until this year.

All those income numbers need to be added up if you're to know your true income. You're supposed to get T4 slips from employers telling you how much you made, and what kind of deductions (like taxes paid in advance) that they took off. But sometimes employers might forget to send you a T4; or the T4 might get lost in the mail because you moved. It's your job to track down all the T4s you need to complete your taxes. The CRA won't like the excuse that you never reported that $25,000 of tree planting income because you never received a T4 for it.

Same with self-employment. It's your job to keep track of how much you made. Don't guess. You might overreport income just as easily as under report it. With overreporting, you'll pay more tax than you deserve to pay. Whereas with underreporting, you'll be hit with all sorts of interest and penalties by the CRA.

Lastly, with capital gains or investment income, you likewise can't just "forget" to report it. You need to know how much you made.

When I was practicing as a Federal Crown tax prosecutor in the Toronto area I prosecuted a family who had jointly pooled their savings to buy some vacant investment farm land that had future development potential. They sold the property ten years later for a six million dollar profit. Smart and prudent, right?  Not if all of the family investors then "forget" to report the capital gains as income on their respective tax return. That's a lot of tax evasion.

So know your gross income from all sources. That's the starting point for completing your tax return. Only once you know your gross income, can you do your damnedest to take advantage of all legally available deductions to make your net income (and thus your tax burden) as small as possible.

Saturday, April 11, 2015

Canadian Taxes A to Z (2015): J is for Journal Entry

Sorry to leave you all hanging there for a few days, after a good run of daily blog posts! I accepted a new First Degree Murder defence case which needed some undivided attention, and took priority over these posts (yes, I do a couple of types of litigation other than tax law).

But nonetheless, only 19 days left until T-Day in Canada, so I've got some catching up to do.

I'm also discovering that the deeper one goes into the alphabet forest, the tricker it is to come up with good lettered tax terms. But today I do have an important one for anyone who has self-employment income. Today, J is for Journal Entry.

No, not as in travel journal, or dear diary kind of journal. But the kind of bookkeeping journal entry that will save you if you're ever challenged about your income or expenses by the CRA, because it presents a complete roadmap of your business financial transactions over the relevant taxation year(s).

A journal entry is a fundamental accounting concept, but one which most of the general public won't have heard of. The reason you need to know about it if you run your own business is that through it you can prove when, why, and how much money was received or paid out from your business. A journal based on the double entry bookkeeping system requires that the dollars of debits always equals the dollars of credits. This balancing out is the double check we all need. It'll save you from both missed transactions and transposed numbers.

Usually, each journal entry will contain the date, account name, and amount to be debited or credited. I also recommend a brief explanation of the transaction. Journals can be maintained by hand, on an electronic spreadsheet (like Excel), or in bookkeeping software like Quickbooks or Simply Accounting. If you don't have journals, you don't have bookkeeping records.

Some small business people believe what accountants pejoratively call the Shoe Box Method to be perfectly adequate for tax time. Into one shoebox, you toss over a 12 month period all the receipts for things you bought for the business. Into another shoebox, you toss all your sales receipts for the money you've collected from your customers. Then, at tax time, you toss both those boxes at your accountant, and hope for the best.                                                                                                                                                                                              
With the Shoe Box Method, there are no journals. In fact, there aren't really any "books." Just some scraps of disorganized paper. They're a big pain to add up, and can lead to inaccurate tax filings that don't withstanding later CRA audit scrutiny.

With journal entries, you can figure out almost instantly how much money you netted in a given month or year, because your debits and credit are all summarized in front of you. What this means for tax time is that you'll know how much tax you owe by plugging your journal summary numbers into tax preparation software (or turning them over to your accountant). You still need those individuals receipts as back up documents, but the journals tell the real tale.

I'm not suggesting that journals are super easy to keep up to date by spending 30 minutes on a Sunday afternoon doing a little data entry while watching the game. It's definitely possible to keep your own books, but my suggestion is to turn them over to an external bookkeeper. No need to hire someone full or part-time. Quality bookkeepers can be had in Ontario from about $35 to $90 an hour, depending on where you live (bookkeepers cost more in big cities) and whether you employ an independent bookkeeper (cheaper, but less supervision) or use one who is an employee of the accounting firm you use (more expensive, but more supervision). Regardless of how you do it,  just make sure that you keep some official journals.

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Tuesday, April 7, 2015

Canadian Taxes A to Z (2015): I is for Input Tax Credit

Today, I is for Input Tax Credit (ITC). Nine down, 17 to go!

Input tax credits are what makes GST/HST so good for business. You only need to remit to government the amount of GST/HST you collected from clients, minus the amount you paid out for inputs into your business.

Assuming you're in a business where you sell more than you purchase (always the preferred economic situation), you wind up effectively getting your supplies tax free! And who doesn't like that.

The thing that I find most confuses businesses about ITCs is how to calculate them, since the government gives you three main optional ways. Plus there are some special rules on ITCs for vehicles, aircraft, and capital property.

For passenger vehicles, you are limited to claiming an ITC on the first $30,000 of the vehicle cost, and the vehicle needs to be used 90% or more for business purposes. Otherwise, the ITC claim is proportionate to the business use (down to a low of 10%). Aircraft aren't limited to the $30,000 cap (fortunately, unless you're in the market for a kite), but are still subject to the business/personal use ITC percentage rules.

For capital real property, if you're a GST/HST registrant buying property (like an office building) from a GST/HST registrant, no tax money usually needs to change hands. Instead, the purchaser will self-assess, provide a certificate to the vendor of the registration and self-assessment so that the vendor doesn't need to demand the tax at the time of closing, and then it all becomes "a wash" since the purchaser can at the end of year claim an ITC equal to the tax payable (but not actually paid) on the purchase.

The trick here is to make sure you register for the GST/HST if you're planning to buy real property subject to GST/HST. If you don't, you'll get stuck forking over the tax to the vendor, because you won't be able to claim an ITC.

As for methods of calculation, you may have three choices:

1. The Quick Method. This is the only method which let's you actually make a profit on ITCs (though you need to report the profit as income). There are quite a few limitations as to who can use this method according to type of business and total sales, so consult your accountant. I can't use it, for instance, because lawyers (and some other professionals) are explicitly excluded. It works best for those who collect lots of GST/HST, but don't buy many inputs (and thus don't generate many ITCs).

It's a percentage method based on your total sales rather than the actually GST/HST paid on supplies, and could lead to you having an extra $1000 in your pocket at the end of the year. The accountants at Grant Thornton have prepared a useful summary for considering whether to use the Quick Method: www.grantthornton.ca/resources/.../Election_to_use_Quick_Method.pdf

2. The Simple Method. This is the method that I and a lot of other business of moderate size use. There are yet again eligibility limitations on the size of revenues and total cost of supplies. The advantage is that instead of separately reflecting the tax paid on every purchase in your bookkeeping records, you simply add up all ITC eligible business expenses (including GST/HST paid) and multiply the total by a particular fraction factor (depending on the rate of tax in your jurisdiction), which will give you an average of ITCs available to be claimed. Regular limiting rules on things like being only able to claim 50% GST/HST on restaurant meals (because they are only 50% tax deductible) still apply.

3. The Regular Method. This method is the most painful of all, as it requires you to add up all the GST/HST you paid out, and deduct it from the GST/HST you collected. Subject, as usual, to various exceptions and qualifications. This could lead to your bookkeeper trolling through thousands or tens of thousands of receipts to extract the tax paid. But it's still worth doing so, because every dollar in GST/HST you pay out, is usually one less dollar you need to remit to the CRA.

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