Canadian Taxes from A to Z (2015): B is for Business Investment Loss

Today, B is for Business Investment Loss. Two letters of the alphabet down, and 24 to go!

We all know that the key to tax happiness is maximizing your deductions, and minimizing your income. The more your deductions, the lower your income, and usually the lower your payable taxes will be.

Generally speaking, business gains may eventually be taxable as income, and business losses may eventually be deductible to reduce income.

Unfortunately like lots of things in the Income Tax Act, things are a little more complicated than they should be when it comes to business losses, but that's why accountants and lawyers (and tax blogs) were put on earth to help you with your taxes.

A business investment loss can be used to reduce ALL sources of income (unlike other more limited capital losses), however it must relate to shares of a small business corporation (SBC) or a debt owed to the taxpayer by the small business corporation.

An SBC is defined by the Income Tax Act as a Canadian controlled private corporation using substantially all of its assets in an active business carried on in Canada. This type of claimable loss doesn't apply to public companies, companies not controlled by Canadian residents, or companies mostly operating abroad.

Fifty percent of the business investment loss can be used to reduce taxable income as an Allowable Business Investment Loss (ABIL). The loss is claimed on line 217 of your personal tax return.

Under s. 50(1) of the Income Tax Act you may be able to elect to have disposed of nil value shares or bad debts of an SBC and then have reacquired the shares or debt immediately after the end of the year for no cost. This could let you write off an investment, while still retaining ownership of the investment. Thus you could use an SBC later to start another business, while benefitting from the tax deductions now.

The CRA has a handy Interpretation Bulletin on Business Investment Losses called IT-484R2. Since there are quite a few hoops to jump through to benefit from this loss claim, I'd suggest you consult your friendly neighbourhood account about whether you're able to claim it.

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Canadian Taxes from A to Z (2015): A is for Amortization

Thanks to Kelly Phillips Erb, aka @taxgirl and writer for Forbes, for originating the A to Z idea, and giving me permission to adapt it to Canada. Her snappy, clear and cogent writing is capable of making anyone understand (and dare I say it "like") tax. 

Like her, I took a tax course in law school, and loved it (much to my surprise). Now I help folks with CRA disputes, occasionally taking them as high as the SCC.

1. Kelly Phillips Erb ‏@taxgirl  33m33 minutes ago

   Taxes From A To Z (2015): R Is For Rollover http://onforb.es/1OSvwcJ  via @forbes #tax

   View summary7 retweets2 favorites
   
2. Gordon S. Campbell ‏@gscLawFirm  18m18 minutes ago

   @taxgirl @Forbes Great concept! I need to do this for my Canadian tax practice (if you don't mind).Though I need a different "K" word.

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3. Kelly Phillips Erb ‏@taxgirl  9m9 minutes ago

   @gscLawFirm @Forbes Be my guest! And send me the links!

   10:12 PM - 30 Mar 2015 · Details

I see Kelly's already up to the letter "R" for an April 15th tax filing deadline in the U.S., whereas I'm stuck with the letter "A" for an April 30th deadline in Canada. I've clearly got some catching up to do!

Today, A is for Amortization. You've probably heard about amortization when it comes to paying down your mortgage, but you might not have thought about it as a tax concept. 

You generally "depreciate" significant tangible property you purchase to earn income, like a vehicle or a building. The Income Tax Act refers to this as Capital Cost Allowance, and specifies a variety of rates depending on the type of property. 

For intangible property you acquire to earn income, like goodwill or intellectual property, you "amortize" it. The Income Tax Act calls this Eligible Capital Property, and again you can write it off at a certain percentage a year. 

You "amortize" intangibles rather than "depreciate" them, because they in theory can have an indefinite life that never wears out (unlike that orange Volkswagen camper van painted with flowers that you used to use in your outfitting business). 

Generally Accepted Accounting Principles (GAAP) rules have recently changed so that goodwill is now treated somewhat differently than other intangibles for write down purposes, so that it's tested each year for impairment, rather than simply (yes, perhaps I'm overly stretching the meaning of the word "simply" here) "amortized." But you still amortize other intangibles like patents, as they'll eventually expire.

The concept to get here is that if you've purchased something for the purpose of earning income, then you're allowed to gradually deduct its cost as it wears out - even if its not a tangible thing. But since goodwill (and supposedly diamonds) is forever, you might not be able to deduct it unless you can show some proof of its diminishing in value. 

A Frankfurt team of accountants has come up with with this cool (at least for those of us fond of tax concepts) comparison of tax amortization rates by country and type of intangible: http://www.taxamortisation.com.

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Top 3 Reasons Why Possession for the Purpose Might Just be Simple Possession

Canada's Trends in Drug Offences (which have continued until today); credit: Statistics Canada

Drug offence consequences are are driven by type and number. What type of drug? How much of that drug? In my early days as a federal drug prosecutor in Toronto, we mostly only saw three drugs: marihuana, cocaine, and heroin. And the Narcotic Control Act was a fairly straight forward piece of legislation.

Today, the newer Controlled Drugs and Substances Act has become a convoluted morass of moving schedules, and mandatory minimum punishments contingent upon a panoply of factors. Legally or illegally manufactured drugs have also become a much greater focus of enforcement resources.

The greatest legal problem in drug enforcement always was, and remains, separating the users from the traffickers. The law draws huge distinctions between the two. And the advent of drug treatment courts has arguably only widened the gap between users and traffickers - even though the reality is that sometimes traffickers use and users traffic.

The difference between the two types of accused is likely a far bigger deal than the difference between types of drugs. The possessor might get a discharge or a fine, whereas the PforP person might wind up in jail for years.

So legally speaking, how does one tell the difference between a user possessing marihuana, or cocaine, or oxy per personal use, and a trafficker who isn't caught selling, but is claimed to be possessing for the purpose of trafficking?

Certainly this isn't something judges can just take judicial notice of. And the huge problem is that there isn't any science behind the theories. Instead, prosecutors rely on "experts," who are usually police officers with experience in drug investigations. The problem with the "experts" is that there are no academic qualifications you can amass - as is usually expected for qualifying other kinds of experts. Drug experts will produce CVs talking about the numbers of cases they've done, or numbers of times they've been an expert in court, but is this really sufficient?

Here I offer you the top three reasons why possession for the purpose might just be simple possession.

1. It's possible a heavy user can use a lot of the drug, especially depending on how it's being consumed. The "experts" testifying about who is a user and who is a trafficker in theory aren't users themselves. This means their knowledge is limited. Very large amounts of a drug might be consumed by a user if it is being mixed with other substances. However, you might need to call your own "expert" to make sure the judge hearing your case understands this point.

2. Indicia of trafficking is weak. When I started in the mid-90's as a drug prosecutor, we claimed possession of a cell phone or pager (in part) made you a drug trafficker! And god help you if you had both a cell phone and a pager. We were always looking for little tell tale signs of trafficking, that in reality might not have been signs of much. Cryptic debt lists (that were hard to figure out what they amounted to). Packaging (certainly there was no retail sale UPC code proving it was for sale). Claimed indicia of trafficking might not amount to much, but a court need to be educated that huge leaps of reasoning from possession to trafficking should not rest solely on scraps of paper scribbles.

3. No expert can honestly say that the drug isn't for personal use. Defence counsel sometimes don't challenge drug expert qualifications. But personally, I make a practice of doing so because of the thin knowledge and training base that might be underpinning their "expertise."

For experts in non-drug cases, you'll often be looking at people with PHDs, who've written books on the topic of their expertise, and devoted decades of their lives to learning the subject. These are people for whom you might have difficulty challenging credentials.

But for drug experts, the court is being asked by the prosecution to put a lot of faith in the conclusions of one person who might have never been previously qualified as an expert, who presumably doesn't use drugs himself, and can't base his conclusions on peer reviewed scientific data.

That an ounce could get you a fine and eight ounces could get you years in jail is a weighty issue for any court to decide, and judges must be fully informed about how there is no magic weight line which once crossed turns possession into possession for the purpose of trafficking. Instead, as with many things in life, there is a world of factually grey zones from which legally definitive conclusions should not be drawn.

4 Reasons Why Appeals are from Venus and Trials are from Mars

Credit: D. Gordon E. Robertson

I'm often asked: are appeals really any different from trials? This is by no means a naive question. Wrapped up in it is the important concept of whether an appeal is really just a second kick at the can for the loser at trial, or a way for the loser to stick it to the winner by dragging out the inevitable, and what are the chances for an appeal court panel interfering with a trial judge's judgment?

1. Appeals are mostly about paper, and trials are mostly about talking. True, some civil trials and even criminal fraud trials can involve a lot of paper, but fundamentally Canada's trial courts rely on viva voce live witness courtroom testimony before a judge. Through those live witnesses, one can introduce paper exhibits, but the paper doesn't usually have a life of its own. At appeals, usually the only ones doing the talking are the lawyers (and maybe the judges, if they're in a questioning mood).

By comparison, appeals are all about paper: paper transcripts of the trial testimony, paper copies of the exhibits, paper written argument, paper casebooks of authorities. I say paper, because almost no Canadian appellate court has yet moved to fully electronic submissions as has happened in the U.S. I dream of the day it happens, but as explained to me by one Ontario Court of Appeal justice in response to my clearly oh so naive question on when the court would be moving to ban paper: "I don't even have a computer on my desk, and I write every judgment by hand with THIS fountain pen.

2. Appeals are mostly about the law, and trials are mostly about the facts. Yes, facts count in appeals, and law counts in trials, but it is in appellate courts that most enduring law gets created through the extensive legal argument played out there, while it is the trial courts who are best placed to establish the facts from witnesses they see and exhibits they touch. Thus, when you lose a trial, you're going to need legal errors to appeal, not just that the trial judge didn't understand the facts (though sufficiently serious misapprehension of facts will become an error of law).

3. With appeals you usually get three judges (though occasionally one, five, seven or nine), whereas at trial you'll mostly have only one judge. Is more really more? I tend to think so. With three judges, you only have to convince one of the rightness of your position, and hope that one will him or herself convince one of the other two to see your way of thinking. The third one may be hopelessly set against you from the start, and they'll be nothing you can do to change that - but at least you don't have that one negative judge in single judge trial setting.

4. Your best chance of success is usually at trial, though appeals are by no means a waste of time and resources. For instance, Ontario Court of Appeal stats suggest that as an appellant you've got about a 1 in 3 chance of success on a criminal appeal, and around a 1 in 4 chance on a civil appeal. These really aren't bad odds, but of course you need to weigh them against the cost of the appeal, the importance of the issues at play, and the value in finality - meaning have legal proceedings over, even if they didn't turn out as well as you expected.

Why to Assert Your Aboriginal and Treaty Rights in Criminal Court

Carl Beam, Ojibway, M'Chigeeng, 1995; Credit: Collection of the Senate of Canada

It's no secret that Aboriginal and treaty rights have had a rough ride in the Canadian court system. But it's that same system that has at a few key magical moments accomplished great strides in advancing the legal and social positions of Aboriginal peoples within Canadian society, notwithstanding political deadlock at the federal and provincial government level. The thing that some don't recognize is that it's often been in the criminal rather than civil courts that the greatest strides toward recognition of Aboriginal and treaty rights have been achieved.

The first landmark Aboriginal rights case is often cited as the quasi-criminal R. v. Drybones, [1970] S.C.R. 282, where the Indian Act provision that made it an offence for an Indian to be intoxicated off a reserve was found in a Northwest Territories prosecution to be inconsistent with the Canadian Bill of Rights.

Under s. 35 of the Canadian Charter of Rights and Freedoms, the first Aboriginal rights victory was the quasi-criminal case of R. v. Sparrow, [1990] 1 S.C.R. 1075, which affirmed Aboriginal food fishing rights in priority to other interests except conservation.

For Aboriginal treaty rights under the Charter, the quasi-criminal case of R. v. Marshall, [1999] 3 S.C.R. 456 (where I appeared as legal counsel) had huge positive ramifications for First Nations throughout the Maritimes being able to exercise fishing rights not only for food, social and ceremonial purposes, but also to earn a moderate livelihood.

Courts continue to seem to have more sympathy for Aboriginal and treaty rights claimants who are being pursued by the might of the state through prosecutions brought in reaction to their simply trying to live out traditional lives through traditional practices, as compared to harsher court views of Aboriginal claims brought in provincial, territorial and federal civil courts.

Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010 is an excellent example of how reams of evidence were presented and enormous litigation costs incurred by the Gitxsan people during a civil trial that stretched through hundreds of days, only for the Supreme Court of Canada to hold that the plaintiffs hadn't quite met the test for Aboriginal title, and that a new trial should be held.

When I showed up seven years later as a negotiator at the Gitxsan table in the Comprehensive Claims process of the British Columbia Treaty Commission, where we met in Hazleton, B.C. in the "Delgamuukw Boardroom," there was still quite understandably a lot of community frustration with being told by the courts that they may have rights, but they needed yet another trial to prove them. Many of the key elders whom had testified at the first trial had by then passed on.

Civil litigation clearly has its place in advancing Aboriginal rights. The great Aboriginal title victory of Tsilhqot'in Nation v. British Columbia, [2014] 2 S.C.R. 256, where I had been involved in settlement talks that went nowhere at the trial stage almost a decade previously, clearly demonstrates that Aboriginal right s. 35 Constitution Act, 1982 success is possible in the civil court system. Indeed, Aboriginal title claims can likely only be effectively asserted in the civil rather than criminal litigation realm, because of the types of evidence and arguments that need to be presented.

Sometimes there might even be parallel civil and criminal Aboriginal and treaty rights cases proceeding in different fora. I'm currently representing two Mohawk Akwesasne young mothers in the Ontario Court of Justice in defending their rights to live out their daily lives without unreasonable state interference, including travelling around and between their reserves for work, education and social purposes without having to continually report in person to CBSA officials. They're facing quasi-criminal charges under the Immigration and Refugee Protection Act. The trial resumes in June 2015 in Cornwall to complete the presentation of the defence evidence, and hear Crown evidence claiming why my clients have no rights. At the same time, arguments involving different plaintiffs but some overlapping issues are proceeding in the civil court forum of the Federal Court concerning mobility restrictions on the Mohawks of Akwesasne.

How to Reduce the Risk of Being Hassled When Crossing the Canada-U.S. Border

New Cornwall Port of Entry Border Crossing. Credit: Seaway International Bridge Corporation

My practice is located near one particular Canada-U.S. border crossing, though I help clients throughout Canada crossing at one of the numerous land (http://en.wikipedia.org/wiki/List_of_Canada%E2%80%93United_States_border_crossings) or air ports of entry. Sometimes I get calls from Canadians getting hassled when travelling into the U.S., and sometimes it is Americans who are hassled during travels into Canada. There are a few tips I can offer to maximize your chances of a smooth border crossing, regardless of what direction you are headed in. 

1. Don't accidentally have contraband in your vehicle or luggage. As one who has a glove compartment that's difficult to close at the best of times, I understand how things have a habit of accumulating in a vehicle. Things you have no clue of how or when they first showed up in your vehicle, and for which you lack sufficient motivation to dispose of. If we're talking junk mail and candy wrappers, you don't have anything to worry about when border crossing. But if we're talking a Glock 43 9mm pistol that you've forgotten about, you've at great risk of having a serious problem. 

I regularly help people who've been found with everything from fruit to endangered species in their vehicles and luggage at the land and air ports of entry, but forgotten firearms tend to cause the greatest trouble. Trouble like criminal charges, as well as customs charges. While some of my readers might doubt whether one could forget a gun in the car - trust me, you can. 

The only way to avoid the accidental contraband scenario is to clean out your car or luggage before crossing the border. Been thinking for the last few months about getting that Buick detailed? Well, now's the time. Check in the glove box, console, under the seat, in the trunk, and even in the spare tire compartment. Only cross the border with clothing, personal care items, documents, and things you're planning to declare - like food that you know is legal, or even firearms for which you've obtained an import/export permit in advance. 

2. Have the proper documents with you. This means most of the time that you'll need a passport (no longer just a driver's licence), a visa if you're not from a visa exempt country, and paperwork for other family members like children who might require written permission of the other parent in order to travel. 

3. Clear up criminal conviction issues prior to crossing the border. A prior criminal conviction won't necessarily prevent you from crossing the border, but it might. Because of the degree to which the Canadian and the U.S. governments share information, there is a good chance that they might both know about your criminal convictions, regardless of whether you're travelling north or south. So if you have criminal priors, consult a Canadian immigration lawyer (if you're coming into Canada) or a U.S. immigration lawyer (if you're going into the U.S.) to see if it might cause you trouble, and what is the best way to guarantee your hassle free crossing. The seriousness and type of the past charge, as well as how long it has been since the conviction, will affect whether it might be an issue. I've heard that drug convictions can particularly cause trouble when entering the U.S., but I'm not able to advise on U.S. law - you'll want to seek a "criminal waiver" from the FBI to ensure entry. In Canada, you might be "deemed to be rehabilitated" if enough time has passed for a minor offence, or you might need to make a formal application to the Canadian government for criminal rehabilitation for newer or more serious offences. 

4. Truthfully answers all questions and expect to be searched when crossing the border. While you might have all sorts of constitutional protections within Canada or the U.S., many of them melt away in that transitional zone of the border. In that zone of passage from one state to the next, you have very limited rights to remain silent (unless being accused of a criminal offence), and very few protections against search and seizure. By voluntarily choosing to cross the border, you're choosing to submit yourself to all manner of questions and search. So don't just expect to be asked about criminal convictions - you can even be asked about whether you've ever been charged with an offence, or been refused entry, or how you earn a living, or who you plan to visit with in the country you're entering. Be ready with answers, and be ready for border officials to poke around your vehicle and even your clothing if they're suspicious. 

TOP 5 TIPS FOR PROFESSIONAL MISCONDUCT INVESTIGATION SURVIVAL

One of the largest and most satisfying parts of my practice is helping professionals respond to and defend themselves against allegations of professional misconduct. Such allegations can cripple careers and ability to earn income much faster than many criminal charges. But the discipline process can be opaque, the evidence supposedly supporting allegations highly questionable, and the standards upon which one is judged simply unknowable. Here are my 5 top tips for professional misconduct investigation survival. 

1. Get Early Legal Advice - one hour of a lawyer's time could save you 100 hours of lawyer time later. Make the call early, and don't try to deal with a professional misconduct investigation all by yourself. Whether you are a physician, dentist, pharmacist, veterinarian, nurse, teacher, engineer, accountant, architect, lawyer, police officer or real estate agent, there's no need to guess about how to best respond to a notice informing you that you're under investigation. Bodies like the College of Physicians and Surgeons, Royal College of Dental Surgeons, College of Pharmacists, College of Veterinarians, College of Nurses, Professional Engineers, Certified Professional Accountants, Association of Architects, Law Societies, police discipline tribunals, and real estate associations all have their own particular rules, and you can't make any assumptions about how each will or will not approach an investigation into alleged misconduct.

2. Have a Lawyer Act as an Intermediary for you with your Professional Regulator - many professionals don't realize that professional misconduct investigations are very unlike police criminal investigations. In police criminal investigations, the police will rarely share the information in their possession until charges have been laid, and any decision to participate in the investigation will be solely a one-way affair where you provide information but receive nothing in return. By contrast, professional misconduct investigators will often be willing to collaborate with your legal representative in gathering the facts and arriving at recommendations and conclusions. Being proactive with professional discipline can often pay great rewards, like informal resolution, whereas in criminal investigations the best advice usually is to stay silent and let the investigation run its course.

3. Get Help in Gathering and Organizing the Evidence You'll Need to Respond to Professional Misconduct Allegations - professionals facing professional discipline need to search for and preserve exculpatory evidence before it disappears. This means obtaining witness statements; copying, organizing and analysing documentary records; finding and preserving emails, texts and other forms of electronic communications. Calling defence evidence in criminal trials is relatively rare, in part because of the heavy burden of proof beyond a reasonable doubt faced by the prosecution, where the defence can remain silent and wait for the prosecution to fail of its own accord. However, in professional misconduct proceedings the burden is only proof on a balance of probabilities, and what is and is not acceptable professional practice involves a host of grey areas, so you need to prepare early to present a strong defence case that goes far beyond just your personal testimony that you did nothing wrong.

4. Be Represented in Any Professional Discipline Board or Tribunal Hearing - regardless of whether your professional regulator is inquiring into your competence, your record keeping, your conduct concerning clients, or your capacity and health, appearing with a lawyer will permit you to present your best case in terms of evidence and legal submissions. These hearings are much more like courts of law than informal get togethers. They are very legalistic in nature in terms of applicable rules, procedure, and precedent. The college which regulates your conduct will be represented by legal counsel, as will be the board or tribunal itself. You'll therefore be at a great disadvantage if you don't have some legal expertise on your side. This assistance need not be enormously expensive (because these hearing usually don't last for weeks on end, unlike some criminal trials), and might even be covered by your professional insurance - but you need to ask your insurer.

5. Be Legally Prepared with Resolution or Sanction Precedents - the prospects of resolving your case favourably will usually depend on what kinds of past precedents can be located and analysed, demonstrating that other individuals in your situation received favourable treatment that you also deserve. A lawyer will usually be the one best placed to find, analyse and present such precedents for you.

RULE OF STRESS FREE LIVING #1: IF YOU USE MARIHUANA (OR ANOTHER DRUG), DON'T DRIVE AROUND WITH IT IN YOUR CAR

From the 1936 Film, directed by Dwain Esper. Credit: Wikipedia. 

I served for many years as a Federal Drug Prosecutor. Now, I defend those accused of drug offences. For me, both jobs are simply different sides of the same coin. Both involve insisting that the law is followed, which in my current job involves holding police officers, prosecutors and the courts accountable for correctly interpreting legislation governing the questioning, search, seizure from and prosecution of my clients for their alleged drug infractions.

I can often mount strong defences where the police enter private homes, or engage in undercover sting operations. The police face a very heavy burden in obtaining a search warrant to enter a private home to look for illegal narcotics. Likewise, police undercover operations rarely target casual drug consumers. However, for those who drive around with illegal narcotics in their cars, the police often have an easy time of detecting, seizing, and laying charges due to the presence of those drugs and the voluntary admissions of vehicle occupants.

Certainly there are still defences that can be mounted to vehicle-based questioning, search and seizure, but you need to understand that there is a greatly lessened expectation of privacy in a vehicle as compared to a home, or even a person's clothing and belongings when walking down a street. Police have broad powers for stopping vehicles for public safety purposes, broad powers of questioning drivers, can observe what is in plain view in a vehicle, and can then conduct warrantless searches incident to arrest if something illegal is observed in plain view or vehicle occupants admit to illegality.

When legitimately stopped for speeding a bit over the limit, many of my clients truthfully answer what they believe to be the innocuous police questions: "do you have any drugs with you?" or the even more general "do you have anything on you or in the car that you shouldn't have?" They naively think that by being honest, and coughing up "the goods," the police will simply seize the items, and send them on their way. Especially if the goods only amount to small amounts of marihuana.

While this assumption might be correct in a large urban area (and it is still a very, very risky assumption to make), it is completely incorrect on Canada's highways like Ontario's busy 401 route between Toronto and Montreal where I often assist clients in Alexandria, Cornwall, Morriburg, or Brockville.

Not only will the police seize your drugs and charge you. They'll do a complete search of the rest of your car and possibly even charge you for possession for the purposes of trafficking if they don't like the total weight of drugs they find. Worst of all, they'll charge all the passengers in your car, even if those people don't own the vehicle, and don't have any drugs on them personally.

I don't moralize to my clients. We all make life choices on how to behave. My job is to assist my clients in complying with the law, and in obtaining the fairest possible treatment if accused of non-compliance.

What my readers here need to understand is that you take a huge risk by carrying even tiny amounts of recreational narcotics in your vehicles (be they in a shirt pocket, a glove compartment, or a suitcase). Even if you don't speed, you still run the risk of getting stopped by police for some other reason. And the police are well training at detecting drugs in cars. This is a risk you don't face if you simply keep your drugs at home, or carry them around as a pedestrian.

Lastly, if you're stopped by the police, you and your passenger may have a duty to identify yourselves, and you might have to produce driving related documentation to the police. However, while you should never lie to the police, you also have the right to remain silent in response to police questioning about the presence of drugs. If the police don't see or smell any drugs, any subsequent search of your vehicle may very well be illegal - and I may be able to get any charges thrown out of court - but only if you didn't give them grounds to search by admitting drugs are present.