Month: October 2018

DIVORCE SETTLEMENT: Family Business

In a June 11, 2018 Court of Queen’s Bench for Saskatchewan case, at issue was whether a $500,000 settlement upon separation was taxable and whether the dispute over its tax status rendered the settlement void. The settlement did not concern a division of marital assets but, rather, rights to income and property forgone or promised during the term of the marriage.

In particular, the recipient (Mr. R) was primarily seeking payment in respect of insufficient remuneration received while working in the spouse’s family business during the marriage, lost opportunity to invest in the business’s agricultural land, lost opportunity to earn income as a heavy-duty mechanic, and lost inheritance which was allegedly tied to his service in the family business.

An agreement was reached for the sum of $500,000 to be paid to Mr. R “in full and final satisfaction of his claims”. Mr. R argued that the amount should be tax-free; treated similar to the receipt of inherited property or a matrimonial property settlement. The defendants argued that it should be fully taxable to the recipient and deductible against corporate income similar to a settlement for underpaid wages. While both parties gave clear evidence as to what was on their mind when settling, the Court noted that their evidence fell short of indicating that their positions and intentions were clearly communicated to the other. Since the effect of the tax status of the payment was significant, and since the Court determined that there was uncertainty and no clear agreement in this respect, no binding settlement was determined to have been reached.

ACTION ITEM: Whenever a settlement is being negotiated, ensure there is mutual understanding on the tax treatment to prevent potential nullification.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

RETAINING EMPLOYMENT INSURANCE (EI) BENEFITS: Starting Part-Time Work

As of August 12, 2018, the “Working While on Claim” program became a permanent part of the EI system. Prior to the program, an individual could earn a very low weekly amount, after which the EI benefit would be eroded on a dollar for dollar basis of earnings. Under the new rules, a person who earns income while receiving EI benefits can keep $0.50 of their EI benefits for every dollar earned, up to 90% of their previous weekly earnings. Above this 90% cap, EI benefits are reduced dollar for dollar. An individual who works a full work week is ineligible to receive EI benefits.

This program is available for the following types of EI benefits: regular, sickness, parental, maternity, fishing, compassionate care, and family caregiver benefits for adults and children. Self-employed individuals opting into the EI system are also eligible for this program.

ACTION ITEM: This may provide an attractive opportunity for employees on maternity or parental leave to return to work on a part-time basis.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

TAX TICKLERS… some quick points to consider…

• A recent U.S. Supreme Court decision found that a business with no physical presence in a state may still be required to collect and remit state sales taxes. This ruling has prompted many states to begin making changes to their rules, and will likely result in a requirement for many Canadian businesses to collect tax on online U.S. sales.
• Approximately 29 million personal tax returns are filed annually in Canada.
• While 9% of Canadians had their taxes reassessed by CRA in 2016, that number was 6% for northern Canadians (13% in the Northwest Territories and Nunavut, and 15% in the Yukon).

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.

No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.