Newsletters

It appears that the Canadian Revenue Agency (CRA) has a new project: corporate car expenses. This change comes as a surprise as previous correspondence from CRA was proposing to disallow personal car expenses for owner managers. 

In CRA correspondence that we have seen of late, the focus is on those companies that had an expense in the vehicle expense line of the tax return. The standard letter is asking for the following items:

  1. A detailed list of the general ledger transactions for vehicle expenses.
  2. Invoices of the ten largest items in one month in the year.
  3. A listing of the vehicles with clarification as to who owns the vehicles.
  4. The make and model of the vehicles that the company leased.
  5. The percentage allocation between personal use and business use as well as a copy of the log used to track the business and personal use.
  6. An explanation of how the business and personal use is dealt with. For example, they are asking if expenses were reduced or reimbursed or if there is an employee benefit or standby charge.

Developing an ESOP is new territory for both employer and employee. Many owners may already have a clear plan mapped out and have shared this plan with their employees, whilst others are less advanced in the ESOP process.

It is important for the business valuator engaged in the ESOP process to determine which end of the spectrum their client is on as this will have a bearing on the terms of the valuation engagement and the assistance required.

Irrespective of where your client is on their ESOP journey, the following key principles should be followed throughout all stages of the valuation process:

  • Transparency – through an independent valuation;
  • Communication – through regular updates to employees on the valuation process;
  • Setting and Managing Expectations – communicating any changes to % ownership offered, price, terms, etc. in real time.

The Canadian Income Tax Act defines a non-profit organization as “a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit….

On several occasions over recent years, the Canada Revenue Agency has had to issue interpretations on this subsection in order to offer its opinion on whether activities carried out by non-profit organizations, such as the rental of parking spaces, income generated through fiber optic networks or other similar activities, could have an impact on the tax status of such organizations. In any case, the CRA has deferred to the courts in each of its interpretative notes, in holding that the profit must be ancillary and in support of the organization’s objectives.

In my previous article that appeared in June’s edition of the Canadian Collaboration Newsletter, I discussed how best to prepare for a liquidity event. Proper preparation ensures a business is well positioned when encountering any unexpected events that may result in a liquidity event. It is recommended to give consideration to various liquidity alternatives in order to yield results that are optimal to shareholders and allow them to best meet their objectives.

  • Business owners may desire to “take some money off the table” and reduce personal financial risk by diversifying their assets.
  • Business owners may be looking to take a step back from the business in order to pursue other interests or retire.
  • A shareholder can elect to leave the business due to challenging interpersonal situations resulting from mutual ownership with other individuals with different personalities and / or visions for future growth of the business.
  • An unexpected personal circumstance, such a death, deteriorating health or divorce, may require the division of family assets.