If you need a Canadian tax lawyer or attorney skilled and experienced in tax law for Ontario corporations, then feel free to make a post on Dynamic Lawyers (it’s 100% free and anonymous).  Our corporate tax lawyers can help you with your corporate tax planning or r tax dispute resolution matters.

So I thought it would be neat to keep blogging about the small business tax rates for corporations in Ontario and let people know about how they could pay $0 (that’s right – NOTHING) in Federal personal income tax for fiscal 2009 up to a certain limit on certain kinds of dividends they received from a Canadian Controlled Private Corporation.

Don’t believe me?  Just go here and enter $40,608 under “Cdn dividends eligible for small business div tax credit (CCPCs)“.  If this is your only source of income for the year and you don’t get fancy with anything else (e.g. deductions, tax credits, etc.), then here’s what you’ll get:

+  Federal Tax owed before non-refundable tax credits = $8,316.

-  Non-refundable tax credits from Basic Person Amount = $1,548.

-  Small business dividend tax credit = $6,768.

Total Federal Tax = $0!!!

How is that possible?  Here’s how (keep in mind that these figures change frequently, so be sure to do your own due diligence!):

1. Hold shares in a Canadian Controlled Private Corporation or CCPC (as defined in the Canada Income Tax Act).
2. Have the CCPC earn “active business income” (as defined in the Canada Income Tax Act).
3. Have the CCPC pay income taxes at a rate of 16.5% on that active business income up to a limit of $500,000 (check out my previous blog about corporate tax rates).
4. Have the CCPC declare and issue up to $40,608 to you as a shareholder and make sure the money comes from that specially low-taxed retained earnings.
5. Earn no other taxable income for the fiscal year other than those dividends.
6. The Federal Dividend Gross Up and Tax Credit kick in (for your personal income taxes) and you’re left with paying $0 in taxes on the $40,608 which you received as income in the form of dividends on your shares!

Here’s the detailed analysis of how the Dividend Gross Up and Tax Credit work to allow you to pay $0 in Federal personal income taxes:

When you receive a dividend from a Canadian Controlled Private Corporation (as defined in the ITA), that income is deemed non-eligible (because it received beneficial treatment from the small business tax rate for Ontario corporation – 16.5% for 2009), here’s what happens…

1. The amount you received is grossed up by 25%.  So if you received $40,608, then the amount of the Grossed Up Dividend is now $50,760.
2. Apply the Federal Tax Rate (which is progressive) to the amount of the Grossed Up Dividend.  This gives you a federal tax payable of $8,316 (here’s the simple breakdown: the difference between $0-$40,726*0.15% tax = $6,109 for the first level of tax + the difference between $40,726-$50,760*22% = $2,207 for the second level of tax).
3. Deduct the Personal Tax Credit of $1,548 (which is 15% of $10,320).
4. Deduct the Federal Dividend Tax Credit of $6,768, which is 13.33% of the Grossed Up amount of $50,760.
5. Together, the Federal Personal Tax Credit and the Federal Dividend Tax Credit amount to $8,316.
6. So the Personal Tax Credit and the Dividend Tax Credit combined equal the amount of tax owed, resulting in $0 taxes at the personal level!

Although $40,608 seems like it would be enough for someone to get by on in the year (especially considering that the CCPC only paid 16.5% tax on those dividends before they were distributed), remember that you’ll still need to pay some minimal Ontario personal income taxes on these dividends – but that’s another story

written by admin \\ tags: active business income, Canada Income Tax, canadian controlled private corporation, dividend tax credit, dividends

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to structuring or resolving disputes involving allowable business investment losses, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Canadian tax lawyers and attorneys skilled and experienced in tax law for Ontario and Canadian corporations.  Feel free to make a post on Dynamic Lawyers (it’s 100% free and anonymous).

In this blog, I’ll be discussing “Allowable Business Investment Losses” (“ABIL“) for Canadian income tax purposes (Note: I will be looking at ABIL from the simplest viewpoint).

So what’s an ABIL?  Simply put, it’s a type of preferential business loss which can be used by taxpayer to offset income from any source. The idea behind it is simple: the government wants to encourage investment in certain types of businesses  (namely, Canadian Controlled Private Corporations carrying on active business in Canada).  So if you take a risk in such business and experience a loss, you’ll be able to offset your income from other sources with a portion of that loss.

So how does it work?  Well, if you can bear with me, I’ll do my best to explain the definitions regarding the application of ABIL.

In a nutshell, a taxpayer’s ABIL is 50% of a “business investment loss” for a taxation year (s. 38 of the Income Tax Act (“ITA”)).  So what’s a “business investment loss”?  I discuss that next…

A “business investment loss” arises when there is a “capital loss” from a “disposition” of shares  of a “small business corporation” (s. 39(c) of the ITA).  Once again, there are a number of terms that require clarification here.

First, there must be a “capital loss” from a “disposition” of shares.  The ITA gives the following examples of when this happens:

• if during the year the corporation becomes bankrupt (s. 50(b)(i) of the ITA);
• if the corporation is insolvent and a winding-up order has been made in the year (s. 50(b)(iii) of the ITA); or
• if at the end of the year, the corporation is insolvent, does not carry on business, the fair market value of the shares is nil, and it is reasonable to expect that the corporation will be dissolved or wound up (and won’t continue carrying on business) (s. 50(1)(b)(iii).

In any of these situations, the taxpayer shall be “deemed to have disposed of the…share…at the end of the year for proceeds equal to nil…” (s. 50(1)(b)(iii)).  The bottom line is that if the corporation is essentially bankrupt, worthless, not carrying on business, is expected to close down, etc. (as per above), then the taxpayer will be deemed to have disposed of their shares for $0.  So if the taxpayer paid $100 for their shares, they will have a $100 capital loss from their deemed disposition.

Going back to the definition of “business investment loss” above, however, we see that it’s not just any shares of a corporation that qualify: the corporation must be a “small business corporation“. I discuss this next…

A “small business corporation” is a “Canadian Controlled Private Corporation” (“CCPC“) that uses “all or substantially all” (90% is the accepted standard) of the fair market value of its assets in an “active business” carried on primarily in Canada (s. 248(1) of the ITA).  Importantly, a corporation that was a small business corporation at any time in the 12 months before the disposition of the share will be considered to be a small business corporation.

OK, so now we need to define “CCPC” and “active business“.

The ITA defines a CCPC, among other things, as a “private corporation” that is a “Canadian corporation” that is not controlled by one or more non-resident persons or by one or more public corporations (or a combination thereof) (s. 89(1) of the ITA).  OK so now we have more terms to define…

• Here, a “private corporation” includes a corporation “resident in Canada” that is not a “public corporation” and is not controlled by a public corporation (s. 89(1) of the ITA).  OK, more terms to define..
  • Corporations deemed to be “resident in Canada” include corporations which were incorporated in Canada after April 26, 1965 (this includes corporations originally incorporated in foreign jurisdiction which are continued in Canada), corporations resident in Canada under the common law “mind and management” test at any time, and corporations carrying on business in Canada in any taxation year ending after April 26th, 1965 (s. 250(4)(a) and (c) of the ITA).
  • A “public corporation”, among other things, is defined as a corporation whose shares of capital stock are listed on a prescribed stock exchange both in Canada and abroad (s. 89(1) and 125(7)(c) of the ITA).
• The term “Canadian corporation” include a corporation that is currently resident in Canada and that was either “incorporated in Canada” or was resident in Canada throughout the period that began on June 18th, 1971; a “corporation incorporated in Canada” includes “a corporation incorporated in any part of Canada before or after it became part of Canada” .

So that takes care of the definition of “CCPC”.  Phew!

What about “active business“?  Well, it’s defined as “any business carried on by the taxpayer other than a specified investment business or a personal services business”.  Specified investment business generally means a business the principal purpose of which is to derive income from property (e.g. rent, royalties, dividends, etc.), but this doesn’t include, for example, a corporation that has 5 or more full time employees.  A personal services business is essentially an incorporated individual who resembles an employee of a client, but this doesn’t include, for example, a corporation that has 5 or more full time employees (s. 125(7) of the ITA).

So there you have it in a nutshell, definitions and all.

Please note that there are many additional rules concerning ABILs which you should consult with a lawyer with (e.g. by going on Dynamic Lawyers).  What I’ve discussed above is just general information about ABIL and there may be additional rules which apply to your situation to either make the ABIL inapplicable or reduce the amount to which you would otherwise be entitled to.  Please consult with a lawyer to find out which, if any, of these additional rules apply to your situation!

FYI, here’s some further reading (and here too) about ABIL from the CRA (please note that these are outdated a bit).

written by admin \\ tags: allowable business investment losses, business investment losses, canadian tax

It’s quite amazing to reflect on the similarities between two websites – Dynamic Lawyers and Advicescene – that are trying to enhance access to justice through technology.  Dynamic Lawyers, started by my in November 2008, allows users to post their legal issue(s) a la Craigslist and have Ontario lawyers respond with free information and quotes.   Advicescene, started by Nancy Kinney in March 2009, features an online Canadian legal wiki, a lawyer directory, and online legal forms and other resources.  Here are some similarities:

• Both websites were started recently by individuals in the legal field (I am a Toronto business lawyer and Nancy Kinney has a law degree).
• Both websites leverage social media (e.g. Twitter, Facebook, etc.) to promote themselves.
• Both websites have posted their stories on lawbuzz.ca (and created some controversy in the process!).
• Both websites feature videos and free legal information (not advice).
• Both websites have newsletters and links to other online legal resources.
• Both websites have reached out to and been featured in the media.
• Both websites have reached out to and been featured by prominent legal bloggers.
• Both websites will feature lawyer directories.
• And the list goes on…

Based on our respective goals, Nancy Kinney and I have agreed to collaborate and cross-promote our websites towards the greater good – namely, the enhancement of access to justice and the further democratization of the law.  The bottom line is that we’re doing what Richard Susskind wrote about (i.e. leveraging technology to allow people to find lawyers and legal services and share knowledge and information about their experiences).  As per McDonald’s: “I’m loving It!”

written by admin \\ tags: advicescene.com, dynamiclawyers.com, Michael Carabash, nancy kinney, Richard Susskind

Dynamic Lawyers is looking for a Toronto wills and estates lawyer to respond to a new public post (i.e. someone is looking for a Toronto wills and estates lawyer to help them with their wills and estates dispute).  Here is the public post.  The post indicates a time line of 6 months and a budget of $10,000.  If you are or know a Toronto wills and estates lawyer who does this type of work, please give me a shout at michael@dynamiclawyers.com or sign up here.  Remember: Dynamic Lawyers is currently having a 1 month free trial period for new lawyers who sign up today.  There’s no risk and no obligations!  What are you waiting for?  Register today!

written by admin \\ tags: need a toronto lawyer, need a wills and estates lawyer, toronto wills and estates lawyer, Wills and Estates

Be sure to check out these new videos and podcasts from Advicescene.com, a free legal forum where Canadians can ask questions and lawyers can answer them for free.  Right now, founder and president Nancy Kinney has posted video and audio interviews with popular family court judge Justice Harvey Brownstone (who is currently doing a North American tour for his new book, Tug of War) and Ontario Trial Appellate Lawyer Antonin I. Pribetic.  Here are some of the new videos:

written by admin \\ tags: advicescnene.com, nancy kinney, podcasts

Dynamic Lawyers is looking for a Pickering real estate lawyer to respond to a new post (i.e. someone is looking for a Pickering/Toronto real estate lawyer to help them with their residential real estate transactions).  Here is the post. If you are or know a Toronto real estate lawyer who does this type of work, please give me a shout at michael@dynamiclawyers.com or sign up here.  Remember: Dynamic Lawyers is currently having a 1 month free trial period for new lawyers who sign up today.  There’s no risk and no obligations!  What are you waiting for?  Register today!

written by admin \\ tags: 1 month free trial period, Dynamic Lawyers, pickering real estate lawyer, toronto real estate lawyer

Back by popular demand: Lawyers now get a 1 month free trial membership of Dynamic Lawyers!  We started off giving lawyers 3 months free (when we first launched in Toronto in November 2008).  The reason is because we wanted lawyers to get comfortable with the idea of how the website works.  We ultimately stopped (because the website proved that it worked) but, due to constant requests from lawyers, we are now giving lawyers a chance to pitch themselves to prospective clients FOR FREE WITH NO OBLIGATIONS! 

So here’s how to take advantage of this opportunity:

1. Register here.
2. After you’ve submitted all the information, we will manually verify your account and then activate it.
3. You will not be able to sign in and view private posts or respond to public and private posts until we have activated your account.
4. Once your account has been activated, you will receive an e-mail from us saying so.
5. You will have 30 days to sign in and respond to public and private posts.  You can sign in here.
6. Once your account has been activated, you will also automatically receive new posts in your e-mail (matching your CITY, LEGAL AREA(S), and MATTER(S)) and you will be able to respond to those posts through your e-mail (NO NEED TO SIGN IN!).
7. After 30 days, your FREE TRIAL PERIOD will expire and your account will be deactivated.
8. To reactivate your account to continue using Dynamic Lawyers, you will need to sign inand proceed to PayPal where you will be required to pay $50/month plus GST for the year (a great bargain!).

SO WHAT ARE YOU WAITING FOR?  REGISTER NOW AND START PITCHING YOUR SERVICES TO PROSPECTIVE CLIENTS!

Good luck!

written by admin \\ tags: Dynamic Lawyers, free trial period

So I’ve been gone for a week – vacationing in Florida with the family – and now it’s time for me to catch up.  For starters, the day before I left, I published a new video.  It’s an Ontario Reports ParodyI did.  It took me about 4 hours of filming and 8 hours of editing to get it down to 50 seconds.  I’m glad it’s received positive comments from the public and lawyers alike.  The video spread through the various social network websites (e.g. YouTube, Facebook, Twitter, etc.) and was even discussed by Omar Ha-Redeye and Library Boy.  Good stuff all around.

Next, I received a number of e-mails from different individuals and organizations who are interested in what we are doing (e.g. improving access to justice through technology and the Internet) and I will be evaluating and following up with these opportunities in due course.  Some of these opportunities came around by way of the Lawyers Weekly profile report about me which was published 2 weeks back.

Next, I finished and circulated a draft eBook about Online Marketing For Lawyers.  I spent a few days and put together everything I could think about in this introductory eBook.  It’s written in simple prose to help educate lawyers on how to market themselves on the Internet.  I’ll probably come out with a part 2 ina  couple of months. The feedback I received from the eBook so far is: this is an amazing resource.   I’m glad that I wrote it and I have none other to thank for pushing me to do it than Bob Berman of Berman Barristers (www.myontariodivorce.com).  At the moment, the eBook has been sent to our graphics designer, Parastou Gheidarpour, to turn it into something phenomenal. After writing the eBook, I started to follow my own advice and re-tweaked many of the website’s pages.

Apart from these things, I’m thinking about writing another report about the first 500 posts which have been made on Dynamic Lawyers.  I figure it might be interesting, for example, for the public and lawyers alike to know that roughly 25% of the posts on Dynamic Lawyers are related to family law issues.  This is the largest segment and it’s interesting to note that many people are turning to the Internet to find answers and hook up with a lawyer.

Finally, I’ve got a great new announcement to make – which is deserving of its own blog post…coming up next!

written by admin \\ tags: Bob Berman, Dynamic Lawyers, eBook on Online Legal Marketing, first 500 posts, Graphic Designer, Library Boy, Michael Carabash, Omar Ha-Redeye, ontario reports parody, Parastou Gheidarpour, youtube video

I am here in Florida with my uncle, Nagui Elbaramelgui, and he is one hell of a soccer coach.  He also loves the Montreal Canadiens and, on occassion, says a good word or two about the Toronto Maple Leafs (not Leaves).  So I am writing this blog to show Uncle Nagui the beauty of the internet and how, if you Google his name within a few minutes of my publishing this blog, this blog post will show up on p. 1 of Google.  Just goes o show that virtually anyone can write practically anything about you and it could show up on Google…are you prepared…

written by admin \\ tags: Montreal Canadiens, Nagui Elbaramelgui, page 1 of Google, Toronto Maple Leafs, Uncle Nagui

Part of my conversation with Garry Wise the other day included a discussion about: what to do with the Ontario Reports which every lawyer in Ontario receives on a weekly basis from the Law Society of Upper Canada?  As a new lawyer, I’ve been keeping them with the belief that they may have something useful one day.  Older and wiser lawyers have even told me that I should read up on the cases in my practice area as they will sharpen my skills and I may have to refer to them in the future.  But, truth be told, why is the Law Society of Upper Canada killing so many trees by not simply making the O.R.s digitally accessible?  Perhaps, as Garry Wise suggested in our conversation, an e-mail should be sent out to lawyers on a weekly or monthly basis with all the information we need succinctly organized in a few sentences and with links to the main article somewhere on the Law Society’s website?  I came across a recent blog by Ted Tjaden on Slaw that discusses that very same subject matter.   His post was also featured in the Law Times.  Perhaps the revenue that comes from advertising in print form won’t be as much in electronic format?  Perhaps the print form guarantees that all lawyers receive it, whereas the electronic version may not be accessible to all?   My take on this is: if and when I’m looking for it, I’ll find it online.  As such, I’m going to recycle the shelves of O.R.s I’ve been collecting under the mistaken assumption that I should be keeping them.  Goodbye clutter; hello digital age.  I encourage you to do the same.

Just for fun, I came up with this spoof on the Ontario Reports.  Enjoy…

Remember: if you need a Toronto or Ontario lawyer – be it for a family law, personal injury, tax, civil litigation, criminal, real estate, or business matter – then go to Dynamic Lawyers and make a post. It’s 100% FREE and ANONYMOUS. Ontario and Toronto Lawyers are registered to respond to your legal issue(s) and give you quotes.

written by admin \\ tags: Garry Wise, law society of upper canada, Michael Carabash, ontario reports