Apr 19, 2021
As you may know, we have supported a request to the CRA to extend the April 30 deadline to June 15. But if the deadline is NOT extended, here are some practical tips to reduce the burden of a COVID tax season.
“Be aware of CRA policy on deductibility of management bonuses..”
CRA tried to clarify its position on management fees in Technical News No. 22.
There are three main conditions for a bonus to be deductible:
The CRA has not given any specific determination as to what “actively involved” means. However, careful consideration should be given when paying out management bonuses to those shareholders who are inactive in the company.
The CRA has made it very clear that they will not treat inter-corporate management fees with the same leniency. Instead, inter-corporate management fees will be examined on a case-by-case basis to determine their reasonableness.
The CRA has also stated that certain kinds of situations will not be included in the bonus payment criteria noted above. If a company sells its assets and has a goodwill gain, the CRA has stated that a management bonus will not automatically be allowed in that situation. The CRA has stated that they will look at each situation separately to determine if a management bonus is acceptable when the assets of a company are sold. Moreover, the CRA has stated that they would be willing to consider an advance tax ruling in those situations.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.