Tag: hst

TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

Post author By Brandon Smith
Post date November 8, 2021

calculate hst

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

***Calculate HST* Amounts in Sales and *Purchase Documents***

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
About 17% of small businesses in Canada have sales that are half or less of what they should be.
Four in five businesses are using one or more sources of funding to cope with COVID-19.
In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
Scaling back federal relief programs comes too quickly for most business owners.
According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst

***Calculate HST* but if you don’t pay, it is a *deemed trust***

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

garnish bank accounts, accounts receivable, and all other sources of income;
confiscate and sell assets; and
pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

Solvent and viable.
Solvent but not viable.
Insolvent and viable.
Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Even though we are licensed insolvency trustees, we have found that not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Brandon Blog Post

WHAT IS THE POWERFUL CRA LIEN ON PROPERTY TOOL?

Post author By Brandon Smith
Post date September 13, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this CRA lien on property Brandon Blog, please scroll to the very bottom of this page and click play on the podcast.

CRA lien on property: Canada Revenue Agency’s collection powers

The CRA (formerly known as Revenue Canada) assigns “collection officers” to taxpayers who fail to make timely payments or who do not pay in full. For the CRA to agree to a payment arrangement (usually monthly payments), the taxpayer must provide financial disclosure on a monthly basis (details of their expenses, their income, and their assets).

Tax debts that cannot be settled through a payment plan may be registered in Federal Court. Once the debt is certified, the certificate is equivalent to a judgment entered in court. This is called a memorial. If you own property, the CRA can create a lien on your property based on your judgment. A CRA lien on property against your interest in your home is the most common CRA lien on property they register.

This Brandon Blog discusses a recent decision from the British Columbia Supreme Court that confirms that the CRA lien on property becomes secured once they are registered.

CRA lien on property: CRA Super Priority Liens

I previously wrote a Brandon Blog about the legal case of Canada v. Toronto-Dominion Bank. By mentioning this case, I hope that my comments about the recent British Columbia Court decision below will be clearer.

Federal statutes give CRA a creditor powerful tools to collect debts. They can access avenues of collection significantly quicker than other types of creditors. It was not known to Toronto-Dominion Bank (TD) that, as a sole proprietor operating a landscaping business, the borrower had collected GST in the amount of $67,854.

After selling his home, the borrower fully paid off his first mortgage with TD. TD did not lend to or deal with the proprietor’s business. Since there was no CRA lien on property against the house, TD was not aware of the outstanding GST.

The CRA has enhanced security, known as “super-priority”, over most of a tax debtor‘s real property and personal assets, by virtue of deemed trust provisions in the Income Tax Act and Excise Tax Act (ETA). CRA has priority over substantially all secured creditors under the deemed trust concept, which means that the proceeds of the sale from the property subject to the deemed trust will go to CRA. A deemed trust claim is a CRA lien on property and is obtained without any registration.

A demand letter was subsequently sent to TD demanding that a portion of the proceeds be used to satisfy the GST debt. TD refused to pay since they believed their mortgage security ranked higher than CRA’s claim for unremitted GST. Court action was taken against TD by the CRA. The Crown argued that under section 222 of the ETA, the proceeds received by TD on the repayment of the mortgage and line of credit were subject to a deemed trust in favour of the Crown.

The Federal Court held that TD had an obligation to reimburse the CRA for the debt of $67,544, plus interest, owing by the Borrower to the CRA. Super-priority interests can be enforced by the CRA without notifying the secured creditor. TD was responsible for repaying CRA amounts received from a borrower with an outstanding GST/HST bill.

cra lien on property

FCA confirms CRA super-priority over secured creditors on a GST/HST debtors’ property

TD appealed the decision of the Federal Court to the Federal Court of Appeal (FCA). According to the FCA ruling in Toronto-Dominion Bank v Canada, the FCA agreed with the lower Court that TD must pay the CRA proceeds of $67,854 for unremitted GST that it received from a borrower upon the discharge of its mortgage. CRA is considered to hold in trust amounts paid to a secured creditor from a debtor who owes Goods and Services Tax/Harmonized Sales Tax (GST/HST) liabilities.

FCA affirmed the Federal Court’s finding that no triggering event was required and that the deemed trust operates continuously once GST is collected but not remitted. Further, the FCA noted that case law has distinguished between secured creditors and bona fide purchasers of value, such that the two categories are mutually exclusive.

It is best for secured creditors to review their current risk management practices and revise them both at the time of due diligence when vetting new borrowers as well as throughout the term of any secured credit agreement.

If we were talking about unremitted employee source deductions, the result would be the same.

CRA lien on property: Personal income tax debt collection

CRA is a powerful creditor when it comes to personal income tax debt collection. Above I discussed how they can get a CRA lien on property just by way of the statute for unremitted source deductions or unremitted GST/HST. But what about personal income taxes? CRA does not have an automatic lien for unpaid income taxes.

However, they can go to Federal Court and obtain a memorial and then register that CRA lien on property of the tax debtor who fell behind in their payment of taxes. Once they place that lien, they now turned their unsecured claim for unpaid taxes into a secured claim. As I already mentioned, the most common type of property they register against is real property, like the tax debtor‘s home.

If the CRA lien on property goes on the real property before the person who owes unpaid income taxes files either a consumer proposal or bankruptcy, then the CRA lien on property stays on. CRA will not try to go power of sale or foreclosure to throw the taxpayer out of their home based on this tax lien. Rather, they will just wait until the taxpayer either sells the home or tries to renew or refinance a mortgage.

In the case of a sale, they will get their tax lien paid out of the sale proceeds. In the case of a mortgage renewal or refinancing, mortgage lenders will not do a new mortgage loan or a refinancing with the CRA lien on property. This is how they get their money.

Keep in mind that the lien is only against the taxpayer’s interest in the home. So if the tax debtor is the sole owner, it is against 100% of the home. If the taxpayer owns the home jointly with say, a spouse, then the lien is only against the 50% interest.

cra lien on property

CRA lien on property: Can Canada Revenue Agency put a lien on my house?

You should now know that the answer to this question is yes. Licensed insolvency trustees know this. Nevertheless, in the British Columbia case I will describe now, the Trustee tried a novel, but an unsuccessful, approach to try to knock out CRA’s lien on property secured claim to collect taxes owed by the tax debtor. I am referring to Gidda (Re), 2021 BCSC 1460 (CanLII).

The licensed insolvency trustee appealed the decision of the Master as Bankruptcy Registrar dated February 3, 2020, reversing the Trustee’s rejection of a secured proof of claim filed by the federal Crown on behalf of the CRA in the bankruptcy. As well, the Trustee appealed the Master’s ruling that he is personally liable for the costs of the proceeding.

The CRA has taken out a memorial to attach a lien in favour of CRA to the taxpayer’s home due to unpaid income taxes. Then he filed for bankruptcy. So the lien against property holds as it came before the bankruptcy. A secured proof of claim for unpaid income tax was filed by the CRA in response to the memorial and registered tax lien. A secured claim was granted to CRA, which was not directly contested by the Trustee.

In my opinion, this claim, however, was handled by the Trustee in a novel way that wasn’t sustainable. It was so novel that the Judge took judicial notice of the submissions that such a case was never litigated before in Canada. There were also a number of judgments against the title of the property in addition to the memorial. There was no priority among the other judgments.

According to section 70(1) of the Bankruptcy and Insolvency Act (Canada) (BIA), bankruptcy takes precedence over judgments, garnishments, and any collection action. Furthermore, no judgment takes precedence over another.

A memorial is a judgment of the Federal Court, and since all judgments are treated equally as unsecured creditors, the Trustee disallowed CRA’s secured claim. Because the memorial and its registration against the title are secured claims under other federal statutes, it has powers not given to other simple money judgments. Therefore, I believe it is a losing argument. So did the Master.

In addition, the Master believed that the Trustee ought to have been aware of this when disallowing CRA’s secured claim and causing it to appeal the Trustee’s decision. Therefore, the Master awarded the Crown costs to be paid by the Trustee personally.

On both counts, the Trustee appealed the Master’s decision. The Judge who reviewed this found that the Master was correct in upholding the CRA secured claim and dismissed this portion of the Trustee’s appeal. The Judge did, however, let the Trustee off the hook by allowing the costs portion of the appeal. According to the Judge, the costs awarded by the Master will be paid by the bankruptcy estate and not by the Trustee personally.

CRA lien on property: Say goodbye to debt stress

I hope that you found this CRA lien on property Brandon Blog informative. Unpaid taxes and a heavy debt load do not mix well. If you have too much debt, you are considered insolvent. There are several insolvency processes available to you. It may not be necessary for you to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

cra lien on property

Brandon Blog Post

CLOSING A BUSINESS DOES NOT AUTOMATICALLY MEAN AN ALARMING BANKRUPTCY

Post author By Brandon Smith
Post date November 18, 2020

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

At the end of this blog, we have a special gift for you!

Closing a business introduction

Many times I am consulted by an entrepreneur about closing a business. This may sound odd coming from a licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee), but not all business closures involve a formal bankruptcy. In fact, there are more business closures that do not involve bankruptcy

Now with so many businesses hurting due to a slowdown or complete destination due to the result of the coronavirus pandemic, I expect more entrepreneurs are going to want to know about closing a business.

In this Brandon’s Blog, I provide the reasons why. I also go through the various steps in closing a business that you can use as a checklist.

Closing a business that does not have many (free) assets

Many times I get a call from someone whose business is not doing well. They probably cannot afford to pay the business rent next month and it does not make sense to stay open. They think bankruptcy is the only way they have for closing a business. The business does not have many assets, or all the assets are secured by a bank that loaned the corporation money. Think of a business where the assets were bought through a bank loan. The funding may or may not have been under a government small business loan program.

The entrepreneur gave a personal guarantee to the bank ranging from 25% to 100% of the total loan amount. The entrepreneur may also have provided a personal guarantee to the landlord. The business may or may not be current in its employee source deduction remittances and harmonized sales tax (HST) payments. The entrepreneur does not believe the assets have any value above the amount of the secured loan and wishes to place the company in bankruptcy as the answer to closing a business.

Here is why bankruptcy will not help:

The assets are fully secured by the bank.
Canada Revenue Agency (CRA) may have a trust claim over the assets because of unremitted source deductions.
A corporate bankruptcy will not solve the entrepreneur’s personal debt issues under the personal guarantee to the bank for any shortfall claim and the landlord for any claim due to the failure of the corporate tenant.

In this type of situation, there is not much I can do. I tell the entrepreneur that if they are going to shut the business down before the first of the next month, they should do so. Then, they should go to the bank, advise them and cooperate with the bank to allow them to realize their security. I tell them to make sure that they follow the steps for closing a business that I outline below.

I tell the entrepreneur that when the bank and the landlord each make a demand for their obligations under the respective personal guarantees to call me. We will then work together on their personal situation. Perhaps a consumer proposal will be possible. I also tell them that it is not worth spending the money they don’t have in order to bankrupt the company.

That is why in this case a corporate bankruptcy will not help an entrepreneur in closing a business. I call this the self-help remedy.

The business is still operating – will anyone buy it?

Before making any decisions about closing a business, you should first think in terms of is your business worth anything? You have spent many years building your business. It may be insolvent because it has suffered losses for several years, cash flow is weak and the corporation cannot pay its debts generally as they come due.

Although the current corporate body may be weak, you need to determine if your business is still viable. Does the marketplace still have a need for the service or product you provide? Are there competitors who seem to be doing well? Your business has a customer base and trained staff. One of your competitors may find your customer base and some or all of your staff something they want to amalgamate into their existing business.

If that is the case, you need to understand what your business might be worth. The selling prices of similar organizations in your geographical area or market will be a good barometer of what you can anticipate getting for your company. Innovative buyers might evaluate your business on the basis of projected cash flow for the next few years. They may very well mark down the worth of that cash flow to mirror the perceived threats and risks inherent in your business.

In the case of an insolvent but viable business, it may be that an insolvency process is necessary to allow the purchaser to buy the assets it wishes to purchase and take on all or some of your employees, maybe even including you.

The range of options available includes:

So with the right insolvency process, the assets of the business can be put back to good use and be very productive. It may very well help get a good M&A deal done.

I have written before many blogs on how these insolvency proceedings could help in getting the healthy parts of a business into a purchaser while leaving the sick parts behind and then be used for closing a business. Those details are beyond the scope of this Brandon’s Blog.

**When does corporate bankruptcy make sense in closing a business?**

Corporate bankruptcy is not a simple process. An entrepreneur needs the advice of their lawyer and also needs to retain a Trustee. This costs money. More often than not, there are no free assets in the company. That means the entrepreneur needs to personally fund the cost of the bankruptcy process for closing a business.

A bankruptcy of the company may make sense in several situations. Some of the most common are:

Certain government claim priorities need to be reversed and that only can be done in bankruptcy. The most common one is unremitted HST. Absent a bankruptcy, the HST obligation is a trust claim and will come before the claim of any other creditor, including a secured creditor. As probably the sole director of the corporation, the entrepreneur may be willing to bankrupt the company to put the HST behind the bank. The director may very well choose as part of closing a business, to take their chances on the claim for unpaid HST as a director liability, rather than increase the bank’s shortfall by the amount of that HST claim.
There may be value in the premises lease. If the rent under the lease is below market and can be sold, a bankruptcy will be necessary. That is because the combination of the Commercial Tenancies Act Ontario and the Bankruptcy and Insolvency Act (Canada) Trustee has certain rights to sell the lease that the corporation tenant does not have. So, bankruptcy may be a good idea in that case.
The security of a lender for which no personal guarantee has been given is invalid against a Trustee. The corporation may be able to restructure with that liability moved from secured to unsecured. Alternatively, a bankruptcy will allow for assets to be better protected for the secured creditors first and then provide some value for the unsecured creditors if there is a bankruptcy.

**My closing a business checklist**

This is what I tell any entrepreneur for a self-help remedy for closing a business that is most appropriate:

Advise the utilities that they should do a final meter reading and shut down the account.
Prepare and issue all records of employment to the former employees.
Remove the books and records (probably computerized) from the business premises so that the information can be secure.
Advise your bank lender that the business is shut down and that you are delivering the keys to the banker so that they can get their security.
If there is no bank lender, and no trust claims over the assets, hold a going out of business sale.
Tell the landlord the business is over and deliver the keys.
Cancel insurance policies. There may be an unearned premium refund coming back to the business.
Redirect the business mail to a different address. Most of the mail will be bills, but there may also be cheques you don’t want to miss so you can deposit them into the bank account.
Cancel any corporate credit cards.
Deal with the termination and return of any business license and permits.
Deal with your business social media accounts, website, and any other digital or intangible assets. You will have to decide when it comes up for renewal if you wish to retain the URL in light of your closing a business decision. The URL may have a value that you can unlock.
Make sure that the final financial statements and tax returns are prepared. File the tax returns with the government. If there is a balance owing, don’t worry about it as the business cannot pay and corporate income tax owed is not a director liability.
Prepare and issue final T4 statements of remuneration paid. Issue them to the former employees. Figure out if there are any employee source deductions owing. If there is and you can pay them as it is a director liability.
Calculate, prepare and file the final HST return. If there is a balance owing and you can pay the amount as it is also a director liability.
Maintain the books and records as CRA may want to perform an audit.
Send a letter to all creditors advising of your closing a business decision was due to financial problems, express your gratitude for the relationships you have built, tell them that there is no money for them and let them know that you have also lost money.
Mail a letter to your customers/clients advising of the closure of the business and thank them for their loyalty and patronage over the years.

Closing a business summary

I hope you have enjoyed this closing a business Brandon’s Blog. A sick insolvent company’s business might be saved by a debt restructuring.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

CLOSING A BUSINESS INFOGRAPHIC. CLICK ON THE INFOGRAPHIC TO DOWNLOAD YOUR OWN COPY

Tags Bankruptcy, bankruptcy trustee, Canada Revenue Agency, closing a business, Corporate Bankruptcy, CRA, hst, Ira Smith Trustee, licensed insolvency trustee, liquidating proposal, proposal, receivership, restructuring, restructuring proposal, small business, trustee

Brandon Blog Post

CANADA REVENUE AGENCY FOR INDIVIDUALS: 4 KILLER WAYS TO FULL LOAN RECOVERY

Post author By Brandon Smith
Post date May 13, 2020

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Introduction

On July 4, 2018, my Brandon’s Blog MORTGAGE LENDING CRITERIA SELF EMPLOYED: BIGGEST MYTH MAY BE RIGHT, I described the case of Canada v. Toronto-Dominion Bank, 2018 FC 538 (CanLII) which was heard in Federal Court. I described where the Federal Court ruled in favour of the claim of Canada Revenue Agency for individuals running an unincorporated business either as a proprietorship or in partnerships.

The Bank appealed the decision to the Federal Court of Appeal. The case was heard on October 8, 2019, in Toronto. The judgment was released at Ottawa, Ontario, on April 29, 2020. I want to remind you about the facts of the case, what was decided and provide my 4 killer ways that mortgage lenders to people who also run an unincorporated business, but you don’t lend to the business, can protect themselves.

The original Canada v. Toronto-Dominion Bank case

The original case was very simple. A man had a landscape design business he ran as a sole proprietor. In 2007 and 2008, prior to becoming a customer of the Bank, he collected GST that he did not pay over totalling $67,854.

In 2010, the Bank advanced both a mortgage loan and a home equity line of credit (HELOC) loan to the man. Security for both loans was registered against the man’s home. It was the Bank’s standard from mortgage and HELOC security documents. At the time, the Bank had no knowledge of the man’s Canada Revenue Agency for individuals’ liability for unremitted GST. There was no registration by the government against the man’s home for this outstanding tax amount either.

In late 2011, the man sold the home. His real estate lawyer issued two trust cheques to the Bank from the house sale. One paid off the mortgage and the other cheque paid off the HELOC. In return, the Bank discharged its mortgage and HELOC security charges and the house sale was completed.

In 2013 and 2015, the Canada Revenue Agency made deemed trust claims against the Bank under Section 222 of the Excise Tax Act (ETA) for the amount of the man’s collected and unremitted GST. GST or HST under the ETA and employee source deductions (amounts withheld by employers from salaries and wages paid to employees on account of income tax, the Canada Pension Plan and Employment Insurance) under the Income Tax Act, that is collected but not remitted, forms a deemed trust claim against the assets of the business.

If the business is not a company, that is unincorporated, then there is no difference between the proprietor’s or partner’s personal assets and business assets. They are just assets of the person.

Canada Revenue Agency argued that the Bank was in possession of funds from the sale of the man’s property. The Crown also submitted that when the man sold his home, he was obliged to pay his GST obligation out of the sale proceeds. He did not do that. Rather, he used part of the money from the sale to pay the Bank off. Keep in mind the Bank was a secured creditor. The Crown further argued that under this scenario, the Bank had a statutory responsibility to pay the GST tax debt out of the money it received.

The Bank argued on its behalf that the repayment of the money only applied if there was an event that triggered other events leading to the repayment, such as a secured creditor enforcing its security.

The Federal Court disagreed and ruled in favour of the taxman.

The Canada Revenue Agency for individuals claim to appeal to the Federal Court of Appeal

The Bank appealed the lower Court’s decision. The Bank’s appeal rested on three issues where they claimed that the Federal Court judge erred:

By finding that the deemed trust does not need an event that creates the crystallization around the assets.
In finding that secured creditors cannot avail themselves of the bona fide purchaser for value defence.
Ignored the fact that the Bank’s loans to the man had nothing to do with his business.

The Federal Court of Appeal judges went through a detailed analysis of cases and legislation. In the end, the Federal Court of Appeal did not find that the lower court judge erred in any way and dismissed the Bank’s appeal on all three grounds.

Triggering event – The Bank argued that the concept of priority can only be determined when there is an event that triggers competing claims to the priority over the assets. Since the right to a priority is essentially remedial in nature, it develops upon the enforcement action initiated by one or more creditors. When there is a competition between claimants, and it is obvious there will be a shortfall, that is when the Crown is able to assert its priority. Here, the Bank was not a secured lender at the time the Crown asserted its priority.

The appeal court decided that the lower court was correct. The relevant section of the Excise Tax Act creates a trust when there is unremitted GST or HST where the property is beneficially owned by Her Majesty in spite of any security interest in the property or in the sales proceeds thereof.

So the Bank was unsuccessful in this part of its argument.

Bona fide purchaser for value defence – This argument by the Bank is that it is a bona fide buyer for value of the cash paid to it by the debtor. Because the considered trust fund provisions of the Act do not extend to such buyers for the value the Bank submits that it is entitled to keep the funds provided in payment of the borrower’s HELOC and mortgage.

The appeal court ruled against this argument on the basis that if the bona fide purchaser for value defence was available to secured creditors who got paid off, it would render the deemed trust provision useless in probably every situation. The Court stated this was not Parliament’s intention.

The loans to the man had nothing to do with his business – This argument is that the court should distinguish between the taxpayer acting in his capacity as a business distinct from the tax debtor acting in a personal capacity. Further, it was argued that the Bank had no knowledge of the man’s business affairs.

The Court rejected this argument for two reasons. First, the statute that establishes the deemed trust states “…every person…”. It does not differentiate between different types of persons. Second, there was nothing in the evidence before the lower court that indicated what knowledge the Bank had about the man’s business.

4 killer ways to full loan recovery

So how can someone who lends money by way of a property mortgage on a personal residence of a self-employed person who runs an unincorporated business protect themselves? Here are our 4 killer ways:

The mortgagee needs to ask the question on the mortgage application to determine if the person is self-employed.
The proposed mortgagee must get a true copy of a statement from CRA showing that there are no amounts owing by the person on account of either unremitted HST/GST or source deductions as the employer of others. This condition should be in the term sheet for the loan being offered. The statement should be given before the lender advances the funds.
Lenders should add language to their term sheet, loan and security documents and discharge or other documents issued when the loan is repaid. The new language would be an attestation by the borrower that there are no amounts owing to any government authority that would be regarded to be a deemed trust claim.
Even more, the language would have to make it clear that in the event there were any kind of such claims, even if the mortgage loan was totally repaid, the borrower is still responsible to pay that additional amount to the lender. The lender would then pass on the deemed trust amount to Canada Revenue Agency for individuals.

Summary

I hope you found this CRA deemed trust claim case review helpful. It should be of particular interest to contractors, developers and builders in Ontario.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is fully functional and Ira, together with Brandon Smith, is readily available for a telephone or video meeting no-cost strategy session.

Continue to be healthy, well balanced and protected everybody.

Tags Canada Pension Plan, Canada Revenue Agency, canada revenue agency for individuals, Canada v. Toronto-Dominion Bank, cra deemed trust claim, deemed trust, excise tax act, GST, heloc, home equity line of credit, hst, income tax act, Ira Smith Trustee, mortgage, partnership, proprietor, secured creditors, self employed, toronto-dominion bank

Brandon Blog Post

TOILET PAPER FRENZY: THE DIRTY TRUTH

Post author By Brandon Smith
Post date March 16, 2020

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom of this blog and click on the podcast.

Introduction

Bathroom tissue is not effective protection against getting the coronavirus. Nevertheless, a toilet paper frenzy has taken over the entire world. This Brandon’s Blog discusses this phenomenon to try to bring some understanding to this global panic playing out before our very own eyes.

SPECIAL: CLICK ON THE RED BUTTON TO WATCH OUR NO-COST BONUS VIDEO ON CORONAVIRUS SAFETY TIPS

The global toilet paper frenzy crisis

Throughout the globe information of the potentially extensive COVID-19 coronavirus infection has sent people into supermarkets, pharmacies and big box stores. Panic buying has been rife amidst the worldwide spread of the brand-new coronavirus, with consumers all over the world stockpiling goods like hand sanitizer, canned foods as well as toilet paper.

Coronavirus panic shopping has produced awful behaviour from customers around the world, including physical altercations in numerous stores. Japan was among the first countries to see the coronavirus scare stimulate a number of false reports on social media advising that toilet tissue is anticipated to run out, stimulating a customer rush to stockpile. The New York Post reported that the toilet paper crisis has set off fistfights in supermarket aisles in Australia, where one household unintentionally contributed to the dilemma by purchasing 48 boxes of bathroom paper instead of 48 rolls. Those more than 2,000 rolls are roughly 12 years’ worth!

The BBC reported on a risky toilet paper heist at dawn in Hong Kong. In Japan, Sora News claimed that a store owner decided the only way to shield his toilet paper from desperate toilet paper thieves was to chant conventional curses to shield his inventory.

Consumers in different nations were driven by various factors for buying out toilet paper:

In China, people who had no access to surgical masks went for toilet paper due to the assumption that toilet paper can be used to make makeshift masks.
In Taiwan, bathroom tissue flew off the racks due to the fact that there were reports that the island’s paper stocks were being dedicated to the making of medical masks. The fear was that it would ultimately impact bathroom tissue products. Authorities later had to refute this as false.
In the case of countries like the United States, Canada, and Australia, panic-buying and the need to hold on to as much toilet tissue one can lug is probably driven by the worry of the unknown. It is not created by either any type of facts or any real need for even more toilet paper.
Scientists at INSEAD Singapore, where the bathroom tissue products were jeopardized early in the crisis, stated the panic buying there was also driven by an element of retail therapy; except as opposed to spending money on the most recent electronics and also clothing, people bought helpful things as buying those items strengthened their sense of control over the situation.
In Ireland, people admitted to The Irish Times that all the panic-buying was admittedly over the top, yet they were doing it anyway.

Amethyst Amelia Kelly, better known as Iggy Azalea, is an Australian born singer-songwriter who moved to the United States in her teens. She said that she will not quit trying to get her Mom to admit panic buying is stupid unless she sees her mother consume all her canned fish and uses all her toilet paper!

Toilet paper is flying off the shelves in Canadian communities

Canadians should not be worried about the supplies of important things as they prepare for the reality of even more extensive cases of COVID-19 coming to Canada. The ongoing coronavirus pandemic has created mass hysteria. People are flooding large merchants like Costco over fears that vital items like bathroom tissue might soon diminish. So far, right here in Canada, our strait-laced impulse for law and order even throughout a pandemic panic has led us to line up in an orderly fashion for hours in stores just for the right to strip shelves of bathroom tissue down to their steel rivets.

Buying out Costco for toilet paper is panic buying for some kind of armageddon. A staff member at Saskatoon’s southeast Costco area store states more toilet paper will be coming in each early morning, but she expects the supply to be gone in the first hour the store is open. Signage at Sudbury’s Costco says 3 brand names of toilet tissue has been sold out.

Panic buying has created opportunities for some unruly behaviour in Canada. There have been reports of ordinary people trying to sell toilet paper online with huge markups. Some unscrupulous people are trying to sell information products to fight against coronavirus that serves no useful purpose. They are just trying to take advantage of people’s fears.

To its credit, the Canadian government has early on announced a stimulus package. Perhaps the uptick in HST on toilet paper sales being beyond any budgeted amount, in some small way, can help to fund the significant additional cost that will be incurred by the government.

Why is everyone stocking up on toilet paper?

Bathroom tissue runs has struck many as peculiar, given that the need for the item is not anticipated to expand as people get used to spending more time in their homes. Panic purchasing has become a dependable attribute of the coronavirus epidemic, just like a fever or dry cough.

Panic purchasing is caused and sustained by anxiety, and a determination to head to lengths to quell those anxieties. A big component of panic purchasing remains as a result of FOMO’s, the fear of missing out taken to a ridiculous degree.

Similar panic purchasing often comes before snowstorms, tropical storms and hurricanes. But the global nature of the coronavirus spread together with access to information, both true and false, today spread globally by social media causes the hysteria today. This is different than ever seen before in previous epidemics, like the SARS outbreak.

The coronavirus pandemic is engendering a type of survivalist psychology, where we may have to live as long as possible in our homes. Therefore, we must all stock up on basics. That definitely includes toilet paper. Besides, if we lack bathroom tissue, what can we change it up with?

For people, who assume a lockdown is imminent, the reality is that they believe that building up their toilet paper stash was entirely worth it. If it provides the feeling that they had actually done everything that they could to protect against the virus, it frees them to think about various other things than coronavirus.

Greater than anything else, there is a need to have a feeling of control over a circumstance whose end result nobody can currently predict. Purchasing toilet tissue could be one way of coming to grips with dealing with an unknown.

Dr. Dimitrios Tsivrikos, who specializes in consumer and behavioural psychology at the University College London, told CNBC that bathroom tissue has become an icon of mass panic. He also said that since bathroom tissue has a much longer shelf-life than many food products, and is prominently displayed in aisles, we are psychologically drawn to buying it in times of uncertainty.

Dr. Steven Taylor, a Professor and Clinical Psychologist in the Department of Psychiatry at the University of British Columbia, Vancouver, described to CNN when people are informed something unsafe is coming, but all you require to do is clean your hands, the activity doesn’t appear proportionate to the danger. Special risk needs special safety measures. He assumes that is what is taking place. Toilet paper frenzy is this kind of response. Bathroom tissue has actually become a symbol, a symbol of security for some people.

Psychologist Baruch Fischhoff informed CNN on the toilet paper frenzy: Unless people have seen … assurances that everybody will be taken care of, they are left to rate the probability of needing the extra bathroom tissue, faster rather than later. The fact that there are no official guarantees might enhance those chances.

SPECIAL: CLICK ON THE RED BUTTON TO WATCH OUR NO-COST BONUS VIDEO ON CORONAVIRUS SAFETY TIPS

Summary

As people stress over the coronavirus crisis, toilet paper is the one thing they don’t intend to be caught without. What is stressing you out? Is your debt load, or your company’s debt load, one of the things you worry about?

The Ira Smith Team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.

The Ira Smith Team understands just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.

At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.

We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.

Tags bathroom tissue, coronavirus, costco, covid-19, Dr. Dimitrios Tsivrikos, Dr. Steven Taylor, fight over toilet paper, hst, Iggy Azalea, INSEAD Singapore, Ira Smith Trustee, pandemic, panic buying, Psychologist Baruch Fischhoff, toilet paper australia, toilet paper crisis, toilet paper frenzy

Brandon Blog Post

HST REMITTANCE REVIEW: UNPAID HST & THE DIRECTOR’S JOINT BANK ACCOUNT

Post author By Brandon Smith
Post date March 11, 2020

Introduction

I have previously written about joint bank accounts and joint credit cards. I recently read a decision of the Tax Court of Canada that will be of interest to every entrepreneur whose company may be behind in their HST remittance and who has a joint bank account with their spouse.

Joint bank account considerations

Opening a joint bank account is a relatively easy procedure. People who share a joint savings or chequing account can each make deposits and withdrawals from the account without the signature of the person they share the account with. As a matter of fact, any person listed on the joint account can close it using proper identification. Data held by a bank on the owners of the joint account, similar to any other account, consists of personal identifiers of the holders of the account, which enables anyone legally authorized to get that information.

I have written before on the dangers of a joint bank account. The dangers have nothing to do with the bank per se. They are more non-bank related. Examples of problems include:

Sometimes moms and dads will share an account with a small child. The reason is to begin providing the youngster with financial literacy education. However, if you share a bank account with your minor child and your spouse, you are taking a chance that your partner can access that joint bank account that you share with your child without your authorization.
There is a threat with a joint account between partners when you have a saver as well as a spender who each has access to the account without the other’s signature. It can trigger family, relationships or business problems.

I wanted to give this brief background information, but it is not what is of most interest to entrepreneurs. The following Tax Court of Canada decision which I will now describe is.

Tammy White and Her Majesty The Queen facts

This judgement was rendered on February 4, 2020, in the Tax Court of Canada in Vancouver, BC. Ms. White appealed an assessment by Canada Revenue Agency (CRA) against her under subsection 160(1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) (Income Tax Act) and subsection 325(1) of the Excise Tax Act (R.S.C., 1985, c. E-15) (Excise Tax Act). You will recall that last week, I spoke about the danger of receiving transfers of property from someone who owes money to CRA in my blog, DO YOU INHERIT DEBT IN CANADA: CRA SAYS YES TO PROPERTY TRANSFERS. That blog dealt with debt in death and the deceased Estate. This week, nobody died. You are probably wondering what this has to do with entrepreneurs and joint bank accounts. I will now tie it all together. I promise!

The appeal deals with the concern of whether the deposit of funds by a person into a joint account held with the entrepreneur’s partner comprises a transfer of property under subsection 160(1) of the Income Tax Act and subsection 325(1) of the Excise Tax Act.

The facts of the case are as follows:

On March 1, 2016, Mrs. White was assessed $49,962.45 under section 160 of the Income Tax Act and $90,886.35 under section 325 of the Excise Tax Act. She appealed both assessments to the Court. The assessments are a result of amounts that her husband, former business owner Andy White, apparently moved to his wife between March 15, 2013, and October 30, 2015.
On March 26, 2014, Andy filed a consumer proposal under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).
Department of Justice counsel on behalf of CRA at the hearing backed off part of the claim by agreeing that any kind of purported transfers made after the date of the consumer proposal is beyond the range of the assessments in concern in this appeal.
Tammy and Andy were married in 1984 and always held the same joint bank account.
For the last 35 years, Andy and Tammy have made use of the joint bank account to pay their personal expenditures and the costs of running their family household.
Andy was a part-owner of White & Davidson Logging Limited, a company he started working for from a very young age.
The company began to experience financial troubles in 2004 as a result of weak demand in the British Columbia forestry industry and also a government-mandated decrease in cutting rights. These troubles resulted in the business selling its assets in 2006 and discontinuing business. At the time the business stopped operating, it had not remitted all amounts it had held back as payroll source deductions. It also did not make the required payment of the amounts it owed as HST tax obligations. Accordingly, it was not current in its tax obligations and did not make its final payroll or HST remittance.
Andy was a Director of the defunct company and therefore was assessed by CRA personally for the company’s unremitted payroll source deductions and unpaid HST.
After a while, and after being assessed by CRA, Andy eventually found full-time employment and deposited his pay into the joint bank account he shared with Tammy.
Andy owed CRA almost $91,000 for the company’s unremitted HST.
Tammy was also employed in a retail store. In the late 1990s, she opened up a bank account only in her name. Her pay was deposited into that new account.
Tammy was the sole owner of the family’s home. She admitted under oath that she made payments out of the joint account to pay the mortgage, utilities, property taxes and any other costs of running the home.
Certain amounts were also transferred from the joint account into Tammy’s personal account.

The issues

The issues are fairly narrow. In last week’s blog, I went through the criteria a court must look at to determine if there was a transfer of property at a time when the transferor owed an amount to CRA. You can refresh yourself on the criteria by clicking here.

CRA’s position was that a transfer of property from Andy to Tammy took place the moment his pay was deposited into the joint bank account. They also stated that Tammy gave no consideration for this.

Tammy’s position was that no transfer could have taken place by merely depositing the funds into the joint bank account. Andy maintained full control of the money. CRA, or the Sheriff, acting on a valid judgement, could garnishee Andy’s share of the funds in the joint bank account.

At the time in question, Andy’s pay that was deposited into the joint bank account totalled $89,806.72.

The Court’s decision

The court did not agree with CRA. The Judge found that:

Just depositing the funds in a joint account does not comprise a transfer. Mr. White did not unload himself of the funds when they were deposited into the joint account. He continued to have complete access to the funds in the account. As a matter of fact, the evidence was that Andy, as he had done since 1984, used some of the funds to pay his personal expenses and specific costs of his household.
Andy did not defeat or whatsoever prevent the Minister of Revenue from collecting any tax he owed by placing his compensation in the joint account. CRA could have taken collection activity relative to funds in the joint account. In fact, part of the evidence before the court was that the joint bank account was garnished by a third party to repay one of Andy’s debts.
As soon as the funds were put in the joint bank account, Tammy had the ability to impact a transfer. Nonetheless, such transfer did not happen until the funds were removed from the joint account and placed into the account only in Tammy’s name.
The Judge was very critical of CRA. They did not properly identify funds taken out of the joint account and put into Tammy’s account. There was limited evidence before the court. So, the Judge had to “guesstimate” as best as possible from the scant evidence how much was transferred from the time Tammy opened up her sole account and the date of Andy filing a consumer proposal.
The Judge determined that the amount of property Andy transferred to Tammy during the relevant period for no consideration was the amount of $34,052.
Accordingly, the Judge allowed the appeal and vacated the assessment. He referred it back to the Minister of Revenue to reconsider a reassessment of Tammy in the amount of $34,052.

HST remittance and the entrepreneur

So what does this mean for the entrepreneur? It tells me that if you are:

Director of an insolvent company that owes unremitted source deductions or unpaid HST;
the company goes either into receivership or bankruptcy or otherwise has to shutdown;
you are assessed personally by CRA because you were the Director; and
you get another job and deposit your pay into a joint bank account you hold with a spouse or child.

Your spouse or child will not be liable under the property transfer laws of the Income Tax Act and/or the Excise Tax Act by the mere depositing of your money into the joint bank account. What it also tells me is, if you are in this situation and do not have a joint bank account, maybe you should! If so, go back to the “Joint bank account considerations” section of this blog to see if it is the right thing for you to do in your situation.

Summary

I hope you enjoyed this blog on HST remittance and joint bank accounts. The Ira Smith Team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.

Do you or your company have too much debt? If yes, then you need immediate help. The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Tags Bankruptcy, Bankruptcy and Insolvency Act, BIA, Consumer Proposal, Debt, deceased estate, excise tax act, financial literacy, financial trouble, hst, hst remittance, income tax act, joint bank account, joint bank accounts, receivership, tax court of canada, unremitted hst, unremitted source deductions

Brandon Blog Post

CORPORATE BANKRUPTCY IN CANADA: SADLY IN E-COMMERCE TAXLAND

Post author By Brandon Smith
Post date October 15, 2018

Corporate bankruptcy in Canada: Introduction

A brand-new report from PwC Canada discloses that in 2018, Canadians anticipate spending an average of $1,563, up 6.7% over last year. Men are expected outspend women by almost $400. That got me to start thinking about what the most complex issue for corporate bankruptcy in Canada is when an online business fails?

The report finds that the majority of Canadians still prefer the in-store experience. Nearly two-thirds consider brick-and-mortar retail for their primary holiday season shopping. The rest is online shopping. Unsurprisingly, most millennials (51%) think of online purchasing first, which is in line with United States consumers overall (50%).

E-commerce, like any other industry, has its startups and more mature companies. There will be winners and losers. The fulfilment of online digital products is done online. The fulfilment of physical goods orders bought online more often than not will be done by a third party. That third party may not necessarily be fulfilling orders from Canada.

Corporate bankruptcy in Canada: The most complex issue for an e-commerce business, IMO

With that said, the retail vendor’s inventory, computer hardware and software value are relatively easy to determine. But to my way of thinking, the #1 issue for corporate online vendors, both solvent and viable or insolvent and not viable, is the area of sales tax.

In attempting to abide by tax laws for your e-business, you might find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party.

Sound judgment, logic, and fairness never did apply totally to the field of taxation, however, this is specifically true of e-commerce deals.

Corporate bankruptcy in Canada: Canada Customs Welcomes You to Canada!

Considering that I’m situated in Canada, let’s start here. To keep things simpler, but certainly not simple, I will review this issue strictly from a Federal tax collection perspective, i.e. Harmonized Sales Tax (HST).

Canada has what you may call a nationwide sales tax or a value included tax (VAT). This Goods and Services Tax (GST) of seven percent is applicable to lots of Canadian transactions.

Not just is it critical to identify whether a taxable sale was made in Canada or not, but also where in Canada. If it was made (or deemed to be made) in any of the HST provinces, a higher rate applies. This is due to the fact that those provinces have allowed Canada to gather their provincial sales taxes for them, as follows:

Province	HST % rate
New Brunswick	15
Newfoundland and Labrador	15
Nova Scotia	15
Ontario	13
Prince Edward Island	15

Each province and territory has its own guidelines. Ontario charges 8 percent retail sales tax on numerous common internet deals whereas Alberta has no provincial sales tax.

Obviously, this is just scratching the surface. This entire blog by necessity is an oversimplification of an extremely complicated topic. As a licensed insolvency trustee (formerly called a bankruptcy trustee), I would certainly require the advice of a professional tax advisor to help me through e-commerce Taxland.

Since I am not a tax professional, you should also seek the advice of a tax professional. This is merely one bankruptcy trustee’s view of the issues in the insolvency of an e-commerce business.Corporate bankruptcy in Canada: When Exports Aren’t Exports!

In Canada, exports are “zero-rated” sales for GST purposes. This means that when you ship a product to someone outside Canada, you don’t charge GST. Yet, you get to claim (or subtract from the GST collected by you) all the “input tax credits” (GST that you spent for business functions) to make that export.

However, if you export items aside from physical products, beware! There are lots of mistakes to look out for.

As one example, think about digitized products that you may offer from Canadian sites, such as e-books, downloadable software application, or subscriptions to a material. You would be considered to be selling “intangible personal property”. Unless your item is also thought about “copyright” (such as software or e-books that you produced or have gotten the rights for), you will need to charge GST. The reason, according to the Canada Revenue Agency, is that it could be utilized inside Canada, even if it isn’t.

Say you sold a subscription for accessing digitized content (from various sources) on your Canadian site to a client in the United States. Given that there are no restrictions regarding where the intangible personal property might be used, and the property is not considered copyright (nor the provision of a service), the American client goes through GST, even if he never comes to Canada.

Strangely, the same logic doesn’t apply when an American buys a routine book (or an automobile) which he could bring into Canada with him and utilize here. It holds true that it is much easier for Canada to assess such products at the border than in the online world. However, I have not heard of any cases of Americans being taxed on the cars and trucks or books they bring with them when they come to reside in Canada for a part of the year.

As a Canadian registrant, one way you might legally avoid this ridiculous March Hare is to clearly mention on your website and invoice that utilize of such intangible personal effects in Canada is restricted (or requires an extra charge and the payment of GST).

Corporate bankruptcy in Canada: When imports Aren’t imports

Goods shipped to Canada are subject to GST on importation. Such tax is often assessed at the border. What if you are a Canadian registered for GST, selling to a Canadian customer but your provider is in a foreign country?

Pretend that your Canadian consumer has bought a book from you from your Canadian website. Your dropship supplier is located in the United States and is signed up for GST. You send your order to the American business, and they, in turn, ship the book for you (total with Customs Declaration and their GST Business Number).

Since they paid the GST, you wouldn’t think you would need to charge it again, would you? “Wrong!”, smiles the Cheshire cat. Since you are a registrant located in Canada, you need to charge and remit the GST. But you are entitled to input tax credits, aren’t you? In many cases, the answer is “No”.

It might be very tough for you to satisfy the documentary and other technical requirements. As an example, it is not uncommon for American providers to absolutely refuse to provide an invoice breaking down the GST or to enable you to be the importer of record. This complicates their life unnecessarily and they just don’t require the aggravation.

There are easing tax provisions covering drop shipping, sales agencies, and other situations. In most cases, sadly, the most practical option is to permit the tax to be paid twice.

Corporate bankruptcy in Canada: When you are subject to tax where you’re not subject to tax

It makes sense that countries impose a tax on sales and earnings made in their own jurisdiction. Does it make sense for Germany to tax sales made in the United States?

Starting July 1, 2003, the European Union actually did just that by enforcing an online sales tax.

This implies that if somebody from England buys an e-book from somebody in the United States, the American should submit this tax. Naturally, If the sale was to someone in Germany, the tax rate would be more complicated.

The reasoning behind this is as follows: Since countries can’t gather sales tax on internet deals at their borders, the only method they can collect it (other than a self-assessment system) is with an online sales tax. Even more, it is claimed that companies in the European Union suffer a significant competitive disadvantage due to the fact that they need to gather Value Added Tax but others don’t.

Corporate bankruptcy in Canada: But that isn’t all

So that is just a “scratching of the surface” description of the issue for Canadian companies selling online when it comes to HST. But if the company is insolvent, and will go into either receivership or bankruptcy, the story gets worse.

For every insolvent company in receivership, an HST liability is a trust claim against the assets of the company. So in a liquidation, the HST liability would have to be paid before a secured creditor, normally a chartered bank, recovers any money. What this means for the owner(s) who guaranteed the bank debt, is that they have additional exposure for any shortfall of the bank debt by the amount of the HST liability.

In a bankruptcy though, the HST liability is not a trust claim, but rather an unsecured claim. So, the good news is that it does not come ahead of the bank debt the owners have probably guaranteed payment for. However, the bad news is that the HST liability is always a Director liability. So in a bankruptcy, there are always insufficient funds to pay off the unsecured creditors 100%. So, the Directors of the bankrupt company will be on the hook for any unremitted HST.

Corporate bankruptcy in Canada: Does your company have too much debt?

Is your company, either a traditional retailer, online retailer or both, experiencing financial difficulties? If yes, call the Ira Smith Team. Our approach for each file is to create an end result where Starting Over, Starting Now takes place. This starts the minute you are at our front door.

The earlier you contact us, the more options we will have to implement. Whether it is a corporate restructuring or personal debt settlement through a consumer proposal, the goal is to avoid bankruptcy. However, if bankruptcy turns out to be the best option, we can assist there too.

You’re simply one phone call away from taking the necessary steps to get back to leading a healthy, balanced hassle-free life, ending the pain and stress you are feeling forever. Call Ira Smith Trustee & Receiver Inc. today for your free consultation.

Tags bankruptcy trustee, brick-and-mortar retail, Canada Revenue Agency, chartered bank, corporate bankruptcy in canada, corporate restructuring, e - commerce, GST, hst, internet deals, Ira Smith Trustee, licensed insolvency trustee, online retailer, online sales tax, online world, personal debt settlement, professional tax advisor

Brandon Blog Post

MORTGAGE LENDING CRITERIA SELF EMPLOYED: BIGGEST MYTH MAY BE RIGHT

Post author By Brandon Smith
Post date July 4, 2018

Mortgage lending criteria self employed: Introduction

Mortgagees rely upon the provincial land registry system to decide what obligations are secured against real property and in what order of priority. When it comes to mortgage lending criteria self employed, a recent Court decision has proven that when it comes to a self employed person’s mortgage, if there is a deemed trust claim by Canada Revenue Agency (CRA), you cannot solely rely upon the registry system.

Mortgage lending criteria self employed: The Court case

The Court case I am referring to is Canada v. Toronto-Dominion Bank, 2018 FC 538 (CanLII) which was heard in Federal Court. In this matter, the Crown on behalf of Her Majesty looked to recover funds Toronto-Dominion Bank (TD) obtained from one of its clients who repaid a loan secured by a home mortgage upon the sale of his house. The client was a self employed person.

The Crown claimed that there was an outstanding deemed trust claim for collected but unremitted GST. The Crown further claimed that the proceeds from the sale of the home collected by TD was subject to the CRA deemed trust claim, was property of Her Majesty and that TD had to pay it over. TD did not take the position that it had a registered first charge and can keep the funds. It argued that as a “bona fide purchaser for value” it is not subject to the deemed trust claim and does not have to pay over the money.

Mortgage lending criteria self employed: The undisputed facts

The borrower carried on a landscaping business as a sole proprietor. In 2007 and 2008, he collected and did not remit GST totaling $67,854. TD held both a registered mortgage and a home equity line of credit (HELOC) against the borrower’s home. The home was sold in 2011. The borrower repaid the mortgage and HELOC in full from the sale of the home.

Almost two years later in April 2013, CRA made demand on TD for repayment of $97,327, revised in 2015 by amended demand for $67,854. TD refused to pay.

Mortgage lending criteria self employed: What the Court said

The Federal Court reviewed the legislation. The Court decided that the funds paid to TD were proceeds of sale of his property. Therefore, it is covered by the deemed trust CRA claim. So the Court found that the requirements of Section 222 of the Excise Tax Act were met.

The Court agreed with the Crown’s position that the deemed trust Canada claim covered the debtor’s house. This is in spite of there was no registration on title and that the Bank had proper valid registrations. The Court further agreed that according to Section 222(3) of the Income Tax Act, the Bank has an obligation to pay over the proceeds it received which were impressed with the deemed trust.

The Judge disagreed with TD’s position. TD stated that the payment of proceeds only applied if a secured creditor enforces its security. This was not the case in this situation. The Court further disagreed with TD’s position that it was a bona fide purchaser for value. The Court agreed that money could be considered property available in such a defence. However, it stated that a secured creditor facing a deemed trust claim could not use that defence. TD also offered certain public policy issues in its defence, but the Court was not swayed.

TD is liable to pay over the amount of $67,854, interest and costs.

Mortgage lending criteria self employed: So what is the biggest myth?

The biggest myth is as follows. To find out what claims against the real property, you only have to perform a title search.

This is an important decision for mortgage lending criteria self employed people. Now TD is in the position of having to make demand on and possibly sue in 2018 its borrower who ostensibly repaid the loan in full in 2011! It would be suing as an unsecured creditor.

What this means for mortgagees is that they can no longer just accept funds from a self employed person who wishes to pay off a loan, be it a mortgage or other type of loan, from the sale of property. It also cannot merely accept funds to pay off a loan from a self employed individual’s business bank account.

Mortgage lending criteria self employed: So what is the fix?

Rather, the lender also must now get a true copy of a statement from CRA showing that there are no amounts owing by the self employed person on account of either HST or source deductions as the employer of others.

Lenders would also be well advised to add language to their loan term sheet, loan documents and any other documents issued when a loan is repaid. The new language would be an attestation by the self employed borrower that there are no amounts owing to any government authority that would be considered or deemed to be a trust claim.

Further, the language would have to make it clear that in the event there were any such amounts owing, even if the loan was fully repaid, the lender had the right to demand and sue the borrower for any amounts proven to be a deemed trust claim that the lender was required to pay over to the government at some later date.

No doubt this case will be relied upon by Her Majesty when the Callidus Capital Corporation v. Her Majesty the Queen case is heard by the Supreme Court of Canada in November 2018

Mortgage lending criteria self employed: Does your business need HST and source deductions you collected to stay afloat?

Does your business need HST and source deductions you collected to stay afloat? Can your business not afford to pay over to the government deemed trust claim amounts collected? If so, then your business is in trouble and requires restructuring immediately. You need the advice of a professional trustee now!

The Ira Smith Team have decades of experience in complex corporate and other business financial restructurings. We first look at how we can reorganize and restructure your business to rescue it. You are worried because your business is facing significant financial challenges. The stress placed upon you because of your business’s financial challenges are enormous. We understand your pain points, and we know how to relieve them for you.

If you or your company cannot survive without a restructuring, contact Ira Smith Trustee & Receiver Inc. NOW for a free consultation. You are just one phone call away from getting back on the road to financial health and reducing your stress levels, Starting Over, Starting Now.

Calculate HST and Canadian small business

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Calculate HST but if you don’t pay, it is a deemed trust

Calculate HST: Are HST and COVID debt crushing the life out of your business?

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

Calculate HST: GST/HST liability For directors

Calculate HST summary

CRA lien on property: Canada Revenue Agency’s collection powers

CRA lien on property: CRA Super Priority Liens

FCA confirms CRA super-priority over secured creditors on a GST/HST debtors’ property

CRA lien on property: Personal income tax debt collection

CRA lien on property: Can Canada Revenue Agency put a lien on my house?

CRA lien on property: Say goodbye to debt stress

At the end of this blog, we have a special gift for you!

Closing a business introduction

Closing a business that does not have many (free) assets

The business is still operating – will anyone buy it?

When does corporate bankruptcy make sense in closing a business?

My closing a business checklist

Closing a business summary

CLOSING A BUSINESS INFOGRAPHIC. CLICK ON THE INFOGRAPHIC TO DOWNLOAD YOUR OWN COPY

Introduction

The original Canada v. Toronto-Dominion Bank case

The Canada Revenue Agency for individuals claim to appeal to the Federal Court of Appeal

4 killer ways to full loan recovery

Summary

If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom of this blog and click on the podcast.

Introduction

SPECIAL: CLICK ON THE RED BUTTON TO WATCH OUR NO-COST BONUS VIDEO ON CORONAVIRUS SAFETY TIPS

The global toilet paper frenzy crisis

Toilet paper is flying off the shelves in Canadian communities

Why is everyone stocking up on toilet paper?

SPECIAL: CLICK ON THE RED BUTTON TO WATCH OUR NO-COST BONUS VIDEO ON CORONAVIRUS SAFETY TIPS

Summary

Introduction

Joint bank account considerations

Tammy White and Her Majesty The Queen facts

The issues

The Court’s decision

HST remittance and the entrepreneur

Summary

Corporate bankruptcy in Canada: Introduction

Corporate bankruptcy in Canada: The most complex issue for an e-commerce business, IMO

Corporate bankruptcy in Canada: Does your company have too much debt?

Mortgage lending criteria self employed: Introduction

Mortgage lending criteria self employed: The Court case

Mortgage lending criteria self employed: The undisputed facts

Mortgage lending criteria self employed: What the Court said

Mortgage lending criteria self employed: So what is the biggest myth?

Mortgage lending criteria self employed: So what is the fix?

Mortgage lending criteria self employed: Does your business need HST and source deductions you collected to stay afloat?

***Calculate HST* Amounts in Sales and *Purchase Documents***

***Calculate HST* but if you don’t pay, it is a *deemed trust***

**When does corporate bankruptcy make sense in closing a business?**

**My closing a business checklist**