Tax Questions

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
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Bylo Selhi
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Post by Bylo Selhi »

IdOp wrote:Do you have a link to the Golumbek article?
I didn't but with a little help from my friend Google I do now ;)

Identical Properties?
Jamie Golumbek wrote:It is difficult to accept that the units of two or more mutual funds are identical properties merely because they attempt to mimic a particular index in order to achieve a similar investment objective of the return of the underlying index. A quick review of a dozen TSE 300 index funds shows that each holds different weightings of the underlying securities. For example, in one index fund the top holding was Royal Bank of Canada shares at 6.32 percent (at September 28, 2001) of the portfolio, while in another index fund the top holding of Royal Bank shares was 5.1 percent. It will be no surprise to the CCRA if it receives queries from anxious taxpayers who feel that the position set out in the TI should be revisited.
While Jamie seems more optimistic than I recalled, that a switch to another index fund that tracks the same index is not "identical", his caveat that this is uncharted waters still holds. See e.g. Tax-Loss Selling Index ETFs: How to Do It Right
Update January 11, 2008 - a representative of CRA phoned and said that the 2001 bulletin mentioned above is the only and latest information on the subject. He also emailed me a copy. Some key excerpts: "... the determination of whether investment instruments are identical properties requires a review of all the facts of each particular situation which would include a review of the legal structure of the investment entity, the composition of its assets, risk factors, rights of investors and any relevant restrictions. ... a TSE 300 Index Fund, for example, would generally not be considered identical to a TSE 60 Index Fund. ... Accordingly, an investment in a TSE 300 index-based mutual fund of a financial institution would, in our view, generally be considered indentical to an investment in a TSE 300 index-based mutual fund of another financial institution."
I still maintain that CRA is wrong, and worse, their example of two TSX 300 index funds flies in the face of their own criteria. They seem to be fixated on the index that's being tracked and not on any of the other material differences between two index funds that (try to!) track the same index.

Added: "the legal structure of the investment entity." Vanguard is a mutual-mutual fund company that's essentially a non-profit whereas BGI is a for-profit enterprise. Vanguard's shareholders are the investors in their funds/ETFs whereas BGI's are not. Therefore Vanguard puts it fund/ETF unitholders' interests first whereas BGI puts its shareholders' interests first. Vanguard's funds are structured such that one can switch from open-end to ETF share class whereas BGI's are not. That's just one of CRA's criteria. I doubt most tax auditors would even understand the details and implications of the above differences. So ISTM it boils down to how persuasive you can be if/when audited and whether you're prepared to continue the argument in tax court.
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IdOp
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Post by IdOp »

active wrote:IdOp, I don't mind being (reasonably) aggressive but I kind of like to stay off welfare.
:) That's a very reasonable approach. I guess on that bit I was edging into rant territory.
CRA TI 2001-008038 wrote:Accordingly, an investment in a TSE 300 index-based mutual fund of a financial institution would, in our view, generally be considered indentical to an investment in a TSE 300 index-based mutual fund of another financial institution.
I didn't know about this document, which at least, is more than an anecdote, and this much being in writing means it has to be considered seriously. I certainly agree that whenever convenient it would be best to use not-too-similar things, like TSX 60 and TSX Composite, if possible, and avoid worries. How far to go beyond that sort of thing, if at all, everyone must decide. But I'll never agree with this in principle, and I'm glad J. Golumbek seems to feel the same.
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Post by marty123 »

IdOp wrote:* If two products based on similar indices were regarded as identical property, this has more consequences than just superficial losses. It also would mean the cost bases of the products should be combined into one. So if you own TD US Index (unhedged) and SPY, for example, then if they were identical property you'd have to track their cost as one entity, etc. This would seem to be an endemic problem that everyone does wrong, if it were so. And if so, why is CRA not beating the bushes high and low warning people that they must do this?
I think that's a powerful argument too. Whoever loses using something like EVA vs VEA would open the door for the rest of us that ended up paying taxes when doing the same switch. I'm sure there are less people performing tax loss swaps than people who did the opposite move in the past 10 years. That's a lot of T1-adj being filled.

If it were me, I'd still be as conservative as possible, as bylo suggested. There is no good reason to attract CRA's attention.
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Re: Tax Loss Swaps

Post by snowback96 »

active wrote:Are these good enough alternatives but different enough to pass the CRA superficial loss smell test?

VTI - SPY
EFA - VEA
INP - IFN
FXI - GXC
VTI - SPY: This one is a no brainer. Completely different indexes with only ~70% overlap in holdings. Also, they have different legal structures (one is a unit investment trust and the other is not). A closer match for SPY would be Vanguard Large Cap ETF (VV) which also tracks a completely different index.

EFA - VEA: While these 2 benchmark off the same index, these should also be a slam dunk for tax swapping. Most people do not realize that VEA has an active management component. It is the ETF share class of the Vanguard Tax-Managed International Fund (VTMGX) and, therefore, has a different mission than EFA.

I don't know enough to comment on the other two.
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Post by WishingWealth »

Dumb question and apologies if it's been answered.

Is there some 'jurisprudence' available at CRA based on the cases that were accepted/rejected.
If not published at large, such a list must be available inside the CRA. If for no other reason than to prevent some discrepancies that would end up in court cases being laughed out of court if one CRA agent said yes and another said no if two taxpayers used the same ETFs for the swap ....

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Post by Bylo Selhi »

WishingWealth wrote:Is there some 'jurisprudence' available at CRA based on the cases that were accepted/rejected.
See my post upthread where anecdotally a CRA agent claimed as recently as this year that there was no newer news on this front than IT-387R2. If this issue had made it into tax court I'd imagine that people like Jamie Golombek, Tim Cestnick and Arthur Drache would have told us about it.

From a practical point of view, I doubt CRA auditors would recognize these sorts of transactions as potential superficial loss situations even if they saw them. Even if they performed an audit and looked at someone's transaction history, how many would know that stock symbol VTI might be "identical" enough to stock symbols SPY, IVV, IWV, et al to warrant their attention?

P.S. If different share classes of the same company that differ only in voting privileges, e.g. T and T.a, aren't considered identical then how can two ETFs that attempt to track the same index but are sponsored by totally different enterprises with different corporate governance, different fund managers, different trading practices, different MERs and other fees, etc. be considered identical? The former represent the identical economic interest in the identical company. The latter clearly can not and do not.

Added: CRA says "identical properties . . . are properties which are the same in all material respects, so that a prospective buyer would not have a preference for one as opposed to another." Suppose TD and CIBC each offer their own branded TSX index fund. If they each run this fund using their own managers then one could argue that the two funds aren't identical because each manager has discretion on timing individual stock purchases/sales. I could argue that I have a preference for CIBC's manager because her trading tactics result in better tracking than TD's. Surely that's a material difference that would lead a prospective investor to prefer CIBC's fund over TD's (almost, but not quite!) identical fund.

Now suppose that instead, TD and CIBC both subcontract their fund management to, say, BGI and that BGI simply pools both companies' money, perhaps along with others', into a single TSX index fund that's run by the same manager. So I can't argue a preference based on fund manager, but if TD requires a $100 minimum fund transaction and CIBC only $25 then again that's a material difference that gives a prospective investor who wants to DCA small amounts a strong preference for CIBC. And that's still the case even if the MERs are identical. Remember I only need to find one material difference in order to demonstrate non-identity.

Even a GAAR argument presents CRA with a problem because they've already defined what is a superficial loss. If I use their own definition to find a security that isn't identical then how can they then invoke GAAR against me? Of course IANAL.

Contrast with the US, where the IRS uses the broader term "substantially identical." In that case my arguments would be a lot weaker and probably wouldn't hold.
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Post by active »

I did some swaps today, however I run into a problem trying to replace FXI with PGJ or GXC because of a relatively small volume and large spread for the replacements.

Same problem for replacing XIU with XIC.
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Taxes on shares received through employment

Post by Robert64 »

As part of a contract with a new employer I was granted restricted shares, deferred for 2 years. That is, I had to wait for 2 years before receiving them to encourage me to stay with the company. They were not share options because I would not have to pay for them.

If the company were still trading I would have the option of either taking the cash value of the shares or receiving the shares themselves. But the company was then bought (within a matter of months) and de-listed from the TSX. The original share price rose during the acquisition by a significant amount.

Since the option to take shares is no longer available because of the de-listing, I'm going to receive a lump sum payment through payroll, the payment including the increase in value due to the acquisition premium. I had believed the total payment would be a capital gain but now realise it is probably going to be treated as employment income. First question - is this correct?

Second question - can a part of the payment, e.g. the acquisition premium, be counted as a capital gain? Or will the whole payment amount be treated as income?

Third question, does the fact that the shares were restricted shares change anything? (I guess not, I'm assuming they would have been restricted up to the point they were released, at which point they would have become normal common stock.)

Many thanks for any replies.
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Post by kcowan »

I think the lump sum is being granted in lieue of any stock option benefit as a form of compensation. I doubt that there are any ways around it being treated as income.

There was an extremely onerous ruling about options being taxed without any realization of proceeds (restricted stock options) that got a lot of press. I believe that does not apply in your case. It would be useful to get some tax advice.
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Tax Deductible "Horse" Expenses !!

Post by Katou »

My Niece has received a beautiful gift from her Grand-Dad, a Riding Horse...
I was just wondering if any of the monthly expenses for this pet would be tax deductible on Mom & Dads income tax ! ie...Boarding cost , veterinarian fees, equipment cost etc...
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Post by 83_gemini »

Nothing jumps out at me, though you ( or your adviser) have to look at the various "Education" and "Physical Education" tax credits/incentives available and see what you can do.

The other method is to claim you run a money losing horse business :twisted:
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Post by Springbok »

Perhaps a small business could be set up to offer, say, riding lessons to other young people. There are many, especially young girls, who would love to be customers (I have a few granddaughters and we pay for them to have lessons every summer)

Maybe the stables have such an arrangement? So long as there is an intent to earn income, you should be able to deduct expenses and run the "business" at a loss.

I know people who own sailboats and do just this. They charter their boats out or in some cases just take visiting business people out sailing. They are able to offset some part of their expenses (should be prorated according to personal use, I guess)
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Post by marty123 »

No. Grandpa made a cheap purchase that keeps on giving to your niece, and keeps on taking from her mom and dad. It reminds me of a friend who's son got a used convertible Jeep TJ worth $2,000 from grandpa for his 16th birthday. Then, they looked into the insurance and explained why the kid had to sell the convertible Jeep to buy a used Hyundai Elantra that didn't cost $5,000/yr to insure. That was after he told all his friends and would-be girlfriends about the TJ.

CRA wants a reasonable expectation of profits, the boarder will prohibit your business from their ground for insurance reasons (+ you'll be competiting with them) and your own insurance policy probably will cover friends riding for free, but not customers.
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Post by Springbok »

marty123 wrote:
CRA wants a reasonable expectation of profits, the boarder will prohibit your business from their ground for insurance reasons (+ you'll be competiting with them) and your own insurance policy probably will cover friends riding for free, but not customers.
Marty - I better tell my sailing friends about that :)

They have been chartering their own boats out to cover expenses for 30 years. So far the marinas haven't prohibited them from using their facilities and they get additional insurance that covers their paid charters. I doubt they have ever made a profit, but they also probably have not created much in the way of business losses.
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Post by flywaysuzy »

Assuming the horse is bomb-proof, the parents could check into an arrangement where a non-profit organization shares the horse with kids with disabilities. Then a portion may be a tax write off...a better idea might be for the niece to share costs of supporting the horse, ie get a job. She could also look into offering to work at the boarding facility in lieu of some of the fees. She could also look into sharing the horse (and the bills) with another family if money is tight.
If they had a farm and grandpa had gifted a draft horse...100% farm expense.
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Post by Yukon Maiden »

It is very hard to make a horse kept for pleasure a tax deduction. I would advise against renting the horse, as potential liability is too high. Horses are a high-risk activity. The cheapest part of owning a horse is the purchase. Boarding, vet, and farrier are unending costs. Then add on the saddle, bridle, halters, blankets etc. The cost of lessons and riding clothes. Also, horses have the most amazing talent for hurting themselves; so big vet bills will show up at some point.

There are a few ways of making a horse a business. If you show at a high level that can earn money or make the horse valuable. If you breed for profit. If you have horses for racing.

I have a pleasure horse. He costs me a lot of money. I can't write anything off for him. He is worth every penny.

I own six thoroughbred racehorses with a couple other partners. I can deduct all of my costs against the money they make. They are a valid business that just happens to give me a lot of pleasure.
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tax loss selling in Canada

Post by r.babayi »

Hi,
I had several securities in my none registered account with CIBC and I made honest mistake and talked to CIBC investoredge agent to transfer my security to my RRSP account as a contribution for 2008 tax year. I did this on August 2008. Since the price of security was much lower than I bought I thought I can use this as tax loss. I found today that this is a superficial selling and I am not allowed to do that.

The question is since I have not claimed it in my tax return and still we are in 2008, is there any way I can reverse this contributions and return back my securities from my RRSP to my none-registered account.

Any help will be highly appreciated.

Regards

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Post by westinvest »

Yukon Maiden wrote: The cheapest part of owning a horse is the purchase. Boarding, vet, and farrier are unending costs. Then add on the saddle, bridle, halters, blankets etc. The cost of lessons and riding clothes. Also, horses have the most amazing talent for hurting themselves; so big vet bills will show up at some point.
Amen to that. Mrs. WI owns two of the critters, a thoroughbred and a quarter horse, and I'm guessing our annual cost to keep them is well into 5 figures. Doting parents and grandparents that look at $5K to buy a horse for their offspring think that doesn't sound too bad, and then the fun starts.

On the other hand, whenever we add up the bills she reminds me" this is the cost of keeping me out of your hair" - for her it's almost a full time job. Which is the other hidden cost of an equestrian hobby....
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Post by Norbert Schlenker »

Call IE and ask them. The transfer being four months old, don't expect much joy.
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Taxes -how to determine province of residence for reporting?

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I am searching for something either issued by CRA or another reputable source that will help me determine my province of residence on Dec. 31 for purposes of answering the question when filing personal taxes "At Dec. 31 which province were you a permanent resident of?" (I believe that is the wording of the question). My situation is below. CRA site search has not helped. Any sources or advice you have appreciated! Many thanks!

- Resident of Ontario moving to Nova Scotia for new job.

- Hired by Nova Scotia company in summer 2008 but working (full time) in Ontario, BC and USA from summer to late December.

- House leased in Ontario for past few years and rent paid through to Dec. 31, 2008 inclusive. Only spent first week of December there then working on the road in USA to Dec. 19. Movers came mid month in my absence and moved furniture etc. to temporary storage in Nova Scotia.

- On Dec. 20 will arrive in Nova Scotia, staying with family probably through February until find permanent residence there.

- On Dec. 22/23 will work two days at Nova Scotia office of company. Those will be only days worked on-site in Nova Scotia in 2008.
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Post by bcjmmac »

http://www.cra-arc.gc.ca/E/pub/tg/5000- ... P319_25148

All I can say is good luck - the tax bite will be painful if you can't claim Ont, & I think that technically you can't. A move in early Jan would save some tax dollars.

Generally, you have to use the package for the province or territory where you resided on December 31, 2007. However, there are exceptions (see next section) such as if you had residential ties (see the definition below) in another place. You should have received the package you need based on our records.

Exceptions
In the following situations, you should use the package indicated:

A. If, on December 31, 2007, you had residential ties in more than one province or territory, use the package for the province or territory where you have your most important residential ties. For example, if you usually reside in Ontario, but you were going to school in Alberta or staying in a ski chalet in Quebec, you would use the package for Ontario.
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Post by AltaRed »

Based on what you said, I would say you are a resident of Nova Scotia as of Dec 31, 2008. The kicker is you have already moved your belongings out of Ontario, have physically moved your person to Nova Scotia (even if with family), and have put in 2 days of work in Nova Scotia. That will be clearly seen by CRA as 'resident of Nova Scotia'.

A delay of 2 weeks would have made all the difference in the world.

When I did corporate moves (often) and it was to be near year end, I always made sure I was resident in the lower tax province at year end, and moved the first week in January.
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