Suppose you have a business and CRA (formerly Revenue Canada) conducts an audit. Suppose the auditor spends a week going through all your accounting records; the same accounting records you have honestly and accurately maintained for the past number of years. Suppose this auditor finds things that aren't to his or her liking. Suppose the auditor is very vague with his explanations. Suppose a month later CRA issues you an unexpected "Notice of Reassessment" indicating an additional amount of income tax owing based on the recent audit. You call for an explanation and get an unsatisfactory answer. What do you do? What can you do? What are your rights? First thing you should realize is that the Notice of Reassessment provides a brief explanation indicating what has been disallowed. It is your right to file a Notice of Objection, which gives you the opportunity to provide "your side of the story" with respect to the items that are being disallowed. This Notice of Objection must be filed within 90 days from the date indicated on the Notice of Reassessment. But, before you file the Notice of Objection, wouldn't it be nice to be able to see the auditor's notes as well as any correspondence within CRA about your file. Well, you can; under the Access to Information Act. Making an Access to Information request is relatively simple and inexpensive, and it can open access to a variety of documents contained in the CRA audit file. The types of documents that can be exposed include case summaries, auditor notes and calculations, penalty recommendation reports, supervisor review notes and the rationale for some or all of the assessment. Needless to say the knowledge that can be gained from such disclosure can assist you in preparing a Notice of Objection. To make an Access to Information request you simply attach your request to a completed application form and mail them, along with the $5 processing fee, to the CRA information co-ordinator in Ottawa. In 30 to 60 days, after paying an additional photocopying fee, you will receive your package of documents.

There are both tax and non-tax reasons for considering incorporating your business and/or investment affairs. The two most significant "tax" benefits of incorporating a Canadian business are:

a tax deferral is possible by retaining earnings in the corporation and the $500,000 capital gains exemption available for the sale of shares of a small business corporation (this exemption is unavailable for unincorporated businesses)

With respect to tax deferrals, be advised that net income of a sole proprietorship or a partnership is taxed directly in the hands of the owner. However, a corporation is a separate taxpayer with its own tax rates. A corporation which is incorporated in Canada and is controlled by private corporations or individuals who are Canadian residents will normally qualify as a "Canadian controlled private corporation". This status allows it to claim the small business deduction, a reduction of the normal corporate income tax rate on the first $200,000 of a corporation's annual taxable income earned from carrying on an active business in Canada (recent budgets have increased the $200,000 level). The tax advantage which the shareholder will enjoy is the ability to defer the payment of some income tax. A corporation eligible for the small business deduction pays tax at about 23 percent on its first $200,000 of taxable income. The remaining tax, which is paid by the shareholders upon receipt of dividends from the corporation, is deferred until the dividends are actually paid out. The deferral is significant, especially for a taxpayer in the top tax bracket and means that approximately twice the funds are available for investment. The other main tax advantage to incorporation is the ability to claim the $500,000 capital gains exemption on the sale of a business. The complex rules provide that, to claim the exemption, the shares must be of a Canadian-controlled private corporation, at least 90 percent of the assets of which are used in an active business carried on in Canada, or a holding company which owns such shares. Where the shares qualify, the owner can sell them and the first $500,000 of capital gains are exempt of tax. Note that the exemption applies to the individual and not the corporation. Another significant advantage to incorporating is the limited liability for the owner. Although this is a "non-tax" advantage it is still a very significant advantage. While a sole proprietor or partner in a general partnership has unlimited liability to creditors of the business, shareholders of a corporation have no such risk. Without the protection of limited liability most entrepreneurs would not take the risk of going into business.

Due to the nature of certain mutual funds buy and hold investment philosophy, unrealized capital gains often accumulate within portfolios as the unit prices rise over time. Those of us in the investment business sometime express concern that, if a fund must sell securities to meet redemptions, remaining unitholders could be faced with capital gains distributions at the end of the year. Investment companies deal with this concern in two ways. Firstly, to meet reasonable levels of redemptions, companies maintain adequate short-term investments in each fund. Secondly, if securities must be sold to meet redemptions, companies make use of the "capital gains refund mechanism (CGRM)" to deal with the capital gains triggered by that sale. The CGRM allows the fund to realize those gains without having to pay taxes on all or a portion of the gains (as determined by a detailed formula which takes into account units redeemed during the calendar year). The purpose of the CGRM is to shelter the portion of the capital gains realized by the fund that approximates the gains realized by redeeming investors during the year. Without the CGRM, the same underlying capital gains would be taxed twice; once in the hands of the redeeming investor and again in the hands of the remaining unitholders. As a simplified example, let's say a mutual fund has only two clients. Each of Client A and Client B invested $5,000. Now, two years later, the fund's portfolio has doubled in value to $20,000 and Client A and Client B have investments worth $10,000 each. Client A redeems all of his units for proceeds of $10,000 (his initial $5,000 investment and $5,000 of capital gains), realizes the $5,000 capital gain and reports this as income on his tax return. The fund had to sell securities to pay the $10,000 of redemption proceeds to Client A. That sale by the fund would also trigger a $5,000 capital gain within the fund. However, because Client A has already received and will be taxed on the $5,000 gain, the fund is not required to distribute or pay tax on the same gain. This is good news for Client B since, without the CGRM, he would get a T3 indicating his portion of the capital gain within the fund. The CGRM significantly allocates the impact of capital gains to the appropriate investors. Even if the investment company has sufficient cash on hand to meet redemptions, it still may be advantageous to realize some capital gains. This process is called "crystallization" whereby the fund sells securities, triggering a capital gain, and then immediately repurchases those securities at the current higher price. The CGRM can only be used to offset redemptions against gains in the same year, so crystallization is used towards the fiscal year end to create the gains that approximately match annual redemptions. In this way the fund will not have to declare the gain. Additionally, the crystallization increases the book value of the securities and reduces future capital gains liability.

Revenue Canada's latest attempt to unearth the underground economy has hit the construction industry hard. In its last budget, the federal government announced the "Contract Payment Reporting System"; a system that will require construction companies to report to Revenue Canada all payments made to subcontractors if their "primary activity is construction" (defined as having more than 50 percent of your income derived from construction). The effective start date for the Contract Payment Reporting System is January 1, 1999. Businesses must ensure that their record-keeping systems capture the necessary information to file their first information returns on or before March 31, 2000. Construction companies will be required to remit the names and addresses of their subcontractors, their business numbers if they are registered as a business or their social insurance number if they are not registered as a business. Administratively, Revenue Canada will not require an information slip if the subcontractor was paid less than $500 in total for the reporting period. So who do those new rules apply too? Revenue Canada defines the construction industry to include any individual or business which erects, excavates, installs, alters, modifies, repairs, improves, demolishes, dismantles or removes all or any part of a structure, surface or subsurface of any property or building. In other words, this will apply to everyone in the building, renovation and construction business. Initial government proposals suggested that, in addition to reporting their subcontractors to Revenue Canada, construction companies might also be forced to send their subcontractors annual statements of earnings. Revenue Canada decided not to demand this of construction companies in order to limit the burden on them. Similarly, the government decided the reports may be filed for either fiscal or calendar years. This was a great relief to the construction industry since year-ends vary among construction companies. It should also be mentioned that The Income Tax Act now gives the industry the authority to ask for a business number or a social insurance number for purposes of the Contract Payment Reporting System. You must make a reasonable effort to get the required information for Revenue Canada. Every subcontractor or individual is required to provide this information, and if they fail to do so, the responsibility shifts to them and they will be penalized. One last thing, for all the people in the construction business who chose to visit their accountants once every 3, 4 or even 5 years, I would seriously consider changing this habit and try visiting us every year before the income tax filing deadlines. Revenue Canada will be imposing very serious penalties for late filing as well as non-compliance of the Contract Payment Reporting System and they have some very interesting ways of collecting these penalties. Do yourself a favour, avoid getting penalized. All of you in the construction business have been warned.

Hey parents, do you have kids going to post secondary school? If so here is a quick summary of the "tax issues" you need to know. If your child received a scholarship, fellowship, bursary or a prize (a prize would be a payment for achievement in a field of endeavor) then only the amount over $3,000 is subject to income tax. These types of payments are accounted for on an accumulated basis for each calendar year. Not eligible for the $3,000 exemption are training allowances under the "National Training Act" or payments from your RESP. Speaking of RESPs, I must admit that I finally like these plans (I did not like them before Revenue Canada made some recent changes to RESP legislation). You now get a Canada Education Savings Grant (CESG) of 20% on the first $2,000 in annual contributions up to age 18. Unless I'm missing something you just got a 20% rate of return on your $2,000! Not only do I like that, you no longer have restrictions as to which child uses your RESP. You can now set up "Family RESPs" which allows you tax-free growth in one plan which can be used for all your kids. Those are the 2 main reasons why I now like RESPs. Revenue Canada also allows you to catch-up for last years 20% credit. By this I mean that if you did not contribute $2,000 last year to an RESP, you can do it this year along with your current RESP contribution therefore you are putting $4,000 per child and getting a 20% grant which would equal $800; not bad! Another common component of post-secondary education is "research grants". Simply put, a research grant is a grant given to a student to undertake specific research. A research grant is taxable net of expenses incurred to carry on their work (the $3,000 exemption mentioned above does not apply to a research grant). Another thing to remember is moving expenses. These costs are deductible from a student's net income. Be aware that the move must bring the student 40 kilometres closer to the educational institution from their primary residence. Next point; loans. The "grant" portion of a student loan is taxable as a scholarship, fellowship or bursary, net of the $3,000 exemption. Student loan interest can now be deductible as "educational tax credits" along with the actual tuition costs. Speaking of educational tax credits they too have been recently enhanced. You now get a $200 monthly credit for each month of full-time attendance (as well as certain part-time educational courses). With all these tax benefits available why are we complaining so much about post-secondary education costs? Could it be the $30,000 to $50,000 it costs us to give our child an education? I think so. At least Revenue Canada helps us in a small way (a very small way)!

Canada taxes its residents on their worldwide income. This simple rule also requires Canadian residents to declare their income no matter where they earn it. Since the tax system depends upon voluntary compliance, it works well only if all foreign income is disclosed. The disclosure of foreign source income is an increasingly difficult problem for Revenue Canada. First, as Canadian tax rates escalate, taxpayers find it increasingly attractive to settle their capital in tax havens and offshore investments. Second, Canada encourages immigration of wealthy families through the Immigration Investor Program. This program brought a large number of wealthy individuals to Canada, particularly from Hong Kong. A lot of these new Canadians did not, however, always bring all their assets into Canada. Accordingly, in 1995, in an effort to increase tax compliance, Revenue Canada issued draft information rules setting out new stringent reporting requirements. One of these rules would have required individuals with more than $100,000 in foreign property to disclose details of these holdings (property for personal use was excluded from disclosure). The clear purposes of these rules was to provide Revenue Canada with an audit trail that they could pursue in their quest for undisclosed foreign income. The new reporting requirements was severely criticized as an unwarranted intrusion into the personal lives of Canadian taxpayers. New immigrants threatened to leave the country and take their assets with them if they were forced to disclose them. Fortunately Revenue Canada backed off its original requirement of detailed disclosure. Instead, on August 20, 1998 Revenue Canada announced that it would introduce a new "check-the-box" format for foreign asset reporting. The new requirements, starting with your 1998 tax returns, are superficially less onerous. Taxpayers will be asked to check a box on their tax returns to indicate the type of property, the location of the property and the range of investment levels. As always, they will be required to report any income from the property. Although the new rules do not require detailed disclosure of information, they do require enough disclosure for Revenue Canada to pursue through follow-up audit procedures. In a sense I think the new rules are really more cumbersome than the old rules because individuals will be contacted by Revenue Canada in follow-up audits and asked to provide further and better particulars of their foreign assets. This will take time, involve costs for legal and accounting fees, and intrude into taxpayer privacy just as much as the original proposals. In the end, I believe the new reporting rules will cost more both for taxpayers and Revenue Canada.

You've started your own business, things are going great. Now what ? You should probably consider incorporating your business. In legal and financial terms, you are creating a separate legal entity. The company's assets, loans and income become distinct from those of the owners. There are three main reasons why you may consider incorporating your business; 1 (limiting your personal liability 2) numerous tax advantages 3) the ability to raise capital because investors can purchase shares of your company without putting their personal assets at risk. Be advised that a corporation must be properly organized before it can carry on business. There are shares to issue, directors to elect, officers to appoint, resolutions to prepare and by-laws to create. Shareholders, who are typically family members in a small business corporation, are entitled to vote (assuming their shares are voting as opposed to non-voting) and receive dividends. Voting shareholders are responsible for electing company directors, who in turn are responsible for the overall management of the business. The directors then appoint the company officers (namely to the top positions such as president and treasurer). The directors also have to appoint the company's accountant and designate a fiscal year end no later than 53 weeks from the date of incorporation. You can incorporate federally or provincially. Federal incorporations allow business activities as well as physical locations throughout the country. Provincial incorporations allow business activities as well as physical locations within Ontario (be advised that a provincial incorporation allows you to conduct business throughout Canada, however you can only have physical locations within Ontario). Federal and Ontario corporations have to publicly disclose they're registered office addresses, as well as the names and addresses of their directors. Ontario companies also have to disclose officers' names. The provincial government must also be notified of any changes. The biggest challenge facing someone who incorporates their business can be getting used to the new rules and regulations. For example, the owner of an unincorporated business may be accustomed to withdrawing money from their business bank account as they see fit. This is okay because these withdrawals are non-taxable. These types of withdrawals are not so simple with a corporation. The cash in the bank account belongs to the corporation and must be accountable to Revenue Canada if withdrawn. These withdrawals can be accounted for as dividends, wages, bonuses or as a repayment of money previously contributed by shareholders. Once you have decided to incorporate you business the first order of business would be to select a name and clear it with the Ontario Ministry of Consumer and Commercial Relations. You can either use your actual business name with the words "Limited", "Incorporated" or "Corporation" attached to the end or, as an alternative, you can incorporate a "numbered" company and set up your business name as a division of the number company (ie. Sam's Hockey School / a division of 1234567 Ontario Limited). Regardless of how your company is structured you are required to do a "name search" for the company name to ensure that name is not already being used. Once this process is completed you must prepare articles of incorporation. Once the articles are complete they must be signed and filed with the appropriate government authority. The actual filing process consists of someone going to the ministry and delivering the signed articles of incorporation along with the name search report. Assuming everything is in order, they get a stamp on them and you're incorporated.

Much to my surprise I have found that not many people are aware of the federal government's "lifetime learning plan" (LLP). This plan, which was introduced in 1998, allows you or your spouse to withdraw funds from your RRSP on a tax-free basis and use the funds to pay for tuition fees and other educational related expenses. The tax-free withdrawal is allowed for full-time programs (at least ten hours per week is considered full-time) that is at least three consecutive months in duration. The maximum amount that can be withdrawn in any one year is $10,000. Withdrawals are allowed for up to four years, and the total that can be withdrawn over the four years is $20,000.Under the LLP, both you and your spouse can withdraw from your RRSPs at the same time. Each of you is separately subject to the $10,000/$20,000 limits, meaning that these limits can be "doubled up". You can each use your withdrawal for yourselves, you can each use your withdrawal for the other spouse, or you can use both of the withdrawals for only one of you. However, be aware that each one of you can withdraw funds for only one student at a time. For example, you cannot withdraw amounts for your spouse if you have already withdrawn funds from your RRSP for your own studies. An amount can normally be withdrawn under the LLP only if the student is enrolled on a full-time basis at the time of the withdrawal. However, an amount can be withdrawn before the actual enrolment if the student has received written notification that he or she has been admitted to enroll on a full-time basis before March of the following year. If, for some reason, the student does not actually enroll, the withdrawn amount must be repaid to the RRSP by the end of the year following the year of withdrawal. Assuming that the student does enroll, the amounts withdrawn under the LLP must be repaid to the RRSP over a period not exceeding ten years. The repayment period starts with the earlier of the second calendar year after the last year of full-time enrolment or the fifth calendar year after the first year in which a withdrawal was made. The repayments made to the RRSP are not tax deductible. The LLP is becoming widely recognized as an alternative to conventional saving methods for your education needs.

If you are saving for your first home, you might consider using your RRSP as a savings vehicle. Although RRSPs are intended primarily for retirement savings, qualified first-time homebuyers are permitted to withdraw up to $20,000 from their RRSPs to help buy or build a principal residence. As an added bonus, if your spouse also has an RRSP and there will be joint ownership in the property, he or she is entitled to withdraw up to $20,000 from their plan. Thus, if both of you take out the maximum allowed, a healthy down payment of $40,000 can be made on your first home. Normally withdrawals from an RRSP are taxed in the year withdrawn, but with the Home Buyers' Plan, the money is loaned tax-free from the RRSP with the proceeds to be paid back over a 15-year period. You must use form T1036 Applying to Withdraw an Amount Under the Home Buyers' Plan for the amount to be considered non-taxable when you withdraw it. Repayments begin in the second year following the withdrawal and the minimum repayment is 1/15th of the amount borrowed. What happens if you do not make the required repayment to your RRSP in a certain year? In such a case, the amount you were required to repay would be considered taxable in that year. The outstanding balance to be repaid to your RRSP is reduced each year by the yearly repayment amount regardless of whether you make the payment or not. For example, if you took $15,000 from your RRSP and put it towards a down payment on a new home, your yearly repayment would be 1/15th of the amount withdrawn, or $1,000. If, in the first year you are required to make a repayment, you fail to do so, it will be included as income on your personal income tax return for that year. If your tax rate is, say, 40 percent, you will be paying $400 in additional taxes because you did not make the repayment. The remaining balance to be repaid to your RRSP is still reduced from $15,000 to $14,000. In the second year, again you must repay $1,000, and if not, it is included on your tax return as taxable income, and so on. Many specific conditions apply for an RRSP withdrawal to qualify under the Home Buyers' Plan, therefore professional advice should be solicited to make sure everything is done according to the proper guidelines. This will prevent Revenue Canada from deeming the amounts withdrawn as taxable, which would cause a major tax headache in that particular year.

If you are a small business owner, there is a tax savings opportunity available that you may not be aware of. If a portion of your business is regularly conducted out of your home a percentage of your ongoing home expenses can be claimed as business expenses.

The percentage that you are able to deduct is based on the fraction of the home that is used for your office. For example, 'Mary' is a computer programmer working as a consultant to various companies. She has an office in her home that measures 150 square feet. The total area of her home is 1500 square feet. Provided Mary meets the requirements set out by Revenue Canada, she will be able to deduct 10 percent of her home expenses against her business income.

The eligible expenses relating to your home office include rent, mortgage interest paid, property taxes, utilities, telephone, home insurance, and repairs and maintenance (i.e. snowplowing and minor repairs). You may also claim depreciation (or capital cost allowance) on the home office, but doing so eliminates the principal residence status of that portion of your home. In other words, you will pay tax on any capital gains realized if the property is sold. For this reason, it is not normally advisable to claim depreciation.

Home office expenses are subject to some restrictions. These expenses can only be used to offset business income. You cannot use home office expenses to create or increase a business loss, which then can be applied against other income. If after deducting all regular business expenses there is a loss, you should still claim all applicable home office expenses because you are allowed to carry forward any unused expenses to future years.

Home office expenses are only allowed if one of the following conditions is met:

your home is your principal place of business, i.e. you do not have an office elsewhere; or the home office is used exclusively for business, and is used " on a regular and continuous basis for meeting clients, customers or patients".

Note that any expenses used exclusively for business purposes are fully deductible. These expenses include a separate business phone line, fax and printer paper, and computer repairs (if the computer is not used for personal purposes also).

As with any regular business expenses you must remember to keep receipts on file to back up your claims in the event of an audit by Revenue Canada.

It is well known that any gain realized on the sale of your home is normally exempt from tax, due to principal residence rules. With some careful planning you can utilize these rules to realize certain tax advantages.

To qualify as a principal residence, the property must be "ordinarily inhabited" by you, your spouse or your child. You should be aware that the term 'principal' residence is not taken literally. A cottage will qualify, for example..

Since 1982, only one principal residence can be designated by the 'family unit', which consists of you, your spouse (including a common-law spouse), and any unmarried children under 18 years of age. The family unit distinction prevents you from designating your house as your principal residence and your spouse designating the cottage as his or her principal residence, effectively eliminating capital gains tax on the sale of both properties. Prior to 1982, each taxpayer was entitled to a principal residence exemption. Thus, where two members of a family unit owned two residences (such as a regular home and a cottage) before 1982, it may be possible to structure their holdings such that the pre-82 gains are exempt from tax.

Those with adult children should consider giving them ownership of a second residence. Any gains must be realized when ownership is transferred, but the child can designate the second residence as his/her principal residence when the property is sold, eliminating any further taxable gains on the property. If you consider this option you should also be aware of the legal implications of the change in ownership - the child would have complete control over the property.

There are certain cases when rented-out property becomes eligible for the exemption. If you move out of a home and begin renting it out, you can continue to designate it as your principal residence for up to four years by filing a special election. Moving for reasons of employment will allow you to extend the four year period indefinitely as long as you move back to the home upon leaving that employment. An exemption is also possible if you acquire a property, begin renting it out, and then move in at a later date. This allows you to defer the capital gain that normally applies when changing from an income-earning property to a personal-use property.

To ensure things are done properly, seek professional advice before attempting any of these strategies.

After 20 years of working in the financial field the question I get asked most often is whether to lease your car or whether to buy your car. Everyone who asks this question, whether self-employed or not, is always looking for a simple one word answer; lease or buy? Unfortunately this is not possible. In fact, a lot of information is needed to properly determine whether it is more advantageous to lease your car or buy your car. The first thing you need to realize is that any tax advantage you may get from buying or leasing your car (ie. if you are self-employed) is NOT taken into consideration. The reason that the potential tax benefit is excluded is due to the fact that over a 3 or 4 or even 5 year period of time, any tax benefit you may possible derive would basically be the same whether you buy the car over this period of time or whether you lease the car over this period of time. Accordingly take any possible tax benefit out of your calculations when considering leasing your car vs. buying your car. So if you don't consider the potential tax benefits, what do you consider? The best thing to do is identify all the pros and cons related to leasing your car vs. buying your car and consider these issues individually. LEASING A CAR - THE PROS; usually leasing a car is very easy on the pocketbook (first and last months lease payment plus applicable taxes and you drive away with a new car); you usually have a good warranty; you usually have the backing of the dealership in case of any problems; usually leasing a car does not negatively effect your debt-equity ratio; some lease have a "walkaway" component to the lease. LEASING A CAR - THE CONS; you don't own the car; restrictions on the amount of kilometers you can drive; you can't sell the car (it's not yours to sell); your car must maintain a regular servicing schedule (usually at the place where you lease the car); you are responsible for any repairs and/or body work that may be required at the end of the lease; it is very hard to get out of a lease once you enter into a leasing arrangement; usually the price isn't negotiable; some leases have a fixed buyout at the end of the lease. BUYING A CAR - THE PROS; you own the car; no restrictions on the amount of kilometers you can drive; you can sell your car anytime you want; you usually have a good warranty; you can usually negotiate a better price if you are buying. BUYING A CAR - THE CONS; you have incurred a significant amount of debt; negatively impacts your debt-equity ratio. After considering the pros and cons related to leasing your car vs. buying your car you must now consider one of the most important issues; what is the interest rate you are paying for your car? You must know the interest rate you will be paying if you are buying your car and you must also know the interest rate "built-in" to the lease if you are leasing your car. Make sure the interest rate is competitive (I have seen people lease cars with built-in lease rates of over 20 percent without them even knowing this). The two biggest things you should NEVER do is pay cash for your car or lease your car where you must buyout the car at the end of the lease. In summary, whenever I get asked the question of whether to buy a car or lease a car, I always tell the client that they must first go out and find the car they want, then they must negotiate the best deal to buy the car as well as negotiate the best deal to lease the car. With this information, as well as giving consideration to the above-mentioned items, it can now be determined which option is best for you. For anyone considering leasing a car or buying a car, I should also mention our new Auto Deduction Program (ADP). Our ADP program allows you to convert the cost of your car into a deduction for income tax purposes (even if you are not self-employed). Please call for further details.

The last thing you want to think about during a golf event is Revenue Canada. Still, the tax treatment of events held at golf courses is something that confuses many financial advisors. Some of this confusion came from a prior Revenue Canada ruling that prevented deduction of meals consumed on a golf course. Subsequently Revenue Canada changed their position. It will no longer deny tax write-offs for business-related costs incurred in the dining rooms, banquet halls, conference rooms and lounges of golf clubs. The tax treatment of the cost of food and drink consumed in golf clubs is now the same for expenses incurred at other establishments. That means that if meals are business-related, they are generally 50 per-cent deductible, and may be 100 percent deductible if they relate to a charity fund raiser or office golf dates. In order to deduct these expenses, Revenue Canada regulations say meals and beverages consumed at the golf course must be clearly itemized and noted on the receipt that it is business related. It should also be noted that membership fees, green fees and other charges for access to recreational facilities at the golf course continue to be non-deductible. This type of tax treatment has been a bone of contention with business people. It is a well-known fact that a lot of business is done on a golf course; why shouldn't the cost relating to these "golf/business meetings" be deductible. Here's a suggestion. If you are an avid golfer and do purchase a membership each year, consider rearranging the way you pay for your membership. Instead of simply paying your membership fee and not incurring a business expense, why not ask the owner of the golf course if you can pay a sum of money for annual advertising at the golf club (this sum of money should be the same amount you would normally pay for a membership). Along with your "advertising commitment" the owner of the course allows you to golf for free each summer. In this way you have made your membership fees tax deductible!

An "estate freeze" is the term used to describe steps taken to fix the value of your estate (or some particular asset) at its present value, so that the future growth will accrue to your children (or a trust for your children) and not be taxed on your death. Estate freezing is most often used when you own a business that you expect will increase in value in future years. Your children may be involved in running the business. Even if they are not, you may want them to own it after your death. An estate freeze can significantly reduce the tax payable on your death, if the value of your business is "frozen" sufficiently early. The lower cost base will effectively be transferred to your children, and so the tax on the subsequent capital gain will be deferred until they sell the business (or until their deaths). You can also multiply the availability of the capital gains exemption for certain small business shares (if it is still available when your children eventually dispose of the shares). At the same time you do not need to give up control of the business. You can also continue to receive income from the corporation, either by declaring dividends or by drawing a salary if you continue to work in the business. If you use a trust to acquire the common shares, you can retain flexibility with respect to allocating the shares of the business among your children later. Whether an estate freeze is useful to you will depend very much on your business, your financial position, your future plans and your goals. There are many different types of estate freezes, the following example is one of the simplest types: EXAMPLE I own all of the common shares of X Corp (my business). My original share investment in X Corp was $100 and it is now worth $400,000. I expect it to increase in value significantly over the next several years. I have two children, Sam and Steven, who work in the business. First, I exchange my common shares of X Corp for 400 new preferred shares. The preferred shares are voting shares. They are also retractable at any time, at my option, for $1,000 per share. In other words, I can demand that X Corp pay me $400,000 for my shares at any time. Sam and Steven each subscribe for 50 new common shares in X Corp paying $1 per share. Over the next few years the value of X Corp rises to $900,000. Now my preferred shares are still worth only $400,000, but the common shares owned by Sam and Steven are worth $500,000. I have thus transferred the post-freeze "growth" in X Corp to Sam and Steven at no tax cost to myself. Note also that since my preferred shares are voting shares, I have kept control of the corporation. I have 400 votes and Sam and Steven together have only 100.

Although you're probably preoccupied with Christmas and New Year's preparations, it would be wise to take a few moments to consider your tax and investment situation before the year draws to a close.

Here are a few year-end tips….

Tax loss selling. 
Before the end of the year, you might want to realize any non-RRSP losses incurred thanks to the unfriendly markets this year. If you still like the investment but were just a victim of bad timing, sell it but wait at least 30 days before you repurchase it, otherwise Revenue Canada will disallow the loss. Apply your losses to any realized capital gains incurred either this year, the previous three years, or any future year(s).

Mutual fund distributions.
  Delay any non-RRSP mutual fund purchases until after the fund makes its year-end income distribution. Otherwise, you are paying an inflated price for your funds (the price decreases after a distribution) and you will be taxed on gains that you didn't even participate in.

Spousal RRSP contributions.
 Make a spousal RRSP purchase in December rather than waiting until January or February . The benefit of this strategy arises if you have to withdraw the money in the near future. Spousal plan withdrawals made in the year of purchase or the two following years are taxed back to the contributor (who is usually in a higher tax bracket) rather than the spouse. For example, a contribution made in 1998 can be withdrawn in 2001 and you avoid this attribution rule. Waiting an extra month or two (contributing in 1999) means that the attribution rule is in effect for another full year - until 2002.

Did you turn 69 this year?  
If you did, you have a major financial decision to make before the end of the year. Your RRSP must be converted to a RRIF, an annuity, or cash. Doing nothing results in the cash option which is the least desirable tax-wise. You should also consider making one final RRSP contribution (and possibly even an over contribution) before the end of this year.

Tax shelters.
 High income earners should be aware that December 31 is the deadline to make any tax sheltered investments that will benefit your current tax situation.