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When it comes to determining whether corporations controlled by family trusts are associated with each other , the trust association rules are complex . Depending on the particular case facts , there is a risk that the CRA could consider the trust association or de facto control rules to apply to pre-acquisition taxation years of the operating companies that are not yet statute-barred . Such a determination would deem the operating companies to have been associated , triggering a denial of all or a portion of the SBD each operating company may have claimed separately in prior taxation years ; this , in turn , would generate a potentially significant tax liability for the corporate group as a whole in the form of reassessed and unpaid income taxes , along with prescribed interest and any corresponding penalties .
Regulation 105 withholding Subsection 105 ( 1 ) of the Income Tax Regulations states that every person who pays to a non-resident person a fee , commission , or other amount in respect of services rendered in Canada must withhold and remit 15 % of such an amount . Nevertheless , exposure to Regulation 105 withholding tax is often overlooked during the normal course of a target company ’ s tax compliance process , particularly in the case of an owner-managed business , which may not employ a robust internal tax compliance function . For example , a withholding tax exposure can arise in a situation where a target company resident in Canada enlists an unrelated non-resident to perform certain services in Canada on its behalf . If the non-resident does not receive a Regulation 105 waiver ( issued by the CRA ), such services would be subject to Regulation 105 withholding tax , which the target company would be responsible for withholding and remitting .
Depending on the value of the service payments and the length of contract activity in Canada , non-compliance can give rise to significant additional taxes payable in the event of a CRA reassessment post-acquisition ; these costs may include a 10 % penalty on the required withholding amount for failure to withhold and remit , in addition to the applicable prescribed interest . Therefore , in such situations , it is important to :
• Assess the nature of the contracted business activities being undertaken by a target company ;
• Determine the residency of any persons engaged to perform such contracted business activities for the target company ; and
• Ascertain whether any of the persons who are non-resident have been issued Regulation 105 waivers .
Payroll compliance and independent contractors in the office In general , remuneration paid by a Canadian resident company to an employee is subject to Canadian payroll withholding and remittance requirements , including employment insurance ( EI ) and Canada pension plan ( CPP ) contributions . Whether an individual is an employee of a company is a question of fact , and there are numerous considerations in determining their status , including the degree of control they have over their work , their level of financial risk , and their ownership of any equipment used in the course of their work .
The name you TRUST , is now a TRUST COMPANY .
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CPABC in Focus • May / June 2016 35