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Wills, Estates & Trusts View Comments

Registered Disability Savings Plans

By Jim Herperger on May 1st, 2012

You are likely very familiar with the Registered Educational Savings Plans; it is unlikely that you are as familiar with a similar program for those with disabilities. Like the RESP, the RDSP allows a parent or others to put money aside in a tax-sheltered investment for an adult  who is disabled. Like the RESP  the Federal Government pays in grant monies for the benefit of the disabled person (the “Beneficiary”). While the funds are invested, no tax is payable. Tax is payable on a portion of the money removed once withdrawls start.

The Federal Government will contribute a grant portion into the plan based on the Beneficiary’s family income at  300,200,or100 percent depending upon the Beneficiary’s family income and the amount contributed into the plan by the Beneficiary , the family or whomever contributes. The means test re family income is based on the income information used to determine the Canada Child Tax Benefit for that benefidiciary. Once the Beneficiary tuns 19, its simply base on his /her income plus any spouse or common-law spouse.

Up to $1000 in a federal bond is also available each year for low-income Beneficiaries with disabilities.

The first step in the process is to ensure the Beneficiary is eligible for the Disability Tax Credit. If not, the plan cannot be opened. The RDSP is opened at a participating financial institution. The RDSP can have yearly contributions made to it untill the Beneficiary attains the age of 59. The total contrubutions made may not exceed $200,000. Once withdrawls occur in the 60th year, the parts of the withdrawls that are made up of the contributed amounts are payed tax-free. The portion of the payments relating to the government contributed amounts are taxable as income in the year withdrawn. In addition , the taxable portion of the amount withdrawn is excluded from income when calculating various income-tested benefits such as the GST/HST credit  and is also excluded when calculating the social benefit repayment  and the refundable medical expense supplement.

The RDSP is an important tool to be looked at in estate planning where there is a person suffering from a medical, physical or mental disability. For more information on RDSPs , contact the writer or check out www.cra.gc.ca/rpd

Business Law View Comments

Use Care While Backing Up

By Clay Williams on April 17th, 2012

I recently had the opportunity to look into a driver’s standard of care when backing up a vehicle.

The Motor Vehicle Act includes the following provisions:

                193         The driver of a vehicle must not cause the vehicle to move backwards into an intersection or over a crosswalk, and must not in any event or at any place cause a vehicle to move backwards unless the movement can be made in safety.

                181         Despite sections 178, 179 and 180, a driver of a vehicle must

                                (a) exercise due care to avoid colliding with a pedestrian who is on the highway,

                                (b) give warning by sounding the horn of the vehicle when necessary, and

                                                (c) observe proper precaution on observing a child or apparently confused or incapacitated person on the highway.

                S. 1         “highway” includes

                                                (a) every highway within the meaning of the Transportation Act,

                                (b) every road, street, lane or right of way designed or intended for or used by the general public for the passage of vehicles, and

                                (c) every private place or passageway to which the public, for the purpose of the parking or servicing of vehicles, has access or is invited,

                                But does not include an industrial road.

The legislation applies to a driver not only on roads, but also in parking lots accessible to the public.  It is in busy parking lots that many accidents involving pedestrians occur.

Earlier cases had described the standard of care as very close to absolute liability.  A 1943 case in which the statement “…it is a rule of plain horse sense, for a horse will never willingly go where he cannot see” was often cited.   

More recently, the court found that a defendant “is not bound to guard against every conceivable eventuality but only against such eventualities as a reasonable man ought to foresee as being within the range of human experience.”  The Court went on to say the question is what is foreseeable in the circumstances?  However, in the case of Dechev  v. Judas, the court found a driver 50% responsible when he backed into a lady in a busy gas station parking lot who had crouched behind his vehicle to pick up a dropped item. 

As such, courts continue to impose a very high standard of care on a driver backing up a vehicle.  As such, it is very important when backing up to take your time and be very careful.

Business Law View Comments

Incorporation: Is it time to set up a Company?

By Dylan Switzer on April 17th, 2012

While many people believe that the incorporation of their business is a given, this is not necessarily the case. There are a number of other forms of business organization such as partnerships, limited partnerships and sole proprietorships that might be appropriate for a particular business’s needs.  However, incorporation is the most commonly used vehicle for conducting business operations and for good cause.

A corporation is a legal entity separate from the individuals who have created it.  Because corporations can enter contracts and own property, investments and other assets much like an individual a number of advantages can be obtained.

Limited liability is one of the primary reasons incorporation is considered and frequently recommended.  Typically, the shareholders of a corporation are insulated from liability beyond the possible loss of value of their shares in the corporation.  It bears noting that directors of corporations can be liable for certain corporate transgressions that should be discussed with a lawyer.  The benefits of limited liability appear in a number of scenarios.  For example and because companies can contract with other parties, it is the company, and not the individuals behind it, that are liable for any breach of contract.  The personal assets of the shareholders are typically insulated from any such legal exposure.

Tax planning is another significant advantage to British Columbia companies. While an accountant must be consulted, corporations are usually taxed a lower rate when compared to individuals who are taxed at the highest marginal rates frequently allowing for the deferral of tax. Further, a carefully planned share structure can allow for dividends to be paid out at varying times and in differing proportions to the shareholders in the manner that is most tax advantageous.

Incorporation also allows for the orderly and controlled growth of the business.  Frequently, businesses wish to include other individuals into the company to assist in growing the business or to allow for business succession.  The share structure of the company can facilitate such planning in a number of ways. Typically, the prospective party will purchase shares in the business to acquire an interest in the business and share in its success.  Where the business is not incorporated such planning can be cumbersome.

Though there are a number of advantages to incorporation, it is not the only option available to businesses and a lawyer should be consulted in the decision making process.  Further, should incorporation be determined as the appropriate mechanism, lawyers should again be consulted to incorporate the business to ensure that all facets of the company are established in the most advantageous manner possible.

Wills, Estates & Trusts View Comments

Residency of a Trust for Tax Purposes: the Supreme Court of Canada and the Fundy Settlement.

By Jim Herperger on April 12th, 2012

The residency of a Trust; whether it be a trust in a Will or a stand alone Trust such as an Alter-Ego or Family Trust  is a key concept in Wills and Trusts law. A prudent solicitor will generally not allow a client to name a non-resident of Canada to be an Executor/Trustee under a will or a Trustee under a stand alone Trust. The reason is there is always the risk that Canada Revenue Agency will take the position that because the Trustee is a non-resident, the Trust or the Estate is non-resident for Canadian tax purposes. This can result in the loss of capital gains exemptions, and other costs to the client and or to the Beneficiaries.

For years lawyers have struggled with the concept of the residency of a Trust.Is it where the Trustee resides? Is it where the assets of the Trust are?Is it where the Beneficiaries reside?Of late most of us have taken the careful path and avoided having a non-resident  appointed as Executor /Trustee where it is clear that the Trust /Estate should obtain the benefit of Canadian Tax Laws. A decision of the Supreme Court of Canada released on April 12 2012  at first blush seems to go  some way towards offering a definition. In Fundy Settlement v. Canada, 2012 SCC 14 , the Court held that the residence of a trust should be determined by the principle that a trust resides  where its real business is carried on, which is where the central management and control actually takes place. The residence of a trust is not always that of the trustee. It will be so where the trustee carries out the central managemnent and control of the trust where the trustee is resident.

So where does this leave us? Pretty much where we were. This case is easily distinguishable since the Trustees off shore were apparently in control of the trust in only a notional sense. The real management and control was exercised by the beneficiaries who were resident in Canada. So while we should be looking at where the control and management is located, I would argue that in most cases that is still with the Trustee. If the Trustee is non-resident, the Trust will continue to be non-resident. This is especially true where the Trust is a  Discretionary Trust  for the benefit of a mentally challenged beneficiary or a minor. Even if the assets comprising the Trust are all in Canada, as well as the Beneficiaries, the “management ” and “control” of them and the Trust still reside with the Trustee.It is  she who makes the investment decisions(or is ultimately responsible for them)it is she who exercises any discretion contained in the trust, it is she who determines who recieves the monies and when.