Law Times

September 25, 2017

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Tax changes could have costly consequences BY DALE SMITH For Law Times P roposed changes to pri- vate incorporation tax rules could have costly consequences for corpo- rate clients, say lawyers who have reviewed potential shifts to the In- come Tax Act. The federal Liberal government has been at the centre of ongoing controversy over the proposed changes, which were announced this summer and could go into ef- fect later this fall. The changes could cause dou- ble taxation for clients with private corporations or family trusts in some circumstances, lawyers say. The changes could also end up tax- ing a holding company's assets at a rate of 70 to 90 per cent, they say. Marion Howard, a tax lawyer in solo practice in Campbellville, Ont., says new anti-avoidance rules being added to s. 246.1 of the In- come Tax Act will have an impact on the capital dividend accounts of private corporations by subjecting them to new taxation. Howard says some corporate lawyers may not be aware of the intricacies of how the change will impact a shareholder's income tax. "They don't realize that they have to potentially contact all of their clients and tell them that they need to rework their shareholder agreements and the ownership of their life insurance," says Howard. Section 246.1 is headlined in the proposal as intending to ad- dress "non-arm's length dividend stripping — individual" and is intended to be an anti-avoidance measure to prevent the distribu- tion of a corporate surplus to an in- dividual shareholder on a tax-free basis, a practice known as "surplus stripping." "Myself and other tax lawyers are afraid that the way that 246.1 is drafted, whether it was intended or not, we can't pay a capital divi- dend out of the capital dividend account," she says. Howard says this is urgent be- CAUTION ON ABS Challenges remain, so consider carefully P7 FOCUS ON Intellectual Property Law P8 PM #40762529 $5.00 • Vol. 28, No. 30 September 25, 2017 L AW TIMES C O V E R I N G O N T A R I O ' S L E G A L S C E N E • W W W . L A W T I M E S N E W S . C O M CONTINGENCY FEES Case illustrates debate in family law bar P5 BY ALEX ROBINSON For Law Times T o really address barriers faced by racialized li- censees, some lawyers say the Law Society of Upper Canada needs to implement entity regulation to significantly boost diversity in the legal profession. e law society is rolling out a first round of recommendations approved by Convocation in De- cember 2016 to battle the barriers faced by racialized licensees. While some applauded the measures as an important first step, others say the changes will be largely inconsequential with- out bringing law firms under the LSUC's regulatory control. "If the first step does not get you anywhere off the ground, then it's not really a first step, is it?" says Lee Akazaki, a partner with Gilbert- son Davis LLP. e new obligations include requiring lawyers to record a statement of principles in their annual report, and it will involve developing and abiding by a set of principles that acknowledge a lawyer's obligation to promote di- versity. Lawyers in legal workplaces that have at least 10 licensees will also have to adopt a human rights and diversity policy. ere is currently no penalty for not complying with the new obligations, which are directed at individual licensees. e law society does not regu- late law firms yet, but Convoca- tion approved recommendations last year asking the provincial legislature to pass an amendment to the Law Society Act that would allow the LSUC to regulate firms. While the LSUC waits for the gov- ernment to enact legislation, a task force made up of LSUC benchers is fleshing out regulations in the area. Lai-King Hum, past chair- woman of the Roundtable of Diversity Associations, says that while she is glad to see the law society roll out the new diversity obligations, she is concerned that entity regulation has not come to fruition yet. "My consistent position has been that in order for effective implementation of diversity ini- tiatives, and [to] ensure a cultural shi in the profession towards greater diversity, we need entity See Transparency, page 2 Lai-King Hum says the implementation of entity regulation and measures that promote diversity should coincide. Photo: Robin Kuniski Entity regulation encouraged to boost diversity Robert Kepes says new language in a federal bill related to private incorporation mirrors a section that was taken out of the act in the mid-1980s. See Could, page 2 3 RD ANNUAL DUTIES AND RISKS FOR DIRECTORS JOIN OUR FULLY ACCREDITED PROGRAM | EXPAND YOUR NETWORK AND OBTAIN CPD HOURS Register online: www.lexpert.ca/cpdcentre • 416-609-5868 | 1-877-298-5868 *Discount applies to in-class only USE PROMO CODE EARLYBIRD2017 & SAVE $300* EARLY BIRD ENDS OCT.4 Untitled-1 1 2017-09-20 9:47 AM www.twitter.com/lawtimes Follow & $#&!&jmmm$cYa[bbWh$Yec ntitled-4 1 12-03-20 10:44 AM

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