Law Times

PAGE 6 COMMENT Law Times Group Publisher ....... Karen Lorimer Editorial Director ....... Gail J. Cohen Editor ........... Gretchen Drummie Associate Editor ......... Robert Todd Staff Writer ............. Glenn Kauth Copy Editor ............. Neal Adams CaseLaw Editor ...... Jennifer Wright Art Director .......... Alicia Adamson Production Co-ordinator . . Catherine Giles Electronic Production Specialist ............. Derek Welford Advertising Sales .... Kimberlee Pascoe . . . . . . . . . . . . . . . . . . . . . . . . . . Kathy Liotta Sales Co-ordinator ......... Sandy Shutt ©Law Times Inc. 2009 All rights reserved. No part of this publication may be reprinted or stored in a retrieval system without written permission. The opinions expressed in articles are not necessarily those of the publisher. Information presented is compiled from sources believed to be accurate, however, the publisher assumes no responsibility for errors or omissions. Law Times Inc. disclaims any warranty as to the accuracy, completeness or currency of the contents of this publication and disclaims all liability in respect of the results of any action taken or not taken in reliance upon information in this publication. Editorial Obiter Libel law needs updating fence against libel called "public interest responsible journalism." The Supreme Court of Canada must accept the idea that our libel law needs to change. But at the same time the media should T know that while it is progress, this is not heaven yet either. The issue arose in an appeal of a 2007 Ontario Court of Appeal decision that upheld a libel verdict and damage award against the Ottawa Citizen newspaper, but laid out rules for a new defence for stories that deal with matters in the pub- lic interest, as long as they are researched and written responsibly. The Citizen was found to have li- belled former OPP officer Danno Cus- son, who took his dog to New York City he judges of this country's top court are currently deciding whether to embrace a new de- to assist in the search for survivors of the Sept.11 terror attacks. Unfortunately for the Citizen the OCA, while creating the new defence, found it did not apply to the newspaper in this case because it wasn't argued at the original trial. If the SCC bites, this is a big change that would protect media from being found liable if they can show reasonable steps were taken with "due diligence" to prove a story is accurate and fair, even if it emerges that errors crept into the copy. Several media lawyers argued in favour of adopting the new defence. According to the Toronto Star, lawyer Brian Rogers, acting for several media associations, not- ed that getting to the truth is sometimes a "messy process," and publication of a statement that is shown to be false could lead ultimately to the truth. Star lawyer Paul Schabas was asked by Justice Rosalie Abella: "Is it your position they have the right to be wrong if they've taken all reasonable steps?" "If they've acted responsibly," said Schabas. "Yes, they do have the right to be wrong." He's right. And so too is Alan Shanoff, Law Times columnist and former coun- sel to Sun Media Corp., when he tells us: "If freedom of expression means anything it means that you have the right to be wrong on occasion. . . . I think this de- fence is necessary because the media has to have the right to be wrong if freedom of expression has any meaning." Shanoff did not appear before the SCC, but told Law Times in an interview after the hearing that while he thinks the court should adopt the new defence, he warned "it's no panacea" for the media. "This is going to be a very vague defence. It's going to put the judges and juries in the newsrooms of each commu- nity and they're going to decide ultimate- ly whether the editors and reporters acted responsibly. So it's a very messy defence." Judges and juries, he said, will "de- termine whether the journalist acted responsibly; they will determine wheth- er the journalist went far enough in his or her investigation." He added it's "absolutely" much bet- ter than what we have because currently "if you get it wrong you lose unless you have a privilege. You could have a quali- fied privilege, but that's very rare, and so sure it's a great development for the media — but it's not paradise." It's important the SCC adopt this im- portant step so we can keep climbing up that stairway. — Gretchen Drummie quences of routine transactions such as issuing and redeem- ing shares. Unfortunately, even routine corporate transactions have hidden traps that can en- snare professional advisers. Issuing share capital is a fairly routine corporate transaction that may engage tax consequences. For example, the Income Tax Act prohibits deductions for the cost of issuing equity capital except in narrowly specified circumstances and then only according to a specific amortization formula. L Commissions to Agents A corporation may deduct com- missions, fees, or other amounts payable to salespersons, agents, or securities dealers in the course of issuing shares. The deduction is available only to the taxpayer who issues the shares. A parent corpora- tion, for example, may not deduct expenses that it incurs in respect of shares that its subsidiary issues. The subsidiary may, however, be able to deduct fees that it pays to its parent corporation in respect of the shares issued. awyers who practise cor- porate law must advise on the income tax conse- Tax costs in corporate share transactions Financial Commissions to Purchaser A commission, fee, or bonus that a corporation pays to the purchaser of its shares is not deductible as part of the cost of issuing equity. Such expens- es are a discount of the share price and not an expense of issuing the shares. Deductible Expenses A corporation may deduct the following expenses when it issues shares: • legal fees in connection with the preparation and approval of a prospectus related to the issuance of shares; • accounting or auditing fees in connection with the prepara- tion of financial statements, and related data, for inclusion with the prospectus; • printing costs for the prospec- tus, share certificates, etc.; • registrars' and transfer agents' fees; and • filing fees payable to any regu- latory authorities with whom the prospectus must be filed. Incorporation expenses — including legal and account- ing fees — are not part of the cost of issuing shares and are Matters By Vern Krishna not deductible expenses for tax purposes. However, such expenses qualify as eligible capital expenditures. Amortization of Issuance Expenses Expenses of issuing securities are deductible in equal portions over a period of five years. Cor- porations with short taxation years must prorate the deduc- tion for the short year. Where a corporation with an undeducted balance of financing expenses is wound up into — or amalgamat- ed with — another corporation, the parent or new corporation may continue to deduct the ex- penses over the remainder of the five-year period. Share Redemptions Share redemptions involve more complex consequences. Inves- tors must make informed market www.lawtimesnews.com decisions to avoid unneces- sary losses. Where a corpora- tion redeems its shares for an amount exceeding their paid- up capital, the excess amount is a dividend. For example, assume that Opco has issued and has outstanding shares with stated capital and PUC of $100 per share. Mary owns one share with a cost base of $150. If the corporation redeems the share for $180, the act deems Mary to receive a dividend of $80. Cash paid on redemption .....$180 PUC of share ......................100 Deemed dividend ...............$80 At the same time, the act also deems Mary to dispose of her share. She will have cash proceeds of $180. In order to prevent double taxation, how- ever, the act reduces Mary's ac- tual proceeds by the amount of the deemed dividend — in the above example, $80. Cash on redemption .........$180 Less: deemed dividend ..........80 Proceeds of disposition .....$100 Less: adjusted cost base .......150 Capital loss on redemption .....$50 Thus, the shareholder receives dividend income of $80 and suf- fers a capital loss of $50. Mary's February 23, 2009 • Law Times Law Times Inc. 240 Edward Street, Aurora, ON • L4G 3S9 Tel: 905-841-6481 • Fax: 905-727-0017 www.lawtimesnews.com President: Stuart J. Morrison Publications Mail Agreement Number 40762529 • ISSN 0847-5083 Law Times is published 40 times a year by Law Times Inc. 240 Edward St., Aurora, Ont. L4G 3S9 • 905-841-6481. lawtimes@clbmedia.ca CIRCULATIONS & SUBSCRIPTIONS $141.75 per year in Canada (GST incl., GST Reg. #R121351134) and US$266.25 for foreign addresses. Single copies are $3.55 Circulation inquiries, postal returns and address changes should include a copy of the mailing label(s) and should be sent to Law Times Inc. 240 Edward St., Aurora, Ont. L4G 3S9. Return postage guaranteed. Contact Kristen Schulz-Lacey at: kschulz-lacey@clbmedia.ca or Tel: 905-713-4355 • Toll free: 1-888-743-3551 or Fax: 905-841-4357. ADVERTISING Advertising inquiries and materials should be directed to Sales, Law Times, 240 Edward St., Aurora, Ont. L4G 3S9 or call Karen Lorimer at 905-713-4339 klorimer@clb- media.ca, Kimberlee Pascoe at 905-713-4342 kpascoe@clbmedia.ca, or Kathy Liotta at 905- 713- 4340 kliotta@clbmedia.ca or Sandy Shutt at 905-713-4337 sshutt@clbmedia.ca. Law Times is printed on newsprint containing 25-30 per cent post-consumer recycled materials. Please recycle this newspaper. total economic net gain is $30, which is the right mathemati- cal result — $180 (cash) minus $150 (cost) equals $30. However, the Income Tax Act does not consider all dollars to be equal. It specifies different rules for dividend income and capital gains and losses. Assuming that Mary has a tax rate of 46 per cent, she will pay tax at about 31 per cent net of her dividend tax credit. In contrast, only one half of the capital loss of $50 is deduct- ible for tax purposes, and then only against her capital gains. In the case of a public company, the shareholder could avoid the deemed dividend by selling her shares in the market and taking a capital gain of $30 — the differ- ence between her selling price of $180 and her cost of $150. Her effective tax rate would drop to about 23 per cent — a substan- tial saving of tax dollars. LT Vern Krishna, QC, FCGA, is tax counsel with Borden Ladner Ger- vais LLP, and executive director of the CGA Tax Research Centre, University of Ottawa. He can be reached at vkrishna@blgcanada. com.

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