Law Times

PAGE 6 COMMENT Law Times Group Publisher . . . . . . Karen Lorimer Editorial Director . . . . . . Gail J. Cohen Editor . . . . . . . . . . . . . . . . . Glenn Kauth Staff Writer . . . . . . Michael McKiernan Copy Editor . . . . . . . . Katia Caporiccio CaseLaw Editor . . . . Adela Rodriguez Art Director . . . . . . . . . Alicia Adamson Account Co-ordinator . . . Catherine Giles Electronic Production Specialist . . . . . . . . . . . . Derek Welford Advertising Sales . . . Kimberlee Pascoe Sales Co-ordinator . . . . . . . . Sandy Shutt ©2011 Thomson Reuters Canada Ltd. 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 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. September 19, 2011 • Law timeS Thomson Reuters Canada Ltd. One Corporate Plaza, 2075 Kennedy Rd., Toronto, ON • M1T 3V4 Tel: 905-841-6481 • Fax: 647-288-5418 www.lawtimesnews.com Publications Mail Agreement Number 40762529 • ISSN 0847-5083 Law Times is published 40 times a year by Thomson Reuters Canada Ltd., 2075 Kennedy Rd., Toronto, ON, M1T 3V4 • 905-841-6481 clb.lteditor@thomsonreuters.com CIRCULATIONS & SUBSCRIPTIONS $165.00 + HST per year in Canada (HST Reg. #R121351134) and US$259.00 for foreign addresses. Single copies are $4.00 Circulation inquiries, postal returns and address changes should include a copy of the mailing label(s) and should be sent to Law Times One Corporate Plaza, 2075 Kennedy Rd. Toronto ON, M1T 3V4. Return postage guaranteed. Contact Jacquie Clancy at: jacquie.clancy@thomsonreuters.com or Tel: 416- 298-5141 Ext. 2732 or Fax: 905-841-6786. ADVERTISING Advertising inquiries and materials should be directed to Sales, Law Times, 2075 Kennedy Rd., Toronto, ON, M1T 3V4 or call Karen Lorimer at 647-288-8018 karen.lorimer@thomsonreuters. com, Kimberlee Pascoe at 416-298-5141 Ext. 4052 kimberlee.pascoe@thomsonreuters.com, or Sandy Shutt at sandra.shutt@thomsonreuters.com Law Times is printed on newsprint containing 25-30 per cent post-consumer recycled materials. Please recycle this newspaper. Editorial Obiter Let's continue liberalization of alcohol laws T he Liquor Control Board of Ontario off ered welcome news for Ontarians when it decided it's OK for people to bring in alcohol from other provinces. Th e board's policy resolution means people visiting another province can return home with up to three litres of spirits, nine litres of wine, and 24.6 litres of beer "as long as it is for per- sonal consumption," according to a notice on the LCBO's web site. Th e decision wasn't the result of legis- lative change. Rather, it was due to the LCBO board's interpretation of existing laws. "Th e new policy should dispel any confusion that this practice is not al- lowed," the LCBO notice stated. A lot of people probably didn't real- ize there were interpretations that it was illegal to carry alcohol across provincial borders. But following LCBO actions against B.C. wineries that were shipping wines directly to customers in Ontario, critics began calling for changes to the federal Importation of Intoxicating Li- quors Act that ostensibly prevents taking alcohol from one province to another. So it's good news that the LCBO is re- sponding with a policy resolution saying that it's OK to do so. Given that Canadians can bring in al- cohol duty-free when they travel to other countries, it was ridiculous that they couldn't take booze from other prov- inces into Ontario. Obviously, the re- strictions, whether they apply to people driving with a bottle from one province to another or to larger shipments from producers to consumers, merely aim to bolster the provincial liquor monopolies through agencies like the LCBO. Th e latest move came around the time Attorney General Chris Bentley an- nounced changes that would loosen alco- hol restrictions at events such as festivals and open the door to all-inclusive vaca- tion packages in Ontario. Th ese changes were positive as well, but Ontario still has some way to go in modernizing its alcohol regulations. In the case of trade barriers, restrictions preventing producers in one province from shipping alcohol directly to an On- tario consumer through online orders, for example, remain in eff ect. While the LCBO may talk about its duty to pro- mote socially responsible drinking, the rules are really about protecting mon- opolies. Th at's great for provincial cof- fers, but it's time for the government to liberalize the rules even further. If Ontario were to allow B.C. win- eries to ship their product directly to consumers here, presumably our pro- ducers would get the same access to markets in that province. Th at's ob- viously a good thing for our economy. In terms of the revenue loss, a concern may be that loosening the rules fur- ther may entail allowing shipments of other types of alcohol from one prov- ince to another without going through a provincial agency. Th at's a legitimate concern given the potential eff ect on provincial fi nances, but potential solu- tions include limits on the amounts producers can ship. Provinces could also restrict the application of new rules to wine given its importance as a growing local industry. It's wineries, after all, that have been key propon- ents of liberalization in recent years. Th e issue is all about balance. If, as a society, we want to continue to bene- fi t from the money liquor monopolies bring to provincial coff ers, it's reasonable to leave some restrictions in place. But if we can accomplish that goal while open- ing up new opportunities for businesses and consumers, that's even better. — Glenn Kauth Time to relax rules against income splitting M any people live in family units, some- times with a father, mother, and young children. However, for most purposes, people are liable for tax on their personal income. Since tax rates increase as income rises, the amount paid by a single- earner family is considerably higher than would be payable by a two-earner family with the same total income. To be sure, there are vari- ous methods of income splitting among family members in order to reduce the overall tax burden. Most of the techniques, however, are sophisticated, involve profes- sional fees, and are subject to strict anti-avoidance rules. As a result, only high-income taxpayers can take advantage of plans that in- volve share capital structures, for example, to reduce taxes. Anti-avoidance rules govern transfers of property to spouses, children under the age of 18, and other family members in non-arm's-length relation- ships. For example, a broad rule taxes lenders on income from property that they lend to any non-arm's-length bor- rower if the motive is to re- duce or avoid tax. Since dividends are eligible for the dividend tax credit, adult children can receive sub- stantial dividends without tax. Th e dividend tax credit wipes out any potential tax liability on the income. Th us, a family with three adult children attending univer- sity could, for example, pay no tax on nearly $90,000 of divi- dend income in the year. However, the rules for split- ting dividend income with min- ors are more diffi cult. A special tax of 29 per cent — the highest federal rate — applies to the min- ors' income as if they were in the top tax bracket. Th e latest budget expands the tax to apply to capital gains as well. More ominously, the government says it intends to monitor the eff ectiveness of the Financial Matters By Vern Krishna tax on split income and "will take appropriate action if new income- splitting techniques develop." Taxation of individuals as taxpayers separate penalizes spouses who don't work outside the home. Allowing a family to split its taxes between the mem- bers of the immediate family would recognize the economic unit and contribution of stay- at-home parents to the family. To be sure, the tax statute al- lows patchwork income split- ting by, for example, allowing for spousal registered retire- ment savings plans under which higher income spouses can con- tribute to their partner's RRSP that may be taxable at a lower rate when they take out money www.lawtimesnews.com from the plan. Still, we could simplify the Income Tax Act if we removed other prohibi- tions against income split- ting among family members. Th e tax system does an about face when it comes to collecting taxes from families. If an individual gifts property to a spouse, both of them become jointly and severally liable for any tax owing at the time of the gift. Th e liability is equal to the shortfall between the value of the property gifted and the amount received for the property. Th e rule, which appears in- nocent on the surface, is quick- sand for divorcing spouses. For example, assume that in 2011, John, a businessman, buys a country home for $200,000 and puts the property in his spouse Mary's name. Follow- ing a reassessment of his taxes in 2013, the Canada Revenue Agency claims that John owes additional business taxes of $200,000 for 2011. In 2015, John separates from Mary and emigrates to a warmer climate with his new friend. Th e CRA will come after Mary for the $100,000 and throw her out of her house to get its money. Th ere's no time limit on the CRA's power to assess Mary. Th e election of a majority government is an opportunity for leaders to make diffi cult deci- sions. Th e rules against splitting income are tax policy hangovers from the era of bell-bottom pants. As a result, the government should update them. Taxation based on the family unit would be fairer tax policy. If properly implemented, it will simplify tax law, ease administrative compli- ance, and reduce litigation, with reasonable revenue loss. all Vern Krishna is tax counsel with Borden Ladner Gervais LLP and executive director of the CGA Tax Research Centre at the University of Ottawa. He can be reached at vkrishna@blg.com.

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