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April 4, 20126

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Law firms caught up in changes to small business deduction CRA puts end to 'too much of a good thing' BY JENNIFER BROWN Law Times T ax lawyers and accountants are about to get a whole lot busier as their col- leagues in other law firms challenge them to find a new way to help them save money from the Canada Revenue Agency. A major change to the small business deduction announced in the federal budget March 22 will affect many professional cor- porations, including lawyers. Under existing legislation, the small business deduction is available to corpo- rations that earn business income up to $500,000. The small business tax rate is 12 to 15 per cent and the deduction provides tax savings of up to $55,000. The previous rate was intended to encourage people to preserve income in the professional corpo- ration. Now, those profits will be subjected to a 26.5-per-cent rate — a 10-per-cent hike. In the budget document, it states: "A con- cern on the domestic front is the ability of high-net-worth individuals to use private corporations to inappropriately reduce or defer tax." To address this concern, the budget plan released March 22 proposes measures to: • prevent business owners from multiply- ing access to the $500,000 small business deduction using complex partnership and corporate structures; • ensure investment income derived from an associated corporation's active busi- ness is ineligible for the small business deduction (and taxed at the general cor- porate income tax rate) in certain cir- cumstances; • ensure that associated corporations can- not avoid the $15-million taxable capital limit; • close loopholes that allow private corpo- rations to use a life insurance policy to distribute amounts tax-free that would otherwise be taxable. Lawyers use PCs to claim the small business deduction by charging fees to a partnership of which the shareholder was a partner. This per- ceived loophole has now closed. "They've now said this is too much of a good thing and you can't do this any- more," says Robert Kepes, partner with Morris Kepes Winters LLP. "They're now saying your company is going to be deemed a member of the partnership and it won't be able to get the full $500,000 small business deduction — it's going to get a pro-rated amount." Kepes says some lawyers may still think it's worthwhile to use a professional corporation structure because it will be paying 26.5 per cent, which is still better than the 50-per-cent tax rate. It may sound like the closing of a fruit- ful "loophole," but Kepes says the Canada Police impaired if texts treated same as phone messages: lawyer Cases highlight legal debate over texting privacy rights SHANNON KARI For Law Times T he Ontario Court of Appeal is being asked to determine what privacy rights exist in the content of an individual's text messages when they are obtained by police through the seizure of the phone of the recipient and not that of the sender. It is only the second time that the status of text messages on another person's phone has been before an appellate court. e B.C. Court of Appeal ruled last year that there are privacy interests for the sender of the communications. At the Ontario Court of Appeal, the issues have been raised in two cases that are be- ing heard together this week. Tristin Jones and Jermaine Smith, convicted of gun and mari- juana offences aer a trial in Otta- wa, are challenging production or- ders to obtain text messages. ey are arguing that a wiretap authori- zation was required. Nour Mara- kah, convicted in Toronto of gun trafficking offences, is challenging the admission of text messages ob- tained without a warrant from the phone of a co-accused. e provincial and federal Crown, lawyers for the appellants and the Criminal Lawyers' Asso- ciation, which was granted inter- vener status, are all represented at the hearing. If past text messages are treated as if they are the same as phone conversations, it would impair the work of law enforcement, said pro- vincial Crown Randy Schwartz in written arguments filed with the court. "It would dramatically and illogically impact wiretap law," wrote Schwartz. "It would have significant, practical negative ef- fects by unduly hampering the ability of police to obtain highly relevant text messages." As well, he suggested there is no legal basis for individuals to assert a privacy right in content obtained from another person's CONTRACTOR OBLIGATION Ruling on paying subcontractors P5 SUNSHINE LIST Top legal earners in Ontario P2 FOCUS ON Health & Life Sciences Law P8 See Privacy, page 4 PM #40762529 $5.00 • Vol. 27, No.11 April 4, 2016 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 See Tax, page 4 & $#&!&jmmm$cYa[bbWh$Yec ntitled-4 1 12-03-20 10:44 AM Follow LAW TIMES on A DAILY BLOG OF CANADIAN LEGAL NEWS LEGALFEEDS.CA FEEDS LEGAL POWERED BY LegalFeeds_LT_Apr4_16.indd 1 2016-03-29 1:47 PM Laura Berger says the argument there is no privacy right once a text message is sent is a very 'old school' notion that doesn't fit with modern communications. Robert Kepes, partner with Morris Kepes Winters LLP, says federal tax changes will affect small and large law firms. Photo : Robin Kuniski

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