When a spouse dies, individuals are often left unsure of their rights.  Whether there is a Will and you have been left with nothing, or there was no Will and you need to ensure that you get what you deserve, there is legislation in place to protect you.

1. What happens if your spouse dies with a Will?

Section 5 of the Family Law Act, states that when a spouse dies, the surviving spouse is entitled to an Equalization of the net family property. The practical effect of this is that the surviving spouse gets the share that they would have been entitled to if they had gotten divorced rather than if one spouse had died.

Section 6(1) of the Family Law Act presents the surviving spouse with a choice: where there is a Will, the surviving spouse can either take what they are given in the Will or decide to take what they are entitled to under Section 5 of the Family Law Act.

2. What happens if your spouse dies without a Will?

When a spouse dies without a Will, Part II of the Succession Law Reform Act states what a spouse is entitled to receive: a surviving spouse is entitled to receive the first $200,000.00 of the estate, this is called the “Preferential Share” of the Estate.  In addition to the Preferential Share, the surviving spouse is entitled to the following:

  • If 1 child: one-half of what is remaining after the Preferential Share (i.e. the “Residue”); and
  • If 2 or more children: one-third of the Residue

Section 6(2) again leaves the surviving spouse with a choice: where there is no Will the surviving spouse can either:

  • Elect to Equalize the net family property; or
  • Elect to take the Preferential Share plus their portion of the Residue.

3. Considerations for Common Law Spouses

It is important to note that this is not available to Common Law couples. As such Common Law couples should:

  • Make sure they have a Will in place; and/or
  • Sign a Cohabitation Agreement, which will specify how property will be dealt with in the event of the death of one spouse, and what the couple agrees will not happen.

4. Considerations for Separated Spouses

Furthermore, the above-mentioned elections are still applicable if the spouses have been separated for a length of time. As such it is important to either:

  • Get a legally binding Divorce, or
  • a legally binding Separation Agreement.

To find out more about how to protect yourself or your spouse contact us by phone at 905-471-6161 or email us at info@eruditelaw.com.

Those who are currently renting in the Greater Toronto Area know that it is very challenging to find good value in this market.

A study by the Canadian Mortgage and Housing Corporation (“CMHC”) shows that the vacancy rate of rental properties in the GTA is the lowest it has ever been in 16 years. With rental properties becoming more scarce in the GTA and the average cost of rent increasing, some landlords are looking to get around the 2.5 percent rent increase cap as prescribed by the Ontario Fair Housing Plan through creative means.

Personal Use Evictions

Procedure

The Residential Tenancies Act (“RTA”) governs non-commercial, residential tenancies.

According to the RTA, if the landlord requires the property for “personal use”, a landlord may apply to the Landlord Tenant Board (“LTB”) to terminate the tenancy and evict the tenant. Personal use involves use by the landlord, the landlord’s family member, or a person who provides or will provide care services to the landlord or the landlord’s family.

To initiate a personal use eviction, the landlord will file a “Notice to End your Tenancy”, and deliver it to the tenant. The termination date in the notice must be at least 60 days after the landlord provides the notice to the tenant.

If you have a month to month tenancy, the termination date must be on the last day of the rental period. In the alternative, if you have a fixed term tenancy, the termination date must be on or after the last day of the fixed term. An incorrect termination date would render the notice of termination defective.

Key Requirements to Note

In evicting the tenant for personal use, the landlord must be acting in good faith. The landlord must demonstrate to the LTB that the landlord (or the landlord’s family member) will indeed move into the unit within a reasonable time after the rental property becomes vacant.

The unit also must be used for “residential occupation” post eviction. For the most part, this means that the unit cannot be left empty, used as storage of items for the landlord, or be turned into a home office or study (a common occurrence for basement rental units).

Finally, for notices given after September 1, 2017, the landlord must compensate the tenant for eviction. This amount will be equal to one month’s rent. The compensation must be made before the termination date.

Remedies

If the landlord terminated your tenancy in bad faith or otherwise, you could apply to the LTB for certain reliefs.

Amongst other things, the LTB can provide relief from eviction, a specified sum for increased rent that you may incur for one-year after vacating the rental unit, reasonable out-of-pocket moving expenses and more.

If you feel that your tenancy has been unfairly terminated, the lawyers at Erudite Law LLP may be able to help. Please drop us a line at http://Eruditelaw.com/#contact. We look forward to hearing from you!

By: Jimmie Z. Chen

Employee deductions and expenses as an owner-employee.

While employees at arms-length have been permitted to deduct certain employment expenses pursuant to section 8 of the Income Tax Act, the Canada Revenue Agency has taken issue with employees who are also shareholders of the corporate employer.  That is, employees who are sole directors, shareholders and officers of the corporation have been increasingly scrutinized by the CRA.

Back in 2009, the case of Adler v. R, 2009 TCC 613 (informal procedure), the Tax Court of Canada held that since the appellant was the sole officer, director and shareholder of his employer, a refusal to incur the job related expenditures would yield no adverse consequences for him.  On the basis of this reasoning, the Court dismissed the appeal.

  1. So can I deduct my employment expenses?

It is arguable that this case should be limited to its facts and possibly not applicable in all situations.  Firstly, the decision in Adler is silent on whether there was an employment contract in place explicitly requiring the employee to incur certain costs.  Secondly, the Courts interpretation of “adverse consequences” is quite narrow indeed, appearing to be limited to an action for breach of contract, disciplinary action, and / or poor performance review – quite simply, this cannot be true as there may be negative financial consequences such as lost profits, inability to meet third party obligations, or the inability to pay salary to arms length employees.

  1. What is required before I deduct employment expenses?

One thing is certain, section 8 of the ITA details some specific requirements before any employee can deduct certain employee expenses – among other things, a good starting point is to always have an employment contract with specific provisions detailing what are the requirements of the job is and what expenses the employee may be responsible for without reimbursement.

If you are a sole director, shareholder, and officer of a corporation and are considering becoming an employee of your corporation, let the lawyers at Erudite Law LLP assist you in reviewing your options.  Please feel free to contact us – https://eruditelaw.com/#contact.

We all encounter contracts day in and day out in our personal lives.  Often, such as with the iTunes terms and conditions, we do not even bother to read them before we hit “I accept”. The importance of clear and carefully drafted contracts cannot be overstated.

What should I be looking for in my contracts?

1. The Parties being bound by the contract are clearly defined.

2. The roles, or promises, of each Party are clearly stated.

3. The contract clearly sets out how to tell if a Parties isn’t fulfilling their end of the bargain.

i.e. What constitutes a “breach” of the contract?

4. The contract clearly states what will happen if a Party “breaches” the contract.

5. The “Term” of the contract is clearly defined.

How long will the contract last? This can be based on the completion of a certain task, or the termination of a certain event or be a set amount of time.

6. The contract clearly describes how, and for what reasons, a Party can terminate the contract before the “Term” is over.

7. The contract states what laws govern the contract.

For example, if you are from Toronto contracting with someone in Montreal, does the contract state whether the laws of Ontario or Quebec govern the transaction?

What are some of the pitfalls of bad contracts?

The contract may not be enforceable.

The point of a contract is to:

  • clearly set out the intention of the Parties; and
  • to make sure that the Parties do what they are supposed to.

If your contract turns out to be unenforceable, then you lose half the utility of your contract!

Expensive Litigation.

Ambiguous terms and conditions in a contract, where it becomes difficult to determine what the Parties intended, can lead to a breakdown of the relationship between the Parties as time goes on.  This can lead to expensive and time consuming litigation.

Conclusion

As you can see, you can incur significant legal fees trying to correct a badly drafted contract or trying to enforce a poorly  drafted contract. As small business advisors at Erudite Law LLP, we consistently try and stress this to our clients. By having a contract correctly drafted by a lawyer, you may save yourself the time, stress and money of trying to correct something that should have been doing correctly from the start.

If you wish to have your contract reviewed, contact the lawyers at Erudite Law LLP by email at info@eruditelaw.com or call us at 905-471-6161.

 

Bill 59, lovingly called the “Putting Consumers First Act (Consumer Protection Statute Law Amendment)” will make some sweeping changes to the Consumer Protection Act of Ontario on March 1st, 2018.

A quick summary of the Ontario Consumer Protection Act

The Consumer Protection Act covers most common consumer transactions and provides specific rules and regulation that protects a consumer against unfair business practices. Some examples include:

  • Providing a cooling-off period that allows you to cancel some agreement without reason or penalty
  • Providing specific rules with regarding misrepresentation to what product or services that a business offers.
  • Providing specific requirements for towing and storages services, car repairs, and credit agreements.

Ontario Door-to-Door Sales Ban

On March 1, 2018, the amendments contained in Bill 59 that speak to door-to-door sales will come into effect.

Most importantly, the amendments will prohibit some suppliers (the person selling you something) from soliciting or entering into agreements at the customer’s home, unless the customer has specifically requested for the supplier to attend.

  1. What does that mean for the supplier?

If you are in the business of selling heating, ventilation, and air conditioning (HVAC) goods and services, like water heaters, furnaces, and air conditioner units, you can no longer arrive at your target customer’s home unrequested to sell or offer your services in person.

Leaving marketing materials at the customer’s home is not considered to be “solicitation” and is currently still an acceptable practice.

      2. What does that mean for the consumer?

If, after March 1, 2018, you are a customer that entered into an agreement with a supplier at your home without sending an initial request, the agreement that you have entered into is considered to be void. Any related agreements with the supplier, such as guarantees, security agreements, and credit agreements provided by the consumer will also be considered to be void.

As such, you may be able to return all the goods you accepted from the supplier and ask the supplier to reimburse you for all the charges you have incurred from the solicited agreement.

If you feel like you have been unfairly treated by a business and are looking for legal options, the lawyers at Erudite Law LLP may be able to help. Please drop us a line at https://eruditelaw.com/#contact. We look forward to hearing from you! 

By: Jimmie Z. Chen

What is Probate?

To put it in the simplest terms, Probate is the Court Process by which a Will is authenticated, and through it an executor is issue a “Certificate of Appointment of Estate Trustee with a Will”.  This certificate gives the executor  the authority to act on behalf of the estate.

It is essentially an approval process that checks to determine whether your Will is valid and confirms the appointment of the Estate Trustee that you have chosen. Without a Certificate of Appointment, the Estate Trustee may run into issues when they attempt to transfer the assets as per your instructions on the Will.

Why does this matter to me?

It is likely that you stumbled across this blog specifically searching for the word “Probate”. This process is important for the Estate Trustee of an Estate, as well as individuals completing or revising their Will for effective tax planning purposes. Understanding the process of probate will go a long way in allowing the beneficiaries of your Estate to inherit a more valuable estate.

The Fees

There is a cost associated with probating a Will. This is called the Estate Administration Tax in Ontario, also sometimes lovingly referred to as “Probate Fees”. It is important to note that Estate Administration Tax and income tax is not the same thing.  Upon death, the executor of the Will is responsible for accurately reporting your assets for Estates Administration Tax and Income Tax purposes. While this article may touch upon Income Tax issues, the information presented here is focused on the Estate Administration Tax.

With regards to the Estate Administration Tax, the current rates in Ontario are:

  • $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
  • $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000.

There is no Estate Administration Tax due if the total value of the estate is less than $1,000.

You can find a handy Estates Administration Tax calculator here: https://www.attorneygeneral.jus.gov.on.ca/english/estates/calculate.php

Can I avoid paying the fees?

While it is unlikely that you can avoid paying Estate Administration Tax completely, you can minimize Estate Administration Tax by carefully planning how you want to distribute your assets. This is because not all of your assets necessarily need to go through the probate process.

Obviously, a commercial bank will not transfer your entire life savings without some sort of assurance that the Executor of the Estate is who they say they are. However, less valuable assets, such as your vehicle, may be transferable without a Certificate of Appointment to your executor through Service Ontario.

Listed below are some of the ways you can try to minimize Estate Administration Tax. It is important to know that the methods as described below carry significant legal consequences, so we highly recommend you speak to a lawyer before attempting to do this yourself.

  • Name beneficiaries in your Life Insurance Plan and/or Registered Accounts.

If you name a beneficiary for your life insurance plan or registered savings plans such as RRIFs or RRSPs, it is possible to bypass probate by directly passing the assets in those plans to your beneficiaries. While your beneficiaries will still be responsible to accurately report the amount for Income Tax purposes, this will allow you to avoid the Estate Administration Tax.

  • Joint Ownership of Assets

If the title to a specific asset is jointly owned by you and someone else, such as your spouse, the survivor will automatically receive the title of the asset upon your death. This allows you to bypass probate, as the survivor will have full ownership of the specific asset, and there is no need to prove their right of ownership.

  • Two Wills

In some provinces, like Ontario, it is possible to have more than one Will. How this usually works is that one Will can be used to distribute assets that will require probate, and the second Will can be used to distribute assets that does not require probate. It is important that the Will is carefully worded so that the there are no conflicts between the two Wills.

This method has been tested in court. In Granovesky Estate v. Ontario, the deceased left two Wills: a Primary Will to deal with assets that required probate, and a Secondary Will to deal with assets that did not require probate.

The court decided that there was no prohibition against asking the court for a limited grant of a Certificate of Appointment on the Primary Will (and all the assets included in it). Furthermore, there was no requirement for the Estate Trustee to submit the deceased’s secondary Will to probate or to pay Probate Fees (as it was called then) on the value of assets listed on the Secondary Will.

  • Trusts/Private Company

If you wish, you can set up a private company or trust to own your assets to avoid the probate process. This is commonly used for Income Tax planning purposes for large estates to minimize the Income Tax paid on the Estate. As this gets fairly complex, we recommend you speak to your lawyer about the costs associated with creating a trust or company. The costs associated with this method may be more than the Estate Administration Tax itself, so avoiding the Estate Administration Tax should not be your sole reason to set up a private company or trust for your Estate.

Conclusion

Every Estate is unique, and different methods will work better for different individuals. Erudite Law can guide you through the probate process and work with you to discover the right plan, allowing you to leave a more valuable estate for your loved ones.

For more information with regards to probating a will, or Wills and Estates in general, please do not hesitate to reach out to us by phone at 905-471-6161 or email us at info@eruditelaw.com.

Many business owners decide to incorporate, as they grow, to take advantage of the numerous benefits of incorporation. What fewer business owners are aware of is that if members of certain professions decide to incorporate in order to render their professional services, they are often required to do so as professional corporations.

These professional corporations differ in a few major ways from regular provincially incorporated corporations, which are discussed below. Some eligible professions would include accountants, architects, dentists, doctors, engineers, lawyers, pharmacists, social workers, and veterinarians.

What is the difference between a professional corporation and a non-professional corporation?

Professional corporations differ from non-professional corporations in a number of ways.

One key distinction is that professionals of professional corporations are often subject to legislation that governs their specific profession. For example, social workers in Ontario are regulated by the Social Work and Social Service Work Act, and veterinarians by the Veterinarians Act. This effectively means that in addition to being governed by the Business Corporations Act, a professional corporation is also subject to the laws of these profession governing acts.

A second distinction is in the classifications of shareholders either type of corporation can have. For instance, a business owner of a non-professional corporation can elect anyone as a shareholder. On the other hand, for many professional corporations, only licensed individuals of the same regulated profession may be shareholders. There are, however, some professions that will allow immediate family members to hold shares in the professional corporation subject to certain conditions. To illustrate, doctors in Ontario can issue shares to immediate family members, provided that these shares are designated as non-voting shares.

Another notable difference has to do with liability. Shareholders in a non-professional corporation are only at risk of losing what they invested in the company, meaning that, except for a few exceptions, their personal assets are protected. Part VII of Ontario’s Business Corporations Act (the “Act”) Section 92 (1) states:

“The shareholders of a corporation are not, as shareholders, liable for any act, default, obligation or liability of the corporation except under subsections 34(5), 108(5) and 130(5) and section 243.”

As for professional corporations, however, the same cannot be said. For instance, if a doctor providing services through a professional corporation were to be sued for malpractice, the doctor may be personally held liable. Section 3.4(1) in the Act states this clearly:

“Subsection 92(1) shall not be construed as limiting the professional liability of a shareholder of a professional corporation under an Act governing the profession for acts of the shareholder or acts of employees or agents of the corporation.”

What are the benefits then of starting a professional corporation?

Despite not offering the same limit on liability as a non-professional corporation, professional corporations still carry numerous advantages. Below is a list of some of the benefits:

  • Income Splitting
  • Reduced Tax Rates
  • Deductions
  • Special Funds
  • Improved Record Keeping

Income Splitting

Income splitting is the act of transferring income between immediate family members. The purpose is to bring down the overall tax burden that the family member making the highest income would otherwise have to face. Furthermore, in bringing income levels down to a lower tax bracket, a family may be able to take advantage of a host of deductions and credits. This is not available for all professional corporations.

Income splitting through a corporation can prove to be very beneficial over the long term. Here, we will provide a simple example that focuses solely on regulated professionals.

Imagine Dr. Anderson, a physician, made $200,000 though her professional corporation. She can then decide the salary she would like to be issued from the professional corporation. In addition, since her profession allows it, she can distribute dividends to her husband, who holds non-voting shares in the professional corporation (and who, for this scenario, had a tough year as a writer and did not generate an adequate income).

The $200,000 in earnings that Dr. Anderson made through her incorporated practice are being taxed at the corporate rate, which is below 20%. Without her corporation, the $200,000 would be taxed at the personal rate, which hovers around 50%.

Third, the dividends issued to her husband are taxed at the lower “capital gains” rate, and not at the level of “personal income tax.” In other words, through professional corporations, families can all help each other out through the strategic distribution of income. This is why the government considers this maneuver as a form of income splitting.

Reduced Tax Rate

On the first $500,000 of business income, professional corporations in Ontario have the advantage of being taxed at the reduced corporate rate of 19.5%. This is known as the “small business deduction.” As already stated above, corporate tax rates are significantly lower, and thus, preferable to personal tax rates.

Deductions

Deducting the expense of a bonus is another advantage that professional corporations have. Bonuses can be deducted by a professional corporation, so long as the bonus was paid out within the fiscal year.

On top of making deductions from bonuses, a professional that operates a corporation can also deduct the costs of attending over two business conventions annually. The only requirement is that the conventions are related to his or her actual practice. Compare this to non-professional corporations, which are limited to making cost deductions on only two business conventions.

Special Funds

Professional corporations come with the added benefit of giving regulated professionals the chance to set up special funds and financial plans for themselves and their workers. For instance, a professional corporation can own its own group and life insurance policies. This would give the owner of the professional corporation the ability to pay premiums out of pre-tax income (which, in turn, lowers the corporation’s overall taxable income).

Professional corporations also give professionals in their later stages in life the opportunity to set up individual pension plans similar to the specialized ones that public service workers have. Such a pension plan could provide more tax deferred savings than under a Registered Retirement Savings Plan (i.e. RRSP). This is because the individual pension plans of incorporated professionals have higher contribution limits than regular RRSPs, allowing for a greater accumulation of retirement savings. Also, not only can the employer of the professional corporation deduct contributions, but the pension benefits are also protected from creditors.

Improved Record Keeping

A professional corporation requires a separate bank account, a special letterhead, unique business cards, corporate financial statements, and annual tax return filings, to name a few. And while these requirements may seem rather onerous, the fact is that professional corporations encourage better bookkeeping overall, as they make it much more difficult to mix up personal financial records with those of business.

Conclusion

These are but a few of the benefits to be gained from managing and controlling your own professional corporation. To be sure, there are limitations, and for some, disadvantages to running a professional corporation. These points will be discussed in a future post.

For further information regarding professional corporations contact Erudite Law LLP at info@eruditelaw.com or 905-471-6161.

B. Brillantes, Student Intern at Erudite Law LLP

 The Benefits of Incorporation

Are you a small business owner? Have you put your blood, sweat, and tears into growing your business and pursuing your passion? Perhaps profits have been rising, and you have surpassed that 2 year mark, a milestone which 30% of small Canadian businesses fail to ever reach.  If any of this resonates with you, then it could be time to start considering making structural changes to your business, and giving greater thought to the benefits of incorporation.

There are many different ways you can do this and at Erudite Law we can help you figure out what makes the most sense for you and for your business.  If incorporation is the next logical step for your business to take, then keep reading and let Erudite Law help you understand what it is and how it works.

Taking the step to incorporate a for-profit corporation can be complicated and daunting to those who are not entirely familiar with the process. You will need to decide if you want to incorporate provincially or federally.  You will need to decide on the name you wish to adopt, determine if it is available and if it complies with the laws of Canada and the Province of Ontario. You will need to consider share provisions, and organizational structures. Choosing the right law firm can simplify this process; by placing the burden of these considerations on us, you will be able to free your mind and your time so that you may focus on growing your business.

Why Incorporate?

Corporations protect the personal assets of shareholders

A corporation protects its shareholders through what is known as ‘limited liability’. The act of incorporation places a “barrier” between the individual and the corporation, protecting the shareholder’s personal assets from the risks of the business. For example, in the event of bankruptcy, the losses of the shareholders will be limited to what they have invested in the corporation. To put it simply, in the unfortunate event that a business goes belly up, the shareholders will be protected from losing their personal assets, such as their cars or their homes, to cover the debts of the corporation.

Corporations can produce attractive tax benefits

There are many tax benefits that come with having a corporation. For example, family members may be employees of the corporation.  This would allow the corporation to pay a salary to their spouse or child and deduct the salary as an expense of the corporation, reducing the corporation’s earnings and the amount on which it will be taxed. You also have the opportunity to decide how you would like to pay yourself, through a salary as an employee or through dividends as a shareholder.  Additionally, the corporate tax rate is generally lower than personal tax rates, depending on which tax bracket you fall into.  If you decide to pay yourself through a salary, you may modify your salary to allow for a smaller sum to be taxed at your personal tax rate and leave a larger amount of the corporation’s profits to be taxed at the corporate tax rate. As a simplified example for illustration purpose only, if a business makes $400,00.00 a year in net profits, as a sole proprietorship all of these earnings would need to be taxed at your personal tax rate. Whereas with a corporation, you may pay yourself a minimal salary, leaving the remainder in the corporation to be taxed at the, often lower, corporate tax rate.

Corporations are better at raising needed funds

In the event that you are able to secure investors, a corporation would allow you the ability to sell various kinds of shares in the corporation in exchange for dividends on the profits of the corporation or even voting rights.

Corporations have the capability of living forever

Lastly, corporations have what is known as perpetual existence. Essentially, this means that a corporation will continue its existence even if the owner of the corporation changes. This allows an exit strategy for owners and for simplified estate planning.  For example, if your business does incredibly well and you find someone who is interested in purchasing it from you, you will be able to sell all of the shares of the corporation and change ownership with minimal disruption to the day-to-day operations of the business.  This also offers an exit strategy upon retirement. Additionally, you may leave the shares of your business to your children or grandchildren in your Will allowing the business to continue and giving your successors the benefit of the goodwill you worked so hard to create.

For information on Professional Corporations, check out our Professional Corporations blog post.

Let us help you!

Having the right guidance, as you grow your business and plan for your future, is imperative to success! Let Erudite Law guide you through the process, so that you can remain focused on your business.  If incorporation does not sound like the right option for you, stay tuned as we explore various other business structures (or give us a call for more information)!

For more information, call us at 905-471-6161 or email us at info@eruditelaw.com.

Stay ambitious!

 


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