So, while taxpayers will still have to be wary of offending the GAAR through the application of legitimate tax breaks, it's clearly acceptable for couples or individuals to use investment or business assets to pay for a home or to retire a mortgage, and to immediately borrow money to replace those assets and to deduct the interest cost as an expense at tax time.
The Supreme Court had already ruled in 2001 that Vancouver lawyer John Singleton was perfectly justified in taking $300,000 from the capital account of his law firm to help buy a house in his wife's name and, on the same day that he wrote the cheque for the house, borrow money to replace the partnership capital and claim a tax deduction for his interest costs.
Top court says no to family's tax scheme TheStar.com - Business - Top court says no to family's tax scheme
Judges rule 4-3 that husband's deduction of wife's expenses was `abusive tax avoidance'
January 09, 2009 James DawBusiness Columnist
Earl Lipson has lost his final appeal over his right to deduct his wife Jordanna's interest expenses and leave them with more money to pay for a $750,000 home they bought in Toronto in 1994.
But thousands of other taxpayers can breathe easier, says their lawyer, Edwin Kroft of McCarthy Tétrault LLP in Vancouver, and others familiar with yesterday's widely anticipated Supreme Court of Canada ruling, which also applies to Lipson's brother Jordan.
A four-to-three majority of judges ruled that a series of transactions and the use of available tax breaks resulted in abusive tax avoidance, contrary to the general anti-avoidance rule, or GAAR.
But Kroft says it will be significant to many taxpayers that the court's general endorsement of two lower court rulings did not give the Canada Revenue Agency everything it might have wanted.
The top judges saw nothing wrong with the taxpayers' wives deducting interest expenses for a loan used to purchase shares in a family company, and for the brothers to apply the proceeds of the loans to buy family homes.
"The tax benefit of the interest deduction resulting from the refinancing of the shares of the family corporation by Mrs. (Jordanna) Lipson is not abusive viewed in isolation, but the ensuing tax benefit of the attribution of Mrs. Lipson's interest deduction to Mr. Lipson is," wrote Justice Louis LeBel for the majority.
The brothers had made use of the option to report the sale of company shares at their adjusted cost instead of the fair market value, as is permitted.
They would thus have had to report any income their wives earned from dividends. But interest expenses on loans produced a loss that gave them the major tax benefit questioned by the CRA, and which has now been ruled inappropriate by the four Supreme Court judges.
"I don't know whether Mrs. Lipson had other sources of income (than dividends from the family company), but to the extent she did, she could claim the interest expense deduction, or she could carry forward such deductions and claim them in future years," said lawyer Brian Kearl of Gowling Lafleur Henderson LLP in Calgary.
"At the time, the carry-forward period was only seven years. Now it is 20 years."
So, while taxpayers will still have to be wary of offending the GAAR through the application of legitimate tax breaks, it's clearly acceptable for couples or individuals to use investment or business assets to pay for a home or to retire a mortgage, and to immediately borrow money to replace those assets and to deduct the interest cost as an expense at tax time.
The Supreme Court had already ruled in 2001 that Vancouver lawyer John Singleton was perfectly justified in taking $300,000 from the capital account of his law firm to help buy a house in his wife's name and, on the same day that he wrote the cheque for the house, borrow money to replace the partnership capital and claim a tax deduction for his interest costs.
"So unless the transaction is very similar to the Lipsons' – if it's a plain vanilla debt swap strategy – I think it's okay," said Jamie Golombek, managing director, tax and estate planning at CIBC Private Wealth Management.
Kroft said "his decision still leaves lots of uncertainty for taxpayers – and the Crown" over the use of complicated tax planning strategies.
With the division of opinion among judges about Canada Revenue's use of the general anti-avoidance rules, "there is no clarity that they are going to win."
Friday, January 9, 2009
Top Court Rules On Tax Scheme
Thursday, January 8, 2009
Oil's plunge continues
Oil's plunge continues
GEORGE JAHN
Thursday, January 08, 2009
VIENNA — Crude prices fell again Thursday on more evidence that the global economy is under strain and that demand for energy will fall further.
Light, sweet crude for February delivery fell $1.11 cents to $41.52 (U.S.)a barrel on the New York Mercantile Exchange.
On Wednesday, the contract tumbled 12 per cent, or $5.95, to settle at $42.63 after the U.S. Department of Energy's Energy Information Administration said that inventories of commercial crude oil inventories rose 6.7 million barrels. That was well above the 1.5 million-barrel build expected by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., suggesting demand continues to erode.
Later Thursday, the U.S. government will report natural gas reserves.
The “huge builds in both the crude and products markets for last week” was the main downward price driver, said trader and analyst Stephen Schork, in his Schork Report. And Toby Hassall, an analyst with investment firm Commodity Warrants Australia in Sydney, said the stock build reminded the market that demand remains weak.
The global economy continues to weaken and on Thursday, U.S. president-elect Barack Obama said the recession could “linger for years” unless Congress pumps unprecedented sums from Washington into the economy.
“I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible,” Mr. Obama said in a speech set to be delivered at George Mason University in Fairfax, Va., outside Washington. Excerpts from his prepared text were released in advance by his transition team.
It was the fourth day in a row that Mr. Obama has addressed this front-burner issue and it was the highest-profile appearance yet on an issue that can define his early months in office.
The economic crisis has hit retailers hard as consumers steer clear of buying even heavily discounted merchandise.
Department-store operator Macy's Inc. said Thursday it will close 11 stores in nine states — affecting 960 employees — and lowered its forecast for the fourth quarter after one of the weakest holiday seasons in years.
Wal-Mart, the largest retailer in the U.S., slashed its forecast for fourth-quarter earnings, and its shares fell more than eight per cent in pre-market trading.
Equities markets fell from Asia to Europe.
The FTSE 100 index of leading British shares slipped 78.94 points, or 1.8 per cent, at 4,428.57, despite another half percentage point interest rate reduction from the Bank of England, which took the benchmark rate to an all-time low of 1.5 per cent.
Meanwhile Germany's DAX fell 82.86 points, or 1.7 per cent, to 4,854.61, while France's CAC-40 was down 71.64 points, or 2.1 per cent, to 3,274.45.
Tokyo's Nikkei 225 stock average lost 362.82, or 3.9 per cent, to 8,876.42, snapping a seven-day winning streak as the yen traded higher, and Hong Kong's Hang Seng Index fell 571.55 points, or 3.8 per cent, to 14,415.91.
Oil prices had risen earlier this week to above $48 from a five-year low of $33.87 a barrel on Dec. 19 on investor concern that the conflict between Israel and Hamas in Gaza could spread to the rest of oil-rich Middle East and affect supplies.
Lebanese militants fired at least three rockets into Israel early Thursday, threatening to open a new front for the Jewish state as it pushed forward with a bloody offensive in the Gaza Strip that has killed nearly 700 people. Israel responded with mortar shells.
“There was a shift of focus to geopolitical issues last week,” Mr. Hassall said. “If the situation calms down a little over there, the market's focus will come back to the weak global demand outlook, and that should keep prices pretty suppressed.”
Also adding to tensions in markets recently was the gas dispute between Ukraine and Russia, with all gas deliveries to Europe through Ukraine frozen for a second day. Both sides met earlier Thursday and were in Brussels to speak to the EU about how to resolve the impasse.
In other Nymex trading, gasoline futures rose less than a penny to $1.08 a gallon. Heating oil gained 2.6 cents to $1.57 a gallon, while natural gas for February delivery added 9.4 cents to $5.966 per 1,000 cubic feet.
In London, February Brent crude fell 46 cents to $45.40 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail
Merckles to sell Ratiopharm as credit approved
TheStar.com - Business - Merckles to sell Ratiopharm as credit approved
January 08, 2009
FRANKFURT–The family holding company of dead German tycoon Adolf Merckle got a long-awaited bridge loan from banks yesterday, in a deal that will force it to sell Ratiopharm, the world's fourth-largest generic drugs maker.
The family's VEM Asset Management investment vehicle said its creditor banks had transferred the bridge loan after weeks of tough talks. Financial sources had earlier told Reuters the loan was for 400 million euros ($545 million U.S.).
"We are very happy to have found a solution," VEM head Ludwig Merckle, one of Adolf's four children, said in a statement.
The loan, which buys the family time to work out a broader restructuring of the business empire that Merckle built up over the past 40 years, comes less than two days after he threw himself in front of a train.
In addition to Ratiopharm, the Merckle family controls HeidelbergCement and drug wholesaler Phoenix Group as well as a diverse portfolio of other business investments that helped put Merckle in the ranks of the world's wealthiest people.
Under the deal, a trustee named by VEM and its banks will guide the sale process for Ratiopharm and Ludwig Merckle will also have to step down as VEM chief, the statement said.
Reuters News Agency
