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January 30, 2015

Is my medical marijuana subject to GST? Is China taxing its citizens living abroad? Are you 60 and a business owner?

Is my medical marijuana subject to GST?

It’s not surprising that, given the proliferation of private sellers of medicinal marijuana, the Canada Revenue Agency would seek to ensure that sales are subject to the appropriate taxes.

In a recent Tax Court of Canada decision, the Court ruled that the sale of medical marijuana is subject to GST/HST. It may seem like a simple concept but the Court went through a very lengthy review of the law to arrive at this conclusion. Counsel for the plaintiff argued that marijuana is zero-rated under the Excise Tax Act as a drug that contains a substance listed in the Narcotics Control Regulations (i.e. cannabis and THC). However, there is an exclusion from zero-rating for a “drug or mixture that may be sold to a consumer without a prescription”.

The Court agreed with the plaintiff’s counsel that marijuana is a drug that is sold or represented for use in the treatment of disease. However, they concluded that, because marijuana is available from Health Canada under the Marihuana Medical Access Regulations, it can be sold without a prescription and thus is excluded from zero-rating.

It looks like one of B.C.’s biggest exports just got 5% more expensive!

Is China taxing its citizens living abroad?

A recent article in the New York Times (China Wants Taxes Paid by Citizens Living Afar) highlighted plans by China to collect tax on income earned abroad. While the article indicates a move by China’s tax authority to a citizenship-based taxation system similar to the United States, we have been unable to confirm a change in the basis of taxation with our colleagues in Beijing.

At this point, the Chinese tax authorities are likely focusing on the reporting of worldwide income by wealthy Chinese residents who have investments and business interests abroad. We will monitor this situation and provide updates as details become available.

If you would like more information on your possible tax filing obligations, please contact Bryan Hubbell or Jody Hatto of the Manning Elliott Tax Team to coordinate correspondence with our colleagues in China.

Are you 60 and a business owner?

If you own your own business, you have some discretion as to whether to compensate yourself with employment income or dividends.  In making the decision, it is important to think about the impact on your Canada Pension Plan (“CPP”) contributions and benefits.

By paying yourself in dividends, you could save yourself and the company the CPP remittances that would be required on salary payments.  In 2015, this would result in a maximum savings of $4,959.90.

This strategy could be combined with the decision of when to start drawing a CPP pension from the government.  An individual can choose to take a reduced CPP pension early beginning at age 60, or an increased pension after age 65.  The amount of the decrease or increase depends on the number of months before or after age 65.

Assuming maximum annual benefits are $12,780, the overall CPP pension earned over the lifetime of 3 individuals would be as follows:

1. 60-year old starts taking early CPP and lives to 80: 20 years x $8,332 = $166,640
2. 65-year old starts taking CPP and lives to 80: 15 years x $12,780 = $191,700
3. 70-year old starts taking deferred CPP and lives to 80: 10 years x $18,148 = $181,480

While it appears that option 2 is the best, other variables need to be taken into consideration such as the rate of return achievable if the funds received in the early 60s can be invested and whether one will live until 80 (or longer).

For assistance in making decisions related to CPP, please contact Lyndon Braun or Dagmar Zanic of the Manning Elliott Tax Team.

And More…

  • Further news from China

International law firm, Dentons, has announced it intends to merge with China’s largest law firm, Dacheng.  Dentons already includes Canada’s former Fraser Milner Casgrain LLP, and the expected merger will result in the world’s largest law firm.  This merger should be good news for those seeking legal advice with respect to their cross-border financial interests.

  • Interest rates in Canada

On January 21, 2015, the Bank of Canada announced that it would lower its overnight rate from 1% to 0.75%.  Many of the large Canadian banks followed suit by reducing their prime rates from 3% to 2.85%.  We will be watching to see whether the Canada Revenue Agency (“CRA”) reduces its prescribed interest rates…

  • CRA’s Electronic Funds Transfer Initiative

Until January 1, 2015, financial intermediaries such as banks were required to report incoming and outgoing international EFTs of $10,000 or more to Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”).  Now, the financial intermediaries must also report these transactions to the CRA within five working days of the transfer.  More information can be found here: Harper Government cracks down on international tax evasion and aggressive tax avoidance with launch of Electronic Funds Transfer Initiative

  • CRA’s Direct Deposit Initiative

As we have mentioned before, the CRA is moving away from issuing physical cheques and is encouraging taxpayers to enroll for direct deposit payments.  If you haven’t already done so, you can sign up for direct deposit when completing your 2014 T1 personal income tax return or visit:

The CRA says that not only will direct deposit be a faster way to receive your refund, child benefits, and GST/HST credits, it will also be cheaper and better for the environment!