Recently Darren Coleman, a wealth management adviser, and Elena Hanson, an accountant, spoke about the impact of COVID-19 on taxes and the market on their podcast series Two Way Traffic, which focuses on cross-border financial issues. Here they answer questions for readers of The Lawyer’s Daily.
Question: How important is it to have good, sound legal counsel right now, especially concerning your finances?
Darren Coleman: While this is a health crisis for many, it will be a financial challenge for most. As a business owner and/or a consumer, we have rights and duties placed on us and also owed to us. Many of these are contract-based and it’s critical to have these reviewed by your legal professional so you know what your obligations and entitlements are.
Elena Hanson: Depending on the complexity of your business or your personal financial matters, a good, capable adviser is always important, but now it’s crucial. In terms of tax advice, they will help you navigate through legislation and explain how it applies to you and what needs to be done to maximize the benefit and/or minimize tax.
Every case is fact-driven and the same provision may result in different outcomes if the facts are even slightly different. Timeliness and ordering are also critical as the outcome may vary depending on how the tax law is applied.
Q: What could go wrong?
Coleman: What if your business is closed and you can’t pay your rent or your employees? What if you’re owed rent and your tenant can’t pay? Or your supplier can’t deliver? All these and more are considerations may impact you during this pandemic. Also, government stimulus programs and entitlements are changing. Do you qualify or does your business qualify? What new requirements may be placed on you?
Remember that the Canada-U.S. border is currently closed to all but essential travel. Are you or your staff considered an essential worker and what documentation do you need to prove this status? What restrictions may be placed on your travel? For example, Ontario hospitals have just banned healthcare workers from crisscrossing the Canada-U..S border to work, as many are employed by institutions in both countries. A qualified legal professional is necessary for a professional, an employee or a business owner to sort this out.
Hanson: As mentioned, timeliness and ordering are critical. The complexity of tax provisions and potential negative results are magnified when dealing with cross-border tax issues where application of the provisions has a favourable result in a domestic landscape but may end up in double taxation when applied to a dual national.
One such example is the accelerated pension withdrawal up to $100,000 under the CARES Act where tax on such income can be deferred for up to three years on the U.S. side. But there is no such holiday in Canada. Thus, if a U.S. person takes advantage of this planning, he or she will end up being doubled-taxed.
Q: What questions should clients be asking of their legal counsel at this time?
Coleman: A review of how this pandemic, closures and operational changes may affect them now and in the coming months is essential. For example, if the client employs people, they need to be current on what obligations they have to employees. Can they keep working? What if they refuse to work, and what if the employer has to lay them off? Also, what government programs can an employer access to support employees right now? And what assistance do employers need so employees may access benefits?
Hanson: On the taxation side, the immediate need from our clients has been to assist them with any tax benefits available from the stimulus packages, especially if they were laid off or terminated. In terms of businesses, owner-managers want to better understand how they can preserve cash to maintain their operations.
They want to know which of the newly introduced laws are best suited for their business — Economic Injury Disaster Loan (EID) or Paycheck Protection Program Loan (PPP) on the U.S. side or which of the two wage subsidies on the Canadian side. In addition, we’ve been dealing with some loss tax planning, including bad debt, related to business operations or individual marketable securities for individuals.
This experience showed that Canada and the U.S. don’t have a sufficient emergency response to national disasters of such a scale. The enacted stimulus packages are the largest in both Canadian and U.S. histories. The pandemic delivered a shock and currently there is no precedent or crystal ball for how it will be all sorted out and paid for. But there will be a large bill at the end which will likely result in unpopular measures such as an increase in taxes, likely for the rich and corporations, as well as consumer taxes. Once we are through the health scare, it maybe a perfect time to introduce the Wealth Tax.
This is part one of a two-part series. Part two: Impact of COVID-19 – Financial and tax strategies
This article was originally published on April 17 2020 by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc