Preventing claims – Tax

GST

The following is a summary of GST traps for the unwary, Insurance Issues: Risk Management, Summer 2012.

“GST is a trap for the unwary. It is even a trap for the wary. I suppose creating better awareness of the issues and pitfalls is all that can be done.”

Advice from a lawyer who reported a claim when the company he had acted for in the sale of a commercial property was assessed the GST that the purchaser ought to have paid, but never did.

Here are the GST pitfalls that have resulted in reports to the Lawyers Insurance Fund. Read more for tips you can follow to avoid getting trapped. Although of particular relevance to real estate and commercial lawyers, the tips are recommended for all lawyers as GST issues can surface in other areas of law.

  • Not flagging the GST issue
  • Flagging the issue but getting it wrong
  • Making bad assumptions about your client’s circumstances or GST knowledge
  • Not adequately reviewing contracts and related documents
  • GST registrants
  • Not clearly passing the GST buck
  • Dropping the GST ball

Income tax

The following is a summary of Income tax: it’s a risky business, Insurance Issues: Risk Management, Winter 2010.

The world of tax law is in perpetual motion. A good tax plan today might be a bad plan tomorrow. Amendments to the Income Tax Act, changes in Canada Revenue Agency policy or new developments in tax jurisprudence can have totally unexpected ramifications. And even if you have a more general corporate or commercial practice, you are still at risk.

Each year, the Lawyers Insurance Fund deals with 20 to 25 tax-related claims. While this number may seem relatively small, the potential losses are not. In fact, they often exceed the limits of the compulsory policy.

Here are the tips you can follow to help you recognize and manage the risky business of income tax (read more for details):

  • Take the guesswork out
  • Think through all the issues
  • Beware the lurking tax issue
  • Pay particular attention to residency
  • Clarify responsibilities between lawyer and accountant
  • Use checklists and BF systems
  • Communicate with your client
  • A final note of caution: Buy excess insurance if you are at risk

Property transfer tax

The following is a summary of Property transfer tax misunderstandings, Alert!, June 2002.

The Lawyers Insurance Fund has encountered several scenarios in which lawyers have misunderstood the operation of the property transfer tax regime. A visit to the Property Transfer Tax Branch of the government website is recommended for anyone practising in the area of real property law. For any lawyer who is unsure about the operation of the Property Transfer Tax Act or its regulations and policies, a review with a senior staff member of the Branch or an advance ruling is recommended.

Lawyers will also want to be alert to the following three areas in relation to the Act (read more for details):

  • Subdivisions and related exemptions
  • Lease modifications
  • Trust transfers of principal residences between related individuals