Transfer Pricing - CRA states that the cost of capital property does not become statute barred

(June 14, 2017) Generally transactions becomes “statute barred” in Canada after three years and are not subject to adjustments by the Canada Revenue Agency (CRA). Given the specific treatment of many Transfer Pricing issues in Canada, a Technical Interpretation was requested relating to CRA Transfer Pricing Adjustments in the context of the Statute Barred limitations.

In response, a technical interpretation (2016-0631631I7, September 14, 2016) relating to Transfer Pricing was issued by the Canada Revenue Agency (CRA). This interpretation states that in the context of a Transfer Pricing audit or review, an adjustment relating to the cost base of a capital property can be made at any time, even if the acquisition year would normally be statute barred.

In addition, the technical interpretation states that a penalty under subsection 247(3) can also be imposed at any time.

This position which specifically relates to Transfer Pricing is consistent with other sections of the Canadian Income Tax Act, and underscores the importance of the asset valuations used when assets are transferred between related parties.

Relevant sections referred to in the interpretation on Transfer Pricing of capital assets in Canada are ITA sections 247(2) and 247(3).

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Voluntary Disclosures in Canada and Quebec


(Jan 9, 2017) Our office has processed a large number of voluntary disclosures over the past 24 months with both the Canada CRA and Quebec Minister of Revenue.

Click here for more information about the Voluntary Disclsoure Program.

These voluntary disclosures have included many scenarios, including reporting undeclared income generated by assets in offshore accounts located outside of Canada and Quebec. Some of these voluntary disclosures also involved U.S. assets, and required coordination with a U.S. voluntary disclosure with the IRS.

We have developed expertise in handling voluntary disclosures, and are familiar with the approach currently being used by assessors to procees these applications by Canada CRA and Quebec Minister of Revenue. In addition, we have developed customized templates to compile and aggregate the required information for both the CRA and Quebec Minister of Revenue. Use of these templates allows us to process the data very efficiently, and to focus on the key issues which vary from file to file.

For more information about the Canada CRA program, click here .

For more information about the Quebec Minister of Revenue program, click here .

Recent changes to Revenu Québec's voluntary disclosure policy, click here .

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2017 Canada US Tax Survival Guide Released ...

Please click here to download our 2017 Canada US Tax Survival Guide and let us know what you think!

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2016 Canada US Tax Survival Guide Released ...

We are pleased to release our 2016 Canada US Tax Survival Guide ...

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IRS Payment Options

(March 18, 2015) The Internal Revenue Service has reminded taxpayers that it’s possible to pay their taxes electronically. Taxpayers who owe taxes can now choose among several e-pay options. Available payment options include:

  • Direct Pay: The newest and easiest option, this free online tool allows individuals to pay their income tax directly from checking or savings accounts without any fees or pre-registration. The tool is available round the clock. Any taxpayer who uses the tool receives instant confirmation that their payment was submitted.
  • Credit or debit card: Both paper and electronic filers can pay their taxes by phone or online through any of several authorized credit and debit card processors. Though the IRS does not charge a fee for this service, the card processors do.
Taxpayers who choose to pay by check or money order should make the payment out to the “United States Treasury”. Also, print on the front of the check or money order: “2014 Form 1040”; name; address; daytime phone number; and Social Security number.

To help insure that the payment is credited promptly, also enclose a Form 1040-V payment voucher.

More information is available at Electronic-Payment-Options-Home-Page


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IRS increases in the foreign-earned income exclusion and estate exclusion for 2015


The foreign-earned income exclusion for US persons will rise by $1,600 to $100,800 in the 2015 tax year.

The estate exclusion will go up by $90,000 to $5,430,000.

The annual gifts exclusion remains at $14,000, but the exclusion for gifts to a foreign spouse will increase by $2,000 to $147,000.


Click here for details.

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So Long Form 8891- Been Good to Know You!

On October 7, 2014 the IRS issued Revenue Procedure 2014-55 (http://www.irs.gov/pub/irs-drop/rp-14-55.pdf ), which eases the reporting for RRSP’s and RRIF’s on U.S. personal income tax returns (1040’s).

For an IRS overview see: http://www.irs.gov/uac/Newsroom/IRS-Simplifies-Procedures-for-Favorable-Tax-Treatment-on-Canadian-Retirement-Plans-and-Annual-Reporting-Requirements .

This new guidance provides that Americans with registered retirement savings plans (RRSP’s) and registered retirement income funds (RRIF’s) now automatically qualify for tax deferral (similar to that available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans).

In general, U.S. citizens and resident aliens qualify for this special treatment as long as they file and continue to file U.S. returns for any year they hold an interest in an RRSP or RRIF, and report any distributions as income on their U.S. returns.

This change relates to a longstanding provision in the U.S. - Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Without this treaty section, U.S. tax would be due each year on this income, even if it is not distributed.

In the past, however, taxpayers generally would get a tax deferral on the RRSP/RRIF growth by attaching Form 8891 to their 1040 return and claiming this tax treaty benefit, something many eligible taxpayers failed to do. Before this change, correcting this omission was a difficult and often time-consuming process.

Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment.

Now the good news: the IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present. Form 8891 is obsolete as of December 31, 2014.


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Extracts from Revenue Procedure 2014-55

.... Subject to any future guidance that may be issued by the Treasury Department and the IRS, beneficiaries (regardless of whether they are “eligible individuals” within the meaning of section 4.01 of this revenue procedure) and annuitants are not required to report contributions to, distributions from, and ownership of a Canadian retirement plan under the simplified reporting regime established by Notice 2003-75 (Form 8891) or pursuant to the reporting obligations imposed by section 6048 (Form 3520)….

This revenue procedure does not, however, affect any reporting obligations that a beneficiary or annuitant of a Canadian retirement plan may have under section 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)...

... This revenue procedure obsoletes Form 8891 as of December 31, 2014. Beneficiaries who have a valid extension in effect under section 6081 for taxable year 2013 and who have not filed a U.S. income tax return for taxable year 2013 by the date this revenue procedure is published in the Internal Revenue Bulletin may wish to attach Form 8891 to such return in order to satisfy the requirements of Treas. Reg. § 1.6038D-7T(a)(1).

... Even though such beneficiaries are not required to file Form 8891 pursuant to the relief set forth in section 5.01, they may do so in order to report on Form 8938 that they have filed Form 8891 with respect to an RRSP or RRIF.

... Distributions received by any beneficiary or annuitant from a Canadian retirement plan ... must be included in gross income by the beneficiary or annuitant …

... Revenue Procedure 2002-23, 2002-1 C.B. 744, and Notice 2003-75, 2003-2 C.B. 1204, are superseded. Form 8891 is obsolete as of December 31, 2014.

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Americans in Canada - the IRS will start receiving your investment details from Canadian financial institutions!

On Feb. 5, 2014 Canada and the US announced that an agreement was signed covering Canada's FATCA reporting requirements.

Under the agreement, financial institutions will report financial information on accounts held by US residents and US citizens (including US citizens who are residents or citizens of Canada) to the Canada Revenue Agency (CRA) which will then exchange the information with the IRS.

In addition, the IRS will provide the CRA with enhanced and increased information on certain accounts of Canadian residents held at US financial institutions.

Several exemptions are listed in the agreement. For instance, the following are exempt from FATCA and will not be reportable:

  • Registered Retirement Savings Plans
  • Registered Retirement Income Funds
  • Registered Disability Savings Plans
  • Tax-Free Savings Accounts
  • RESP's
In addition, smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt.

The 30% FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the agreement.

Draft legislation to implement the agreement will be released for comment shortly on the Department of Finance website.

Americans who are resident in Canada and not compliant with their US tax filing requirements should be aware and beware - starting in 2014 Canadian financial institutions could report information regarding their presence and investments that will end up in the hands of the IRS.
 

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Special Consulting Mandate

We recently advised in the incorporation of the works of an author. Copyrights were segregated between the original creations of the author and subsequent activities and creative productions.

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Non-Compliant Americans - a suggestion for the IRS ..

Our office has daily contact with Americans in Canada and their US tax filing challenges, and we could tell you many, many stories about people stuck in crazy dilemmas.
 
I want to make the following observation regarding Americans who are not compliant with their US tax filing requirements.
 
The IRS has heavy handed regulations in place to go after severe abusers of the US tax system, such as criminals, money launderers, drug dealers, etc. Most people are not opposed the IRS going after these people, and having the tools in place to ensure that the abusers cannot play the system and come out winners.
 
On the other end of the spectrum, the IRS introduced the Streamlined Program to help non-compliant Americans with simple situations come onside with their US tax filing requirements. The Streamlined Program is very useful for very simple scenarios, such as an employee with a low salary. However only “low risk” filers can use the Streamlined Program, and the criteria for low risk is so restricted that actually many Americans get defined as “high risk” (see: http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers ).
 
These individuals then are exposed to full penalties for FBAR, forms 8938, 3520, 3520a, missed the deadline for 8891, etc etc etc. These penalties can easily get into six figures.
 
Basically these individuals have a big filing problem, and no path open for them to come onside without huge penalties. OVDI is an always an option, but OVDI does not relieve them of the penalties. Also the OVDI is a very expensive undertaking, and OVDI is completely backlogged with files.
 
In my opinion, what is required is either:
 

  • A major relaxation in what is defined as “low risk” in the Streamlined Program” or;
 
  • Another channel for middle of the road non-compliant Americans to come onside.
 
I know that there are many non-compliant American’s in Canada who would benefit greatly from such changes – right now many are stuck between a rock and a hard place!
 

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UHY Victor was engaged to assist a high net-worth family settle a complex estate

UHY Victor was engaged to assist a high net-worth family settle a complex estate. 

This mandate included the preparation of final income tax returns, sale of assets, wind-up of a Holding Company. This mandate was complicated by the fact that several beneficiaries were not residents of Canada. In carrying out this mandate, we advised the client on an innovative method of winding up the Holding Company, which resulted in a 8% income tax reduction to the Estate. 

Call me if you want to know more about the planning opportunities that are available in the field of Estates and Trusts.

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FBAR - what should a non-compliant American do?

This is a very big question! 

Recently we have been spending more time with American's resident in Canada and other countries to deal with the issue of late FBAR's.

My experience is that there is a lot of false information out there, and the guidance from the IRS is unclear and even contradictory.

I believe that the FBAR requirements and penalties were put in place by the IRS many years ago to deal with severe abusers of the US tax system – those acting with conscious criminal intent. Consequently the FBAR rules are heavy handed and punitive.

Unfortuanitely there are many Americans who are non-compliant with their FBAR filing obligations because they were unaware of their requirement to file FBAR’s. The are many reasons for this lapse, such as lack of knowledge, inexperience, deficient advise.

As a result, many Americans now face the dilemma of how to bring their filings onside.

We have recently posted a FAQ giving our views on the options (click here).

We hope that you will find this information useful and please contact us if you require assistance.

 

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US Expats and the Affordable Care Act (Obamacare) Requirements

Click here for more detailed information on this subject.

US expats are asking whether or not they are going to have to purchase health insurance that qualifies under the Affordable Care Act (Obama care) or be penalized if they do not.

There is an exemption in the law that states that if an American is eligible to take the foreign earned income exclusion (Form 2555)  [see: IRC 911] either as a bonafide resident of a foreign country or under the physical presence test, the individual is exempted from the health insurance requirements of the Act.

Also, an American who is working abroad and is covered by the US employer Group Plan or covered by medicare is exempt from the Affordable Care Act.

Those who only work temporarily abroad for a few months and then return to the US are not exempted from the Acts requirements and must obtain health insurance or suffer penalties

Nonresidents who are not in the US long enough to become permanent residents (usually 183 days or more) are not required to obtain health coverage.
 

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What is an FBAR?

What is an FBAR?
An FBAR is the “Report of Foreign Bank and Financial Accounts” that must be filed with the US Department of Treasury.
The FBAR is now filed on FinCen Report 114 (formerly form TD F 90-22.1)
 
Who Must File an FBAR?
United States persons are required to file an FBAR if:
 

  1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
 
  1. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
 
United States person means U.S. citizens; U.S. residents; Green Card Holders, entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
 
 
Reporting and Filing Information
 
A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
 
The FBAR is a calendar year report, which must be filed with the Department of Treasury on or before June 30 of the year following the calendar year reported. Generally, extensions of time to file an FBAR are not granted.
 
The FBAR is not filed with a federal tax return. Any filing extensions of time granted by the IRS to file a tax return does not extend the time to file an FBAR.
 
 
Effective July 1, 2013 – Electronic filing of FBARs is mandatory
 
UHY Victor LLP is authorized to file FBAR’s electronically on behalf of the person who has the obligation to file an FBAR.
 
 
US taxpayers holding foreign financial assets may also need to file Form 8938 (Statement of Specified Foreign Financial Assets) with their 1040 US tax return.
 
 
See:
 
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-(FBAR)
 
http://taxes.about.com/od/preparingyourtaxes/a/TDF90221.htm
 
 

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2013 - changes to the Canadian Foreign Asset Reporting (T1135)

On June 25, 2013 the CRA release an expanded "Foreign Income Verification Statement" (Form T1135).

The T1135 must be filed by Canadian taxpayers who hold Specified Foreign Property (i.e. - foreign invesments) with a total cost exceeding $100,000.

Starting in 2013 there are important changes to the T1135.  Starting in 2013, Canadian taxpayers are required to include details with respect to each Specified Foreign Property including:
 

  • Country where the investment is located.
  • Name of bank/entity holding the funds.
  • Maximum amount held during the year.
  • Funds held at year-end.
  • Income/Loss and/or Gain/loss on disposition.

The new T1135 can be viewed by clicking here.

Please contact me if you have comments or questions regarding the new increased Canadian foreign reporting requirements.
 

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Regulation 102 and 105 - Be aware and beware!

 

Our firm has recently seen a major increase in Regulation 102 and Regulation 105 related inquiries and mandates. 

Our experience is that the CRA is taking a hard line on implementing these regulations.

Services (Regulation 105)

Canadian companies are being checked for compliance with these complicated rules. The main issue is Canadian companies paying non-residents for services performed in Canada. Unless a waiver is obtained in advance, these Canadian corporations must withhold 15% when paying the non-resident. Quebec adds an additional 12% for services rendered in Quebec.

Salaries (Regulation 102)

Unless specific secondment or other arrangements are made, foreign corporations sending employees to work in Canada must ensure that these employees are paid through a Canadian payroll.

Non-resident Tax Refunds for Withholdings

In addition, US and other foreign companies are now required to provide more supplementary information to receive their treaty-based refund filings.


Contact us if you have any questions regarding what your Reg 102/105 requirements are, and how to make sure that you recoup the maximum withholdings possible.  

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Beware of Tax Shelter "Schemes" !

(October 30, 2012) The Canada Revenue Agency (CRA) issued a news release stating that it is implementing “additional steps to protect taxpayers by auditing all gifting tax shelter schemes before a donation claim will be allowed”. 


The CRA warns that it audits all shelter schemes and has not found any that comply with Canadian tax laws. The CRA press release states:

 

“"The CRA" ... has to date denied more than $5.5 billion in donation claims and reassessed over 167,000 taxpayers who participated in gifting tax shelter schemes. In addition, the CRA has revoked the charitable status of 44 charitable organizations that participated in these gifting tax shelter schemes.”

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Canadians giving gifts to Americans

Canadian parents (who are not Americans/Green Card Holders) often want to want to give gifts to their children who are US citizens or Green Card holders. 

According to the IRS, a foreign gift is money or other property received by a US person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. 

If the child is an American or Green Card holder they may be required to file Form 3520 with the IRS. Form 3520 does not result in taxes payable - it is an information return, and is due on the date that your income tax return is due, including extensions. 

Not all gifts are required to be reported. Form 3520 must be filed if you are a US person (which includes a Green Card holder) who receives either:

  • More than $100,000 from a nonresident alien individual or a foreign estate that you treated as gifts or bequests; 

              or

  • More than $14,375 from foreign corporations or foreign partnerships that you treated as gifts.

If either applies, the US gift recipient is required to file Part I and IV of Form 3520.

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Estate Planning

We recently planned and implemented an asset reorganization for a recently opened estate such that taxable assets were transferred to a holding company that had significant tax losses available for carry forward. 


The result of this restructuring was a significant reduction of the taxes payable to the estate due to the application of the tax losses to otherwise taxable gains.

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UHY Victor is often called upon to advise families on estate planning

UHY Victor is often called upon to advise families on estate planning, primarily to reduce income tax exposure, to equalize inheritances amoung family members, and to avoid litigation wherever possible. The firm is also called upon to act as an arbitrator to resolve disputes between vendors and purchasers of corporations. 


We recently completed a very complex mandate, serving as the binding arbitrator engaged to resolve a dispute between a purchaser and a vendor of a private company. 

Please contact me if you wish to find out more about how an arbitrator can settle a dispute without going to court.

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UHY Victor has expertise in R & D claims.

 UHY Victor has developed extensive expertise in R & D claims.

We recently revised a corporation's R & D application to use what is called the "Proxy Method" to calculate overhead. This method uses salaries to determine an implied overhead for an R & D project, which is often greater than the entity's actual overhead. The "Proxy Method" should always be considered when an R & D application is prepared.

Call me to discuss how the "Proxy Method" can be used to increase your R & D claim.

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Professionals who earn income require advanced tax planning

 I have spent considerable time this year working with professionals who earn income.

Several of these individuals were unaware that they could claim deductions for the use of a home office, as well as a portion of their car expenses.

Others were unaware that they can now practice through a corporation, which can yield significant tax savings. 

The total tax savings to these clients from these completely legitimate plans will be significant!

Call me if you wish to review your personal income tax situation.

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Non-resident sale of Canadian / Quebec real estate

I have recently assisted a non-resident vendor of Canadian / Quebec real estate. 

The law states that a non-resident vendor of real estate situated in Quebec must inform the Canadian and Quebec governments of the sale of real estate within 10 days of the sale.

The purchaser of the property (usually via the notary closing the sale) is required to withhold non-resident taxes of 25% (federal) and 12% (Quebec) of the gross proceeds of sale.

However to reduce the withholding of non-resident taxes, the non-resident owner can file requests (within 10 days of the sale) to the CRA and Revenue Quebec. If approved, the forms enable the non-resident taxes withheld to be limited to slightly more than the actual tax on the gain realized on the sale. 

After their review of the non-resident's forms, the CRA and Revenue Quebec issue "Certificates of Compliance".   These certificates allow the purchaser to reduce the tax withholdings on the sale. 

Generally the notary will issue cheques from their trust account holding the sale proceeds to cover the amounts owing calculated on the certificate requests.

Once the non-resident tax are withholdings are remitted, the notary will generally distribute the remainder of the proceeds to the non-resident seller.

Note that this process describes the withholding taxes only. The actual income tax liability is determined by filing Canadian and Quebec tax returns by April 30 of the year following the sale.

Contact me directly if you require assistance with the sale of real estate located in Canada.

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Intricate Tax Case

We have been involved with an intricate tax case, which recently resulted in an appeal court ruling that we believe will assist Canadian taxpayers design and implement tax plans with greater clarity. 


A company can generally transfer capital to a connected corporation tax-free, as long as the transfer is part of its “safe income”, which corresponds roughly to “retained earnings for tax purposes”. The Income Tax Act does not provide specific guidance at to how “safe income” is determined. This case went to court several years ago (Kruco 2003 DTC 5506) and, unhappy with the outcome, the Canada Revenue Agency appealed the court decision. Notably, the recent ruling issued by the Federal Court of Appeal specifically disagrees with aspects of the Canada Revenue Agency’s computation of “safe income”, and the ruling has now clarified major elements of this computation. As a result of this important case, there is now a clearer definition of “safe income”, which will add certainty to many corporate reorganizations in the future. 

I would be pleased to hear any comments or field any questions that you may have relating to “safe income”.

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Individual Pension Plan (IPP)

An Individual Pension Plan (IPP) is a registered defined benefit plan for individuals which offers the following benefits: - They offer higher deductible contributions than RRSPs - Contributions increase in age whereas the maximum RRSP contributions are set - Assets are creditor proof - The employer can deduct the contributions and fees associated with an IPP An IPP is ideal for an owner/manger, a professional (doctors, dentists etc.) with a professional corporation, executive of a private or public company. Normally the individual is at least 40 years of age and is already able to maximize their RSP contributions. Feel free to call me if you want more information about IPP's.

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A number of clients have recently received Notices of Reassessment from Revenue Quebec

A number of clients have recently received Notices of Reassessment from Revenue Quebec, adding alleged undeclared investment income. 


 We have filed Notices of Objection for these clients, and have been successful in getting these heavy-handed reassessments reversed. Call me to discuss what options are available to you if you have received a similar notice of reassessment recently.

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Forensic mandate

We are currently investigating the affairs of an Estate wherein it is alleged that one of the Liquidators has acted in bad faith. This is an interesting forensic mandate.

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A real estate company approached our firm to assist them to revise their revenue recognition policies

A real estate company approached our firm to assist them to revise their revenue recognition policies. 


 Recently changed accounting standards require real estate companies to recognize rental revenue using the straight line method. This change is significant, and has many implications. 

 If your company collects rental income, call me to discuss how these these accounting changes effect your company.

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UHY Victor has been engaged to assist a corporation with a large insurance litigation case

UHY Victor has been engaged to assist a corporation with a large insurance litigation case. Our firm is working on behalf of an insured corporation, whose business interruption claim was rejected by their insurance company. The client is pursuing this claim in court, and we have been engaged to provide litigation support regarding the quantum of the business interruption loss sustained.

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Computer system upgrade completed

We are now completing the upgrade of the computer system at UHY Victor, which includes workstations, network and software.

If you want an objective assesment of your information tecnology situation, please contact me.

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News RSS

Transfer Pricing - CRA states that the cost of capital property does not become statute barred

(June 14, 2017) Generally transactions becomes “statute barred” in Canada after three years and...

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UHY Global Study: Capital Investments

(April 10, 2017) Canadian capital investment lags the world average, putting future Canadian...

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2017 Canada US Cross Border Tax Guide

(Jan 10, 2017) This guide provides an update of tax issues and trends involving the US and...

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FAQ

What is the difference between an audit, a review and a compilation engagement?

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FBAR - what should a non-compliant American do?

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What are the CRA auto limits and rates? (2017, 2016, 2015 and 2014)

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UHY VICTOR SENCRL • LLP
Société de comptables
professionnels agréés •
Partnership of Chartered
Professional Accountants

759, rue du Square-Victoria, #400
Montréal, Québec, H2Y 2J7
Canada

+1 514 282 1836

UHY VICTOR UHY VICTOR LLP (the “Firm”) is a member of Urbach Hacker Young International Limited, a UK company, and forms part of the international UHY network of legally independent accounting and consulting firms. UHY is the brand name for the UHY international network. The services described herein are provided by the Firm and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.