March 2016 - Nixon Wenger LLP

Airbnb & GST

Written by Krystin Kempton, Associate.

Airbnb is a website connecting people searching for short term accommodation with homeowners wishing to rent their homes or spare rooms. An increasingly popular alternative to hotels, Airbnb may bode well for many of us living in here paradise, as vacationers come to town for ski vacations in the winter and cottage life in the summer. Short term rentals—that is, rentals for less than 30 consecutive days—can lead to some extra pocket cash. However, that extra pocket cash leads to taxes.

First of all, rental income is added to regular income and is taxed at the same rate. It is in the homeowner’s best interest to put aside reserves to avoid unwelcome surprises when income taxes are due. Homeowners also need to be aware of goods and services tax (“GST”) implications. If rental income exceeds $30,000 in one year, the homeowner must register with Canada Customs and Revenue Agency. As a GST registrant, the homeowner is obligated to charge and remit GST and file returns. The homeowner may recover GST paid on operating expenses and capital improvements by claiming input tax credits (“ITCs”), based on the extent to which the property is used for taxable rentals.
If a homeowner uses his or her property for short term rentals and wishes to sell the property, it is important to determine whether GST will apply to the purchase of the property. GST is payable if:

– the seller has claimed ITCs for GST on the purchase of the property or improvements on the property;

– the property is used less than 50% of the time as the seller’s place of residence and all or substantially all (90% or more) of the rentals of the property are for periods of less than 60 days;

– the property is capital property (i.e., not designated as the owner’s primary residence and therefore subject to a capital gain or capital loss on disposition), and the property is used primarily in a rental-income business carried on by an individual or a personal trust with a reasonable expectation of profit and the owner is not a GST registrant; or

– the property is capital property and the property is used primarily in making taxable short-term rentals by an individual or a personal trust that is a GST registrant, even if that owner is not engaged in a business carried on with a reasonable expectation of profit.
If any of the above apply, the purchase contract for the property will need to specify whether GST is added to the purchase price or included in the purchase price to ensure the price has been negotiated properly by the buyer and seller and avoid lost revenue by the seller. If the purchaser is a GST registrant and intends to use the property for short term rentals, an ITC may be available to offset some or all of the GST payable on the property purchase. If the purchaser uses the property primarily (more than 50%) for personal use, that individual is not eligible to claim an ITC for GST paid or payable on the property purchase, even if there will be some taxable short term rentals of that property. Also, if the purchaser changes the use of the property to his or her personal use, the purchaser may be required to account for the GST.
Provided the homeowner is aware of tax obligations and implications of short term rentals on an eventual sale of the property, Airbnb offers a lucrative option for homeowners to offset mortgages and join the sharing economy.

March 31, 2016

Partnership Perils and the Benefits of a Partnership Agreement

Blog

Written by Will Spisso, Associate
For most entrepreneurs, starting a new business is a time filled with excitement and optimism. However, when people work together to start or operate a business, it can have the unintended result of forming a partnership. Unfortunately, this often leads to disputes later on, especially if the business partners decide to part ways.
Forming a partnership is simple and can occur even if it is not the parties’ intention. Under the Partnership Act of British Columbia, a partnership is defined as “the relation which subsists between persons carrying on business in common with a view of a profit.” No formal agreement is necessary to create the partnership. If two or more people start working together on a business with the goal of making a profit, it is likely that a partnership will exist. However, for the reasons discussed below, it is important that businesspersons do not enter into accidental partnerships. Also, if you intend to form a partnership, you can avoid serious pitfalls by entering into a partnership agreement.
A partnership is not a legal entity separate from its partners. This means that a partner is personally liable to the full extent of his or her personal assets for the debts and obligations of the partnership. If one partner enters into a contract, the other partners are also liable and required to perform all obligations under the contract in connection with the partnership business. Furthermore, the partners are liable for the actions of the other partners. For example, if someone sues the partnership, each partner will be fully and personally liable if the lawsuit is successful. This is the case, even if only one partner was the cause of the lawsuit.
Another feature of a partnership is that it can be dissolved almost as easy as it can be formed. Unless otherwise stated in an agreement among the partners, the partnership can be dissolved by any partner giving notice to the others of his or her intention to dissolve the partnership. This can create an incredibly difficult situation when one or more partners wish to continue with the business, while another partner wishes to exit and see the partnership dissolved.
In addition to stopping a functioning business dead in its tracks, the dissolution of a partnership can also pose significant problems when it comes to dividing the partnership assets if there is no agreement in place identifying who the assets belong to. By default, no partner has a right or entitlement to take specific assets that he or she may have contributed to the partnership. Therefore, if a partner does not want a particular asset to become partnership property, this should be documented in an agreement among the partners.
The issues above highlight some of the most important reasons why it is recommended to have a partnership agreement. In a partnership agreement, the partners can:

· outline the roles of particular partners, including their duties and obligations;

· state whether insurance is required for the partnership in respect of particular activities;

· determine which partners may enter into contracts on behalf of the partnership;

· set out how partnership assets will be divided upon the dissolution of the partnership;

· establish what is required for the dissolution of the partnership; and

· break down how partnership profits and liabilities will be allocated among the partners.

It is usually only once the business partners have a dispute or when one partner wants to leave the business that they finally approach a lawyer for advice. At that point, however, the lawyer’s options may be limited to trying to help the parties negotiate and reach a compromise on how the dispute will be settled. If there is no partnership agreement in place, and one partner is set on dissolving the partnership, this can effectively end the business.
Consequently, to avoid unnecessary disputes in a partnership, it is helpful to have a partnership agreement in place at the time the partnership is formed. Though this may result in initial legal costs, it can save a great deal of time, money, and frustration later on when a dispute arises among the partners. Moreover, if the business relationship does not work out, it can provide a clear roadmap for how the partnership will be dissolved and how its assets will be distributed. Though this may not be the outcome the optimistic businessperson hoped for when starting the business, it can provide that same person the opportunity to move on and start again with an even better business endeavour.

March 18, 2016

Winter Rear End Resolves Prior to Trial for over $70,000.00

Personal Injury, Decisions and Settlements

A young woman from Salmon Arm suffered soft tissue injuries when her vehicle was rear ended on a residential street where snow plowing had not yet taken place. She was able to return to work in her sawmill job, but had some months of discomfort and difficulties managing work and home. Michael Yawney QC was able to resolve her claim without a trial for over $70,000.00 plus costs.

March 8, 2016

Electronic Signatures: Are they legal? Are they safe?

Real Estate, Business Law, Blog

Written by Nixon Wenger Lawyer, Dan Poulin.

Not all contracts need to be written down or signed, an oral or spoken contract can generally be enforced by our court system, as long as there is enough evidence to convince the court that a contract actually existed. However, there are certain types of contracts which require that the parties sign the contract in order for it to be enforceable by our court system, such as Real Estate contracts. You may wonder whether a signature requirement means a person needs to put pen to paper, or if some kind of electronic signature would have the same effect. Further, you may wonder whether an electronic signature would be any more or less persuasive in court as proof that there actually was a contract.
First, electronic signatures have the same legal effect as handwritten signatures. Most provinces in Canada have passed legislation which clarifies that electronic signatures may be used, including the Electronic Transactions Act in British Columbia. This Act defines an electronic signature as “information in electronic form that a person has created or adopted in order to sign a record and that is in, attached to or associated with the record”. Therefore, an electronic signature does not need to look like a traditional signature, although sometimes images that have the appearance of a traditional signature are used.
The next question is whether an electronically signed document would be better or worse than a traditional signature if you needed to prove in court that a contract was signed. The answer is that neither electronic or traditional signatures are inherently better than the other, it depends on the circumstances in which the signature was made. For example, you may receive a contract document that appears to be signed by a person you expected to enter a contract with from a public fax service number. Alternatively, you may have the other party come to sign the contract document personally and also bring some other people to witness his signature. In the second scenario you would have much stronger proof that the other party entered the contract, as you would have the original document and people that could confirm the document was signed by the right person.

Similarly, some electronic signatures would be much better proof in court than others, as they can range from simply typing your name at the end of an email (which may not be very strong evidence, particularly if other people have access to your email) to verifiable digital signatures that can only be attached to electronic documents after the signor signs up for the digital signature service and passes verification procedures such as entering a password before signing. In fact, with the use of digital signature services like AuthentiSign or DocuSign some real estate agents and lawyers may not require a witness signature, as the digital signature service itself acts as a type of witness.
There is no need to be afraid of electronic signatures with respect to legality. However, just like regular signatures, you should ensure that if there would be significant consequences to a signature being challenged, there are safeguards in place that will provide you the evidence you need to enforce the legal document.

March 3, 2016

Are You and Your Live-in Lover Common-Law Spouses Under the Law?

Family Law, Blog

Written by Kylie Walman

Although you may intend to be living a free-wheeling/no-strings attached existence, if you’ve lived with your romantic partner for more than two years you may be spouses under the BC Family Law Act. And that means when you split, you could be on the hook for spousal support and dividing all of your property 50/50.

In 2013, the Family Law Act came into force and the laws for property division that are applied to married couples when they divorce are now also applied to unmarried couples who are found to be spouses. So how do you know if you’re spouses? In the recent decision of Weber v. Leclerc, 2015 BCCA 492, the British Columbia Court of Appeal made clear that the answer depends mostly on the nature or quality of your relationship, not on what either of you say you intended – particularly after-the-fact when you may have a lot to lose admitting that you intended to live as spouses. That was the situation in the Weber case, where Ms. Leclerc said, after-the-fact, that she never intended to be in a spousal relationship with Mr. Weber. The BC Supreme Court and the Court of Appeal rejected her evidence finding that it wasn’t consistent with the other evidence that made clear the couple were in a “marriage-like relationship” (like the fact that they lived together for 11 years, were sexually active and monogamous, raised their separate children together, went on family trips, and had family portraits taken). The Court of Appeal said that the question isn’t whether the couple intends to be bound by the laws applied to married couples; the question is – did the couple enter into the relationship intending to live together for an indeterminate amount of time, like a married couple? If so, they will be spouses.

Of course the question then is – what is living “like a married couple”? That’s where things can become more difficult to pin down. There is no checklist you can tick off to see if your relationship would be considered spousal – and rightfully so. All relationships, married or not, are different and there are infinite variations of relationships that could be considered spousal. For example, some couples maintain a sexual relationship, while others don’t; some couples mingle their finances while others keep their money and property separate; some couples holiday separately; some couples enjoy public displays of affection, while others are very private, etc. So if this feels like laws foisted on unmarried couples, without them specifically choosing that, as the Court of Appeal pointed out, unmarried couples can choose not to have those laws apply to their relationship – by entering into a legally binding contract, or cohabitation agreement – “opting out” of certain parts of the Family Law Act. So, if you’re approaching that two year mark living with your significant other, it may be time for a conversation and a trip to your family law lawyer.
Ms. Leclerc has since brought an application for leave to appeal the case to the Supreme Court of Canada. A decision from the Supreme Court of Canada as to whether they will hear the case is expected to take anywhere from two to four months.

March 2, 2016