SERVING ON A BOARD OF DIRECTORS…

VOLUNTARILY, PAID, OR AS A CORPORATE OFFICER?

Whether you are appointed due to your role within a company or invited as an honorary member to serve on the board of directors of a company or organization, are you aware that you could incur personal liability?

Every legally constituted business or organization has its own legal existence. Its destiny is generally determined by its directors, who may or may not be shareholders. Shareholders invest funds in exchange for an ‘ownership’ percentage of the company; the directors convened in a board, make management decisions for the company, and may delegate certain decisions to committees or executives. Although shareholders are allowed to act in their own interests, the same does not apply to directors, who must always ensure the best interests of the company or organization.

Expressing dissent:

An administrator who does not share the ‘majority opinion’ regarding a board decision has an interest in formally expressing their disagreement in the meeting minutes. For example, if a board of directors decides to pay a dividend to shareholders at the expense of creditors (beyond a threshold established by law), this decision could be overturned and require administrators who allowed the payment of such dividends to reimburse the company.

It is important to emphasize that an administrator who does not formally express disagreement with a proposed resolution is deemed to have voted in favor of it if accepted during a board meeting, even if absent; they may be personally liable for the financial consequences that ensue. Expressing disagreement can also form the basis of a legal defense in the event of legal action taken against the company or organization accused of committing a civil or criminal wrong, or acting in bad faith or fraudulently.

Another effective protective measure is to subscribe, for the benefit of administrators, to a liability insurance policy that indemnifies them in case of unintentional wrongdoing.

Conflict of Interest:

It may happen that an administrator is called upon to make decisions on matters directly or indirectly affecting their professional or personal activities. This administrator would potentially be in a conflict of interest situation. Hence, they must disclose their interest before the discussion begins and choose to withdraw and abstain from voting on the ensuing resolution. The administrator must not only avoid a conflict of interest, but even the appearance of a conflict, which could be detrimental to both the individual and the company or organization. Therefore, the board will regularly require a declaration of interests at the beginning of meetings to identify situations that may lead to closed-door discussions or the exclusion of one or more concerned administrators from debates.

“Payable Bankruptcy”:

We are all familiar with the story of an entrepreneur who goes bankrupt, depriving creditors of thousands of dollars, only to resume business the next day under a new business name. Often, these businesses have a single leader who is both a shareholder, a board director, and an executive. In case this entrepreneur acted in bad faith or fraudulently with the intent to harm suppliers, employees, or other creditors, the court may lift the corporate veil that otherwise isolates the company’s assets from those of its administrator. Such action will be particularly useful when the main objective pursued by the administrator in creating a company is to shield their personal assets from the creditors of their business with the intention of committing fraud.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

DEATH TAX AND INHERITANCE TAX

PREVENT YOUR ESTATE FROM BEING LEFT UNPREPARED

Tailored estate planning to meet your needs and circumstances is essential to avoid unpleasant surprises and headaches for shareholders and their heirs. Without proper planning, the estate of the deceased entrepreneur may face a hefty tax bill and little to no liquidity to cover it.

In Canada, the Income Tax Act creates a legal fiction whereby, upon death, the deceased is deemed to have disposed of all their assets, and the estate is deemed to acquire them at the same ‘price’ at the same moment. Consequently, the deceased must report the proceeds of the ‘sale’ of these assets in their final tax return. However, as the deceased is only presumed to have divested themselves of their assets, there may not necessarily be an actual sale generating capital. Settling the taxes owed, which can be a significant amount, can therefore jeopardize the financial stability of the estate.

Fortunately, there are strategies that can substantially reduce the amounts owed to the tax authorities. Although it is possible to implement some of these strategies at the time of death, the most advantageous planning is done before death as it allows for customized solutions.

Planning to save

Through thoughtful planning, it may be possible to avoid ‘double taxation’ of shares held by the deceased, meaning first taxation on capital gains, followed by a second tax on a deemed dividend. Here are some scenarios to consider with your legal advisor and tax specialist:

• Subscribe to life insurance: This allows the company to cash in the policy and obtain the necessary liquidity to buy back the shares held by the deceased before their death. The cashing of the policy increases the balance of the capital dividend account, which, in turn, allows for the payment of a non-taxable dividend to the estate that has become a shareholder, up to the balance. It is strongly recommended to periodically review the value of the contract to adjust it as needed, ensuring that the proceeds from the policy will be sufficient to buy back all shares held by the deceased shareholder, if applicable. It is also possible to include the obligation for the company to take out such life insurance in a shareholders’ agreement.

• Use choices provided by the law: Although, in general, it may not be possible to use a capital loss generated as a result of the deemed disposition of the deceased’s shares, there is an exception to the rule when certain conditions and formalities are met. The estate could, therefore, have every advantage in availing itself of this option.

• Allow or limit the “rollover”: Upon death, it is possible to transfer the shares of the deceased to the surviving spouse without a tax impact (“rollover”). However, to benefit from this option, the shares must have been irrevocably bequeathed. If there is a shareholders’ agreement granting surviving shareholders and/or the company an option to acquire the shares of the deceased, this “irrevocable bequest” no longer holds, and the option granted to the company can impede the rollover. There is, therefore, a trade-off between the desire of surviving shareholders to have a say in who can join the company and the possibility of implementing advantageous tax planning strategies for their respective estates.

• Pipeline technique: This strategy allows the estate, through the incorporation of a new company, to cash in on sums that would otherwise have been considered taxable deemed dividends without a tax impact. There are specific conditions that must be met to allow this planning to achieve its objectives, so the advice of a tax specialist is essential.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

SELLING AND BUYING WITHOUT LEGAL WARRANTY

The real estate sector is specific and benefits from a set of rules that are specific to it. One of them concerns the legal warranty that applies during a transaction involving a residential or commercial property. It applies:

• Ownership rights, by making the seller guarantee that the property sold is free from rights (conventional or legal mortgages or others) and does not violate any public rights (that the use of the property does not contravene, among other things, municipal regulations, zoning, etc.).

• Quality of the property, by making the seller guarantee that the property is free from defects that make it unfit for normal use or that diminish its utility, such as water infiltration, presence of asbestos, etc. According to this principle, the seller must disclose to the buyer the presence of any known defects and also provides a remedy in the case of a hidden defect, i.e., a major problem affecting the normal use of the property or significantly affecting its value, the existence of which could not be discovered during a reasonable verification process by the buyer.

Exceptions
The legal warranty is generally applicable to all real estate transactions. However, in practice, three exceptional scenarios are frequently encountered:

• Estate Sale: In the case of the death of the owner of a property, the estate must exclude the application of the legal warranty to protect the heirs and close the administration of the deceased’s assets. This is because the person responsible for selling the property then lacks knowledge of the actual condition of the building, highlighting the importance of the transaction taking place without the application of the legal warranty.

• Sale under Judicial Control: Also known as “foreclosure,” when the property is not sold by the owner-occupant, the law provides for the automatic exclusion of the warranty in this type of sale.

• The exoneration or limitation clause. This involves excluding the application of the warranty through the use of a contractual clause for this purpose. For example, in the case of a sale by a corporation whose sole mission is the ownership of the property. Or, when an owner has identified several significant problems with the building or suspects the emergence of conditions negatively affecting the value or use of the property.

Attention: As soon as residential or commercial property is offered without a legal warranty, the seller and their agents must clearly indicate this in the listing, the offer to purchase, and in the sales contract, specifying that the buyer, with full knowledge, acquires it “at their own risk.” In fact, omitting to indicate “at their own risk” in the contract could invalidate any defense of the seller in case of future recourse.

Limitations:

Excluding a property from the legal warranty is not a safe conduct, and the process has its limits. The seller is not exempt from acting in good faith and being transparent in communicating information about the building, and they cannot use the exclusion to evade personal responsibilities.

Therefore, if the seller is aware of a defect or encroachment affecting the property, they cannot use the exclusion to avoid their obligation to disclose the true condition of the property to the buyer.

Moreover, this obligation also impacts the work of the real estate broker, as they have a professional duty to properly inform the buyer about the consequences of excluding the quality warranty. Assuring a buyer about the state or quality of the property or not disclosing an exclusion of the warranty could lead to shared liability in case of legal action.

Finally, even in a booming real estate market, it is clear that excluding a property from the legal warranty significantly affects its resale value. Such conditions may deter potential buyers, thereby limiting interest in the property.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

Taking Advantage of Lulls

Last month, we emphasized the relevance of taking advantage of the lull caused by the pandemic to carry out a corporate update for your business. The second part of this theme today addresses the tax and accounting aspects. While it is wise to consult a professional to address your questions, you can still perform certain checks yourself to avoid unpleasant surprises.

• Check the balance of cumulative tax accounts. The tax law provides for the creation of certain accounts, such as the Capital Dividend Account (CDA), the General Rate Income Account (GRIA), and the Refundable Dividend Tax On Hand (RDTOH) accounts. A positive balance in these accounts generally allows the company to either pay a dividend to the shareholder on a tax-free basis or at a lower tax rate, or to request a refund of some of the tax it has paid (hence the name “refundable tax”). However, in the case of dividend payments, if the amount exceeds the balance of the account, significant penalties could be imposed by tax authorities. Since prevention is better than cure, it is wise to compare the company’s data with that of tax authorities, as discrepancies may have arisen over the years, especially due to a change in the accounting firm. Moreover, some balances are available on the “My Account” portal at the Canada Revenue Agency: another reason to register!
• Check public records, especially if you have a sole proprietorship. Indeed, a legal mortgage may have been registered against your property or a property you own if, for example, you have a tax debt and have ignored government notices. Since a legal mortgage could be an obstacle to the sale or refinancing of the property, it is advisable to ensure that you respond promptly to any notices sent by tax authorities. Checking with the Land Registry and the Registry of Personal and Movable Real Property involves minimal fees and can save you serious headaches.

• Check overdue accounts.
• Indeed, the law provides a three-year limitation period for rights related to the recovery of a debt, after which the statute of limitations can be raised against the company if it still initiates legal action. Consequently, it is necessary to file a statement of claim with the court within this period, as referring the matter to a collection agency does not suspend the limitation period! Most legal fees incurred are deductible, so rest assured.
  
  Moreover, if you intend to claim a deduction for a bad debt in the calculation of the company’s income (whether an individual or a corporation), note that there are specific criteria governing eligibility for this deduction. Failure to meet these criteria could result in the deduction being denied. Generally, you must be able to demonstrate reasonable efforts to collect the amounts owed to the company, including through actual collection attempts (sending a demand letter, engaging a collection agency, etc.) that have been unsuccessful.
• Review your tax planning. If your operations are suspended or slowed down and you have dormant income in bank accounts, it may be time to consider the best use for it. Is it relevant to maintain a high balance? Is it advantageous to use it for investments? Is it the right time to purchase assets (equipment, vehicles, etc.)?

Some entrepreneurs may be tempted to invest these amounts in a sector unrelated to the business, such as real estate. However, this type of investment also has tax consequences that you will need to take into account.

Finally, if retirement is on the horizon, this could be the perfect time to proceed with a reorganization to integrate the next generation while protecting the value accumulated in the business through your hard work.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

EDITION 1 OF 2

TIPS AND TRICKS FOR

HEALTHY BUSINESS MANAGEMENT

Advertorial

The gradual resumption of economic activities prompts you to question the tasks that need to be done daily but are always postponed? To facilitate the effective continuation of your business activities, we suggest a list of tasks to be completed before the end of this lull.

Employer-employee relations

Regarding employer-employee relations, you would benefit from taking this opportunity to update all your policies, including those required by law and those aimed at facilitating business management. In particular, since January 1, 2019, Quebec businesses must implement an anti-harassment policy at work.

Also, it seems essential for every company to have a policy regarding the use of social media and other technological means. This usage can be essential in certain business areas but detrimental to employee productivity or the reputation of your company in other jobs. Depending on your needs, it would often be useful to include in your internal policies:

• The prohibition of publishing any content related to the employer or its partners without their prior approval;
• The authorized use of social networks, mobile phones, or tablets in the workplace;
• The non-exhaustive listing of possible sanctions in case of violation of company policies.

Now is also an opportune time to review all employment contracts of your employees and their performance in terms of:

• The description of their tasks may have changed;
• A performance evaluation will measure their productivity and identify tools to improve their efficiency.

Administrative and organizational management.

Effective administrative and organizational management requires periodic review of practices, contracts, and procedures. That’s why we suggest, during the gradual resumption of your business activities, focusing on the following tasks: Regarding insurance policies:

• Check overdue accounts. Indeed, the law provides a three-year limitation period for rights related to the recovery of a debt, after which the statute of limitations can be raised against the company if it still initiates legal action. Consequently, it is necessary to file a statement of claim with the court within this period, as referring the matter to a collection agency does not suspend the limitation period! Most legal fees incurred are deductible, so rest assured.

Moreover, if you intend to claim a deduction for a bad debt in the calculation of the company’s income (whether an individual or a corporation), note that there are specific criteria governing eligibility for this deduction. Failure to meet these criteria could result in the deduction being denied. Generally, you must be able to demonstrate reasonable efforts to collect the amounts owed to the company, including through actual collection attempts (sending a demand letter, engaging a collection agency, etc.) that have been unsuccessful.

• Review your tax planning. If your operations are suspended or slowed down and you have dormant income in bank accounts, it may be time to consider the best use for it. Is it relevant to maintain a high balance? Is it advantageous to use it for investments? Is it the right time to purchase assets (equipment, vehicles, etc.)?

Some entrepreneurs may be tempted to invest these amounts in a sector unrelated to the business, such as real estate. However, this type of investment also has tax consequences that you will need to take into account.

Finally, if retirement is on the horizon, this could be the perfect time to proceed with a reorganization to integrate the next generation while protecting the value accumulated in the business through your hard work.

LAW AND BUSINESS IN TIMES OF PANDEMIC

Advertorial

Many have questioned the measures they could or should take to ensure the safety of their clientele and staff, comply with health standards, and continue their business activities.Haut du formulaireHaut du formulaire

Furthermore, several businesses were prevented from paying their rent for a certain period or providing the services they had committed to their clients. In order to maintain healthy commercial relationships and avoid unfavorable financial consequences, they should inquire about the impact of such non-compliance.

Obligations towards Clients

Merchants have a duty to implement measures that are now familiar to us (social distancing, etc.).

The normally applicable restriction limiting the number of employees who can work outside normal admission hours to four people at most has been modified due to the current state of public health emergency. Thus, starting from September 1, 2020, two additional people can now be exclusively assigned to comply with health guidelines recommended by public health authorities.

Merchants may also limit the number of clients present in the store to ensure compliance with other measures, particularly social distancing.

The case of “COVID fees”

The additional costs incurred by the measures mentioned above or changes leading to expenses raise the issue of “COVID fees,” which is a surcharge applied to the price or service billed to customers to offset these costs. However, since the law prohibits “surprise fees,” it is preferable to directly increase the prices of items or ensure clear disclosure to avoid the surprise element of the fee. The customer should not be confronted with the fact at the time of issuing the invoice: the customer must be informed and free to decline before the conclusion of the contract.

Exclusion of symptomatic individuals from the workplace

The protection of the health and safety of workers is the responsibility of both the employer and the employee. The employer has an obligation to protect the health, safety, and physical integrity of its workers and to take all necessary measures to achieve this. Among other things, the employer must inform its employees that in case of symptoms resembling COVID-19, they should not report to work, and there must be a process in place to identify workers with symptoms before allowing them to enter the workplace. It is important to note that the information collected as part of this procedure is confidential.

The employee must also take necessary measures to protect their health, safety, or physical integrity and ensure not to endanger other individuals present in the workplace. Specifically, the employee is required to notify the employer, following the guidelines received from the public health authorities, if they are diagnosed positive for COVID-19.

Withdrawal of a symptomatic person

An employee displaying symptoms resembling COVID-19 while at the workplace should wear a mask, be isolated immediately in a designated area, and be removed from the workplace. After their departure, access to the isolation area should be prohibited, and all surfaces and objects touched by the person must be disinfected. The employer should also cooperate with epidemiological investigations initiated by the public health authorities.

Residential and commercial leases

Regarding housing, a measure suspending the effects of a decision made since March 1, 2020, was put in place. Now that this measure has been lifted, it is possible to resume the effects of judgments and proceed with the repossession of a dwelling or the eviction of a tenant. In commercial matters, the government order to close certain rented premises due to COVID-19 does not automatically give the tenant the right to cease immediate payment of rent. However, when a landlord prohibits access to a commercial space, the tenant can then refuse to pay rent. All of this remains subject to the specific terms outlined in the lease agreement.

Issues and Force Majeure in Service Contracts

Force majeure is an unforeseeable and irresistible event that is beyond the control of the parties and prevents one or both parties from fulfilling their obligations. Before terminating a service contract, businesses might consider entering into an agreement providing for the suspension of these contracts. Indeed, it is a mechanism not to terminate the contract but rather to suspend the associated obligations when the nature of the contract allows for it.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

DEATH TAX: WHAT YOU NEED TO KNOW

FOR A SUCCESSFUL SUCCESSION (PART TWO)

Advertorial

This is the dream of every entrepreneur: starting from scratch, you founded a company that has achieved resounding and consistent success over the years. Such success undoubtedly led you to dream about your retirement plans rather than a staggering tax assessment at your death. However, death brings its share of pain… including the taxman. What should your liquidator and your estate expect?

Under tax laws, the deceased is presumed to dispose of all their assets at the time of death as if it were a sale. In addition to the income received during the year (such as salary, interest income, rental income, and dividends), they will be taxed on the deemed disposition of all their assets as a capital gain. While it’s unfortunately not possible to completely avoid death taxes, sound tax planning can help defer or reduce the tax payable. Before delving into the study of these plans, it’s crucial to understand the mechanisms underlying death taxation.

1. Final Tax Return

The liquidator will need to prepare the deceased’s personal tax return, often referred to as the final return. As a general rule, this return must be filed within six months of the death. It includes the income earned by the deceased during the calendar year in all its forms. However, amounts due at a later date, such as unpaid rents or accrued interest after the date of death, will not be included. These should be included in the estate’s tax return instead.

2. Estate Tax Return

To whom do the assets presumed disposed of by the deceased at their death go? Although their ultimate owners may be the legal heirs (in the absence of a will) or the legatees (named in a will), and except in the case of a rollover to the spouse or other exceptions, it is the estate (represented by the liquidator) that has custody until the time of distribution. The estate itself will need to file a tax return and be taxed on any income generated during this transition period, which begins immediately after the deceased’s death. But is the estate then considered an individual or a corporation?

3. Trust

The estate is not considered an individual or a corporation. Instead, the law generally treats the estate as a trust. A trust does not have a legal personality (unlike a corporation), but rather a distinct estate. Three main actors are required for the creation of a trust: the settlor who establishes it by contributing assets (here, the deceased); the trustee who administers it (here, the liquidator); and the beneficiaries, who benefit from the trust’s estate (here, the heirs and legatees, if any).

4. Testamentary Trust

Since it is the trust itself that is taxed on the income earned and not the beneficiaries who are taxed only on distributed amounts, the potential benefit of this entity is immediately apparent. So, is it possible to create a trust? Absolutely! A trust is established through a trust deed or by will. In the case of creation by will, it comes into existence on the day of the deceased’s death and is called a testamentary trust. One of the major advantages of a testamentary trust is that, in certain cases and for a certain period, it can be taxed at progressive rates like individuals. However, there’s a catch: beneficiaries are not taxed, but trusts, in general, are subject to a higher tax rate that can be disadvantageous. Therefore, it’s crucial to gather thorough information.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

WRITTEN WITH THE SPECIAL COLLABORATION OF ME NOEMIE LANDRY-BLANCHARD, NOTARY.

FOR A SUCCESSFUL

 SUCCESSION

Advertorial

No one plans to fail, but many fail to plan. This adage particularly applies to the succession planning of entrepreneurs, some of whom still haven’t drafted a will, while others may neglect to update it. However, a will is the only means you have for the management of your assets after your passing. This column aims to be the first of two on succession planning, and this one will address general considerations.

The will is a unilateral legal act, in the sense that it aims to orderly dispose of the testator’s assets, unlike a contract that dictates the relationship between two or more parties regarding any object. The law also provides certain rules governing its preparation and the regime it establishes. The will does not replace the unanimous agreement among shareholders; it complements it. Although each will have its peculiarities, it is important to highlight these key points as “tips and tricks” to ensure optimal estate planning:

• Conduct a wealth assessment This is the elegant term referring to the inventory of your personal and business assets, including stocks, investments, etc. Ease the liquidator’s work by listing your personal identification numbers (PINs), access codes, and computer, mobile, and internet passwords in a document that the liquidator can refer to. And don’t forget to indicate where the small key to your safety deposit box at the bank is hidden!

• Choose your liquidator wisely The chosen candidate must demonstrate great integrity, attention to detail, transparency, and patience. The liquidator will carry out the execution of your last wishes. In a border region like this, be aware that choosing a liquidator from another province could have logistical implications for the settlement. Finally, since the expenses related to their work are covered from the proceeds of the estate, you will likely prefer to choose someone who lives in your region to minimize expenses.

• Opt for the universal legacy in divided shares instead of specific legacies (except for certain purely personal items or those with particular sentimental value). For example, instead of giving the cottage to Louise and the investments to Maxime, choose to bequeath all assets to your heirs, with the money divided after the liquidation of assets. If you wish to favor one of them, grant them a right of first refusal before the liquidation of the asset takes place and allocate its market value to their share during distribution. Want to disinherit a member of the estate? Specify this in the will and/or attach a personal note to it to reduce the risks of a contestation.

• Is one of the heirs a minor? Be aware that for any legacy exceeding $25,000, the law requires the appointment of a guardian or the establishment of a guardianship council until the child reaches 18. Fortunately, you can designate a guardian in the will.

• Life Insurance: Avoid changing the beneficiary in a single act. The name on the insurance policy should match the one in the will to prevent lengthy procedures. Insurers may not necessarily be aware of the will’s content at the time of death. A beneficiary listed in the policy but not matching the one named in the will, for example, after a separation, could be grounds for contestation.

• Power of attorney or legal guardianship has the effect of freezing the will; it is then no longer possible for the person involved to make changes. A protection mandate allows you to plan for the management of your well-being and assets in the event of potential incapacity.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.

Transportation (part 2)

PASSENGERS, YOU HAVE RIGHTS!

Advertorial

On December 15, 2019, the second part of the changes to the “Passenger Charter” came into effect in Canada, completing the first part implemented on July 15 of the same year. These changes to the Air Passenger Protection Regulations provide travelers with new protections.

The purchase of an airline ticket constitutes a transportation contract between the traveler and the carrier. This contract, in addition to being subject to the rules of the Civil Code of Quebec, is regulated by the Air Transportation Act for most international flights, supplemented by the Air Passenger Protection Regulations for any flight originating from Canada and any domestic flight. These new arrangements aim to make carriers more responsible and ensure minimum standards of passenger treatment, especially in the case of flight delays. Consider the example where passengers were grounded for five hours in the middle of summer without water, food, or air conditioning.

Although it is impossible to avoid all delays, the legislator has established rules forcing carriers to compensate travelers in cases of both flight delays and cancellations, based on the significance of the delay in the arrival time:

• 3 to 6 hours: $400;
• 6 to 9 hours: $700;
• More than 9 hours: $1,000.

Smaller carriers are subject to the same rules, but the compensations and penalties are reduced.

Moreover, as soon as a delay reaches 2 hours, passengers must have access, free of charge, to a reasonable quantity of food and drinks, as well as a means of communication (e.g., WiFi). Additionally, when passengers are on board the aircraft, they must have access to functional toilets, and the ventilation and heating/air conditioning systems must be adequate. Access to medical assistance should also be available if needed. After a three-hour delay, passengers must be allowed to leave the plane if takeoff is not imminent.

In the case of a delay or cancellation where passengers are expected to wait overnight before the next departure, the carrier must provide accommodation as well as round-trip transportation to get there.

Overbooking

In the case of denied boarding (overbooking) or flight cancellation, the carrier must provide free alternative travel arrangements or a refund. Overbooking also leads to significant compensation determined based on the delay in the arrival time:

• Less than 6 hours of delay: $900
• 6 to 9 hours of delay: $1,800
• More than 9 hours: $2,400

Exceptions

It may happen that the circumstances of a delay or cancellation are beyond the control of the carrier. Among the exceptions, weather conditions and mechanical failures are noteworthy. However, it’s important to note that the exception of mechanical failure implies the carrier demonstrating that the incident was unforeseeable and did not result from prior reporting or negligent maintenance.

The luggage

Nothing is more frustrating than arriving at your destination without your luggage. The Charter provides for the reimbursement of baggage transport fees and a maximum compensation of approximately $2100 (based on the current value of the Canadian dollar) for lost or damaged checked baggage. However, it’s worth noting that no compensation is provided for carry-on baggage.

Certainly, the value of the contents of the baggage could exceed the specified compensation amount, especially for valuable items. The passenger must declare such items to the carrier. The carrier reserves the right to refuse the baggage or impose an additional fee (e.g., insurance).

Non-compliance with new rules

Through these changes to the regulations, the legislator aims to enhance traveler protection in the event of an incident, but more importantly, to encourage carriers to change their mindset towards travelers. This is why failure to comply with the new rules can result in severe penalties ranging from $5,000 to $25,000 for the offending company.

WARNING: The information contained in this article, while of a legal nature, does not constitute legal advice. It is recommended to consult with a professional for advice that will address your specific situation.