Corporate Tax, Canada updates

TFSA advantage tax: heads CRA wins, tails you lose
  • Canada
  • 14 December 2018

Earnings within tax-free savings accounts (TFSAs) and other tax-deferred plans are, in principle, supposed to grow tax free. However, some taxes still apply, including the advantage tax which applies at the rate of 100% of any 'advantage' (as defined in the Income Tax Act). This tax has become one of the Canada Revenue Agency's favourite tools to effectively expropriate what it views as improperly boosted returns within a TFSA.

Federal Court refuses to authorise abusive fishing expedition by CRA
  • Canada
  • 14 September 2018

The Federal Court has made a strong statement against an interpretation of the Canada Revenue Agency's (CRA's) powers that would allow almost unlimited invasions of taxpayer privacy. The force with which the court rejected the self-serving interpretation advanced by the CRA should be encouraging for taxpayers. The case serves as an important reminder that the CRA cannot act outside the bounds of law and that it is the courts, and not the CRA, that interpret the law.

Cryptocurrency taxation: what business leaders need to know
  • Canada
  • 07 September 2018

In these heady days of cryptocurrency investment, the market can seem like a gold rush – offering promise, but at the expense of predictability. Cryptocurrency taxation is no different. Increasing scrutiny from all types of regulator, including the tax authorities, seems inevitable for the sector. While this may diminish potential profits when compared to the early days of cryptocurrencies, it will likely add structure, transparency and legitimacy in the long term.

Tax Court rules that Visa's services are subject to GST/HST
  • Canada
  • 20 July 2018

The Tax Court of Canada has released a landmark decision on the goods and services tax/harmonised sales tax status of certain commonplace transaction processing services – namely, Visa's payment platform offered to financial institutions. The court held that the supply of services made by Visa to the Canadian Imperial Bank of Commerce fell outside the definition of a 'financial service' under the Excise Tax Act and therefore did not qualify as an exempt supply.

Quebec goes it alone with sales tax proposal
  • Canada
  • 25 May 2018

Quebec recently announced that it intends to expand its requirements for non-resident vendors to collect and remit Quebec sales tax on sales to Quebec consumers, effective as early as January 1 2019. It will be interesting to see whether the Quebec government has the authority to impose requirements on non-resident businesses that do not carry on business in the province. Another issue will be whether an assessment for failure to collect the tax can be enforced against a non-Quebec seller.

Corporate passive investment changes in 2018 federal budget
  • Canada
  • 23 March 2018

The 2018 federal budget signifies another chapter in the Department of Finance's saga to overhaul the taxation of private corporations and their shareholders. Budget 2018 sets out two changes to the taxation of private corporations: a reduction of the small business deduction based on the amount of passive investment income earned at a corporate level and a restriction on obtaining refunds of corporate tax on dividends paid from income taxed at the reduced small business rate.

Subjecting transfers of beneficial ownership to property transfer tax is not as simple as it might seem
  • Canada
  • 16 March 2018

The British Columbia Property Transfer Tax Act applies only to registered transfers of real property. However, significant real property-related tax changes are rumoured to be proposed in the upcoming provincial budget. Any amendment to the act that would tax transfers of beneficial ownership should not be made haphazardly. Such an amendment must be joined by, among other things, a mechanism to relieve the tax where the beneficial ownership is transferred to an affiliate.

Taxation of bitcoin and other cryptocurrencies
  • Canada
  • 09 March 2018

At a basic level, cryptocurrencies constitute property under the Income Tax Act. As such, dispositions of cryptocurrencies ordinarily lead to income tax consequences. Although cryptocurrencies are an exciting development, along with the rewards come a variety of risks, not least of which is tax. Failure to comply with all applicable tax obligations can result in severe penalties and hefty arrears interest.

Federal Court of Appeal confirms 'half-loaf' plan is subject to GAAR
  • Canada
  • 23 February 2018

The latest chapter in the story of the 'half-loaf' plan was recently penned by the Federal Court of Appeal. The case concerned a plan by which the taxpayer intended to split the capital gains on a share sale to an arm's-length purchaser between him and his wife and thus benefit from both of their lifetime capital gains exemptions. On appeal, the taxpayer argued that none of the conditions of the general anti-avoidance rule had been met; however, the Federal Court of Appeal disagreed.

Door closes on out-of-time objections under Section 220(2.1)
  • Canada
  • 16 February 2018

The Federal Court of Appeal has held that the minister of national revenue has no discretion to admit a taxpayer into the objections regime under Section 220(2.1) of the Income Tax Act. Applying the implied exception rule of statutory interpretation, the court chose an interpretation that gave effect to more specific provisions (the objections regime), and held that taxpayers must comply with the strict time limits set out in the act.

Tax loss transactions denied
  • Canada
  • 19 January 2018

The Tax Court recently decided a new case under the general anti-avoidance rule in Section 245 of the Income Tax Act, holding that the rule applies to restrict losses in an attempted non-acquisition of control transaction. However, the court offered up no analysis to support the allegation that Clause 256(7)(b)(iii)(B) had been abused in this case. Instead, it relied on late-stage financing through the use of shares.

Federal Court of Appeal releases decision on application of GAAR rule
  • Canada
  • 17 November 2017

The Federal Court of Appeal recently overturned a Tax Court decision which had found that a number of transactions undertaken by the Univar corporate group constituted abusive tax avoidance under the General Anti-avoidance Rule (GAAR). The judgment contains several important points concerning the analysis and application of the GAAR and will undoubtedly be relied on by taxpayers in future.

Federal Court denies minister's application to compel CRA oral interviews in course of audit
  • Canada
  • 22 September 2017

The minister of national revenue recently sought to compel 25 people to attend oral examinations as part of a transfer pricing audit. The minister applied to the Federal Court for a compliance order, arguing that the Income Tax Act provides the authority to compel such examinations. However, the court disagreed. Its analysis highlights the problematic nature of the minister's position.

Taxpayer beware: courts may choose to ignore a CRA administrative concession
  • Canada
  • 08 September 2017

The Tax Court recently rejected the Canada Revenue Agency (CRA) administrative concession that orthodontists can claim input tax credits (ITCs) on a periodic basis, concluding that orthodontic treatment consists of only a single supply, which is exempt and results in no tax charged to the patient and no entitlement to claim ITCs. The decision serves as a cautionary example to taxpayers that CRA administrative concessions which are not supported by the law may be ignored.

Tax Court disapproves of taking questions under advisement in examinations for discovery
  • Canada
  • 01 September 2017

Taking questions under advisement is common practice in examinations for discovery in tax disputes; it indicates that counsel has not decided whether the question will be answered or refused and will advise at a later date. In a recent judgment, the Tax Court denounced the practice of taking questions under advisement during examinations for discovery and warned that there may be cost consequences to doing so.

Department of Finance proposes substantial changes to private corporation taxation
  • Canada
  • 25 August 2017

The Department of Finance recently released its consultation policy paper on the taxation of private corporations first announced in Budget 2017, along with proposed legislation on some of the topics addressed. The most dramatic proposals seek to equate the tax treatment of self-employed incorporated business owners with that of individual salaried employees without acknowledgement of their fundamental non-tax differences, including the inherent risk in starting and operating a small business.

Federal Court of Appeal considers availability of rectification
  • Canada
  • 21 July 2017

Rectification has been a popular topic in tax law since last year's Supreme Court decisions limiting its availability for tax planning errors. In a brief judgment, the Federal Court of Appeal disagreed with the Tax Court and held that foreign rectification orders are not necessarily dispositive or binding on a tax assessment, but must be taken as facts at trial even in the absence of domestic recognition through homologation.

CRA will not seek leave to appeal BP Canada decision
  • Canada
  • 30 June 2017

The Canada Revenue Agency (CRA) recently announced that it would not seek leave to appeal the Federal Court of Appeal decision in BP Canada to the Supreme Court of Canada. The Federal Court of Appeal had previously imposed important restrictions on the use of Section 231.1(1) audit powers by the CRA. For some taxpayers, the risk that information gathering by the CRA might result in a criminal evasion investigation or prosecution has now increased.

New limits on Section 231.1(1) audit powers
  • Canada
  • 12 May 2017

The Federal Court of Appeal recently considered the authority to conduct the inspection of books and records given by Section 231.1(1) of the Income Tax Act and, on the basis of a contextual interpretation of this section, imposed significant restrictions on the limits of the minister of national revenue's authority.

The end of advisory common interest privilege in Canada?
  • Canada
  • 27 January 2017

In an ambitious, complicated, lengthy and controversial decision, a court recently held that advisory common interest privilege has "incorrectly [been] accepted in both the United States and Canada". The judgment, which is an upheaval of law, presents serious issues for lawyers who advise clients on commercial transactions and for clients that instruct and receive advice from lawyers on such transactions.

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