Tax News Headlines for the week of May 6 – 13, 2019

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Federal Income Tax

CRA Publications

Tax Window File: 2018-0775391E5

Clothing Reimbursement for Maintenance Workers

The CRA was asked if the cleaners, custodians trades workers and other maintenance employees doing general repairs, yard clean up and sweeping/mopping floors received a taxable employment benefit for the reimbursement by their employer of their footwear and clothing expenses. The reimbursement was based on submitted receipts and could not exceed a maximum amount. The employees did not have to wear a specific uniform or protective clothing, and all receipts submitted were generally reimbursed.

The CRA confirmed that the reimbursement by an employer of an employee’s regular clothing which can be worn for non-business purposes outside business hours is considered a reimbursement of a personal expense and considered an employment benefit taxable under s. 6(1)(a) of the Act. An employee would not receive a taxable benefit if he was provided with a distinctive uniform to be worn while carrying out his employment duties or with protective clothing including safety footwear and safety glasses designed to protect them from employment hazards. Therefore, an employer’s reimbursement of an employee’s safety footwear should not be taxable but the reimbursement of the employee’s clothing expenses to simply compensate him for increased wear and tear on clothing would generally be taxable.

Business and Employment Division

April 17, 2019

Related sections: 6(1)(a)

Tax Window File: 2018-0746971E5

Bonus Received after Employee’s Death

The CRA was asked to reconcile an apparent contradiction between guidelines included in CRA guides T4001 and T4011 concerning the reporting of employment income and preparation of the Form T4 of a deceased employee. Guide T4001 requires the preparation of Form T4 for a year the payment is made to the employee and Guide T4011 requires an inclusion in the employment income in the year of death even if it was received after.

The situation may described as follows:

  • A retired employee has a right to receive a bonus in 2017 and 2018.
  • The employee dies in 2017 but the employer only finds out about it in January 2018.
  • The employer pays the entitlements to deceased’s estate in 2018 instead of 2017.

The employer would issue a Form T4 for 2018 but the executor of the estate would have to include the amounts in the deceased employee’s 2017 taxation year. Both the reporting and income inclusion were confirmed by the CRA which noted no inconsistencies between Guides T4001 and T4011.

Financial Industries and Trusts Division

June 26, 2018

Related sections: 70(1)

Tax Window File: 2019-0793911E5

Redemption of Tax-Deferred Cooperative Share during Triangular Amalgamation

The CRA was asked to consider a situation where a person or partnership redeems, acquires or cancels a   shareholder’s tax-deferred cooperative share during a triangular amalgamation realized under s. 87(9) of the Act. More specifically, the CRA was asked:

  • If the 15% tax should be withheld under s. 135.1(7) of the Act from the amount payable on the above redemption, acquisition or cancellation.
  • If the taxpayer would be required by s. 135.1(2) of the Act to include in his income the proceeds of disposition of the tax deferred cooperative share.

The answer is yes to both questions.

If the conditions in s. 87(2)(s) and 135.1(9) of the Act were met in respect of the taxpayer’s tax-deferred cooperative share, s. 135.1(10) would apply to deem the taxpayer to have disposed of the old share for a nil proceeds of disposition. If this was case, no 15% tax would need to be withheld and no amount would need to be included in the taxpayer’s income. However, since the mention of a new corporation in s. 87(2)(s) of the Act refers only to the corporation resulting from the merger, the provision would not apply to a triangular amalgamation since the shareholders of the predecessor corporations only receive shares of the parent corporation. Since s. 87(2)(s) of the Act does not apply in this case, the provisions of s. 135.1(10) do not apply to deem a nil proceeds of disposition for the purpose of the income inclusion under s. 135.1(2) and 15% tax withholding under s. 135.1(7).

Financial Industries and Trusts Division,
February 25, 2019

Related Sections: 87(9); 135.1(2); 135.1(7); 135.1(9); 135.1(10)

Tax Window File: 2017-0716451E5

Deduction in Computing Trust Income

The CRA was asked to consider the following situation:

  • Trust X is a discretionary family trust.
  • Trust X realized a $200,000 taxable capital gain and a $100,000 rental loss in the taxation year.
  • On December 31 of the taxation year, the whole income attributable to the $200,000 taxable capital gain was allocated to a beneficiary and paid to him by cheque before December 31.

More specifically, the CRA was asked if the trust could deduct an amount of $200,000 under s. 104(6)(b) of the Act for the taxable capital gain paid in the year to a beneficiary.

The CRA confirmed that this was not possible because the amount that the trust could deduct under s. 104(6)(b) of the Act could not exceed the amount of its income for the year that was only $100,000 in this particular situation. If the trust was to pay an amount in excess of the amount deductible under s. 104(6)(b) of the Act, an amount may have to be included in the taxpayer’s income under s. 105(1). The maximum amount deductible under s. 104(6)(b) of the Act is the rust’s income determined under s. 3 and before any deductions claimed under s. 104(6) and 104(12). S. 105(1) of the Act then requires the inclusion in the taxpayer’s income of all benefits received from the trust. This would include benefits received by any taxpayer under the trust other than amounts otherwise included in the beneficiary’s income or amounts paid as capital distributions under the trust deed.

Financial Industries and Trusts Division, April 18, 2019

Related sections: 104(2); 104(6); 104(13); 104(21); 104(24); 105(1); 107(2)

Tax Window File: 2017-0736531I7

Canadian Branch Income Derived by US Resident Corporation

The CRA was asked to consider the following situation:

  • USCO1, a non-resident corporation resident in the US, owns 58% of LLC1.
  • USCO2, a non-resident corporation resident in the US, owns the other 42% of LLC1.
  • USCO1 and USCO2 are “qualifying persons” as defined in Art. XXIX-A of Canada-US Tax Treaty.
  • LLC1 is a US limited liability company that is treated as a corporation (Scenario 1) or partnership under (Scenario 2) for US income tax purposes, and as a non-resident corporation for Canadian tax purposes. In Scenario 1, LLC1 is a US tax resident corporation for purposes of the tax treaty and a “qualifying person” as defined in Art. XXIX-A of the treaty.
  • LLC1 owns 100% of LLC2, a US limited liability company which is a non-resident corporation for Canadian tax purposes and disregarded entity for US income tax purposes.
  • LLC2 owns 100% of LLC3, a US limited liability company which is a non-resident corporation for Canadian tax purposes and disregarded entity for US income tax purposes.
  • LLC3 operates a Canadian branch that is a permanent establishment (PE) under Article V of the Canada-US Tax Treaty and earns business income through that PE.
  • LLC3 calculates tax on its Canadian branch profits not reinvested in Canada under s. 219 of the Act but is ubject to potential treaty relief under Article X(6) of the Canada-US Tax Treaty.
  • In Scenario 1, LLC1 is a US resident entity deriving business income from the PE.
  • In Scenario 2, USCO1 and USCO2 are entities deriving business income from the PE.

The CRA was asked if Articles IV(6) and X(6) of the Canada-US Tax Treaty would be applicable to provide treaty benefits to LLC3 on its Canadian branch earnings:

  • if the earnings are derived by LLC1 through multiple fiscally transparent LLCs.
  • if the earnings are derived by USCO1 and USCO2 through multiple fiscally transparent LLCs.

The CRA confirmed that those two articles would generally apply because the conditions in Article IV(6) are met, including the condition that the treatment of the Canadian branch income for US income tax purposes is the same as it would have been if the US resident corporation had received it directly.
See also Technical interpretations No. 2009-0339951E5 and No. 2009-0318491I7.

International Division

April 4, 2019, 2019

Related sections: 219(1)

Court Decisions

Case (Full Text): 2019 TCC 97, Kootenay Management Consultants Ltd. v. MNR, The Queen and Zibrik
The appellant was the sole shareholder and director of his corporation. In 2016 the Canada Revenue Agency reassessed the taxpayer for the 2012, 2013 and 2014 taxation years for unreported income arising from alleged taxable benefits received from the company. An assessment was also issued against the corporation for Canada Pension Plan contributions on those taxable benefits. Both the taxpayer and the corporation appealed from those assessments and the appeals were heard on common evidence. The Tax Court held that the individual appellant was not an employee of the company and that any amounts received were therefore not benefits arising from employment. The Court then considered whether the individual appellant had received benefits arising from an “office”, and determined that he had not. The Income Tax Act provides that “office” means the position of an individual entitling the individual to a fixed or ascertainable stipend of remuneration. The jurisprudence provides that the test for whether a payment is remuneration or a stipend is whether the person received the payment for his activities in the performance of his office, or whether he received it simply as an individual. The Court considered the individual appellant’s role with his company before concluding that there was no evidence that he had an entitlement to a fixed or ascertainable stipend or remuneration, or that any of the amounts received were payments made to him for activities in the performance of his office. The appeals by both the individual and corporate appellants were therefore allowed.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405465/1/document.do

Case (Full Text): 2019 CF 642, 6075240 v. The MNR
This is an application for judicial review of a decision of the Canada Revenue Agency (“CRA”). The Appellant had failed to file its income tax returns for the taxation years 2010 and 2012. The CRA, in accordance with subsection 152(7) issued “estimative” assessments for tax owed in respect of those taxation years. More than three years after these proposed assessments were issued, the Appellant attempted to file his returns for those years. The CRA refused to treat the returns stating it was unable to issue reassessment more than three years after the issuing of the original assessment. The Appellant contends that the normal reassessment period should begin only the tax return has been filed. A so called “estimated” assessment would not trigger the three period. The Appellant bases its argument on subsection 152(4) which is arguably applicable only to persons having filed returns. The Court disagreed and did not find the decision of the CRA unreasonable. The Court found that subsection 152(4) applies to all assessments whether or not a tax return was filed. If Parliament had wished the law to be different with respect to “estimative” assessments the law could explicitly say so as is the case with the Quebec Income Tax Act. Accordingly, the application was rejected.

Case (Full Text): 2019 TCC 100, Gendron v. MNR
For a period of time during 2016 and 2017, the taxpayer worked in the Netherlands for his Canadian employer, under a secondment arrangement. His employment was terminated in September 2017 and he applied for Employment Insurance benefits. His application was denied on the basis that the secondment employment was not insurable employment for Employment Insurance purposes and he appealed from that determination. The Tax Court of Canada held that, with limited exceptions, only employment in Canada qualifies as insurable employment and that the appellant was not, during the relevant period, employed in Canada. Employment outside Canada is insurable employment only where four specific conditions are met. Those conditions require that the person so employed be ordinarily resident in Canada, that the employment is outside Canada by an employer who is resident in Canada, that the employment would be insurable employment if it were in Canada and that the employment was not insurable employment under the laws of the country in which it takes place. The parties were agreed that the first and third conditions were met and consequently the only issues for determination were whether the appellant’s employment was or was not insurable employment in the Netherlands and whether his employment was by an employer who was resident in Canada. The Court first reviewed the circumstances of the appellant’s employment in the Netherlands and the applicable social security laws in that country. The evidence indicated that during the relevant period the appellant was covered by the Dutch social security rules in accordance with Dutch legislation. In the Court’s view, that was consistent with a conclusion that his employment in the Netherlands was insurable employment under Dutch law. In addition, contributions were made to the relevant program because of his employment, also supporting the conclusion that his employment was insurable under Dutch law. The Tax Court determined, therefore, that the appellant’s employment outside Canada was insurable employment under the laws of the Netherlands, the place where the employment took place. Accordingly, the appellant did not meet the requisite conditions for insurable employment under the provisions of the Canadian Employment Insurance Act governing overseas employment, and his appeal was dismissed.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405689/1/document.do

Case (Full Text): 2019 TCC 105, Royal City Taxi Ltd. et al v. MNR et al
D, a taxi driver, had been a shareholder of R Ltd. until 2011 or the beginning of 2012. For years R Ltd. made EI payments on D’s behalf but stopped doing so in 2016. The Minister determined that, for the period from January 1, 2016 to April 25, 2017 (the “Period”), D, while allegedly working for R Ltd., was not engaged in pensionable employment, but was engaged in insurable employment. In dismissing R Ltd.’s appeal and allowing D’s appeal, the Tax Court of Canada concluded that, during the period, D was engaged in pensionable employment, and in insurable employment as well. In reaching this conclusion, the Tax Court considered the parties’ subjective intentions, as well as the Wiebe Door factors of control, ownership of tools, and chance of profit and risk of loss (see Wiebe Door Services Ltd. v. MNR [1986] 3 F.C. 533). The Court also observed that since the appearance of the decision in Yellow Cab Company Ltd. v. MNR 2002 FCA 294, there appeared to be a divergence in the Tax Court’s jurisprudence relating to the question of insurable employment in the context of the taxi industry.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405688/1/document.do

Case (Full Text): 2019 FCA 106, Di Mauro v. The Queen
An order was issued by the Tax Court of Canada adjourning a motion brought by the respondent for the dismissal of the taxpayer’s appeal, and dismissing a motion by the appellant for an order requiring the respondent to provide a list of undertakings given by the appellant during discovery. The appellant appealed from the Tax Court decision to the Federal Court of Appeal. On the issue of the adjournment of the motion to dismiss the appeal, the appellate Court held that the order was issued in the course of a show cause hearing in which the appellant was required to demonstrate why his appeal should not be dismissed, despite the fact that he had missed Court-imposed deadlines. In the appellate Court’s view, the Tax Court of Canada made no error in providing the appellant with additional time to rectify the situation, rather than dismissing his appeal entirely. On the motion with respect to the appellant’s undertakings, the Court held that appellate jurisprudence provides that the Crown has no obligation to provide an appellant with a list of undertakings given by that appellant, and the Tax Court had correctly dismissed the motion for an order requiring the respondent to do so. The appeal from the Tax Court decision was dismissed.
https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/405546/1/document.do

Case (Full Text): 2019 FC 574, Internorth v. The MNR
The application was dismissed. This is an application for judicial review of a decision of the Minister’s Delegate, at the Canada Revenue Agency, who refused to recommend the remission of the Applicant’s tax liability to the Governor in Council. The Appellant had been reassessed for failure to remit source deductions. A Notice of Objection had been filed and denied but the corporation did not appeal the decision to the Tax Court in the required time frame. A few years later, the sole shareholder and director was personally reassessed in relation to the unremitted source deductions under the Director’s liability provisions applicable to such amounts. The taxpayer objected to the assessment and subsequently appealed to the Tax Court which granted his appeal on the grounds that the corporation did not have any employees and was not required to collect or remit source deductions. Following this favorable outcome, the Appellant filed for a remission order under the Financial Administration Act which the Minister’s Delegate did not recommended be granted. This case raises one issue: whether the Decision was reasonable. Given the discretionary nature of a decision made under subsection 23(2) of the Financial Administration Act, considerable deference is owed to the remission decision of the Minister’s Delegate. Given the highly discretionary nature of the remission Decision, and the considerable deference owed to the Minister’s Delegate, after reviewing all the facts and circumstances involved, and while sympathetic to the Appellant’s plight, the Judge was not persuaded that intervention is warranted and concluded that the Decision was reasonable. As a result, the application for judicial review was dismissed, with costs to the Respondent.
https://decisions.fct-cf.gc.ca/fc-cf/decisions/en/405489/1/document.do

Case (Full Text): 2019 FCA 107, Van Steenis v. The Queen
The Appeal was dismissed. This case is an appeal of the decision rendered against the Appellant with respect to the deductibility of interest paid on money borrowed in 2007 used to purchase units from a mutual fund trust. From 2007 to 2015 he received distributions from the mutual fund totalling nearly $200,000 that were characterized by the fund, in the T3 Statements of Trust Income Allocations and Designations issued to him, as “represent[ing] distribution[s] or return[s] of capital. The Appellant used some of this money to reduce the outstanding principal of the loan, but used the majority of it for personal purposes. The Appellant was reassessed and denied a portion of the interest deducted from his income. The Minister concluded that the money distributed in those years was considered as returns of capital and used for personal purposes was no longer being used for the purpose of earning income. The Tax Court of Canada confirmed the assessment and the taxpayer appealed to the Federal Court of Appeal (“FCA”) which is the object of this case. The Appellant recognizes that for the interest to be a deductible amount the borrowed money must be traceable to a current eligible use. However, first, he argues that the Tax Court judge erred in law in requiring that the Appellant meet the test set out in Shell and Bronfman Trust when there has been no disposition, in whole or in part, of the mutual fund units purchased with borrowed money. Second, he submits that, in applying the test, the Tax Court judge committed a palpable and overriding error of fact in finding that the distributions in issue represented the return of a portion of the borrowed money that he invested. The FCA disagreed with both arguments. The Court was not persuaded that the requirement to trace the borrowed money to a current eligible use applies only where there has been a disposition, in whole or in part, of the original investment. In our view, neither the text nor the purpose of subparagraph 20(1)(c)(i) supports the imposition of this prerequisite. The focus of the provision is on the current use of the borrowed money, not on the current ownership status of the property initially acquired with it. The onus was on the Appellant to trace the borrowed funds to an identifiable use that triggered the deduction. It was also his onus to disprove the Minister’s assumption that he had received “a return of capital each year”. The Court did not find that the Appellant succeeded in challenging the assumptions underlying the assessments. Accordingly, the Appeal was dismissed.
https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/405248/1/document.do

Case (Full Text): 2019 TCC 107, Nott Estate v. The Queen
The taxpayer’s initial Notice of Appeal, relating to adjusted tax returns, was filed with the Tax Court of Canada in early 2016. A status hearing in October, 2016 resulted in a timetable order being issued on December 8, 2016. In an order made in February 2017, the taxpayer was ordered to file a New Amended Notice of Appeal within 60 days. In an order issued on July 17, 2017 the taxpayer was given another 60 days to file an Amended Notice of Appeal. The taxpayer died on November 30, 2017. In an order made in October, 2018, a show cause hearing was set following the taxpayer’s failure to file the Amended Notice of Appeal in accordance with the orders of February 2017 and July 17, 2017. No one appeared on the taxpayer’s behalf at the show cause hearing, and on May 7, 2019 the taxpayer’s appeal was dismissed.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405687/1/document.do

Case (Full Text): 2019 SKCA 40, Reference re Greenhouse Gas Pollution Pricing Act
By reference under The Constitutional Questions Act, the Lieutenant Governor in Council sought an advisory opinion from the Court on whether the federal Greenhouse Gas Pollution Pricing Act was unconstitutional, in whole or in part. The government of Saskatchewan argued that the legislation was unconstitutional in that it improperly delegated decision making power with respect to the application of a tax to the Governor in Council. The province argued that such delegation was contrary to section 53 of the Constitution Act, 1867 which required that taxes be authorized by legislative bodies themselves, not by executive government or otherwise. The province argued as well that the statute was unconstitutional because it was concerned with property and civil rights and other matters of a purely local nature falling within exclusive provincial legislative authority. The federal government argued that the legislation was a valid exercise of Parliament’s jurisdiction under its “Peace, Order and good Government” power. A majority of the Saskatchewan Court of Appeal reviewed the provisions of the statute and concluded that the section 53 argument could not be sustained because, in constitutional terms, the levies imposed were regulatory charges and not taxes. With respect to the argument that the legislation trespassed on matters of provincial jurisdiction, a majority of the Court of Appeal concluded that the statute was constitutionally valid because the federal government had authority over the establishment of minimum national standards of price stringency for greenhouse gas emissions and the essential character of the statute fell within the scope of the particular federal “Peace, Order and Good Government” authority. A minority of the Court of Appeal held that the statute contravened section 53 of the Constitution Act, 1867 and was also not a valid exercise of the federal government’s legislative authority under its POGG powers.
https://sasklawcourts.ca/images/documents/CA_2019SKCA040.pdf

Case (Full Text): 2019 FC 527, Fu v. A-G Canada
The applicant SF, who was almost 81 years old, was a retired university professor. She received certain payments from the Italian government (the “Payments”) which she characterized as social service payments when applying for the guaranteed income supplement. Service Canada characterized the Payments as “pension” but, on SF’s referral of the matter to the Tax Court of Canada, that Court held that the Payments were social assistance. The General Division of the Social Security Tribunal (“the “SST”) then dismissed SF’s appeal and the Appeal Division of the SST refused her application for leave to appeal. In allowing SF’s application for judicial review the Federal Court concluded that: (a) the Appeal Division’s decision lacked justification, transparency, and intelligibility, and was not within the range of possible, acceptable outcomes (which was the test set out in Dunsmuir v. New Brunswick 2008 SCC 9); and (b) that the matter should therefore be referred back to be re-determined by a different decision maker.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405373/1/document.do

Case (Full Text): 2019 TCC 99, Hoch v. The Queen
The taxpayer claimed a clergy residence deduction under both subparagraphs 8(1)(c)(iii) and 8(1)(c)(iv) of the Act. The Minister denied the deduction claimed under subparagraph 8(1)(c)(iv) on the basis that the clergy residence deductions cannot be claimed under both subparagraphs 8(1)(c)(iii) and 8(1)(c)(iv). In dismissing the taxpayer’s appeal the Tax Court of Canada concluded, in essence, that: (a) all statutes must be interpreted in a textual, contextual, and purposive way (see Canada Trustco Mortgage Co. 2 SCR 601); (b) applying the textual, contextual, and purposive approach, the word “or” in subparagraph 8(1)(c)(iii) is disjunctive; and (c) as a result the taxpayer could not claim the clergy residence deduction under both subparagraphs 8(1)(c)(iii) and 8(1)(c)(iv), which was the Minister’s position.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405373/1/document.do

Case (Full Text): 2019 TCC 98, Arora Trading Ltd. v. The Queen
The corporate taxpayer, a CCPC, was controlled by Ms. Singh who was married to Mr. Singh. Mr. Singh controlled Econo, which operated a business wholesaling gasoline products. The taxpayer entered into a Management Services Agreement with Econo, under which it agreed to provide to Econo financial, administrative, accounting, payroll, billing, and collection services. The Minister determined that the taxpayer was carrying on a “personal services business” (“PSB”). As a result the taxpayer was denied a small business deduction (“SBD”), and was also denied certain expense deductions under paragraph 18(1)(p) of the Income Tax Act. In allowing the taxpayer’s appeal in part, the Tax Court of Canada determined, in essence, that: (a) the taxpayer was not carrying on a “personal services business” in 2009 because paragraph (a) of the SBD definition in subsection 125(7) was not satisfied for that year; but (b) the taxpayer was carrying on an PSB in 2010. As a result the taxpayer was entitled to the SBD and expense deductions claimed for 2009 only.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405376/1/document.do

Case (Full Text): 2019 CCI 96, Portes & Fenetres Arbitrek Inc. v. MNR et al
The business of the corporate appellant, PFA Inc. involved the manufacture and sale of doors and windows. The Minister determined that: (a) PFA Inc. and the individual intervenors performing services for PFA Inc. (the “Workers”) were related (within the meaning of the Income Tax Act) and were not at arm’s length; (b) it was reasonable to conclude, however, that the Workers and PFA Inc. would have entered into a substantially similar contract of employment if they had been dealing at arm’s length; and (c) they were therefore deemed under paragraph 5(3)(b) of the EI Act to be at arm’s length, and hence the Workers were engaged in insurable employment. In dismissing PFA Inc.’s appeal, the Tax Court of Canada concluded, in essence, that PFA Inc. failed to discharge the onus of showing that the Minister had not taken into account all of the relevant circumstances in reaching his decision, or that this decision was unreasonable. The Minister’s determination was affirmed accordingly.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/fr/405374/1/document.do

Case (Full Text): 2019 CCI 95, Nabil Warda Inc. v. The Queen
Gestion Warda was a corporation which was financing the operations of another corporation, Societe 1162. The corporate taxpayer advanced amounts to Gestion Warda (the “Advances”), but was not a shareholder of the latter. The taxpayer subsequently sought an ABIL deduction relating to the loss allegedly sustained by it relating to the Advances, but this deduction was disallowed by the Minister. In dismissing the taxpayer’s appeal, the Tax Court of Canada concluded, in essence, that: (a) the taxpayer failed to demonstrate that the Advances were made with a view to earning income or that it in fact derived income from those Advances; (b) the Advances were made to maintain Societe 1162’s operations; (c) the ABIL was therefore deemed to be nil under clause 40(2)(g)(ii) of the Act, and hence was not deductible; and (d) even if the ABIL were not to have been deemed to be nil, it was still not deductible since the taxpayer failed to demonstrate that the Advances were irrecoverable .
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/fr/405372/1/document.do

Case (Full Text): 2019 TCC 94, Park Avenue Furniture v. MNR
Three assessments were issued for the corporate taxpayer for the 2013 and 2014 taxation years, relating to unremitted source deductions for income tax amounts, Canada Pension Plan contributions and Employment Insurance premiums. The taxpayer appealed from all assessments, arguing that it had not paid remuneration during the 2013 taxation year to the seven named employees. With respect to the Employment Insurance appeal, the Tax Court held that the appeals were invalid as the assessments appealed from were nil assessments. The respondent’s uncontested motion to quash such appeals was therefore granted. With respect to the Canada Pension Plan appeal, the Court noted that the appellant had used the services of a payroll services provider. The records of that service provider identified “gross” and “net” pay amounts received by the subject employees, as well as deductions made for CPP, EI and FEDERALTAX. Such evidence led the Court to conclude that the seven individuals had worked as employees during the time covered by the assessment. The Court rejected the argument put forward by the appellant that the payroll amounts set out in the records had later been “reversed”. The Court held that such subsequent correction or reversal could be effected only where it was done in accordance with the shared intent of the payor and payee at the time the payment was made. It could not serve to re-characterize the nature of the payments. In the Court’s view the evidence did not support the argument that the payments made were not payments of salary or remuneration, particularly as there was no documentary evidence of any corporate decision-making to the effect that the appellant would cease paying salaries to the subject employees. The appeal with respect to unremitted CPP contributions was dismissed. Finally, the Court considered the income tax appeal. It held that the appellant had not provided any evidence which specifically rebutted the assumptions on which the Minister’s assessment was based. In the absence of such evidence, the Minister’s assumptions were deemed to be valid, and the income tax appeal was therefore also dismissed. Costs were awarded to the respondent.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405375/1/document.do

Case (Full Text): 2019 CCI 93, Dauphin v. The Queen
During the taxpayer’s term as the mayor of Lachine, and as a member of council of the City of Montreal, the Surete du Quebec searched his residence and his office in Lachine. The Minister subsequently disallowed the taxpayer’s attempt to deduct legal expenses of $27,414 (the “Legal Expenses”) incurred in engaging counsel during the period of the foregoing searches. The Minister’s position, in essence, was that the Legal Expenses were not incurred “to collect or to establish a right to an amount owed to the taxpayer that, if received by the taxpayer, would be required….. to be included in computing the taxpayer’s income…..” (see paragraph 8(1)(b) of the Income Tax Act). In dismissing the taxpayer’s appeal, the Tax Court of Canada concluded, in essence, that: (a) the taxpayer’s right to preserve his income from employment was not in issue in this case; (b) he was simply attempting to save his reputation and to avoid criminal proceedings; (c) the Legal Expenses were not incurred to recover a salary, nor to earn professional income; and (d) those Expenses therefore constituted a non-deductible personal expense within the meaning of paragraph 18(1)(h) of the Income Tax Act. The Minister’s assessment was affirmed accordingly.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/fr/405371/1/document.do

Case (Full Text): 2019 TCC 92, Cameco v. The Queen
Tax Court of Canada Rules (General Procedure), SOR/99-688a, Rule 147
The corporate taxpayer had appealed successfully from assessments in respect of its transfer pricing arrangements. It then sought a lump sum costs award in the amount of $20,503,979, plus disbursements, while the respondent Minister argued for a lump sum costs award to the appellant in the amount of $9.6 million. The Tax Court judge reviewed the factors set out in Rule 147 of the Tax Court of Canada Rules (General Procedure) which it could consider in exercising its discretion with respect to an award of costs. The Court concluded, following that review, that it was appropriate to provide the appellant with a lump sum costs award in the amount of $10,250,000, in lieu of taxed costs. In the Court’s view, such award both reflected the appellant’s success and recognized the amounts in issue and the complexity of the issues involved, as well as providing for an appropriate contribution by the respondent to the costs incurred by the appellant for counsel fees.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405306/1/document.do

Case (Full Text): 2019 TCC 91, Jefferson v. The Queen
Income Tax Act, RSC 1985, c .1 (5th Supp.), s. 160(1)
An assessment was issued under section 160(1) against the taxpayer in relation to payments received by him from a corporation controlled by his father. Those payments totaled $542,027 and were made at a time when the corporation owed taxes in the amount of $603,621. The taxpayer appealed from the assessment, arguing that the amounts received represented reimbursement by the corporation of expenses which he had incurred on its behalf. The Tax Court held that the sole issue for determination was whether the appellant provided consideration for the transfers from the company. The Court first held that there was sufficient evidence to show that the corporation had agreed to reimburse the appellant for expenses he incurred on its behalf. It then reviewed in detail the evidence provided by the appellant with respect to each of the disputed expenses. Based on that review, the Court concluded that such evidence was not sufficiently credible or reliable to convince it that the appellant had shown, on a balance of probabilities, that all of the expenses claimed were incurred for the purpose of the corporation’s business. There were, however, instances in which the Courts was satisfied that some of the amounts for which the appellant was reimbursed had been incurred for the purpose of the corporation’s business. Overall, the Court concluded that the appellant should be held to have provided consideration in the amount of $116,065. The appeal was therefore allowed in part, and the Minister required to reassess in accordance with the Court’s reasons.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405370/1/document.do

Case (Full Text): 2018 TCC 88, Colitto v. The Queen
Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 160(1), 227.1
In May 2008, the taxpayer’s spouse transferred a 50% interest in two properties to her, for nominal consideration. In October 2008 an assessment was issued against a corporation of which the taxpayer’s spouse was a director, as the result of the corporation’s failure to remit source deductions between February and August 2008. A writ in respect of the debt arising from that assessment was returned unsatisfied in January 2011. In March 2011 a section 227.1 assessment was issued against the taxpayer’s spouse in his capacity as a director of that corporation and, in January 2016, an assessment was issued against the taxpayer under section 160, based on the transfer of property from her spouse which had taken place in 2008. She appealed from that assessment. The Tax Court held that the spouse’s liability under section 227.1, in his capacity as a corporate director, did not arise until all the preconditions for such liability had been met. The Court reviewed the wording of that provision before holding that a corporate director’s liability was not fixed until a certificate in the amount of the corporation’s liability had been registered with the Federal Court and returned unsatisfied. As such requirement had not been met until January 2011, the liability of the taxpayer’s spouse under section 227.1 did not arise until that date. The Court concluded that, as a result, the transfer of properties to the taxpayer from her spouse in 2008 was not caught by section 160. The appeal from the section 160 assessment was therefore allowed.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405303/1/document.do

Case (Full Text): 2018 TCC 86, Saunders Contracting v. MNR
The corporate appellant was a heavy equipment contracting company specializing in building and in road construction and maintenance. During the 2013 and 2014 taxation years, the appellant employed a number of individuals who worked at remote locations and who received a variety of allowances to compensate them for related costs incurred. The Minister assessed the appellant on the basis that all such allowances constituted insurable and pensionable earnings in respect of which the appellant should have, but did not, remit source deductions for Employment Insurance and Canada Pension Plan purposes. An assessment for such source deductions was issued and the corporation appealed from that assessment. The Tax Court of Canada held that under the Income Tax Act allowances paid by an employer to an employee are taxable as income and subject to the appropriate source deductions, unless a specific exception applies. The Court reviewed the terms of each of the allowances paid to the appellant’s employees and concluded that where such allowances met the criteria set out in subsection 6(1)(b)(vii) of the Income Tax Act, they were properly characterized as reasonable allowances paid for travel expenses. As such they were not taxable income and consequently did not constitute pensionable or insurable earnings for purposes of the Canada Pension Plan or Employment Insurance. The appeal with respect to those allowances was therefore allowed, and those assessments returned to the Minister for reconsideration and reassessment in accordance with the Court’s reasons.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405302/1/document.do

Provincial 

British Columbia 

Conviction Anmore land developer and builder sentenced for tax evasion https://www.canada.ca/en/revenue-agency/news/newsroom/criminal-investigations-actions-charges-convictions/20190503-anmore-land-developer-and-builder-sentenced-for-tax-evasion.html

Bulletin PST 314, Exemptions for First Nations. May 1, 2019 https://www2.gov.bc.ca/assets/gov/taxes/sales-taxes/publications/pst-314-exemptions-first-nations.pdf

Bulletin MFT-CT 002, Sales to First Nations and the Fuel Tax Exemption Program May 1, 2019
https://www2.gov.bc.ca/assets/gov/taxes/sales-taxes/publications/mft-ct-002-sales-first-nations-fuel-tax-exemption-program.pdf

Case BCR. v. Porisky, 2019 BCCA 159 April 30, 2019
https://www.canlii.org/en/bc/bcca/doc/2019/2019bcca159/2019bcca159.html?resultIndex=1

Saskatchewan 

Case: 2019 SKCA 40
Reference re Greenhouse Gas Pollution Pricing Act
By reference under The Constitutional Questions Act, the Lieutenant Governor in Council sought an advisory opinion from the Court on whether the federal Greenhouse Gas Pollution Pricing Act was unconstitutional, in whole or in part. The government of Saskatchewan argued that the legislation was unconstitutional in that it improperly delegated decision making power with respect to the application of a tax to the Governor in Council. The province argued that such delegation was contrary to section 53 of the Constitution Act, 1867 which required that taxes be authorized by legislative bodies themselves, not by executive government or otherwise. The province argued as well that the statute was unconstitutional because it was concerned with property and civil rights and other matters of a purely local nature falling within exclusive provincial legislative authority. The federal government argued that the legislation was a valid exercise of Parliament’s jurisdiction under its “Peace, Order and good Government” power. A majority of the Saskatchewan Court of Appeal reviewed the provisions of the statute and concluded that the section 53 argument could not be sustained because, in constitutional terms, the levies imposed were regulatory charges and not taxes. With respect to the argument that the legislation trespassed on matters of provincial jurisdiction, a majority of the Court of Appeal concluded that the statute was constitutionally valid because the federal government had authority over the establishment of minimum national standards of price stringency for greenhouse gas emissions and the essential character of the statute fell within the scope of the particular federal “Peace, Order and Good Government” authority. A minority of the Court of Appeal held that the statute contravened section 53 of the Constitution Act, 1867 and was also not a valid exercise of the federal government’s legislative authority under its POGG powers.
https://sasklawcourts.ca/images/documents/CA_2019SKCA040.pdf

GST 

Court Decisions 

Case (Full Text): 2019 TCC 104, Ghosi v. The Queen
The taxpayer and his spouse purchased a new residential property in January 2016, while retaining ownership of their current home. He applied for the New Housing Rebate and his application was denied, on the basis that neither he nor his spouse occupied the newly acquired property as a primary residence, and had not acquired the property for a qualifying relative to use as a primary residence, as required by section 254 of the Excise Tax Act. The taxpayer appealed to the Tax Court of Canada. The Tax Court held that, in order to receive the rebate, both the taxpayer and his spouse were required to fulfill the requirements set out in s. 254 of the Excise Tax Act, in particular the requirement that they had used the property as their primary residence. It was necessary, in making that determination, to assess the taxpayer’s subjective intent and to consider whether all of the facts and circumstances did or did not support that subjective intent. The Tax Court reviewed the criteria set out in the jurisprudence for determining whether a residence is a primary or secondary residence for an individual. Based on that review and the evidence provided by the appellant, the Tax Court concluded that the objective independent facts did not support the appellant’s stated subjective intent and that he had not met the onus of demolishing the Minister’s assumptions in that regard. The Minister’s denial of the New Housing Rebate was therefore correct and the taxpayer’s appeal was dismissed.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405690/1/document.do

Case (Full Text): 2019 FC 506, MNR v. Roofmart
The application was allowed. This case is about an application sought by the Minister of National Revenue for a judicial authorization to impose on Roofmart Ontario Inc. [Roofmart] a requirement to provide information and documents relating to certain unnamed persons [Unnamed Persons Requirement]. The Respondent considered that the Minister’s application did not meet all the legislative requirements for such authorizations as the necessity for this procedure to be initiated by a person with appropriate Ministerial delegation of powers or that the requirement for information be applicable to a properly ascertainable group. After reviewing the facts involved as well as the related jurisprudence, the Court concluded that the requirements of the Income Tax Act and Excise Tax Act were met. The Judge therefore found it appropriate and in the interests of justice to exercise his discretion in favour of the Minister and to authorize the Minister to impose the Unnamed Persons Requirement on Roofmart.
https://decisions.fct-cf.gc.ca/fc-cf/decisions/en/405473/1/document.do

Case (Full Text): 2019 TCC 87, UNIVERSO HOME CONSTRUCTION LTD. V. The Queen
The Appellant, Universo Homes Construction Ltd (“Universo”), a GST/HST registrant is appealing a decision issued by the Canada Revenue Agency (“CRA”) denying a New Housing rebate (“NHR”) they had claimed and credited to the purchaser of a new property. While there is no doubt that the purchaser was entitled to the rebate the CRA denied the claim filed by Universo on the basis that the CRA did not consider that Universo qualified as a “builder” as defined by section 123(1) of the Excise Tax Act for GST/HST application purposes. Accordingly, Universo appealed the decision to the Tax Court.
Universo arguably qualifies as a builder pursuant to a Declaration of Bare Trust and Agency Agreement (“Trust Declaration”) between Universo and the spouse of the sole shareholder, Director and Officer of the Appellant. The spouse had legal ownership and Universo beneficial ownership of the property before it was sold pursuant to this Trust Declaration. The Respondent did not consider the Trust Declaration applicable or valid and therefore did not consider that the Appellant had any interest in the property qualifying it as a builder for GST/HST application purposes. Therefore, the sole issue of the case is whether there is a valid Trust Declaration allowing the Appellant to qualify as a “builder” for GST/HST purposes.
After reviewing all the facts and evidence, the Court found that an effective trust settled legal ownership upon Mrs. Dhesi, the spouse of the sole shareholder of the Appelant and beneficial ownership upon Universo Homes. The financial records and actions of Universo supporting this position. Consequently, Universo qualified as a builder under the provisions of the ETA to apply for and receive the properly calculated and claimed Rebate. Accordingly, the Appeal was granted.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405305/1/document.do

Case (Full Text): 2019 TCC 81, 1882320 Ontario V. The Queen
The appellant, a corporation registered for GST/HST purposes involved in the purchase and resale of vehicles, including export to Africa is appealing an assessment in which the Canada Revenue Agency (‘’CRA’’) assessed the corporation for failure to collect and remit GST with respect to the sale of five vehicles. The CRA also denied the input-tax credits (‘’ITC’’) claimed on the purchase of the vehicles. While the appellant claimed that the vehicles were purchased and exported to Africa, and thus zero-rated, the Crown justified the assessment by stating that insufficient documentation, satisfactory to the Minister was provided to justify the zero-rating. The Appellant argued that the transactions were performed by the sole director and shareholder of the Appellant, acting as agent for the corporation.
The Appellant tabled documentation showing that the vehicles were sold to an African individual and that the transactions were facilitated by another corporation owned by the director and shareholder of the Appellant corporation. Allegedly, all the transactions were cash based. Unfortunately, none of the documentation provided showed the Appellant as the actual purchaser or vendor. However, it is also to be noted that neither the Appellant nor its director and sole shareholder, Mr. Akpomena has produced any documentation tracing the flow of cash from the Appellant’s business bank account to Mr. Akpomena. It is also to be noted that there are no records showing how money goes from the ultimate purchasers in Nigeria flowed back to the Appellant in Canada. Similarly, the Appellant provided no documentary evidence to justify its claim of ITCs.
The Court stated jurisprudence to the effect that the Minister has discretionary powers in respect of considering what is acceptable proof of export for purposes of zero-rating transactions. Based on the evidence provided, the Judge was of the view that the Appellant did not provide the Court with sufficient and reliable evidence showing that the subject vehicles were exported by the Appellant from Canada to Nigeria. Similarly, none of the required documentation to justify the ITC claim was provided. Accordingly, the appeal was dismissed.
https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/405304/1/document.do

 

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