News of Note

The taxpayer realized s. 7 stock option benefits, and requested relief under the Financial Administration Act after having disposed of the shares in a subsequent year at a capital loss, with no ability to carry back that loss to offset any s. 7 benefit. On his appeal to the Federal Court of CRA’s refusal to recommend remission, he argued that he should be treated the same as employees of SDL Optics, who had been granted remission orders respecting their inability to offset capital losses against s. 7 income realized under a stock purchase plan.

Dawson JA agreed with the view of Roussel J below that it was reasonable for CRA to consider that the taxpayer’s stock option benefits were categorically different from the s. 7 benefits at issue in the SDL case, stating:

In the case of SDL Optics, employees who purchased shares through a stock option plan, as opposed to a stock payment plan, were not entitled to remission. This reflects the fact that a stock option plan provides greater flexibility to employees. The appellant had the option to purchase, or not purchase, shares at a designated price for a specified period of time regardless of shifts in market value during that period.

Incidentally, the Federal Court reasons (2018 FC 936) reveal that the taxpayer had got CRA to agree to a reduction pursuant to a Tax Court consent judgment to the quantum of his stock option benefits based on discounting the shares' value from their TSX trading price by 30%. Thus he had been largely successful in his argument that: "since the shares acquired were subject to numerous blackout periods and he was considered an insider of [the employer] for the purposes of the TSX and relevant shares legislation and regulations, the assessed value of the shares should not be more than 60% of the trading price on the date of purchase."

Neal Armstrong. Summaries of Fink v. Canada (Attorney General), 2019 FCA 276 under Financial Administration Act, s. 23(2) and ITA s. 7(1)(a).

CRA indicated, respecting the GST/HST Registry for confirming GST/HST registration numbers, that “they have resolved the issue of false positives that occurred in some instances.” CRA went on to indicate that the “CRA does not currently have a specific policy to waive penalty and interest in cases where a supplier of real property relied on the GST/HST registry to verify a recipient’s GST/HST registration status and the GST/HST registry gave a false positive.”

Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.26 under ETA s. 221(2).

ETA s. 194 provides that where a supplier has incorrectly certified that a sale of real estate was of exempt residential real estate, then the sale price is deemed to have been inclusive of the applicable GST/HST (so that it is that supplier rather than the purchaser who bears that GST/HST) – except where the purchaser “knows or ought to know that the supply is not an exempt supply.”

A vendor certified that an 18-acre property was an exempt residential property and, when it was assessed by CRA for failure to charge GST on the 16-acre portion of the property that was used as a blueberry farm, sued the purchaser for the GST thereon, plus interest. Saunders J found that the purchaser knew of the property’s use as a blueberry farm, and stated that the purchaser thus “possessed knowledge of fact which, through taking the appropriate advice a reasonable person would seek on those facts, would have indicated that GST would apply to the sale.” Accordingly, since the contract was silent on GST, the vendor was entitled under ETA s. 224 to recover its GST assessment from the purchaser – but had no entitlement to recover interest that CRA has assessed against it.

Neal Armstrong. Summaries of Diamond Stacking Co. Ltd. v Zuo, 2019 BCSC 1849 under ETA s. 194 and s. 224.

The taxpayer, who was a British citizen aged 23, came to Australia on a “working visa” for a 20-month stint, during which period she was found by Logan J to be resident in Australia on ordinary principles. A citizen and resident of Australia would have largely escaped income taxation on her modest income as a waiter due to the right to deduct a “tax-free threshold.” However, the “backpacker tax” provisions of the Australian Rates Act provided that a “working holiday worker” (defined to include the holder of a working visa), was subject to 15% tax on her income.

The taxpayer, although an Australian resident, was by virtue of her citizenship a UK national and not an Australian national under the definition in the Australia-U.K. Treaty. That Treaty's non-discrimination clause (also found in many of the Canadian treaties) read:

Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

Logan found that this 15% tax contravened this clause given that “Only non-citizens can hold the types of visa that constitute a “working holiday visa.” He stated:

[T]he discrimination between resident derived income from the same source in Australia is based on nationality. It is disguised by the reference to “working holiday maker” but the definition of that term makes it plain that what the disguise covers is nationality. A resident “national” of Australia undertaking the same work as did Ms Addy … would have the benefit of the tax free threshold.

This decision potentially also is of corporate interest given that “nationals” can include companies deriving their status from the domestic law.

Neal Armstrong. Summaries of Addy v Commissioner of Taxation [2019] FCA 1768 under Treaties – Income Tax Conventions – Art. 25 and ITA s. 2(1).