News of Note

Dario J followed the maverick approach to tax rectification of Graymar rather than the more generous Juliar approach. The maverick subsequently was elevated and wrote the majority decision in Fairmont. In now trying to reverse Dario J’s decision, the appellant argued that the Alberta Court of Appeal should exercise its “general equitable jurisdiction to rectify the errors,” citing TCR as an example where this had occurred.

No go. The Court stated:

Without commenting on the merits of the assertion that a superior court has “equitable jurisdiction to relieve persons from the effect of their mistakes”, we fail to see how we can do this without undermining the rectification doctrine and ignoring the precedential value of Fairmont Hotels.

There is no principled basis, in the guise of exercising our equitable jurisdiction, to pump theoretical steroids into the rectification doctrine and give it the strength or force that the Supreme Court of Canada recently and consistently has declined to do.

Neal Armstrong. Summary of Harvest Operations Corp. v. Attorney General of Canada, 2017 ABCA 393 under General Concepts – Rectification.

The definition for Canada child benefit purposes of a “shared-custody parent” refers inter alia to a parent residing with the child “on an equal or near equal basis”. In Zara, Boyle J found that a father who was a bit over that 40% mark so qualified. Now in Lavrinenko, Paris J has found that a taxpayer whose access “approached 40%” fell short of the mark, and stated that “even a 60%/40% split would not qualify the Appellant as a shared‑custody parent.”

Neal Armstrong. Summary of Lavrinenko v. The Queen, 2017 TCC 230 under s. 122.6 – shared-custody parent.

A majority of the common shares of a Canadian public corporation (Pubco) were held by foreign holdcos (ultimately controlled by Foreign ‘Parent) directly or through “Canholdcos.” Most of Pubco’s assets were investments in foreign affiliates, and the paid-up capital of the various “cross-border classes” of shares (being the Pubco shares held directly by a foreign holdco and the shares held by the foreign holdcos in the Canholdcos) had been previously reduced under s. 212.3(7) as a result of Pubco investing in an offshore Finco which, in turn, financed a large development project of an indirect offshore subsidiary of Pubco (Opco).

Under the ruled-upon transactions, Opco first borrowed U.S. dollars to repay some of the Finco loans (directly and by way of repaying loans from Forco 2). Finco, in turn, inter alia paid dividends on its common shares and “distributions” on its mandatorily redeemable preferred shares to Pubco (the “Finco Distributions”). Pubco, in turn, inter alia lent those funds to a Canadian subsidiary (Canco 1) of one of the foreign holdcos, with Canco 1 subscribing for preferred shares of a Canadian subsidiary (Canco 2) of a second foreign holdcos, with that second Canadian subsidiary effecting a return of capital to its foreign holdco on a class of shares which had not been subject to a s. 212.3(7) grind because this structure was off to the side rather than being “above” Pubco.

CRA ruled that the Finco Distributions were receipts of property described in s. (B) of variable A of the s. 212.3(9)(b)(ii) formula, i.e., they restored the cross-border PUC held in Pubco and in the relevant Canholdcos on the basis that Pubco had received equivalent property as dividends on the shares of the subject corporation (Finco). Thus, it did not matter that:

• The Finco Distributions were sourced from a borrowing beneath the subject corporation rather than being a distribution of sales proceeds or profits;
• Insofar as the Canholdcos were concerned, the Finco Distributions received by Pubco were not distributed up to them but, instead, were distributed in a “sideways” manner; and
• The s. 212.3(9) bump to the PUC of the cross-border classes (in Pubco and the Canholdcos) was banked rather than utilized. (This may have occurred because the transactions under consideration were completed before the rulings were ultimately given.)

That was the easy part. Pubco had previously elected under s. 261(3) for the U.S. dollar to be its elected functional currency. CRA indicated that the PUC of the cross-border classes for both Pubco and the Canholdcos should be computed at the same time in U.S. dollars (on the basis that the entries to the PUC accounts for the cross-border classes held in the Canholdcos were relevant to the Canadian tax results of Pubco) and also in Canadian dollars (see also 2016-0642111C6). CRA then ruled that the full restoration of the cross-border PUC was dependent on the total amount of the Finco Distributions being no less than the previous net grinds to the PUC of the cross-border classes of shares computed both in Canadian and U.S. dollars.

Neal Armstrong. Summaries of 2016 Ruling 2016-0629011R3 under s. 212.3(9)(b)(ii) – A(b) and s. 212.3(18)(c)(v).

A free charging station is provided at an employee’s home for a car used in performing employment duties. CRA considers that “in many cases the employer would likely be the primary beneficiary, provided that ownership of the charging station is not transferred to the employee, and that its cost (including installation) is reasonable in the circumstances,” such that the provision of the station would not be a taxable benefit. As the charging station draws on the employee’s electricity, the employee effectively bears a portion of the operating costs. In this regard, CRA stated that “if an employer reimburses an employee for reasonable employment-related electricity costs paid by the employee, the reimbursement will not generally give rise to a taxable benefit.”

Neal Armstrong. Summaries of 14 September 2017 CPA Alberta Roundtable, Q.17, 2017-0703881C6 under s. 6(1)(a), s. 6(1)(k) and s. 8(1)(h.1).