News of Note

A non-resident's acquisition of the shares of a Netherlands public company (Univar NV) indirectly holding the shares of a valuable Canadian sub (Univar Canada) with nominal paid-up capital was structured to effectively step-up the PUC of the shares of Univar Canada to fair market value by using the pre-2016 version of s. 212.1(4). This was accomplished by setting up a sandwich structure immediately after the acquisition, under which a new Canadian ULC, capitalized with notes and high-PUC shares, held the shares of a U.S. corporation holding Univar Canada – so that such U.S. corporation could distribute the shares of Univar Canada (on a Treaty-exempt basis) to its controlling Canadian purchaser (the ULC) without technically being affected by the s. 212.1(1) deemed dividend rule.

Webb JA noted that the purpose of s. 212.1 “was not to prevent the removal from Canada, by an arm’s length purchaser of a Canadian corporation, of any surplus that such Canadian corporation had accumulated prior to the acquisition of control” since a non-resident could use a Canadian Buyco with full outside basis and paid-up capital to acquire an arm’s-length Canadian target and then extract the target’s surplus. Accordingly, the above transactions were not an abuse of s. 212.1:

The shares of Univar NV were acquired in an arm’s length transaction and, at the time that such shares were acquired, the avoidance transaction was contemplated. Therefore, the avoidance transaction would be part of the series of transactions by which control of Univar Canada was indirectly acquired in an arm’s length transaction. Whether the surplus of the Canadian corporation is removed by completing the alternative transactions described … above or by completing the transactions that were done in this case, the same surplus is removed from Canada.

Neal Armstrong. Summary of Univar Holdco Canada ULC v. Canada, 2017 FCA 207 under s. 212.1(4) and s. 245(4).

In a fractured response to whether a s. 162(7) penalty will be imposed for failure to provide a T4A to a service provider even if the provider’s invoice bear a proper GST/HST registration number, CRA indicated that, although in 2010, it had announced a “temporary measure” indicating that it would not penalize taxpayers for failure to complete Box 048 (re fees for services):

However, this has never had the effect of relieving taxpayers of their responsibility to report these payments. Thus, a penalty under subsection 162(7) is applicable for non-filing if payments for services are not reported on the T4A form, even if an invoice with valid tax numbers is provided to the payer.

This might mean: a penalty is applicable but not applied.

Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.2 under s. 162(7).

ADT Canada, which provided its security-monitoring services remotely and, thus, used significant telecommunication services, was found to be making a single supply of a security service to its customers rather than of a “telecommunication service,” which was defined in the Quebec Sales Tax Act (essentially with the same wording as in the ETA) as one would expect.

Neal Armstrong. Summary of Services de sécurité ADT Canada inc. v. Agence du revenu du Québec, 2017 QCCA 1507 under ETA s. 123(1) - telecommunication service.

S. 20(10) very oddly provides that the cost of up to two qualifying conventions can be deducted in computing business income notwithstanding s. 18(1)(b). Given that the Anglo-Persian line of cases established that employees and agents are not a capital asset (as they are more-or-less free to walk out the door at any time), it is implausible that a convention expense could be found to be a capital expenditure (although the Shaver case and Griffith, [1956] C.T.C. 47 did just that.)

When asked about this, CRA sort of waffled:

Where a taxpayer has incurred expenses related to a convention in order to earn income from a business and such expenses are not capital expenditures, such expenses may be deductible in computing its business income without reference to subsection 20(10).

Historically, the CRA's position with respect to convention expenses is that such expenditures are generally capital expenditures to which paragraph 18(1)(b) applies.

Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.12 under s. 20(10).