News of Note
Blackburn Radio - Tax Court decision casts doubt on whether there is a limitation period for loss years
Email this ContentWoods J. dealt with with an unsuccessful attempt by the Minister to make consequential adjustments to other taxation years after a previous Tax Court decision had found that the Minister's reassessment of the taxpayer's 1999 taxation year was statute-barred.
She noted obiter that there was authority (Interior Savings Credit and Okalta Oils) that a nil assessment is not an assessment for purposes of the Act. If this proposition is correct, it indicates (contrary to the CRA position - see 28 February 1991 T.I. 8621-4) that the limitation period (normally three or four years) does not start to run with a nil assessment.
Neal Armstrong. Summaries of Blackburn Radio v. The Queen, 2012 TCC 255 under s. 152(4.3), 152(4) and 171(1).
SRI Homes - Court of Appeal rejects Tax Court "reasons" as being too paltry
The Federal Court of Appeal remitted a decision to be tried with a different judge on the basis that inadequate reasons had been provided.
Dawson J.A. acknowledged that in some circumstances it may be acceptable for the judge to simply say that he or she agrees with the Minister. However, this will not do where the Minister has made various arguments in the alternative, and it is impossible to know which of these internally inconsistent arguments the judge agrees with.
Scott Armstrong. Summary of SRI Homes v. The Queen, 2012 FCA 208, under s. 171(1).
CRA provides somewhat more helpful examples on the HST place-of-supply rules
CRA has released in draft a revised and expanded Bulletin on the HST place-of-supply rules. Although most of the examples are trite or apodictic, some of the examples are of potential interest including:
Example 92: the BC office of a corporation which receives the advice and has meetings with the advisor has a closer connection to the advisor's services than the head office in Ontario which contracted with the advisor and the Alberta accounting office to which the invoice was directed to be sent - so that the supply is in BC;
Example 96: the business address of a mutual fund trust in Ontario has a closer connection to the services of an accounting firm than the address of the fund sponsor or of the trustee - so that the supply is in Ontario;
Example 107: a storage service (viewed as a single supply) is made in Ontario as that is where 60% of the art collection in question is situated; and
Example 110: the legal service of drafting an asset sale agreement relates to both Alberta tangible personal property and Ontario real estate - accordingly, the situs of the tangible personal property and real property does not govern and the place of supply instead is determined by the Ontario business address provided by the Ontario client.
Respecting the rule that the situs of litigation "under the jurisdiction of a court or other tribunal established under the laws of a province" is that province, CRA implies that the Tax Court of Canada and the Competition Tribunal are such provincial tribunals, which has got to be wrong. Verification of some of the relevant guidelines would entail a waiver of privilege.
Neal Armstrong. Summaries of June 2012 Draft GST/HST Technical Information Bulletin B-103 under New Harmonized Value-Added Tax System Regulations: section 8, subsection 13(1), section 14, section 15, section 27, and section 28.
Schofield - English Court of Appeal applies Ramsay doctrine (which is irrelevant in Canada, eh?)
The UK taxpayer acquired or wrote four options on the FTSE (both calls and puts) which were designed to produce a capital loss for UK purposes (irrespective of what happened to the index) even though the taxpayer was completely hedged as an economic matter. The England and Wales Court of Appeal applied the Ramsay doctrine (pre-ordained self-cancelling transactions) to deny the loss.
The Ramsay doctrine (see also Furniss v. Dawson, Craven v. White) has not gained any traction in Canada. This may be because vacuous transactions of this type should be a quick meal under the general anti-avoidance rule (see Mathew, para. 62; Collins & Aikman (TCC) at para. 109 ("none of these [transactions] involved the degree of artificiality, boldness, vacuity or audacity to rise to the level of being ... abusive tax avoidance using the language of...the GAAR"). Although not as extreme as some of the litigated British schemes, honourary mention might be accorded to the Canadian stock-dividend value-shift schemes (1207192, Triad Gestco, per contra Global Equity).
Neal Armstrong. Summary of Schofield v. R & C Commrs., [2012] EWCA Civ 927 (CA) under Tax Avoidance.
Malo - Tax Court finds an oral tax shelter
The taxpayer's purchases over three years of 750 tree seedlings at a Costa Rican tree plantation were found to be a "tax shelter" on the basis of a statement made to the taxpayer in his home by his brother-in-law (who was trying to promote the project) that the taxpayer's expenditures would be fully deductible business expenses. This statement likely was incorrect as the tree seedlings were inventory which would not be sold until they matured.
If this case is correct, it illustrates that for purposes of the tax shelter definition an informal oral statement can be the equivalent of a tax savings projection appearing in an offering memorandum or marketing brochure.
Scott Armstrong. Summaries of Malo v. The Queen, 2012 TCC 75 (Informal Procedure) under s. 237.1 - tax shelter, s. 3(a) - general, and s. 248(1) - inventory.
CRA states that voluntary disclosure expenses are non-deductible
CRA has stated that "legal expenses incurred with respect to a voluntary disclosure are not incurred to earn income from a business or property."
This statement is too crisp. Such expenses might potentially so qualify if, for example, they were incurred in relation to an HST voluntary disclosure, or with a view to satisfying conditions for a a business merger or the financing or re-financing of the business, or in order to remedy a default under current loans (although, depending on the circumstances, deductions might only be available under special rules such as the cumulative eligible capital rules.)
Neal Armstrong. Summary of 5 June 2012 T.I. 2012-0437831E5 under s. 18(1)(a) - income-producing purpose and s. 60(o).
Sommerer - Federal Court of Appeal finds that the exemption in the Canada-Austrian treaty for gains realized by an Austrian alienator prevents the attribution of those gains to Canada
In the Sommerer case referred to below, Sharlow JA also found obiter that the gains exemption article in the Canada-Austrian treaty would have precluded the application of a Canadian domestic gains attribution rule (s. 75(2)) to the Canadian taxpayer in that case even though the person invoking the exemption was that Canadian resident rather than the Austrian alienator (i.e., an Austrian foundation) of the Canadian shares giving rise to the attributed gain. She found that preventing "economic" double taxation as in this situation was within the intended general purview of the treaty.
Neal Armstrong. Summary of Sommerer v. The Queen, 2012 FCA 207 under Treaties - Article 13 and Treaties- General.
Sommerer - Federal Court of Appeal finds that an Austrian private foundation is not a trust - and that s. 75(2) does not apply to sales at fair market value
An Austrian private foundation was found in obiter dicta not to be a trust for Canadian income tax purposes given that it had juridical personality and owned its property rather than holding it for the taxpayer and other alleged beneficiaries. (The reasons suggest that it was a corporation instead.) Furthermore, s. 75(2) does not apply to sales of property for fair market value proceeds to a trust (or an alleged trust, in this case) - otherwise the same gain could be attributed under s. 75(2) to the vendor, and to the settlor who had contributed the property used to make that purchase.
Respecting the first question, Sharlow J.A. implicitly applied the general entity classification methodology of Memec and Backman, and of CRA (see ITTN No. 38).
Neal Armstrong. Summary of Sommerer v. The Queen, 2012 FCA 207 under s. 104(1) and 75(2).
Rogers Communications v. SOCAN - Supreme Court casts doubt on withholding tax exemption for royalties in respect of Internet streams
The Supreme Court of Canada has found that, unlike media downloads, media streams infringe on a copyright-holder's exclusive right under s. 3(1)(f) of the Copyright Act to communicate a work to the public by telecommunication.
In light of ESA, the Court's decision means that media streams do not entail the "production or reproduction" of a work (even though the streaming entails the making of temporary copies of the works). This suggests that copyright royalties paid in respect of media streams are not exempt under s. 212(1)(d)(vi) from Part XIII tax - whereas most downloads of copyright-protected works entail the "production or reproduction" of those works and generally are exempt under s. 212(1)(d)(vi).
Scott Armstrong. Summary of Rogers Communications v. SOCAN, 2012 SCC 35 under s. 212(1)(d)(vi).
Entertainment Software Association v. SOCAN - Supreme Court decision casts doubt on withholding tax exemption for artistic production royalties
The copyright holders of musical works represented by the Society of Composers, Authors and Music Publishers of Canada ("SOCAN"), who generally would have already licensed the copyright in their musical works to games publishers, were found to not have any right to further royalties when the games were downloaded by online purchasers. At issue was whether these downloads represented a "communicat[ion of] a work to the public by telecommunication," which was protected under s. 3(1)(f) of the Copyright Act. The Supreme Court of Canada found that the core of Canadian copyright is the pair of rights set out in the introductory paragraph of s. 3(1), which are the exclusive right to produce or reproduce, and the exclusive right to perform, a work. Historically, s. 3(1)(f) is a specific example of the latter right only. As the downloading of the games by their online purchasers was protected by the production or reproduction branch of copyright protection, rather than the performance branch (including the s. 3(1)(f) telecommunication right), the SOCAN members were not entitled to collect a second set of royalties.
This distinction drawn between reproduction and performance rights suggests that copyright royalties paid to a non-resident for the right to mount a theatrical or musical production may not be exempted from Part XIII tax by s. 212(1)(d)(vi) (which applies only to royalties for "production or reproduction" of a work; see 13 June 2003 T.I. 2003-0018975 and 29 May 1998 Memorandum 973007). Additional issues arise under similarly-worded exemptions in various Income Tax Conventions to which Canada is a party (but which should also give effect to the intent of the other Treaty partner), given that (as noted in the dissenting reasons of Rothstein J.) the copyright law of foreign jurisdictions such as the U.S. may be structured quite differently than the Canadian Copyright Act.
Scott Armstrong. Summary of Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34 under s. 212(1)(d)(vi) and Statutory Interpretation - Legislative History.