News of Note

After a rift and the taxpayer’s husband moving out, he conveyed a ½ co-ownership interest in the family home to the taxpayer for nominal stated consideration but on the understanding that she would not be seeking support from him. The family home then was sold, and she received ½ of the net proceeds. The ARQ subsequently assessed her under the equivalent of ITA s. 160. At issue was the exclusion, under the equivalent of s. 160(4), which applied “where the property is transferred to a spouse pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written separation agreement.” Unfortunately for her, there was nothing in writing at the time of the transfer of the co-ownership interest to her, other than the conveyance itself, which made no mention of the alleged consideration provided by her to him of foregoing support and, in fact, it did not even state that they were separated.

The Court of Quebec had concluded that the mere mention in the divorce judgment that was issued about five years later that the effects of the partition of the family patrimony dated back to the time of the conveyance was not sufficient to meet the criteria of the Quebec equivalent of s. 160(4).

Before dismissing the taxpayer’s appeal, Schrager, JA noted that “where it has been argued that the deed of transfer or assignment in itself constitutes the separation agreement, the case law has been unanimous that it must contain a reference to the separation pursuant to which the transfer was made,” and that the extremely expansive interpretation of the s. 160(4) language urged by the taxpayer would have the effect of “opening up the potential for a taxpayer with huge tax debts to benefit from the transfer of the family home through the division of the family patrimony a number of years later.”

Neal Armstrong. Summary of Drolet v. Agence du revenu du Québec, 2020 QCCA 636 under ITA s. 160(4).

A public company (Pubco), with a single class of shares outstanding, had received cash proceeds of the sale of one of its business segments. Rather than using s. 84(2), or ss. 84(4.1)(a) and (b), to distribute the proceeds pro rata to its shareholders, it was proposed that the larger corporate shareholders of Pubco, and the key employees, roll their Pubco shares into a Newco, with Newco using proceeds of a daylight loan to acquire all the remaining Pubco shares for cash and then amalgamating with Pubco - so that Amalco could use the cash proceeds referred to above to repay the daylight loan.

CRA ruled based on “Previous positions and jurisprudence” that notwithstanding this form of a levered buyout, s. 84(2) would apply, so that “each holder of Public Shares having such shares purchased by Newco will be deemed to have received, a dividend to the extent that the amount paid by Newco to each such holder on the Public Share Sale exceeds the amount of PUC attributable to such holder’s shares.”

Neal Armstrong. Summary of 2019 Ruling 2019-0809581R3 under s. 84(2).

The definition of “eligible person” in the “CEWS” (wage subsidy) legislation includes (in para. (a)) a corporation “other than a corporation that is exempt from tax under this Part or is a public institution” and includes (in para. (d)) a specific and limited range of persons that are exempt from tax under s. 149(1). CRA considers that, in light inter alia of this structure, the only exempts excluded from being eligible persons are s. 149(1) exempts who are not specifically listed in para. (d) (or partnerships thereof). Accordingly, CRA has concluded:

[A] non-resident corporation that operates an airline, a portion of whose Canadian source income is not included in the computation of its income under Part I of the Act as a result of the operation of paragraph 81(1)(a) and a provision under an income tax convention between Canada and another State is not a corporation “exempt from tax under Part I” under the definition of “eligible entity” in subsection 125.7(1) and therefore would not be prevented from being an “eligible entity” on that basis.

Neal Armstrong. Summary of 8 May 2020 External T.I. 2020-0847791E5 under s. 125.7(1) – eligible entity – para. (a).

Roofmart, a large supplier of roofing materials to residential and commercial contractors in Ontario, has unsuccessfully appealed the Federal Court’s granting of an application by the Minister under s. ITA 231.2(3) and ETA s. 289(3) for Roofmart to disclose various particulars for all of its customers who in the past 4 ½ years had made purchases of construction materials from Roofmart exceeding specified dollar thresholds.

In rejecting Roofmart’s reliance on the statement in Hydro-Québec that "[w]hen the group is generic and has no connection to the ITA, and information can be requested outside of the scope of the ITA (such as identifying the business clients of a public utility) there is no longer any limit on the fishing expedition," Rennie JA stated that this “passage is not a legal test but analysis of whether, on the facts of that case, there was an ‘ascertainable group’ and whether the information was required for the purposes of verifying compliance,” and that ”the suggestion in the reasons that the information sought was available through other means and therefore could not be obtained through a UPR [unnamed person requirement] is inconsistent with this Court’s jurisprudence, and ought not to be followed.” He further stated that the “fact that the UPR may target an unspecified or large number of accounts or that a significant amount of financial information may be captured does not affect its validity,” and that “GMREB established that a pending or existing tax audit of a particular individual is not a precondition to the exercise of power under subsection 231.2(3).”

Neal Armstrong. Summaries of Roofmart Ontario Inc. v. Canada (National Revenue), 2020 FCA 85 under s. 231.2(3) and s. 231.2(3)(a).

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