News of Note
Raposo – Tax Court of Canada finds that a partnership with an illegal business was void
Email this ContentThe taxpayer and the three other members of the “Raposo clan” were involved in the sale of cocaine in the Gatineau area. The Crown took the position that, as a member of a partnership, the taxpayer was solidarily liable under ETA s. 272.1(5) for uncollected GST on the cocaine sales.
In rejecting this position, Paris J referred to Article 1417 of the Civil Code (“A contract is absolutely null where the condition of formation sanctioned by its nullity is necessary for the protection of the general interest”), and stated that under the jurisprudence “a purpose which is contrary to the public order and which contravenes a penal provision, in the current case, of the Criminal Code, engages the absolute nullity of the contract” (here, an alleged partnership contract). No partnership – no s. 272.1(5) liability.
Thus, the taxpayer benefited from the illegality of his venture. As the contract for his engagement was void, would his Part I income be determined under s. 96, 9 (see also Eldridge) or 5 (see also Coicou)?
Neal Armstrong. Summaries of Raposo v. The Queen, 2018 CCI 81 under ETA s. 272.1(5) and General Concepts – Illegality.
Stankovic – Federal Court finds that a taxpayer with an unreported Swiss bank account was not yet under criminal investigation
CRA found out from the French authorities that the taxpayer was on the list obtained from a disgruntled HSBC employee of those with large Swiss bank accounts. The taxpayer had not reported the account or the interest thereon. When CRA sought a compliance order under s. 231.7(1) for the taxpayer to answer its requests for information issued under s. 231.1(1), the taxpayer argued that it was obvious that this was occurring pursuant to a criminal investigation of her. Russell J disagreed, stating that:
Offshore accounts are not, per se, illegal and it is the duty of the Minister under the Act to inquire and ensure that those with offshore accounts are meeting their tax liabilities. … If the Respondent’s position were accepted, it would mean that, given the government’s intent to deal with offshore tax offenders, every Canadian taxpayer with an offshore bank account would be immune from compliance with the audit requests made under s 231.1(1) because this could lead to criminal proceedings at some time in the future. …
[A] mere suspicion does not change the predominant purpose of an audit into a criminal investigation. See Jarvis … .
He also found (following a Quebec Court of Appeal decision dealing with the same list) that CRA’s use of information stolen by the disgruntled employee did not violate the taxpayer’s Charter rights.
Neal Armstrong. Summaries of Canada (National Revenue) v. Stankovic, 2018 FC 462 under s. 231.1(1) and Charter s. 7.
CRA considers that a s. 16.1 election does not cause a leased property to be a capital property
The operation of the ETA input tax credit rules can turn on whether the registrant is considered to have acquired a “capital property,” largely as defined for ITA purposes. CRA considers that a leased property for which an ITA s. 16.1 election has been made is effectively deemed to be a depreciable property for CCA purposes, but is not deemed to be generally a capital property, so that the leased property also is not a capital property for ETA purposes.
CRA noted the general principle in this regard that generally a registrant is not considered to have acquired property for ITC purposes unless ownership of the property has been transferred to it.
Neal Armstrong. Summaries of 13 December 2017 Interpretation 187306 under ETA s. 225.1(2) – B and s. 169(1).
9 further full-text translations of CRA interpretations are available
The table below provides descriptors and links for the two Technical Interpretation released last week, for the last five questions and answers for the October 2017 Financial Strategies and Instruments APFF Roundtable and two technical interpretations released in October 2013. Gaps in the numerical sequence for the APFF Financial Strategies items reflect responses from the Department of Finance, which continue to be available on our Roundtable page.
The above translated interpretations (and the other full-text translations covering the last 4 1/2 years of CRA releases) are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for May.
Haifa Trust – Court of Quebec finds that a trust with an inactive Alberta trustee whose director could be replaced at will by the Quebec patriarch was resident in Quebec
A purported Alberta-resident trust for the family of Mr. Zaffir was found by Lavigne JCQ to be resident in Quebec given that there was essentially nothing to connect it to Alberta other than an Alberta corporate trustee whose Alberta-resident director did essentially nothing (nor had any real ability to do so). Lavigne JCQ noted that the following two points were by themselves sufficient to reach this Quebec residency finding:
That Mr. Zaffir was the sole shareholder of Alberta Ltd. and in that capacity he had the power to name or dismiss the director of Alberta Ltd., coupled with the fact that Mr. Zaffir was also the “protector” of the Haifa Trust, is sufficient to conclude that the effective control of the Haifa Trust was in the hands of Mr. Zaffir, a resident of Quebec and on that basis, the taxes of the Haifa Trust were required to be paid in Quebec.
Neal Armstrong. Summary of 895410 Alberta Ltd., fiduciaire de la Fiducie Haifa v. Agence du revenu du Québec, 2018 QCCQ 2581 under s. 2(1).
Melançon - Tax Court of Canada finds that the failure of a house construction company to charge a mark-up on its costs incurred for shareholder work generated a taxable benefit
The taxpayer, who was the sole shareholder of a home construction company that handled the construction of his personal residence, reimbursed his company for all of its third-party costs in constructing the home. Smith J confirmed CRA’s assessment of a shareholder benefit on the taxpayer, that was computed by applying the profit margin of 8.09% that the company averaged on its other house construction business in that year to the costs that were incurred by it on this house.
Neal Armstrong. Summary of Melançon v. The Queen, 2018 CCI 73 under s. 15(1) and General Concepts – Effective Date.
CRA confirms that there is no requirement on a supplier to refund GST/HST on an excess charge
ETA s. 232(2) provides that where a supplier has charged GST/HST on consideration that is subsequently reduced, the supplier “may” then refund the GST/HST it charged on the excess consideration. CRA stated:
Note that the legislation uses the word “may”. As such, it is at the discretion of the [supplier] whether to refund the GST on the reduction in consideration.
Neal Armstrong. Summary of 21 December 2017 Ruling 167830 under ETA s. 232(2).
Stewart - Tax Court of Canada finds that partners were not necessarily precluded under the s. 152(1.7) “binding” rule from arguing that a partnership determination of loss was statute-barred
CRA issued Notices of Determination to deny losses of a limited partnership (TSI). Both TSI and its partners launched appeals to the Tax Court. However, TSI then filed a Notice of Discontinuance, which resulted in its appeal being deemed by s. 16.2(2) of the Tax Court of Canada Act to have been dismissed. The individual partners continued with their appeals, arguing that the Notices of Determination had been statute-barred.
D’Auray J first indicated that there was potential merit in the individuals’ argument that s. 152(1.7), which provides that a notice of determination is binding on the partners respecting their income, taxes and amounts refundable, did not preclude them from arguing that the Notices of Determination were invalid on procedural grounds. However, that success did not help the individuals, as she agreed with the Crown that their continuing with their appeals was an abuse of process. A previous case had found that generally “dismissal under section 16.2 of the TCC Act carries the same effect as a judgment of dismissal by the Court” – and the action which thus had constructively been decided against them was one in which they could have, but failed to, raise their statute-barring arguments.
Neal Armstrong. Summaries of Stewart v. The Queen, 2018 TCC 75 under s. 152(1.7) and General Concepts – Abuse of Process.
CRA clarifies the computation of the $150 cost per employee safe harbour for employee parties
The T4130 Employers’ Guide states that:
If you provide a free party or other social event to all your employees and the cost is $150 per person or less, we do not consider it to be a taxable benefit.
CRA confirmed that the cost per person for these purposes is computed based on the number of those attending rather than the number invited.
Neal Armstrong. Summary of 9 April 2018 Internal T.I. 2017-0731251I7 F under s. 6(1)(a).
CRA states that hockey tickets purchased by a hockey player recruiter are subject to s. 67.1
Subject to inapplicable exceptions, s. 67.1 deems amounts expended on “entertainment” to be 50% of the expenditures. CRA stated:
Since a hockey game is an athletic event, we are of the view that the amounts paid by a hockey player recruiter for the purchase of tickets to attend hockey games are subject to section 67.1 even if these amounts were paid by a taxpayer in the course of his or her employment.
Neal Armstrong. Summary of 9 April 2018 External T.I. 2017-0714381E5 F under s. 67.1(1).