News of Note
Rennie Produce – Full Federal Court of Australia finds that third-party documents obtained in commercial judicial proceedings were producible under a requirement issued by the tax authority
Email this ContentThe obligation in Harman v Secretary of State for Home Department [1983] 1 AC 280 has been described as follows:
Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.
The Court held that the Harman obligation did not impede a taxpayer, who had documents in its possession which it had obtained from a third party pursuant to a summons, from providing those documents pursuant to a requirement for information issued to it by the Commissioner of Taxation. The same conclusion respecting the primacy of the Canadian requirement provision (s. 231.2) might obtain in Canada.
Neal Armstrong. Summary of Deputy Commissioner of Taxation v Rennie Produce (Aust) Pty Ltd (in liq) [2018] FCAFC 38 under s. 231.2(1).
Stamatopoulos – Quebec Court of Appeal finds that the ARQ failed to establish that a named supplier to the taxpayer did not act as a supplier or intermediary
A taxpayer (Stamatopoulos) serviced clothing manufacturers by securing sewing services for clothes that then were delivered to the manufacturer. He checked the GST and QST registration numbers of the subcontractors and paid the invoices delivered in their name to him once he, in turn, had been paid by the manufacturer. The QST paid by him was not remitted by the subcontractors, and the ARQ position was that he was not entitled to input tax refunds because the persons in whose names the invoices were issued were not the persons who had actually rendered the sewing services to him.
In confirming the position below that the invoices received by Stamatopoulos satisfied the documentary requirements for claiming ITRs, Marcotte JCA proceeded on the basis that:
[W]here the taxpayer has discharged the taxpayer’s initial burden of proving that the invoices in fact were issued by a person with whom the taxpayer dealt directly in a genuine commercial transaction, it then falls on the tax authorities to prove, on the balance of probabilities, that the person with whom the taxpayer dealt directly did not act as a “supplier” or as an “intermediary.”
The ARQ had not met this onus.
She also noted that it did not matter whether the subcontractors with whom Stamatopoulos had dealt had in fact provided the sewing services, because the Quebec equivalent of the Input Tax Credit Information (GST/HST) Regulations provided that a good invoice could also be issued by an intermediary. In other words, once Stamatopoulos established (as he did) that he had had business dealings with the subcontractors in whose names the invoices were issued, the onus shifted back to the ARQ even if it was clear that they were not the suppliers (but they might instead have been intermediaries).
Neal Armstrong. Summary of Agence du revenu du Québec v. Stamatopoulos, 2018 QCCA 474 under Input Tax Credit Information (GST/HST) Regulations, s. 2 – intermediary.
Satoma Trust – Federal Court of Appeal finds that using ss. 75(2) and 112(1) to pay tax-free dividends to a family trust thwarted s. 112(1)’s expectation of ultimate taxation of those earnings
A tax plan turned upon dividends that in fact were paid to a family trust (Satoma Trust) being attributed under s. 75(2) to a corporation (“9134”) that was connected to the dividend payer, so that the dividends deemed to be paid to 9134 were eligible for the intercorporate dividend deduction. Before turning to the application of s. 245(2), Noël CJ first found that such application of s. 75(2) to 9134 effectively precluded the dividends’ inclusion in the hands of Satoma Trust, stating:
[T]he subjecting to tax under the Act of a “taxpayer,” applies in the singular (section 3). Nothing permits the belief that the legislator intended that the same income would be taxable in the hands of more the one taxpayer… .
In confirming CRA’s application of GAAR to include the dividends in the hands of Satoma Trust, notwithstanding that those dividends had not yet been distributed by it, he stated:
Even where the application of [s. 75(2)] by itself has the desired effect, its utilization in combination with subsection 112(1) goes counter to the object and spirit of the latter provision [citing Lipson]. In this regard, the object and spirit of subsection 112(1) consists in permitting the transfer, free of tax, of dividends within certain groups of corporations, subject to their eventual taxation when the dividends are paid to their ultimate recipients. This object was thwarted, as the dividends can now be transferred to the beneficiaries without tax.
Neal Armstrong. Summaries of Fiducie Financière Satoma v. Canada, 2018 CAF 74 under s. 245(1) – tax benefit, s. 245(4) and s. 3.
Income Tax Severed Letters 11 April 2018
This morning's release of 28 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
NWorks – Court of Quebec indicates that a recipient of supply could be invoiced for sales tax after the supplier was asssessed therefor
A supplier (NWorks) charged GST, but failed to charge QST, on a number of supplies of services to the recipient thereof. When it was assessed by the ARQ for this failure, it promptly issued a revised invoice to the recipient for the previous transactions that showed the QST owing, which the recipient refused to pay.
Sirois JCQ strongly sided with the jurisprudence (including Occo) that indicated that the documentary requirements of the Quebec equivalent of ETA s. 223 (i.e., QSTA s. 425) could be satisfied by issuing a revised invoice (in good form) for the tax well after the time of making the supply so that, under the Quebec equivalent of ETA s. 224, NWorks could recover the QST from the recipient. She also stated that two decisions to the contrary “added the non-existent words ‘at the time of invoicing’ to the text of QSTA section 425.”
Neal Armstrong. Summary of NWorks Management Corp. (Globotech Communications) v. Lincourt, 2018 QCCQ 1021 under ETA s. 223.
CRA finds that a summer day camp and after-school program qualified as “child care services” for GST/HST purposes
The ETA generally provides an exemption for:
A supply of child care services, the primary purpose of which is to provide care and supervision to children 14 years of age or under for periods normally less than 24 hours per day.
This exemption applied to the supply by a registrant of summer day camp and after-school programs at its martial arts centre for children under 14. CRA stated:
Although the [children’s programs] are enriched by recreational and athletic activities … the primary purpose of the programs is to provide care and supervision to children 14 years of age and under.
Neal Armstrong. Summary of 16 November 2017 Ruling 183644 under ETA Sched. V. Pt IV, s. 1.
Humane Society – Federal Court of Appeal states that Rule 317 applications cannot be used for fishing expeditions
Federal Court Rule 317 provides that “A party may request material relevant to an application that is in the possession of a tribunal [e.g., CRA] whose order is the subject of the application….” In denying further documents to a Rule 317 applicant, who had already received a tribunal record of more than 1500 pages, as well as 1907 pages under an Access to Information Act request, Webb JA stated:
…[A] bald assertion of bias is not sufficient and cannot support an order for production of documents to allow the appellant to go on a fishing expedition to see if something can be found to support the allegation of bias.
…Counsel for the appellant was unable to identify any document in the voluminous motion record that could support the allegation of bias. It, therefore, seems clear that the appellant was on a fishing expedition.
Neal Armstrong. Summary of Humane Society of Canada Foundation v. Canada (National Revenue), 2018 FCA 66 under Federal Court Rules, Rule 317.
Seven further full-text translations of CRA interpretations are available
The table below provides descriptors and links for a French Technical Interpretation released last week and six Technical Interpretations released in November and October of 2013, as fully translated by us.
These (and the other full-text translations covering the last 4 ½ years of CRA releases) are subject to the usual (3 working weeks per month) paywall.
Aeronautic Development – Federal Court of Appeal finds that a non-resident exercised de facto control of a mooted CCPC by virtue of being its sole customer under a development agreement (viewed as a “supply contract”)
A Canadian corporation (ADC), which had issued voting common shares (representing voting control) for a modest amount to three Canadian employees, was found to be subject to the de facto control (as defined in s. 256(5.1) - and before its expansion by s. 256(5.11)) of a U.S. corporation (Seawind) and its controlling shareholder (Mr Silva), so that it did not qualify for refundable SR&ED investment tax credits. Gleason JA noted that McGillivray “determined that operational control is insufficient to constitute de facto control under subsection 256(5.1) … [and] that, instead, there must be some legally-enforceable arrangement or arrangements that give rise to such control.” Such control under a legal agreement was found to be present in a cost-plus development agreement with Seawind for work on a particular development project that was the sole source of revenue of ADC and accorded a lot of levers to Seawind.
There is a carve-out from s. 256(5.1) for a supply agreement between the mooted CCPC and a person with whom it deals at arm’s length. Gleason JA accepted that the development agreement was a supply agreement (i.e., it did not matter that the supplier was the mooted CCPC rather than the non-resident), but found that there was a non-arm’s length relationship, stating:
[I]n light of ADC’s near-total economic dependence on Seawind Corp., the fact that the owner of the latter company dictated (and was able to dictate) the terms of the relationship between the two companies is a very relevant factor in determining whether the two were dealing at arm’s length. Even more telling was Mr. Silva’s ability to make the two companies disregard the terms of the development agreement – as he decided to do when he unilaterally decided that the 5% mark-up [under the development agreement] would not be paid to ADC.
Neal Armstrong. Summary of Aeronautic Development Corporation v. Canada, 2018 FCA 67 under s. 256(5.1).
The proposed Leagold acquisition of Brio Gold entails the Brio Gold shareholders receiving warrants on Leagold shares on a rollover basis
The proposed acquisition of Brio Gold by Leagold under an Ontario Plan of Arrangement would entail Brio Gold first issuing 2-year warrants on its shares for nil consideration to all its shareholders (with that issuance not being a shareholder benefit based on the s. 15(1)(c) safe harbour) and then the Brio Gold shareholders exchanging their shares and warrants for shares and warrants of Leagold on a rollover basis under ss. 87(4) and (5) under a s. 87(9) triangular amalgamation (also occurring under the Arrangement) of Brio Gold with a Newco sub of Leagold. The Circular estimated that the warrants of Leagold would represent about 3.7% of the combined package of Leagold shares and warrants to be received by the Brio Gold shareholders. The U.S. tax disclosure was reasonably comfortable that this would qualify as a “D” reorg.
Neal Armstrong. Summary of Brio Gold Circular under Mergers & Acquisitions – Amalgamations – Triangular Amalgamations.