News of Note
Honey Fashion – Federal Court of Appeal requires the CBSA to revisit an adverse decision due to its failure to explain a departure from past practices
Email this ContentIn a specialized customs tariff remission context, De Montigny JA agreed with Zinn J of the Federal Court that a decision of the CBSA - to deny a request of a clothing manufacturer (Honey Fashion) to have the name of the importer of record changed from the actual importer to that of Honey Fashion (in order that Honey Fashion could generate remission claims for the importations in question) – should be reversed given that the CBSA decision did not give any explanation as to why it was not following its practice in previous such claims of allowing such a name change. In applying Vavilov, De Montigny JA stated:
A decision maker cannot deviate from earlier decisions or from a longstanding past practice, especially when it is too late for those affected by these decisions to adjust their behaviour accordingly, without providing a reasonable explanation for that departure.
Neal Armstrong. Summary of Canada (Attorney General) v. Honey Fashions Ltd., 2020 FCA 64 under Customs Act, s. 7.1.
CRA publishes a webpage on the COVID-19 employer wage subsidy
Points made by CRA on the three-month Temporary Wage Subsidy for Employers include:
- Eligible employers consist of non-profit organizations, registered charities, and Canadian-controlled private corporations (whose taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million) who had a business number and payroll program account with CRA on March 18, 2020 and who pay salary, wages, bonuses, or other remuneration to an employee.
- The subsidy equals 10% of the remuneration paid between March 18, 2020, and June 20, 2020, to a maximum of $1,375 per employee and of $25,000 per employer (with associated CCPCs not being required to share the $25,000 maximum).
- The subsidy would normally be received by way of set-off against the federal and provincial income tax source deductions otherwise remittable for the related remittance period, but the unused set-off can be carried forward for set-off in future remittance periods (e.g., after the expiration of the program effective June 20) or, if the employer so prefers, it can instead wait until year end and apply for a refund then.
- There is no effect on employee source deductions (this is an employer subsidy).
- The subsidy is included in income (presumably under ss. 12(1)(x)(ii) and (iv)(B).)
Neal Armstrong. Summary of Frequently Asked Questions – Temporary Wage Subsidy for Employers 20 March 2020 CRA Webpage under s. 227(4).
5 more translated CRA interpretations are available
We have published a further 5 translations of CRA interpretations released in December 2010. Their descriptors and links appear below.
These are additions to our set of 1131 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 9 ¼ years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
CRA has suspended: dealing with Objections; and audits where statute-barring is not imminent
CRA expanded on the comment in the Finance Release on COVID-19 that “For the vast majority of taxpayers, the CRA will temporarily suspend audit interaction with taxpayers and representatives,” stating:
Interaction with taxpayers will be limited to those cases where the legal deadline to reassess a tax return is approaching, and in cases of high risk GST/HST refund claims that require some contact before they can be paid out.
CRA also stated:
Collections activities on new debts will be suspended until further notice, and flexible payment arrangements will be available. …
With respect to objections related to … tax matters [other than re entitlement to benefits and credits] filed by individuals and businesses, the CRA is currently holding these accounts in abeyance. No collection action will be taken with respect to these accounts during this period of time.
Neal Armstrong. Summaries of Coronavirus disease (COVID-19): Collections, audits, and appeals 19 March 2020 CRA Webpage under s. 222(2) and s. 165(3).
Construction PCA – Court of Quebec finds that assessing a late-filing penalty for a s. 85 election does not preclude assessing the election as invalid
The ARQ issued a penalty assessment for the late filing of the Quebec equivalent of amended s. 85(1) election forms – then, when it learned from CRA that no shares had been issued by the transferee at the time of the drop-down and that such shares were only purportedly issued after the fact upon CRA identifying this deficiency, assessed the transferor taxpayer on the basis that the drop-downs had not occurred on a rollover basis (but without cancelling its separate penalty assessment).
Lareau JCQ rejected the taxpayers’ submission that, by issuing the penalty assessments, the ARQ had accepted the late elections and should not have issued further assessments now denying rollover treatment without having cancelled the previous assessment.
Neal Armstrong. Summary of Construction PCA Inc. v. Agence du revenu du Québec, 2019 QCCQ 8876 under s. 85(7).
Grewal – Federal Court finds that an accepted voluntary disclosure that included loans did not stop CRA from later assessing s. 163(2) penalties for failure to include them in income
A voluntary disclosure included a description of various loans and did not volunteer that they gave rise to taxable benefits. After the voluntary disclosure was accepted through reassessments, a subsequent audit of one of the taxpayer’s companies caused CRA to conclude that these loans gave rise to additional income under s. 246(1) of $15M to the taxpayer for years that had been covered by the voluntary disclosure, and CRA not only reassessed for these s. 246(1) benefits, but also included gross negligence penalties of over $3M.
In dismissing the taxpayer’s application for judicial review of the decision to impose the penalties, Shirzad J stated (at paras 37 and 38):
… If taxpayers could re-characterize taxable income or benefits as non-taxable benefits in their applications to the VDP and thereby escape penalties from future audits for having “disclosed” the amounts in this application, it would be contrary to the purpose of the VDP and its public policy rationale, which is meant to promote compliance with Canada’s tax laws … .
[T]o interpret the Information Circular as promising protection from penalties even on the non-taxable amounts disclosed by the taxpayer would put taxpayers applying to the VDP in a better position than the ordinary taxpayers.
Neal Armstrong. Summary of Grewal v. Canada (National Revenue) 2020 FC 356 under s. 220(3.1).
CRA denies that there is a technical glitch in the “total charitable gifts” definition
As a result of the death of the beneficiary of a (life-interest) trust described in s. 104(4)(a)(ii.1), the trust’s taxation year ended on the day of death (the “Death-Date Year”) and a new taxation commenced immediately thereafter (the “Post-Death Year”). A life-interest trust (described in s. 104(4)(a)(ii.1)) made a gift of non-depreciable capital property in the taxation year commencing immediately after the beneficiary’s death (the “Post-Death Year”) and prior to the trust’s filing-due date for the taxation year ending with that death (the “Death-Date Year”).
When asked about this, CRA did not seem to be troubled that, although (c)(ii)(C) of “total charitable gifts” in s. 118.1(1) contemplates that a gift made by the trust in the Post-Death Year could be included in the total charitable gifts of the trust in the Death-Date Year, variable B of s. (a)(iii) of “total gifts” in s. 118.1(1) (calculating the numerical maximum for recognized gifts) refers only to the proportion of an individual’s taxable capital gain for a taxation year in respect of a gift made by the individual in the taxation year (e.g., the Death-Date Year). Thus, the trust’s “total gifts” for the Death-Date Year could include the eligible amount of the gift of capital property made in the Post-Death Year.
Neal Armstrong. Summary of 27 January 2020 External T.I. 2019-0799641E5 under s. 118.1(1) - “total gifts” - (a)(iii) – B.
Finance announces that CRA is suspending most audit activity
Today’s Finance release on the response to COVID-19 included the statement:
The Canada Revenue Agency will not contact any small or medium (SME) businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. For the vast majority of businesses, the Canada Revenue Agency will temporarily suspend audit interaction with taxpayers and representatives.
It is unclear whether the SME definition is using the VDP cut-off of “corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities” or something else, and there is no definition of “vast majority.”
In a somewhat related CRA Memorandum to Employees dated yesterday, auditing was not mentioned as a critical function, and a move to remote work was briefly discussed.
Neal Armstrong. Summary of Canada’s COVID-19 Economic Response Plan: Support for Canadians and Businesses 18 March 2020 under s. 152(1).
Chen v. TD Waterhouse – Ontario Superior Court of Justice finds no duty of stock brokers to provide cost information on individual T-5008s
Consistent with the industry practice, TD Waterhouse sent to CRA individual T-5008 forms for each sales transaction of the taxpayer (Mr. Chen) that showed the securities’ proceeds but did not complete the box for the securities’ cost. However, TD Waterhouse provided Mr. Chen with a T-5008 Summary which provided the cost, sale price, and gain/loss figures for each series of securities in the aggregate, thereby providing the information he needed to prepare his tax return for the year in question (2009). However, in that year he had net trading losses and minimal employment income, so that his accountant advised him that it was unnecessary to file a return for that year (2009), contrary to the return-filing requirement of s. 150(1.1)(b)(ii). CRA then used the information in the individual T-5008 forms to assess Mr. Chen for $4.1M in tax and interest (i.e., effectively treating the securities as having a nil cost). Mr. Chen ultimately filed his 2009 income tax return and had the erroneous tax assessment corrected, but nonetheless sued TD Waterhouse.
In finding that Mr. Chen had no cause of action, Myers J stated:
Mr. Chen offers no basis to argue that the law might recognize a duty of care on stockbrokers to provide cost information in T-5008 reporting slips to protect the customers from the risk of harm if they unlawfully failed to file their income tax returns and then CRA took aggressive enforcement positions. TD Waterhouse provided Mr. Chen with all applicable cost information in its T-5008 Summary so that he could file his income taxes as required by law.
Neal Armstrong. Summary of Chen v. TD Waterhouse Canada Inc., 2020 ONSC 1477 under Reg. 230(2).
Income Tax Severed Letters 18 March 2020
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.