News of Note

It is proposed that Encana effectively be converted from a CBCA public corporation to a Delaware public corporation. This would occur in three stages.

First, there would be a “somersault” Plan of Arrangement under which Encana would distribute common shares, having a nominal value, of a newly-incorporated CBCA corporation (“Ovintiv”) to its shareholders and they then would exchange their Encana common shares for shares of Ovintiv – except that, in the somewhat unlikely event that the Encana shares had traded up to above U.S.$6.30 a share (presumably corresponding to an estimate of the paid-up capital of the Encana shares), the shareholders would also receive U.S.$0.25 per share of an Ovintiv note, so that the exchange would occur on a non-rollover basis unless they elected with Ovintiv under s. 85.

Second, a U.S. subsidiary of Encana would be distributed out of Encana in consideration for the assumption of debt and as Encana-share redemption proceeds, and Ovintiv would then drop Encana (which previously had been converted into a B.C. ULC) into a new CBCA subsidiary of Ovintiv.

Third, Ovintiv would be continued to Delaware. The Circular does not anticipate that this would generate tax under s. 128.1(4) or 219.1 except in the unlikely event that a lot of Encana shareholders elected under s. 85.

The continuance (“domestication” from a U.S. perspective) would be an “F” reorg, meaning that it would generally not occur on a rollover basis to U.S. shareholders.

Neal Armstrong. Summary of Encana Proxy Statement and Ovintiv Prospectus under Other – Continuances/Migrations – Outbound continuances.

Two differences between an employer’s income tax, and CPP and EI, withholding or remittance obligations:

• If the employer misses the 90-day deadline to file an appeal to the Tax Court from an income tax assessment, it can file an application for a one-year extension under ITA s. 167(5) – whereas there is no such potential extension under the EI Act or CPP Act.
• The Minister may assess employers for failing to deduct or withhold and remit source deductions for EI premiums and for CPP contributions - but cannot assess an employer for income tax source deductions for resident employees if it has failed to withhold them.

Neal Armstrong. Summaries of Gergely Hegedus and Keith Hennel, “Employer Source Deductions: No Ordinary Tax Debts,” Canadian Tax Focus, Vol. 9, No. 4, November 2019, p.5 under s. 167(5) and s. 153(1)(a).

After noting that:

• s. 267.1(2) generally creates personal liability of a trustee (including the executor of an estate) for the GST/HST obligations resulting from the trustee’s acting as a trustee of the trust (or estate)
• s. 270 provides that a representative such as an executor should not distribute property under the representative's control before obtaining a clearance certificate certifying that all amounts, that are, or can reasonably be expected to become, payable or remittable under Part IX in respect of the reporting period during which the distribution is made, or any previous reporting period, have been paid (or acceptable security therefor provided)
• failure to obtain the certificate renders the representative personally liable for the payment or remittance of those amounts to the extent of the value of the property or money distributed.

CRA stated:

That being said, the fact that a clearance certificate is issued to a representative of an estate, does not free the estate from any outstanding obligations under Part IX and as such, the trustee would still be liable to satisfy these obligations pursuant to subsection 267.1(2).

Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.32 under ETA s. 270(4).

A U.S. engineer provided services to Bombardier in Canada over a 188-day period (straddling the 2011 and 2012 years). The only issue as to whether he had a services permanent establishment in Canada under the Canada-U.S. Treaty was whether he satisfied the test in Art. V, 9(a) of the Treaty that “more than 50 percent of the gross active business revenues of the enterprise consists of income derived from the services performed in [Canada] by that individual.”

The taxpayer derived most of his income through a New York LLC. The Tax Court had found that the U.S.-source revenues received by the taxpayer as an LLC member qualified as active business revenues from the same enterprise as that for the earning of engineering fees from Bombardier, on the basis that such revenues were generated by the earlier design work of the taxpayer and another individual, and that the LLC was merely a passive vehicle for the allocation of the resulting profits. However, notwithstanding this favourable finding, the taxpayer was found by the Tax Court not to have established that he did not have a services PE given an evidentiary failing: the figures that he had provided to the Tax Court for the active business revenues generated through the LLC were for calendar 2012, whereas the 50% Treaty test was to be applied to the 188 day period straddling the two years – and there was no evidence of what the U.S.-source business revenues were for that precise period.

Webb JA seriously doubted the Tax Court finding that the taxpayer’s revenues from the LLC could be considered to be derived from the same enterprise, stating that “any enterprise of … LLC, as a separate person for Canadian tax purposes, would not be the enterprise of Lawrence Wolf.” However, this point was not argued – and the taxpayer’s appeal was dismissed anyway as there was no reversible error in the Tax Court’s finding that the taxpayer had not adduced evidence as to the US revenues of the LLC for the straddle period.

Neal Armstrong. Summary of Wolf v. Canada, 2019 FCA 283 under Treaties – Income Tax Conventions – Art. 5.