News of Note

Comments of Sue Murray, the Director General of the High Net-Worth Compliance Directorate, included:

• CRA is contemplating more frequent use of s. 231.4 to delegate the power to make inquiries, and may use it in some of the more egregious cases of offshore non-compliance if it is unable to obtain information and cooperation in other ways.
• There have been increased exchanges of information with Revenu Québec, and with whom there is a high degree of cooperation.
• CRA’s position is that, for 2018 and subsequent filing years, any failure to file a CbC report as required under s. 233.8(3) will be presumed gross negligence, absent special circumstances. Things are still in transition, and CRA would be lenient where there is ambiguity or other problems, but it expects that that would be rare.
• Where CRA, in undertaking compliance activities, comes across information that will be of interest to a foreign tax administration, it will proactively take that information and provide it to the other country. CRA expects reciprocity in this regard, and receives it.

Neal Armstrong. 14 May 2019 IFA Conference - Sue Murray on Information Exchanges.

S. 204.1(4) provides that the tax imposed on RRSP contributions may be waived by the Minister if she is satisfied that the over-contribution “arose as a consequence of reasonable error, and reasonable steps are being taken to eliminate the excess.” Internal CRA guidelines stated that “Reasonable error means that the taxpayer did not intend to over contribute to their RRSP/PRPP and that it happened because of extraordinary circumstances beyond their control” (i.e., a mere mistake as to the contribution limit is not reasonable error) and that “reasonable steps” allowed the taxpayer “two months from the date of the Agency’s letter to withdraw funds and submit proof.”

Gleason JA found that these guidelines were unreasonable, stating:

The delegate’s interpretation of subsection 204.1(4) of the ITA (as well as the interpretation set out in the internal CRA guideline, on which the delegate relied) thwarts the subsection’s remedial purpose as it virtually extinguishes the Minister’s discretion … . Nearly every error a taxpayer might make in over-contributing to his or her RRSP (other than a simple arithmetical error) will be caused by a misunderstanding of the applicable limits – an error of law. … Similarly, the fact that the error might have been made by a third party advisor or as a result of erroneous advice given by such advisor does not automatically mean that the error cannot be reasonable.

… [Furthermore] the requirements to take reasonable steps to withdraw an RRSP over-contribution cannot be equated with immediacy or with the two-month timeframe mentioned in CRA’s internal “Guidelines for waiving tax – 19(23)7.23”.

However, she nonetheless did not find the CRA delegate’s refusal to provide relief to be unreasonable on the facts, given that the taxpayer had not sought any advice before over-contributing and had been very dilatory about addressing the situation once it was brought to his attention.

Neal Armstrong. Summary of Connolly v. Canada (National Revenue), 2019 FCA 161 under s. 204.1(4).

A newly-launched public corporation ("Predecessor Birchcliff") accessed the losses of a lossco ("Veracel") in order to shelter the profits from producing oil and gas properties which it was acquiring. Rather than financing the properties directly, private placement investors were told that they could subscribe for subscription receipts of Veracel instead, while being assured that they would get their money back on the closing date if Veracel was not amalgamated with Predecessor Birchcliff. As the investors received a majority voting equity interest in Amalco (“Birchcliff”), the loss streaming rules otherwise engaged by ss. 256(7)(b)(iii)(B) and 111(5)(a) were avoided. The original Veracel shareholders mostly received a modest preferred share interest in Birchcliff, which was redeemed for cash.

Birchcliff got off to a bad start when, at the beginning of his GAAR analysis, Webb JA essentially indicated that, from an abuse-analysis standpoint the actual transactions should be recognized as having “the same effect” and being “equivalent to” the investors having directly received voting majority control of Predecessor Birchcliff on the amalgamation. He then commented:

The logical rationale of the exception in clause 256(7)(b)(iii)(B) is that it would apply to exclude the larger corporation from the deemed acquisition of control rule in the opening part of subparagraph 256(7)(b)(iii), if two corporations amalgamate.

Here, although Veracel was the larger corporation, essentially all its assets were the subscription-receipt cash proceeds – and “There was no scenario under which Veracel would have been allowed to retain the money…”).

He concluded:

[T]he policy underlying clause 256(7)(b)(iii)(B) of the Act would dictate that there was an acquisition of control of Veracel in this situation.

Neal Armstrong. Summary of Birchcliff Energy Ltd. v. Canada, 2019 FCA 151 under s. 245(4).

This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewng.