News of Note

The new rules for investment limited partnerships require the general partner to self-assess based on the fair market value of the periodic management or administrative services that are supplied by it under an agreement for the particular supply of those services to the ILP. If the general partner went to the effort and expense to commission a transfer-pricing type study as to the FMV of its services:

[The] transfer pricing-like study would often generate a range of acceptable arm’s length prices for particular management and administrative services. Would the general partner then be entitled to self-assess any amount of tax within the appropriate range?

See also Henco (“A range of value makes eminent sense. And, where a taxpayer has designated a value that ultimately is found to fall within the range of reasonable fair market value, I see no reason to disturb that figure.”)

Neal Armstrong. Summaries of Alan Kenigsberg, “Changes to Tax Treatment of ILPs under the ETA,” Sales Tax, Customs & Trade, Volume XV, No 2, Federated Press, 2018, p.9 under ETA s. 123(1) - investment limited partnership, s. 217.1(1) and s. 272.1(8).

The unrepresented taxpayer file a notice of discontinuance for her appeal of the denial of the new housing rebate after being advised by Crown counsel that her appeal was unlikely to succeed – but a day later, was informed by Crown counsel that she would be allowed the rebate. However, the Registrar refused to accept the parties’ joint consent to judgment to this effect on the basis that a notice of discontinuance had already been filed.

Smith J agreed with the Registrar, noting that Scarola, 2003 FCA 157 had established “that a discontinuance under subsection 16.2(2) [of the Tax Court of Canada Act] ‘produces the same effect as a judgment of dismissal by the Court’.”

He went on to note that CRA still appeared to have the ability to exercise its discretion to reassess to allow the rebate.

Neal Armstrong. Summaries of Heath v. The Queen, 2018 TCC 119 under Tax Court of Canada Act, s. 16.2(2) and ETA s. 298(2).

The Minister sought judicial authorization under ITA s. 231.2(3) and ETA s. 289(3) for making a demand of Hydro-Quebec to furnish listed particulars (e.g., address for invoicing and of electricity use, late payment identification and telephone number) for all its commercial customers who were charged the regular electricity rate – so that CRA could compare this information with what it had in its own files.

Roy J declined authorization. First, he did not think that all the regular commercial customers of a utility was an “ascertainable group” as contemplated in s. 231.2(3)(a), as the defining characteristics had no discernable link to compliance with the ITA and ETA. While they were at it, why not define group members as any resident of Quebec?

In finding that the request also did not satisfy the s. 231.2(3)(b) requirement that it be “made to verify compliance,” he stated:

The particulars of the commercial customers of Hydro-Quebec are, at best, upstream from information for the audit of their compliance with the ITA.

Finally, he indicated that even if the specific s. 231.2 (and ETA) requirements had been met, he would have rejected the Minister’s submission that once such conditions were satisfied, the Court was required to issue an authorization - and have exercised his discretion against such an "intrusion in private life." He stated:

A certain form of fishing expedition is permitted, but judicial authorization, with its inherent discretion, is there to limit and temper it. To me this seems essential where a fishing expedition is of unparalleled amplitude and the requested information is remote from an audit of compliance with the Act.

Neal Armstrong. Summary of Canada (National Revenue) v. Hydro-Québec, 2018 CF 622 under s. 231.2(3).

S. 8(1)(b) permits a deduction from employment income for legal expenses paid in the year and incurred to collect (or to establish a right to collect) an amount owed to the taxpayer that, if received by the taxpayer, would be required to be included in the taxpayer’s employment income.

Although IT-99R5 states that if a taxpayer is unsuccessful in court and fails to establish that an amount is owed, then no deduction is allowed, CRA now accepts that these “comments are no longer accurate based on … Loo …[which] ruled that a taxpayer’s legal action need not be successful in order to deduct an amount under paragraph 8(1)(b).”

Legal expenses paid by an individual to reinstate the individual’s former employment position are not deductible under s. 8(1)(b) when employment is reinstated without retroactive pay:

While the legal expenses paid may have facilitated the reinstatement of the individual’s employment, the legal expenses were not incurred to collect (or establish a right to collect) an amount that was owed and required to be included in employment income … .

Neal Armstrong. Summary of 11 April 2018 External T.I. 2017-0699751E5 under s. 8(1)(b).