News of Note
Gagné – Quebec Court of Appeal finds that a promoter could be convicted of evading taxes of others
Email this ContentThe taxpayer promoted a scheme, that purportedly permitted RRSP annuitants to extract funds from their RRSPs, that clearly did not work, and pocketed a share of the extracted funds. There was no error in his convictions for tax evasion notwithstanding that there was no evasion of his own taxes. The Quebec Court of Appeal stated:
The Cardoso judgment of this Court…establishes that allowing others, via a stratagem, to evade tax due, constitutes the actus reus of the offence of tax evasion; the offence is not limited to avoiding one’s own tax.
Neal Armstrong. Summary of Gagné v. R., 2017 QCCA 788 under s. 239(1)(d).
Brookfield Canada Office Properties is proposing to redeem all its public units for cash outside a Plan of Arrangement
Brookfield Property Partners LP (BPY) has an 83% economic interest in Brookfield Canada Office Properties (BOX - a Canadian REIT), by virtue of holding 40.3% of the BOX units and holding exchangeable units of a subsidiary LP of BOX (BOPC LP), mostly through a grandchild subsidiary (BOP Split). BOX is proposing to redeem the units of the public in cash.
BOP Split will also exchange all its exchangeable units. The general partner of BPY already controls BOX given that the exchangeable LP units of BOPC LP are coupled with voting units of BOX. However, the exchange will trigger a loss restriction event (whose definition is grounded in the concept of majority interest beneficiary). The resulting year end will provide a convenient cut-off for the results of the public and private trust. However, in any event, it is likely that the regular monthly distributions have been enough to push out all of BOX’s income to date, so that no special distribution will be required, and all of the redemption proceeds will be proceeds of disposition.
In the case of non-residents, these proceeds will be subject to Part XIII.2 withholding of 15%. Brookfield had thought about but rejected structuring the transaction so that the non-residents could sell their units under a Plan of Arrangement, thereby avoiding the Part XIII.2 tax.
Neal Armstrong. Summary of BOX Circular under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions – Privatizations.
Ferlaino – Federal Court of Appeal confirms that the exercise price of employee stock options should be translated at the exercise-date spot rate
The former Director of Taxes at a large Canadian corporation argued unsuccessfully that the computation of his s. 7(1)(a) benefits on exercising options on the shares of the listed U.S. parent should depart from the norm by translating his exercise price using the much higher exchange rate at the time of option grant, rather than the rate (of around par) at the time of exercise. Scott JA considered this approach to be contrary to s. 261(2)(b).
Neal Armstrong. Summary of Ferlaino v. Canada, 2017 FCA 105 under s. 7(1)(a).
CRA comments on the return of by a charity to the donor of a gift made 35 years ago
An individual gifted a whole life insurance policy to a charitable university foundation on condition that the funds be used in a specific program, which has now been discontinued, so that the donor now wants his gift back. CRA noted that generally gifted property becomes the absolute property of the donee, so that now returning a gift to the donor could result in the foundation being “regarded as making a gift to a non-qualified donee or providing an undue benefit, which are contraventions of the Act and could result in sanctions that include revocation of registered status.” However, if “the gift of the life insurance policy to the foundation was subject to a condition subsequent,” then apparently these adverse consequences would not attend a return of the gift. CRA did not provide any guidance on this point, stating that it was a question of non-tax law.
CRA indicated that if the gift was returned, then s. 118.1(26) would reverse the tax benefit to the donor from the donation in the year it was made - although CRA did not dwell on the fact that the gift was made in 1981. There is an ambiguity in the coming into force language for s. 118.1(26), which applies to transfers of property occurring after March 21, 2011, without specifying whether this is referencing the original transfer or the transfer back. Furthermore, s. 118.1(28) provides that if s. 118.1(26) applies respecting a transfer of property to an individual, CRA may reassess a return of any person to the extent that the reassessment can resonably be regarded as relating to the transfer. CRA did not discuss whether technically the individual's 1981 return could be reassessed. (Practically, there presumably is no longer any record of the return.)
Neal Armstrong. Summaries of 31 March 2017 External T.I. 2016-0630351E5 under s. 118(26) and s. 149.1(1) – charitable foundation.
Filion – Federal Court of Appeal finds that suspending an action to recover a retiring allowance did not suspend the running of the 7-year s. 60(o.1) limitation period
The taxpayer was sued by the Quebec government for fraud and breach of trust, and he counter-sued in 2001 to be paid a "retiring allowance" (i.e., termination payment) by the National Assembly. This latter action was suspended until 2009 pending the outcome of the criminal case. In 2013 he received a judicial award of part of his claimed retiring allowance.
It was unnecessary to address to what extent he paid his legal fees in the 1999 to 2003 period in order to establish a right to the retiring allowance, because the award occurred more than seven years after those fees were paid, i.e., beyond the carryforward period contemplated by s. 60(o.1): suspending the civil action to recover the allowance did not suspend the running of the limitation period.
Neal Armstrong. Summary of Filion v. The Queen, 2017 CAF 67 under s. 60(o.1).
CRA confirms that the car standby charge is reduced for the sales tax reduction occurring where a trade-in allowance is provided on the car purchase
Under ETA s. 153(4)(c) and a similar approach under the western provincial sales tax regimes, the sales tax payable where a trade-in allowance is provided on a purchased automobile is reduced accordingly. CRA confirmed that this also has the effect of reducing the automobile cost for standby charge purposes.
Neal Armstrong. Summary of 2 January 2017 Internal T.I. 2016-0636911I7 under s. 6(7).
CRA rules that a fee charged on assigning receivables was part of the GST-exempt consideration for the receivables sale
A car dealer enters into contracts with customers, which could be conditional sales contracts, instalment sales contracts, credit agreements or finance contracts with instalments, and immediately sells each contract to a lender for cash consideration. Consistently with Canada Trustco, CRA found that a separate fee charged by the car dealer on selling the contracts was also part of the consideration for the assignment, so that the fee was also exempted from GST/HST.
Neal Armstrong. Summary of 21 December 2016 Ruling 157873 under ETA, s. 123(1) – financial service – (d).
CRA confirms that the use of space-confirmed, but not standby, passes by airline employees is a taxable benefit
CRA confirmed that the use of space-confirmed airline passes by current airline employees, but not standby passes, is a taxable benefit which is valued at what it would have cost to purchase the space – whereas neither category of pass is taxable to retired employees.
Neal Armstrong. Summary of 17 February 2017 External T.I. 2016-0662341E5 under s. 6(1)(a).
Robotx Solutions – Tax Court of Canada finds that solving narrowly-cast production engineering problems was not SR&ED
There was something paradoxical about a company contractually committing itself to come up with narrowly defined solutions to particular production problems of its clients, e.g., designing, making and installing a “flow rectifier plate” to straighten-out rectangular aluminum bars coming out of an extruder, while at the same time treating a portion of its expenditures in performing such contracts as “experimental development,” which requires that there be significant technological uncertainty to be resolved, i.e., a significant chance that a solution would not be found within a predictable time frame.
Jorré J found that the company had not demonstrated that any of the work on four separate projects of this nature “was engaged in to resolve technological uncertainties that could not be resolved with current methods and existing knowledge.”
Neal Armstrong. Summary of Robotx Solutions Inc. v. The Queen, 2017 CCI 73 under s. 248(1) – scientific research & experimental development.
CRA indicates that handling (and marketing to) the customers of an insurance company was not predominantly arranging for issuance of insurance for GST/HST purposes
A separate company which took care of dealing with the insurance clients of an insurance company including applications and forwarding inquiries, as well as doing marketing, was found by CRA to be likely engaged in the supply of taxable promotional and administrative services rather than GST/HST-exempt “arranging for” supplies.
Neal Armstrong. Summary of 16 December 2016 Interpretation 169841 under ETA – s. 123(1) – financial service – (l).