News of Note

The trustee of RRSPs was duped into purchasing shares of Canadian companies from offshore entities at a price substantially in excess of their value, so that funds of the RRSPs effectively were stripped to offshore accounts. The trustee sought to amend its Notice of Appeal, from an assessment for failure to withhold under s. 116(5), by adding an assertion that the purchase transactions were shams.

In denying this request, V. Miller J in the Tax Court had stated: "in a tax case, a court will make a finding of ‘sham’, only when it is the Minister who is deceived." Gleason JA affirmed on the narrower ground that any deception of the trustee was irrelevant to the assessment, which turned only on the trustee having purchased taxable Canadian property shares from a non-resident.

The trustee also sought an amended pleading that the cost to it of the shares was their fair market value, apparently intending to argue that the purchase price in excess of the shares’ fair market value should instead be construed as the “conferral of a benefit to the annuitants and the promoters,” rather than as cost of the shares (so that s. 116(5) withholding only applied to the modest FMV). Gleason JA (like V. Miller J below) found that this approach (implicitly of bifurcation) flew in the face of the Stirling doctrine as to the meaning of “cost.”

Neal Armstrong. Summaries of Coast Capital Savings Credit Union v. Canada, 2016 FCA 181 under General Concepts – Sham and s. 116(5).

Under the services PE definition in the Canada-U.S. Treaty (Art. V(9)), a U.S. “enterprise” can have a Canadian permanent establishment if (a) it derives more than 50% of its revenues in a 12-month period from services of an individual present in Canada for at least 183 days in that period, or (b) it performs services in Canada on a project for a Canadian client for at least 183 days in a 12-month period. CRA considers that the determination of whether a U.S. (or other non-resident) partnership has a Canadian PE is made at the partnership level – but by reference to the activities carried on by each partner through the partnership.

For example, if only one of the two U.S. partners of a U.S. partnership is present in Canada working on a project for a Canadian client (thereby generating more than 50% of partnership revenues) but that presence exceeds the 183-day presence test under the (a) test, the partnership and, thus, both partners will have a Canadian PE under Art. V(9), so that the second partner will also be subject to Canadian tax on the income attributable to that PE.

Under the para. (b) test, if they each provide services in Canada for less than 183 days but collectively exceed this threshold, the same result obtains.

Neal Armstrong. Summary of 14 December 2015 Memo 2014-0558661I7 under Treaties – Art. 5.

The owner of a British exhibition centre (“NEC”) sold tickets on behalf of third parties holding events at the centre. Where the customers paid by credit card, NEC increased the ticket prices by about 10%, and retained this amount as a booking fee.

The U.K. Upper Tribunal referred a question to the European Court of Justice respecting whether the card processing services of NEC were VAT-exempt payment services. Before answering, the Court questioned whether the NEC booking fees were consideration for a separate supply, stating that it previously had held “that the additional charges invoiced by a service provider to its customers, where the latter pay for those services by credit card…do not constitute consideration for a supply of services distinct and independent from the principal supply of services in respect of which that payment was made.” The Court did not explain how there could be a single supply and two suppliers (NEC supplying a card-processing service, and the third parties supplying tickets).

Turning to the question posed, the Court held that there was no exempt financial service because NEC did not debit or credit the customer’s account or otherwise provide a direct payment service but instead was merely involved in the exchange of information with its correspondent bank who, in turn, exchanged information with the card-issuer bank. This reasoning may suggest that it was crucial in Global Cash Access that Global actually issued its own “cheques” rather than merely facilitating payments by others.

Neal Armstrong. Summaries of HMRC v National Exhibition Centre Ltd., [2016] BVC 19 under ETA – s. 123(1) – supply, s. 123(1) – financial service – para. (a).

A claim for an SR&ED deduction must be made on a properly completed T661 form. Although s. 37(11) provides that the form can be filed up to 12 months after the taxpayer’s filing-due date, it is dangerous for a corporation to rely on this accommodation: if CRA rejects the form as being incomplete, the corporation has no recourse (unless it can persuade CRA to reassess the related return, which CRA is not obligated to do.)

This is what happened to AFD, which filed a T661 right on the extended due date, with only 2 of the 7 pages in the form completed. Bowell J noted that if AFD had filed the T661 with its T2 return, it would have been able to deal with any CRA concerns with the manner of completion of the form by filing a notice of objection, so that the absence of recourse based on what AFD actually had done did not represent procedural unfairness.

It seems odd to effectively impute a Parliamentary intention to provide what looks like a gift but, in fact, is a trap. What if the taxpayer clearly had made a bona fide effort to make a good T661 filing?

Neal Armstrong. Summary of AFD Petroleum Ltd. v. A.G., 2016 FC 547 under s. 37(11).