News of Note

The Full Australian Federal Court accepted the findings of the primary judge below that company directors, who met outside Australia, “exercised no independent judgment in the discharge of their offices but instead merely carried into effect [an Australian accountant’s] wishes in a mechanical fashion,” so that the companies were resident in Australia.

Given that the tests of residence for corporations and trusts are now aligned in Canada, the courts in Fundy Settlement and Boettger would have reached the same conclusion. The case illustrates that someone with real authority should attend the directors’ (or trustees’) meetings in the targeted jurisdiction.

Neal Armstrong. Summary of Bywater Investments Ltd. v. Commissioner of Taxation, [2015] FCAFC 176, aff’g sub nom. Hua Wang Bank Berhad v. Commissioner of Taxation [2014] FCA 1392 under s. 2(1).

Ryer JA affirmed a finding of Bocock J that a Canadian trust company, which was the trustee for self-directed RRSPs that had purchased shares from non-residents without withholding or receiving s. 116 certificates, was the "purchaser" for s. 116(5) purposes rather than the annuitants, i.e., it was on the hook as the shares were taxable Canadian property. Respecting an alternative argument, that the purchasers for s. 116 purposes were the RRSP trusts themselves, he stated:

[T]he critical element of subsection 116(5) is the paying or crediting of an amount to a Disposing Non-Resident as the purchase price or acquisition cost of the TCP… . This action cannot be taken by a fictional person.

Neal Armstrong. Summary of Olympia Trust Company v. The Queen, 2015 FCA 279 under s. 116(5).

This morning's release of 36 severed letters from the Income Tax Rulings Directorate is now available for your viewing.

Observations of Michael Lubetsky on the federal and provincial interest relief provisions include:

• CRA offers no guidance regarding interest relief under s. 220(3.1), and the Federal Court jurisprudence has gone both ways, where a taxpayer is reassessed, carries back losses from subsequent taxation years to offset the reassessed amounts and interest runs under s. 161(7) for the entire period up to 30 days after the taxpayer requested the loss carryback
• In practice, CRA simply applies any decision with regard to interest relief under s. 220(3.1) to any related amounts due to an Agreeing Province, and if the taxpayer seeks judicial review of an CRA decision, the review generally does not distinguish between the federal and provincial portions of the interest.
• The above approach is consistent with a non-tax case (Société des acadiens).
• Differences in the Quebec regime include that where Revenue Quebec grants a cancellation of interest that results in a refund to the taxpayer, interest is paid by RQ on the refund for the entire period that the refunded amounts were in its possession, in contrast with the federal regime, where refund interest only starts to accrue 30 days after the taxpayer requests interest relief.
• On the other hand, even though the Quebec statute does not specify any limit on the number of years of interest that RQ can waive, administratively (and questionably), RQ adheres to the same 10-year time limit provided in ITA s. 220(3.1).
• If CRA waives interest on the basis that its reassessment had been unduly delayed for reasons attributable to it, RQ will not follow suit with the Quebec assessment since the delay was not its fault.
• Because the Alberta Corporate Tax Act contains no privative clause akin to ITA s. 165(1.2), a taxpayer may be able to challenge an Alberta interest-relief decision in the context of an ordinary tax appeal rather than instituting judicial review procedures.

Neal Armstrong. Summary of Michael H. Lubetsky, "Interest Relief under the Federal and Provincial Regimes", Tax Litigation, Vol. XX, No. 1, 2015, p. 1182 under s. 220(3.1).