News of Note
Roud Estate - Tax Court finds misrepresentation attributable to neglect, and recommends fairness relief on the same facts
Email this ContentNeither a taxpayer nor an individual holding her power of attorney were aware that the taxpayer had realized a capital gain when her shares in a corporation were exchanged for trust units following the corporation's conversion to an income trust, and their failure to report the gain was a misrepresentation that entitled the Minister to assess beyond the limitations period. However, Boyle J. also stated that the situation was a "compelling case for the Minister to consider relief of at least some of the interest" the taxpayer owed.
Scott Armstrong. Summary of Roud Estate v. The Queen, 2013 TCC 36, under s. 152(4)(a)(i).
CRA indicates that a loss likely cannot be recognized on writing-down shares of a lossco with no assets or liabilities
An individual holding a former small business corporation with no assets or liabilities but with significant non-capital losses ("Lossco") claims an allowable business investment loss under ss. 50(1)(b)(iii) and 39(1)(c), and then transfers Lossco to a corporation owned by his father (i.e., a related but unaffiliated company).
Before grudgingly intimating that this loss transfer transaction would appear to work, CRA indicated that the individual likely did not qualify for an ABIL (so that only an ordinary capital loss was realized on the subsequent transfer) for two reasons: Lossco was not insolvent (it had no liabilities to put it under water); and its tax losses likely gave its shares a positive value.
Neal Armstrong. Summaries of 5 October 2012 APFF Round Table, Q. 11, 2012-0454061C6 F under ss. 50(1) and 111(1)(a).
CRA's policy is to vacate the provincial assessment where a federal assessment is directed to be vacated by the Tax Court
CRA has stated that it is "strictly true" that the Tax Court lacks jurisdiction over provincial tax matters. However, following a successful taxpayer appeal of a federal assessment in the Tax Court, CRA will vacate (or reduce) the provincial tax assessment to match the vacating (or reduction) of the federal assessment when authorized to do so under a Tax Collection Agreement. For example, director's liability in s. 227.1 of the Income Tax Act has mirrored provisions in the statutes of each Agreeing Province.
Scott Armstrong. Summary of 9 August 2012 T.I. 2012-0446051E5 under s. 227.1(1).
CRA requires a general partner to obtain a clearance certificates on winding up a limited partnership
CRA implies that if a general partner of a limited partnership that is being wound-up does not obtain a s. 159(2) certificate from CRA, the general partner will be personally liable for any unremitted source deductions of the partnership (to the extent of the value of the distributed property). This proposition that a partnership is a person for these purposes is dubious.
Neal Armstrong. Summary of 11 October 2012 T.I. 2012-0432861E5 under s. 159(2).
CRA considers pass-through trust dividends to be received at the end of the trust's taxation year
S. 104(19) deems a dividend received by a trust which it designates to be a dividend of a beneficiary to have been received by the beneficiary "in" the trust's taxation year. CRA considers that this means that the dividend was deemed to be received by the beneficiary on the last day of the trust's taxation year. This would be relevant if the beneficiary has a different taxation year.
Neal Armstrong. Summary of 14 January 2013 T.I. 2012-0465131E5 under s. 104(19).
CRA considers that the creditor property seizure rule (s. 79.1) does not apply where the creditor gets equity of the debtor
Property seized by a creditor generally is deemed by s. 79.1(6) to have a cost equal to the cost amount of the defaulted debt. CRA has stated that it considers the s. 79.1 rules to only apply where the seized property was held by the debtor, and that they would not apply where the creditor instead receives shares of, or partnership interests in, the debtor. CRA gave no guidance on determining the cost of the shares or partnership interests (it wasn't asked).
Neal Armstrong. Summary of 6 December 2011 TEI Round Table, Q. 14, 2011-0427101C6 under s. 79.1(2).
Income Tax Severed Letters 6 February 2013
This morning's release of 31 letters from the Income Tax Rulings Directorate is now available for your viewing.
Chell - What does director's liability have in common with Catch 22?
Hogan J. found that the taxpayer's management of two business corporations following his resignation as director was enough to make him a de facto director, and therefore liable for the corporations' unremitted source deductions and GST collections.
The taxpayer's "management" of the two businesses mainly related to addressing the unpaid source deductions/GST - such as dealing with CRA on the corporations' behalf, arranging for asset sales, and lining up a prospective client (and keeping CRA apprised of the potential resulting revenue stream). In other words, the two-year limitations period arguably had not expired only because the taxpayer had tried to resolve the prior remittance failures.
If this case is correct, the jurisprudence imposing director's liability for de facto directors seems to have grown beyond the cautiously worded introduction of the concept in Mosier v. The Queen, [2001] GSTC 124, Docket: 96-3504-GST-G (TCC).
Scott Armstrong. Summary of Chell v. The Queen, 2013 TCC 29, under s. 227.1(1).
Stanley Law - GST/HST for legal fees is constitutional!
The Tax Court has unsurprisingly concluded that people charged with offences are not exempted from paying GST/HST on their legal fees because of their s. 10(b) right to counsel and s. 11(d) right to a fair trial. Paris J. found that the appellant failed to provide an "evidentiary foundation" for the proposition that the effect of s. 165(1) of the ETA (the GST/HST charging provision) was to diminish a defendant's rights under ss. 10(b) or 11(d) of the Charter.
Although it is hard to imagine an evidentiary foundation that would lead the Tax Court to exempt defendants from GST/HST, it is also hard to imagine that increasing the cost of legal services through taxation would not diminish a defendant's access to counsel in a borderline situation. There is probably some as-yet-unestablished constitutional principle that taxes of general application are presumptively a reasonable limit on any incidentally affected Charter rights.
Scott Armstrong. Summary of Stanley J. Tessmer Law Corporation v. The Queen, 2013 TCC 27 under Charter s. 11(d).
CRA accepts that non-resident employees providing services remotely to a Canadian establishment are not subject to Canadian source deductions
CRA accepts that the remuneration of a non-resident employee (e.g., a programmer) working from home is not subject to Canadian source deductions notwithstanding that the physical establishment of the employer to which he or she reports remotely and to which the services are provided is situated in Canada: the place of exercise of employment is where the employee is physically present.
Neal Armstrong. Summary of 7 December 2012 T.I. 2012-0440411E5 F under Reg. 104.