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27 May 2019- 12:06am Morrissette – Tax Court decision casts doubt on the s. 184(3) short-cut method Email this Content In 2011-0412071C6 F, CRA indicated that if the corporation informs the local Tax Services Office that it wishes s. 184(3) to apply, the TSO will apply the "short-cut” method under which no Part III assessment will be issued to the corporation and only the shareholders will be reassessed to include the taxable dividends in their income. ... However, the taxpayer then appealed the assessment of the taxable dividend arising to him pursuant to the s. 184(3) election on the ground that the purported capital dividend paid to him by the corporation in fact was a valid capital dividend – and stating that he only agreed to make the election in order to avoid a punitive assessment of his corporation for Part III tax on the supposedly excess dividend. ...

30 May 2019- 12:21am Birchcliff – Federal Court of Appeal finds that a GAAR analysis should look beyond the immediate but transitory effect of transactions for avoiding the loss-streaming rules Email this Content A newly-launched public corporation ("Predecessor Birchcliff") accessed the losses of a lossco ("Veracel") in order to shelter the profits from producing oil and gas properties which it was acquiring. ... Here, although Veracel was the larger corporation, essentially all its assets were the subscription-receipt cash proceeds – and “There was no scenario under which Veracel would have been allowed to retain the money…”). ...

29 July 2019- 12:32am 1378055 Ontario – Tax Court of Canada allocates invoices between commercial and exempt activities based on general oral testimony Email this Content Individuals within the same extended family and a corporation controlled by family trusts sent vaguely worded invoices to a family company (the appellant, or “137ON”) for services rendered, without giving any allocation between the portion that related to 137ON’s exempt activity of earning exempt residential rentals, and its commercial activity of trying to get one of the residential sites developed as a commercial storage site. ... The Queen, 2019 TCC 149 under ETA s. 141.01(2), s. 169(1) – B(b), Input Tax Credit Information GST/HST) Regulations s. 3(c)(iii) and s. 3(b)(i). ...

Investment Management – Supreme Court of Canada indicates that a statutory trust is not necessarily a trust Email this Content BCI was a B.C. ... In interesting obiter, she questioned whether the statutory arrangement created by the PSPPA, which stated that the portfolio assets were to be “held in trust,” in fact created a trust, stating: [I]t is not clear whether the PSPPA … contain sufficient language to satisfy the three certainties. ...

17 March 2020- 11:38pm Denso – Federal Court finds that CRA had reasonably not accepted a late ETA s. 156 election where the companies had carelessly not found out about the new filing requirement Email this Content S. 156(4)(b)(ii) permits the Minister to allow a late-filed ETA s. 156 nil consideration election. ... In rejecting a request for judicial review of CRA’s refusal to accept the late-filed amended election, Zinn J stated: The Denso Companies say that their actions were not negligent nor careless given they had hired and relied on the advice of tax consultants who provided them erroneous advice. … [T]he consultant was contacted after a well-published deadline had already passed, and only after the Denso Companies were alerted to the need by the review officer in February 2016. ...

29 June 2020- 11:48pm Cameco – Federal Court of Appeal rejects an expansive interpretation of the recharacterization rule in ss. 247(2)(b) and (d) Email this Content Cameco arranged its affairs so that long-term contracts for the purchase of uranium- that turned out to have a quite advantageous (i.e., lower-than-market) purchase price- were entered into by a Lux subsidiary, and then assigned to a Swiss sub at a time that the uranium market price was still depressed. ... Webb JA found that this submission departed from the text of s. 247(2)(b)(i), which effectively referred to transactions that would not have been entered into by any arm’s length persons (what he referred to as a “hypothetical persons” test, as contrasted to the above “subjective test” of the Crown), and noted that the effect of the Crown’s submission was that whenever a “corporation in Canada wants to carry on business in a foreign country through a foreign subsidiary, the condition in subparagraph 247(2)(b)(i) … would be satisfied” i.e., it therefore “would not sell its rights to carry on such business to an arm's length party.” ...

6 July 2020- 11:39pm McMahon v Grant Thornton – Scottish Court of Session (Outer House) finds that an accounting firm was not liable for not suggesting exit tax planning before it was too late Email this Content A Scottish entrepreneur (Mr McMahon, or the “pursuer”) sued his accounting firm on the basis that it had failed to advise him to transfer some of his shares of a car dealership company to his wife at least one year before his sale of those shares, so as to enhance access to the UK “entrepreneursʼ relief” (providing a capital gains exemption). ... Summary of McMahon v Grant Thornton UK LLP [2020] CSOH 50 (Court of Session (Outer House)) under General Concepts – Negligence. ...

8 July 2020- 11:46pm Bayer Canada – CRA is ordered to pare back a s. 231.6(2) requirement for foreign-based information in the absence of any real explanation as to why it needed this much Email this Content Bayer Canada, in the course of a transfer-pricing audit, received audit requests for copies of agreements between members of the Bayer group and third parties that were in force during the two years under audit and that satisfied various listed criteria. ... After referencing the Saipem test of “a rational connection … between the information sought and the administration and enforcement of the ITA,” Fothergill J pared back the terms of the requirement to something roughly comparable to what CRA had previously asked for, and with a further limitation that Bayer Canada was only required to produce Bayer-Group agreements with 21 pharmaceutical companies that had been specifically named by CRA. ...

9 July 2020- 11:22pm Iris Technologies – Federal Court of Appeal states that CRA’s assessing does not oust Federal Court jurisdiction to review exercises of CRA discretion Email this Content During an audit of the appellant (Iris), CRA refused Iris’ requests for immediate payment of its refund claims, suspecting that Iris was participating in a “carousel” scheme (i.e., under which GST/HST is never remitted at the other end of the chain). ... Rennie JA further stated (also similarly to Express Gold): … I do not wish to be taken as endorsing the Minister’s arguments that the issuing of the notices of assessment deprives the Federal Court of jurisdiction to consider the Minister’s exercise of discretion under the ETA. ...

17 September 2020- 12:10am Gladwin Realty – Federal Court of Appeal finds that generating and utilizing a CDA increase whose subsequent reversal would never matter was abusive Email this Content The taxpayer, a private real estate corporation, effectively generated the technical ability to pay a capital dividend of $24 million in relation to a taxable capital gain of $12 million on a property sale by, prior to the property’s sale, rolling the property into a subsidiary LP and then structuring a result under which it both realized a negative ACB capital gain of $24 million under s. 40(3.1) (as a result of an immediate distribution to it of the sale proceeds) and also was allocated the $24 million capital gain on the property sale. ... Canada, 2020 FCA 142 under s. 245(4) and s. 245(1) – tax benefit. ...