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9 July 2023- 11:47pm Microbjo – Federal Court of Appeal finds that a transaction that split, on the purchaser’s terms, a tax savings purportedly generated by it, was a non-arm’s length transaction Email this Content The taxpayers, who were holding companies for partnerships that had recently agreed to sell their farmlands to third parties, were approached by an independent third party (WTC), who proposed that they transfer their partnership interests on a rollover basis to respective Newcos which, after the closing of the farmland sales and after WTC had taken brief de facto control of those subsidiaries and purported to generate “tax shelter” for them, would be sold by the taxpayers to WTC for cash sales prices that reflected a premium over the cash sales proceeds from the farmland sales. ... Specifically, the tension that provides that assurance did not exist to the extent that it would had the parties been dealing with their own money. … Further, once the respondents were swayed to buy into WTC’s plan by the thought of turning an unexpected profit out of their crystallized tax liability through what they viewed as a risk-free exercise, they became the instruments through which WTC, acting as the sole mastermind, would lay its hands on the $1.3 million [equal to the tax liability], isolate it with the remaining cash in the subsidiaries and share it with the respondents in the proportion that it imposed. ... Microbjo Properties Inc., 2023 FCA 157 under s. 160(1), s. 160(5) and Statutory Interpretation – Interpretation Act, s. 45(2). ...

5 March 2024- 11:17pm DEML Investments – Tax Court of Canada finds that the generation of a capital loss on a partnership interest representing a successful investment was a GAAR abuse Email this Content In early 2008, the sale of petroleum and natural gas (PNG) rights by an arm’s length vendor (Transglobe) to the parent (Direct Energy) of the taxpayer (DEML) was structured on the basis that Transglobe transferred 99% and 1% of the PNG rights, at a nominal s. 85(1) elected amount, to two wholly-owned Newcos (137 and 138, respectively), which then transferred the rights on an s. 97(2) rollover basis to a newly-formed partnership (DERP2). ... DERP2 then distributed its resource properties to DEML as a return of capital, thereby increasing the COGPE balance of DEML and reducing the ACB of DEML’s partnership interest by the FMV of the rights (higher than the value a year earlier) – but with these items effectively being approximately reversed at the partnership year end as a result of DERP2’s proceeds of the distribution of the PNG rights being allocated to its partners. ... In confirming CRA’s GAAR assessment to deny the capital loss, Russell J stated: Here the substantial Capital Loss was claimed where there was no economic loss or impoverishment, thus per Triad Gestco breaching the OSP [object, spirit and purpose] of the Act’s capital loss provisions, including paragraph 39(1)(b). … As the purpose of the capital loss provisions is to recognize real losses, there is clear abuse where artificial losses are deducted. ...

23 August 2024- 12:19am PC Bank – Federal Court of Appeal finds that loyalty point redemption payments made in the course of a financial business could generate ITCs if also in the course of a commercial activity Email this Content PC Bank, a corporation in the Loblaw group, issued loyalty points to its cardholders based on their expenditures, which could then be applied by the cardholders towards purchases at Loblaw-branded stores, with PC Bank then paying the cash value of those points (the redemption payments) to Loblaws, but also receiving payments of two types from Loblaws that reduced its loss on paying the redemptions amounts. ... In particular, the Tax Court had not recognized that it did not matter that the redemption amounts were paid in the course of PC Bank’s exempt financial services business given that they were also paid in the course of its commercial activity of “driving customers to Loblaws” – and it also did not matter that PC Bank was incurring a loss on this commercial activity because a commercial activity of a corporation was not required to have a reasonable expectation of profit. She noted that the redemption amount was not required by s. 181(5) to be paid “exclusively” or “primarily” in the course of a commercial activity, and stated: Unlike the words exclusively and primarily, the phrase “in the course of” has a broad meaning; it means “incidental to” or “connected to” directly or indirectly …. ...

7 January 2025- 11:14pm CIBC – Tax Court of Canada finds that CIBC’s interchange fees from a non-resident credit-card processor were not zero-rated as relating to the loans effectively made to its Cdn. cardholders Email this Content CIBC had outsourced part of its Visa-card operation to an arm’s length non-resident (“GPDI”) so that, in a typical transaction in which a Canadian cardholder presented their CIBC Visa card to a Canadian merchant, GPDI would process the point-of-sale information received from the merchant and transmit it to CIBC for credit authorization, transmit the authorization (assuming no “decline”) back to the merchant and send this and the other day’s transactions to VISA for clearing, following which there was a process involving CIBC, GPDI and VISA by which the settlement funds were paid to the merchant. ... Before concluding that the interchange fees were not zero-rated on the basis of the exclusion in ETA VI‑IX‑1(a)(ii) for a service that “relates to (a) a debt that arises from … (ii) the lending of money that is primarily for use in Canada”, Sommerfeldt J found that: regarding the “relates to” test, “there only needs to be ‘some connection’ between the interchange services and the debt described in the carve‑out; in this context the verb “lend” should have “a broad meaning (recognizing that a loan arises when the lender, at the request of the borrower, pays money to a third party in satisfaction of an obligation owed by the borrower to the third party)”, so that “when a Cardholder used a CIBC Visa Card in respect of a transaction, CIBC loaned to the Cardholder, and the Cardholder borrowed from CIBC, the monetary amount of the transaction” (even though the funds went to the merchant); “in a tax context, the word primarily generally means (among other things) principally, mainly, most importantly, or more than 50% ”; and “the loaned money was used to pay merchants located in Canada” so that “the money paid by CIBC indirectly to the merchants (i.e., through the Visa Payment System), in satisfaction of the Cardholders’ obligations to the merchants, was loaned money that was primarily for use in Canada”. ...

14 September 2016- 12:54am Gervais – Tax Court of Canada finds that a basis averaging scheme to transfer half of a capital gain to the taxpayer’s wife was an abusive circumvention of the attribution rules Email this Content The taxpayer’s wife (Mrs. ... The Queen, 2016 CCI 180 under s. 245(4), s. 245(3) and s. 245(1) – tax benefit. ...

5 October 2016- 10:48pm Dell – Supreme Court of Spain finds that the local premises of a commissionaire were a fixed place of business of the non-resident principal Email this Content In civil law, a commissionaire is an entity that sells in its own name for the account of another. ... Sprague, "Observations on Treaty Interpretation – Spanish Supreme Court Addresses Commissionaires," Tax Management International Journal, 2016, p 55 under Treaties- Article 5. ...

17 November 2016- 12:42am Athabasca University – Tax Court of Canada finds that a University’s purpose in acquiring books for its students was their education rather than the (free) “sale” of the books to them Email this Content Athabasca University, which provided online courses to its students and delivered printed books to them without any additional charge, was entitled to a GST rebate on its purchases of the books provided that it could be considered, as required by ETA s. 259.1(2) to have acquired the Books “otherwise than for the purpose of supply by way of sale.” ... (This latter point may have been adverting to the fact that “sale” is defined for ETA purposes to “include any transfer of the ownership of the property”- so that, technically, a sale might include a gift – but her focus instead was on there being no “supply” of the books.) ...

9 December 2016- 12:19am Durocher – Federal Court of Appeal suggests obiter that it is proper for the Tax Court to pass on the alleged nullity of a contract in the context of passing on the correctness of an assessment Email this Content A financial institution, which was controlled by a non-resident, acquired an option to subscribe at a future date for the majority of the equity of a holding company for an Opco which, if actually exercised by it, would have violated a prohibition in the Act respecting financial services (Quebec) against it acquiring greater than a 20% stake in the company. ... Before so concluding, he stated obiter, respecting a Crown argument that it would have been beyond the competence of the Tax Court to (instead) declare that the options were invalid under Quebec law: [T]he role of the TCC, when confronted with an argument based on nullity in the context of an appeal under the ITA, cannot be assimilated to that of a Superior Court which has the power to “declare” a contract to be a nullity for all purposes pursuant to section 33, 35 and 142 of the Code of Civil Procedure … (see in comparison Markou v. ...

21 December 2016- 1:04am Great-West Life – Federal Court of Appeal states that the GST “financial services” definition should be applied based only on the “predominant elements” supplied Email this Content A third party (Emergis) provided automated claims processing services to Great-West Life, which administered or insured various client drug plans, so that the prescription drug claim of an employee would be processed at the pharmacy counter upon presentation of a magnetic card. ... " More interestingly, he also found that in the absence of this Regulation, the service would have been exempt as being for the payment of insurance policy claims – notwithstanding that the Emergis service entailed the provision of taxable supplies described in para. ...

23 December 2016- 12:43am Starflex – Quebec Court of Appeal indicates that gifts to charities likely cannot be deducted as business expenses Email this Content Art. ... In confirming the refusal below to allow this amendment, the Court of Appeal essentially found that Olympia was inconsistent with the Symes approach to statutory interpretation, stating: The specific tax treatment provided in the TA respecting gifts must prevail similarly to the pronouncements of the Supreme Court in Symes …. ...