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Irving – Court of Quebec finds that a property serviced by the user was not a leasing property Email this Content The taxpayer and another pulp and paper company in the Irving group (“IPPL”) engaged in several transactions to effectively transfer non-capital losses (“NCLs”) from an oil refining company (“IOL”) in the Irving group to the taxpayer. ... In January of the next year, the taxpayer transferred the PCE “back” to IPPL on a rollover basis with a nominal elected amount – so that similar transactions could be repeated for that year, and so on. ... Agence du revenu du Québec, 2020 QCCQ 2423 under Reg. 1100(17) and General Concepts – Agency. ...

7 September 2020- 9:15pm Reference re S. 6 of the Time Limits and Other Periods Act – Federal Court of Appeal finds that s. 6 did not trench on orders made under the Federal Courts Rules Email this Content In a letter dated September 1, 2020 addressed to the Federal Court, the Attorney General stated his position that s. 6 of the Time Limits and Other Periods Act (COVID-19), which suspended retroactively all “time limits…established by or under an Act of Parliament” during the March 13-September 13 period, ousted all “orders and directives issued” by the Courts concerning time limits or setting deadlines. ... For example, orders requiring a proceeding to be prosecuted urgently on shortened time limits to further the public interest and to avert some harm or prejudice would be invalidated with retroactive effect. … Beyond this, construing section 6 as allowing Parliament to unilaterally interfere with the management and governance of ongoing proceedings would invade a core judicial function …. ...

13 December 2020- 10:59pm Ahamed – Federal Court of Appeal finds that the Crown could not be compelled to explain an early Finance analysis of the TFSA proposals Email this Content A TFSA, which had been assessed on the basis that its securities’ trading was a business, had obtained, pursuant to an Access to Information request, a Finance table (prepared before the release of the TFSA legislation) comparing the treatment of an RRSP and the then-proposed “LSP” (an initial version of the TFSA), including a cryptic reference to non-exemption of income from an unrelated business. ... Locke JA also found that Pizzitelli J had not made reviewable errors in refusing to order production of unredacted copies of various other requested internal documents – and, in this regard, he agreed with Pizzitelli J’s application of the view “that earlier drafts of a final position paper do not have to be disclosed, and … that even where relevance is established, the Court has a residual discretion to refuse document production.” ...

23 March 2021- 11:00pm Emergis – Tax Court of Canada finds that U.S. withholding tax applicable to a tower structure did not generate a s. 20(12) deduction Email this Content Emergis financed a U.S. acquisition through a tower structure under which: it made an interest-bearing loan to a subsidiary Canadian partnership (“USGP”); USGP funded such interest payments out of dividends received from a wholly-owned Nova Scotia ULC (“NSULC”); NSULC, in turn, received dividends out of the exempt surplus of a wholly-owned LLC; and the LLC received s. 95(2)(a)-recharacterized interest on the acquisition-financing loan made to “US Holdco”. ... Before concluding that Emergis could not claim the s. 20(12) deduction for such withholding taxes, on the basis that they were “taxes … that can reasonably be regarded as having been paid by a corporation [Emergis] in respect of income from a share of the capital stock of a foreign affiliate of the corporation [the LLC],” Favreau J stated: [T]he words “in respect of” are very broad …. ...

24 August 2022- 11:22pm Barrs – Federal Court of Appeal finds that disproportionate interest could be cancelled by CRA to compensate for the s. 220(3.1) 10-year limitation and produce horizontal equity Email this Content A group of taxpayers, who were the victims of a tax fraud, i.e., purported partnerships giving rise to large reported losses in the mid-1980s where, in fact, the partnerships were non-existent, ultimately had their Tax Court actions decided against them in 2014. ... Furthermore: Given that the independent third-level review officer failed to engage with the request for greater relief in the open years to ensure equitable treatment, his decision must be set aside. … Failure to engage with an important argument advanced by a party will generally render an administrative decision unreasonable [citing Vavilov] …. ...

11 May 2023- 11:20pm Investissement Boeckh – Quebec Court of Appeal finds a presumption of coherence that it should apply the FCA’s interpretation of ITA s. 39(5)(a) Email this Content The ARQ reassessed the taxpayer (“Boeckh”) for its 2007 to 2015 taxation years, on the basis that net gains realized in those years were income account gains rather than capital gains. ... This interpretation is compatible with the ordinary meaning that it is appropriate to accord to the words employed in the text of the provision, as well as being coherent with the object of the TA and the intention of the legislature, which clearly wished to favour a harmonization in this regard between the Quebec and federal tax regimes. … [I]n tax matters, where the federal and provincial provisions are appreciably in the same form, a presumption of coherence between the two provisions should prevail. ... Agence du revenu du Québec, No. 500-09-029863-222 (Quebec Court of Appeal) under s. 39(5)(a) and Statutory Interpretation – Provincial Law. ...

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”. ...