Agency

Table of Contents

Commentary

The common law of agency (or, where applicable, the civil law of mandate) has usually been determinative in determining whether a particular act or activity of a taxpayer is to be treated, for purposes of the Act, as being for its account or for the account of someone else (a principal). This represents a specific application of the broader principle that the provisions of the Act usually apply to transactions as characterized in accordance with their legal substance; and the legal substance of a transaction is to be determined having regard to the applicable provincial law (in this case, that of agency or mandate)

In the absence of special provisions for the transfer of attributes of one taxpayer to another (for example, in ss.80.04 and 88(1)), the Act treats each corporation as a separate taxpayer. In the absence of compelling evidence to the contrary, a parent corporation will not be treated as performing its activities as agent for its subsidiary (Continental Bank); and similarly a subsidiary usually will not be treated as performing its activities as agent for its parent corporation or other shareholder (Alberta Gas, Denison Mines, United Geophysical, Cf. Colbert).

Because the acts of an agent are those of its principal, the income tax consequences of carrying on a business through an agent are identical to those of carrying them on more directly through employees (E.S.G.). Accordingly, the computation of income of a taxpayer can turn upon whether or not a receipt of another person was received by that person as principal or as agent for the taxpayer (Esskay Farms); and the determination whether a payment made by Y to X represents a reimbursement for an expense incurred by X on Y's behalf (i.e., an expense of Y), or payment of a charge for services rendered by X to Y (i.e., a revenue item for X) will turn on whether the expenses were incurred by X as principal or agent (London Life).

Authorities on the application of the law of agency to the computation of income for purposes of section 9 are discussed under section 9.

One aspect of the law of agency that must be frequently addressed in practice is the determination whether a role, such as bare trustee, which has elements of both agency and trust, is that of trustee or agent for purposes of the Act (Trident, Ingram). The Agency has accepted that a bare trustee should be viewed as an agent rather than a trustee for these purposes and for those of Part IX of the Excise Tax Act.

"An agent cannot have a legal capacity that exceeds that of the principal [so that]...[a] principal can only appoint an agent to make a contract which the principal himself has the capacity to make" (1524994; similarly, Alberta Gas).

Various cases have readily accepted the relevance of the law of agency, with the result turning upon an application of the common law as to whether agency exists (Music and Video, T. Eaton, and Tarmac Roadstone). A number of cases have also dealt with the application of procedural provision of the Act to acts of an alleged agent (Wharton, Doyle).

Cases

Club Intrawest v. Canada, 2017 FCA 151

absence of direct agreement that expenses were incurred as agent

A Canadian Intrawest corporation and affiliated U.S. entity (the “Canadian Developer” and “U.S. Developer, respectively”) transferred individual resort condos (the “Vacation Homes,” which they had acquired in Canada, the U.S. and Mexico) to the Appellant (which was a non-share corporation resident in Canada) in consideration for the Appellant transferring occupancy rights (a.k.a., resort points) to the Vacation Homes to them in perpetuity. The Canadian Developer and the U.S. Developer then sold the resort points to members of the public in Canada and the U.S., – who also thereupon became member of the Appellant, along with the Canadian and U.S. Developer) which could be periodically applied under a booking system to obtain access to particular Vacation Homes at specified times.

The Appellant paid various expenses respecting the Vacation Home operations which it recovered through “Annual Resort Fees” charged to its members. In affirming the rejection by D’Arcy J in the Tax Court of the Appellant‘s submissions that the Annual Resort Fees represented reimbursement for expenses incurred by the Appellant as agent for its members (so that they were not subject to GST), Dawson JA rejected the argument that D’Arcy J erred by requiring an express, standalone written agency agreement, finding that he had also looked at the conduct of the parties (para 59), and found that he had also taken account of the relevant documents, which lacked a direct agreement as to agency between the resort point purchasers and the Appellant (para 71).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 142 - Subsection 142(1) - Paragraph 142(1)(d) supplies of services re cross-border vacation home portfolio split into domestic and foreign supplies 598
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply service in relation to a cross-border vacation home portfolio split into two (GST-taxable and non-taxable) geographic components 413

Felty v. Ernst & Young LLP, 2015 BCCA 445

presumption that law firm agreement binds client

The appellant’s B.C. law firm retained Ernst & Young to provide her with U.S. tax advice in connection with negotiating a separation agreement with her husband. E&Y conceded that its advice was negligent but relied on a clause in its engagement agreement with the B.C. firm that limited its liability to its fee. In finding that the appellant was bound by the engagement agreement, Newbury JA applied (at para. 38) the principle in Shaw, Salter & Plommer v. Phipps & Cosgrove (1926) 37 B.C.R. 184 “that as a general rule, solicitors will be taken to be contracting on behalf of their clients in the course of their practice.”

Locations of other summaries Wordcount
Tax Topics - General Concepts - Negligence and Fiduciary Duty accounting firm exclusion clause was binding 192

Public Television Association of Quebec v. Canada (National Revenue), 2015 FCA 170

appellant failed to control its alleged agent (a US public television station)

In light of the lack of control over and direction of the activities of a Vermont public television station by the appellant, it was found that those activities were not activities of the appellant. See summary under s. 149.1(1) - charitable organization.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(1) - Charitable Foundation appellant failed to control its alleged agent (a US public television station) and was its conduit 202

Canada v. Merchant Law Group, 2010 FCA 206

no evidence that law firm client assumed liability to suppliers to law firm

A Saskatchewan law firm failed to provide evidence establishing that its clients rather than it were liable for the costs incurred by it in respect of searches, appraisal reports, accident reports, courier costs, transcripts, investigation reports, hospital records, security reports, medical reports and searches and certificates. (Clients were not typically consulted about minor disbursements such as a land title search, a marriage certificate or courier fees and the lawyers generally dealt directly with the third-party suppliers.) Accordingly, the firm was required to collect and remit GST when it made a charge in respect of such disbursements to its clients. Dawson JA stated (at paras. 24-25):

[T]he Judge… made no finding of fact with respect to whether the clients assumed any risk or liability with third-party suppliers. …

As a matter of law it does not follow that, because the solicitor-client relationship is generally one of agency, all financial obligations incurred by a lawyer while providing legal services are incurred as agent of its clients. Indeed, the Judge recognized this by dismissing that portion of the appeal that related to office expenses incurred by the respondent on behalf of clients.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient law firm did not incur disbursements as agent for its clients 69

Canada v. 1524994 Ontario Limited, 2007 FCA 74

alleged principal lacked capacity to collect OHIP fees

In order to comply with a requirement of the Ontario Health Insurance Plan (OHIP) that it would only pay for audiology tests performed by (or under the supervision of) a physician, the respondent numbered company entered into an agreement with two physicians which stated that the physicians would pay the company for the use of its facilities and management services, and that they would employ the company owner (an audiologist but not a physician) to conduct hearing tests for them. The Minister assessed the company on the basis that it provided the two physicians with taxable supplies of building and equipment rentals together with management services, on which it had failed to charge and collect GST. The Tax Court found, on the basis of oral evidence that the agreement did not reflect the true legal relationship between the parties, that there was no taxable supply by the company.

After finding on other grounds that this decision should be reversed, Décary J.A. stated (para. 18) that the Tax Court:

erred in finding...that the "doctors were in fact acting as the Appellant's agents with respect to its dealings with OHIP". An agent cannot have a legal capacity that exceeds that of the principal. A principal can only appoint an agent to make a contract which the principal himself has the capacity to make (see Haggstrom v. Dey (1965), 54 D.L.R. (2d) 29 (B.C.C.A.)). As the respondent clinic was not legally authorized to collect fees from OHIP, neither were its "agents".

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply agreements respected for supply determination purposes 207
Tax Topics - General Concepts - Evidence agreement intended to deceive government 208

Canada v. Libra Transport (BC) Ltd., [2001] GSTC 57, Docket: 98-2151-GST-G, aff’d 2002 FCA 347

trucker presumed not to be an unlicensed insurer

The appellant (“Libra”) carried on a truck transport business at volumes which exceeded the capacity of its own four rigs, so that it contracted with over 20 subcontractors, who owned their own rigs and operated them under the Libra umbrella. As Libra could obtain insurance at more favourable rates, it arranged coverage for the various vehicles, with the premiums broken down on a vehicle by vehicle basis, and recovered the premiums from the subcontractors on a monthly basis. Highway transport licences were handled on a similar basis.

Bowie J stated (at para. 13):

[O]nly an insurance company licensed to do so may sell insurance, and only a provincial government may sell motor vehicle licences…

Vanex Truck Service was distinguished (at para. 17) on the basis that :

[W]hat Vanex supplied to the drivers was the right to drive their vehicles with the benefit of licences and insurance for which it had paid…[and] the Appellant does not appear to have advance an argument based on agency in that case.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply trucker presumed not to be an unlicensed insurer 216
Tax Topics - General Concepts - Illegality trucker presumed not to be an unlicensed insurer 50

Vanex Truck Service Ltd. v. Canada, 2001 FCA 159

taxable resupply (made as principal) of otherwise exempt insurance

The appellant orally contracted for the services of owner-operators of trucks in connection with its freight transportation business, and provided them with the option of acquiring insurance, motor vehicle and motor carrier licences, as well as oil and fuel at discounted rates. The cost of these items was deducted on a monthly basis from the 75% of the gross revenue owed to the owner-operator by Vanex.

In finding that the insurance charges made by it represented consideration for a taxable resupply, Desjardins JA stated:

[I]t was the right to the protection offered by the fleet policies which constituted a taxable supply of service under the provision of section 123.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply charges to fleet operators for insurance and licences were taxable resupplies 281

Colbert v. The Queen, 94 DTC 6620 (FCTD)

shareholder generally does not carry on business of corporation

Before finding, on the evidence, that the taxpayer had transferred all the assets of his chicken farm business to a corporation other than the land and the chicken quota and that the corporation was not an agent of the taxpayer, Wetson J. stated (p. 6622):

"... one must start from the presumption that generally when a company is incorporated to carry on a business, the business becomes that of the company and the shareholder cannot claim that business as his or her own. However, it has also been recognized that the relationship between a company and a shareholder can be such as to constitute the company as an agent of the shareholder. ... When such circumstances exist, the business carried on by the company can in reality be said to be that of the shareholder."

Wharton v. The Queen, 92 DTC 6582 (FCTD)

The taxpayer's accountant, whose name and address appeared on the back of its tax returns, received a refund cheque, fraudulently endorsed it and deposited it to his account. Given that there was no indication that the accountant was clothed with the authority of discharging the debt of the Crown to the taxpayer, such cheque did not constitute payment of amounts owing by the Crown to the taxpayer. [C.R: "Payment and Receipt"]

Alberta Gas Ethylene Co. Ltd. v. The Queen, 90 DTC 6419 (FCA)

In finding that a special-purpose U.S.-subsidiary of the taxpayer was not an agent of the taxpayer, Hugessen J.A. stated:

"ASCO could not have been the agent of the appellant since there can be no doubt that the various contracts entered into created rights or obligation that were personal to ASCO vis-à-vis the third parties. It is of the essence of agency that the agent, acting within the scope of his mandate and with the knowledge of the parties with whom he contracts, binds his principal only ..."

Doyle v. MNR, 89 DTC 5483 (FCTD)

A corporation was found to have authority to sign a letter of abeyance pursuant to s. 225.1(5) on behalf of the taxpayer by virtue of the following authorization which was contained in the taxpayer's return:

"The undersigned, in consideration of your acting herein, hereby empowers you and your authorized representatives to represent me as agent (and not by way of legal counsel or in any other professional capacity) with Revenue Canada in respect of any and all disputes arising from the filing of any income tax returns on my behalf and any assessments or reassessments resulting therefrom, and in each case including the power to conclude a binding settlement of such disputes or appeals based on oral or written instructions."

London Life Insurance Co. v. The Queen, 87 DTC 5312, [1987] 2 CTC 90 (FCTD), aff'd 90 DTC 6001 (FCA)

rev'd on other grounds 90 DTC 6001 (FCA)

London Life rented excess computer capacity to a subsidiary ("LDS") which used that capacity to provide computer services to the public. Since practically all the expenses that made up the annual charge to LDS would have been incurred by London Life without the existence of its arrangement with LDS, it was found that those expenses were incurred by London Life in its own right and not on behalf of LDS.

E.S.G. Holdings Ltd. v. The Queen, 76 DTC 6158, [1976] CTC 295 (FCA)

consequences of carrying on business through agent and employees were the same

The income tax consequences to a corporation of carrying on business through an agent (a managment company) were identical to those of carrying it on through employees, so that the taxpayer's activities qualified as an active business.

The Queen v. Esskay Farms Ltd., 76 DTC 6010, [1976] CTC 24 (FCTD)

The taxpayer, in order to defer pursuant to s. 20(1)(n) the recognition of gain on the sale of land to the City of Calgary, agreed to sell the land to a trust company for cash consideration payable in eight years time. The trust company contemporaneously sold the land to the City for close to immediate consideration. The obligations of the trust company under the purchase agreement with the taxpayer were conditional upon the sale to the City occurring, and registered title was transferred directly from the taxpayer to the City.

The trust company did not act as the taxpayer's agent since the agreement contemplated that the trust company would act on its own behalf. There was no sham.

Simard-Beaudry Inc. v. M.N.R., 74 DTC 6552, [1974] CTC 715 (FCTD)

"The law is too clear for any useful purpose to be served by citing jurisprudence to that effect, that a person may act as an agent for two people without thereby creating joint responsibility between them for all their actions or for those of the agent." (p. 6555)

Denison Mines Ltd. v. MNR, 71 DTC 5375 (FCTD), aff'd 72 DTC 6444 (FCA), aff'd 74 DTC 6525 (SCC)

person cannot do by agent what he cannot do himself
aff'd on other grounds 72 DTC 6444 (FCA), aff'd 74 DTC 6525 (SCC)

In finding that the taxpayer was not permitted to deduct losses incurred by its wholly-owned subsidiary in providing housing for the taxpayer's employees, Cattanach J. noted that the reason for the incorporation of the subsidiary was legal advice that the taxpayer would be in breach of conditions of a trust deed if it conducted the housing operation on its own account and stated (at p. 5388) that "it is a principle of agency that a person cannot do by an agent what he cannot do himself". Cattanach J. then stated (at p. 5389):

"... It is important to bear in mind that limited companies that carry on businesses are separate taxable persons ... . Any attempt to erode this principle must be based upon clear and unequivocable facts leading to the irrebuttable conclusion that one legal entity is acting as the agent of another and that legal entity is really doing the business of the other and not its own at all."

United Geophysical Co. of Canada v. MNR, 61 DTC 1099 (Ex Ct)

company's business not carried on as agent for shareholder

Before going on to find that the business operations of the taxpayer were not carried on by it as agent for its U.S. parent, Thurlow J. stated (at p. 1102):

"While it is clear that a business can be carried on by a company as agent for a disclosed or an undisclosed principal, unless the company which carried on the business is nothing but a sham the mere fact of ownership by a person of all the shares of that company will not make the company's business that of the owner of the shares, nor will complete and detailed domination by that owner of every move the company makes be sufficient to make the company his agent or the business his own, for the company, if legally incorporated, has a legal existence and personality of its own, distinct from that of the owner or owners of its shares."

See Also

Lewski v Commissioner of Taxation, [2017] FCAFC 145

knowledge of agent imputed to principal

The taxpayer had delegated the handling of all her affairs to her husband, and did not find out about a purported income distribution by a trust to her until over seven years later, at which point she promptly executed a disclaimer of any interest in the distribution. The Court found that she should be imputed with the knowledge of her agent (her husband), so that she had not promptly disclaimed - so that if (contrary to the finding above) the income distribution to her had otherwise been valid, her purported disclaimer thereof would have been ineffective. In this regard, the Court stated (at para. 139):

In the current edition of Bowstead, namely Watts P and Reynolds FMB, Bowstead & Reynolds on Agency (20th ed, 2014), the relevant ‘rules’ are set out in Arts 94 and 95. We note that the rule corresponding to the second rule set out above is expressed in less absolute terms [than in the previous edition]: “The law may impute to a principal knowledge relating to the subject matter of the agency which the agent acquires while acting within the scope of his authority” (art 95(1)). This revised formulation accommodates the flexibility that is required, given the different legal contexts in which the principles of attribution may operate.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense obligation to pay purchase price was incurred on agreement date rather than subsequent closing 382
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) an alternate resolution that the taxpayer was not entitled to an income distribution if Revenue denied a trust deduction made her entitlement contingent and non-includible 356
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(b) since the taxpayer through her husband as agent had knowledge of an income distribution, her subsequent purported disclaimer was not immediate 296
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) a trust income declaration that was subject to a tax contingency did not result in an income inclusion to the beneficiary 145

Zheng v. The Queen, 2017 TCC 132 (Informal Procedure)

rebate application was made and signed as agent

An individual (Kwong) and his ex-wife (Yu-Lian), who lived along with their daughter in Vancouver, got the younger sister of Yu-Lian (Qun) to purchase a new house in the Markham area for their daughter to live at while she attended university at U of T. Although Qun was named in the purchase agreement and in the application for the Ontario new home rebate application, all the funds for the purchase came from Kwong and Yu-Lian, Kwong took title to the property and the rebate was credited against the purchase price paid by him at closing.

Russell J found not only that Qun’s role in the purchase transaction was as agent for Kwong and then found (at para.35) that:

The Rebate application was not made by Qun…on her own behalf but rather by her in her capacity as agent for…Kwong… .

Qun’s appeal was allowed - rather than being dismissed on the basis that the rebate instead belonged to Kwong (before giving effect to its assignment to the builder), without any explicit indication that Qun was considered to have also appealed as agent.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 254 - Subsection 254(2) - Paragraph 254(2)(b) rebate form was signed and completed in the name of an individual who was acting as agent 457
Tax Topics - Excise Tax Act - Section 279 rebate application made and signed as agent 76

572256 Ontario Limited v. The Queen, 2017 TCC 108 (Informal Procedure)

property found to be held as agent notwithstanding missing written agreement

The taxpayer held two commercial rental buildings which formed part of a 16-building common–law strata complex. The buildings were the subject of a co-tenancy agreement between all of the owners. Paris J accepted that a corporation (“SVO”) had agreed to manage all of the buildings as well as the common areas as agent for all of the owners, notwithstanding that the taxpayer was only able to provide an unsigned copy of the management agreement – and also accepted that a parking area had subsequently been acquired by SVO as their agent notwithstanding the failure to locate any written agreement to this effect.

Paris J found (at para. 13) that SVO did not have any discretion, independent power or control over the parking area that would negate existence of a bare trust and that the operation of the parking area was subject to the control of the owners.

Consistently with a passage quoted from Scott, The Law of Trusts in De Mond that:

If [a person] undertakes to act on behalf of the other and subject to his control he is an agent; but if he is vested with the title to property that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relation that predominates, and the principles of agency, rather than the principles of trust, are applicable.

Paris J stated (at para. 15):

[T]he agency relationship between SVO and the owners, including the Appellant, predominates and… SVO was acting as the owners’ agent in entering into the contracts for maintenance and upkeep of the building exterior and common areas including the parking areas.

Accordingly, the taxpayer was entitled to input tax credits respecting expenses incurred by SVO as its agent.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) property acquired and maintained as agent for registrant 151

Persepolis Contracting Inc. v. The Queen, 2017 TCC 89 (Informal Procedure)

The appellant was incorporated to perform renovation work on a Vancouver building owed by a corporation (0781178 BC Ltd.) whose shareholder was a friend of its sole shareholder. It was agreed that the appellant would earn a management fee equal to 15% of the renovation costs incurred by it. CRA assessed the appellant on the basis that it had not incurred the renovation costs as agent for 0781178 BC Ltd., so that it should have charged GST on such costs in addition to on its management fee.

In confirming the assessment, Ouimet J stated (at para. 46):

I was not presented with any evidence indicating that, by its actions, 0781178 BC Ltd. had implicitly accepted an agency relationship with respect to the renovations. The circumstances of this case do not clearly indicate that 0781178 BC Ltd. gave authority to Persepolis Inc. to act on its behalf.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply no evidence of implicit acceptance of agency 85

GEM Health Care Group Limited v. The Queen, 2017 TCC 13

construction supplies acquired by parent as agent for subsidiary owning the real estate

The appellant (“GEM”) incorporated three new subsidiaries (the “Owners”) to each acquire a newly-constructed nursing home, and arranged for the requisite land to be conveyed to each subsidiary. The contracts with the general contractor and architect were entered into by both GEM and the owner. CRA assessed GEM on the basis that its construction services division was providing construction services to the Owners, whereas GEM considered that it was contracting as agent for the Owners.

In upholding GEM’s position, Sommerfeldt J first quoted (at para. 24) the statement in Merchant Law that “for an agency relationship to exist the agent must be able to affect the principal’s legal position with third parties by entering into contracts on the principal’s behalf or by disposing of the principal’s property,” and then stated (at para. 53):

I have not seen anything to indicate that the Contractors first transferred title to their respective materials to GEM, and that GEM subsequently transferred title to those materials to the three Owners. Rather, it appears to me that title to the materials passed directly from the Contractors to the respective Owners pursuant to the principle of accession, when those materials were appropriated and incorporated into the respective nursing homes. Thus, it seems that GEM affected the legal position of the Owners with the Contractors.

In addition, Sommerfeldt J dismissed the Crown’s submission that the transfer of title to the materials occurred by reason of the deeming effect of s. 191(3) of the ETA, stating (at para 49):

[T]hat provision applies only for the purposes of Part IX of the ETA… [and] cannot form the basis pursuant to which title to the materials passed from the various Contractors to [the Owners]. … .

Furthermore, the fact that GEM initially booked the relevant costs on its books did not alter the reality that the benefit of such costs accrued directly to the owners. Sommerfeldt J concluded (at para 88):

… [T]o the extent that GEM supervised or managed the development and construction of the nursing homes, it did so as agent for and on behalf of the three Owners. … GEM, as principal, did not supply construction services to the Owners.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) no barter of management services for HST purposes between two affiliates employing the same key manager 320
Tax Topics - Excise Tax Act - Section 232 - Subsection 232(3) issuance of credit note is mandatory for ITC claim 159
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient no barter of managment services between affiliates/construction supplies acquired by parent as agent for owner-subs 192

Cheema v. The Queen, 2016 TCC 251 (Informal Procedure)

bare trustee is transparent for tax purposes

The availability of the new housing GST/HST rebate to the taxpayer under ETA s.254(2) turned on him or his spouse being the only person who was “liable” under the purchase agreement. CRA denied the rebate on the basis that a friend of the taxpayer had acquired an undivided 1% interest in the property (as a result of requirements of the mortgagee), even though, on the date of closing, the friend executed a declaration of bare trust in favour of the taxpayer and his wife.

In finding that the requirements for the rebate were satisfied, Smith J stated (at para. 54):

The notion of a bare trust as an agency relationship…is well known and well established…. For tax purposes, a bare trust is considered a non-entity in the sense that a beneficiary as principal, is considered to deal directly with property through the trustee as agent or nominee.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 254 - Subsection 254(2) - Paragraph 254(2)(b) unrelated individual acquiring interest as bare trustee did not deny the rebate 285

Club Intrawest v. The Queen, 2016 TCC 149, varied 2017 FCA 151

annual fees charged by non-share corporation to its members were not reimbursements for expenses incurred by it as their agent
varied on other grounds

A Canadian Intrawest corporation and affiliated U.S. entity (the “Canadian Developer” and “U.S. Developer, respectively”) transferred individual resort condos (the “Vacation Homes,” which they had acquired in Canada, the U.S. and Mexico) to the Appellant (which was a non-share corporation resident in Canada) in consideration for the Appellant transferring occupancy rights to the Vacation Homes, in perpetuity to them. The Canadian Developer and the U.S. Developer then sold “Resort Points” to members of the public in Canada and the U.S. (the “Canadian Resort Point Purchasers” and “American Resort Point Purchasers,” respectively – who also thereupon became member of the Appellant, along with the Canadian and U.S. Developer) which could be periodically applied under a booking system to obtain access to particular Vacation Homes at specified times.

The Appellant paid various expenses respecting the Vacation Home operations which it recovered through “Annual Resort Fees” charged to its members. In rejecting the Appellant‘s submissions that the Annual Resort Fees represented reimbursement for expenses incurred by the Appellant as agent for its members (so that they were not subject to GST), D’Arcy J accepted that an agency characterization would have been assisted if the Appellant had established that the beneficial interests in Vacation Homes were held by the Appellant on behalf of its members, but found that this was not established given inter alia that the risk of damage to the property through fire, misconduct of the users or normal wear and tear rested with the Appellant and the Resort Points represented only contractual rights to make reservations rather than being interests in the Vacation Homes. Furthermore, agency was not established given that there was nothing amounting to an agency agreement, and brief references in two of the posited agreements (one of which, the Appellant was not party to) respecting the incurring of expenses by the Appellant as agent for the members were contradicted by the agreements’ other terms. Furthermore, the items included in the Annual Resort Fees’ calculation included internal costs such as of the Appellant’s annual meeting and its auditor. Finally, the members’ control of the Appellant through their ability to elect its board did not mean that the Appellant acted as their agent.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 142 - Subsection 142(1) - Paragraph 142(1)(d) s. 142(1)(d) only applies to a supply exclusively re real property 594
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service payment of condo operating expenses was a service 201
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of covering all time share operating costs 164
Tax Topics - Excise Tax Act - Section 168 - Subsection 168(1) GST collectible based on invoicing times 77
Tax Topics - Excise Tax Act - Section 306.1 - Subsection 306.1(1) objecting to quantum was sufficient particularity 169
Tax Topics - General Concepts - Ownership beneficial owner did not transfer property risk 177
Tax Topics - General Concepts - Evidence foreign law assumed the same 93

SNF L.P. v. The Queen, 2016 TCC 12

"prête‑nom" contract is a valid contract

A Quebec LP (SNF) acquired metal scrap from 12 suppliers, who were registered for GST purposes, but who did not remit the GST which they invoiced to SNF. Each supplier named in the invoices was “a ‘prête‑nom’ and not the actual supplier” (i.e., each supplier acted on behalf of an undisclosed principal). Rip J stated (at paras. 52-53):

The Supreme Court of Canada has confirmed that the "prête-nom" contract is a lawful form of the contract of mandate: Victuni A.G. v. Minister of Revenue of Quebec, [1980] 1 S.C.R. 580 at 584. However, in St‑Jules c. Roy, the Superior Court found that using a "prête‑nom" is void if the purposes of the contract were illicit and caused harm to a third party.

Since a "prête‑nom" contract is a valid contract, the question then is whether the "prête‑nom" is an intermediary of the true supplier whose name may appear on the documentation supporting the supply:

On this latter issue, he concluded (at para. 81):

That…suppliers may not have carried on a business or were "prête‑noms" does not, on the facts, affect the appellant's right to claim ITCs.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(4) ITCs where reasonable efforts to verify suppliers and registration numbers, where GST not remitted 360
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 2 - Intermediary intermediary need not carry on business and may be a nominee 125
Tax Topics - Excise Tax Act - Section 261 - Subsection 261(1) no rebate entitlement for an error caused by the applicant’s own inattention and carelessness 104

McLarty v. The Queen, 2014 DTC 1162 [at 3556], 2014 TCC 30

participations contrary to agreement were disregarded

On December 31, 1993, the taxpayer and 21 other signatories to a joint venture acquired rights to exploit seismic data. Under the terms of the joint venture agreement, no nominees were permitted, but in fact various of the purchasers were acquiring their rights on behalf of others (totalling 30) who also claimed Canadian exploration expense deductions for "their" share of the seismic expenditures. Favreau J stated (at para. 80) that this:

is not an indication of a sham. It is rather an indication that some persons were not legally members of the Joint Venture and were not entitled to the deductions. The Minister should have simply denied those person the tax deductions… .

Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality participations contrary to agreement were disregarded 107
Tax Topics - General Concepts - Sham sham cannot apply to just part of transaction 139
Tax Topics - General Concepts - Tax Avoidance sham cannot apply to just part of transaction 139
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) revenues 10% of interest 178
Tax Topics - Income Tax Act - Section 67 leveraged purchase of seismic data at arm's length was presumptively reasonable 282

2253787 Ontario Inc. v. The Queen, 2014 TCC 121 (Informal Procedure)

grey market buyers cannot be agents

The appellant operated a small grey market business to buy iPhone 4 units from Apple's Canadian retail channels and resell them in Hong Kong, where they were not yet available. Friends and family members (the "buyers") would purchase one or two phones each, for which the appellant fully reimbursed them. The Minister denied the appellant's input tax credit claim for the HST incurred by the buyers on the basis that they were not its agents (and also on the basis of inadequate documentation).

Bocock J found that the buyers were not the appellant's agents as they did not have the authority to bind it. Apple's terms of sale prohibited buying phones for resale - that is, Apple would never have entered into the sales contracts directly with the appellant. Bocock J stated (at para. 17):

[A] principal cannot appoint an agent to engage in a contractual entreaty [sic] into which the principal has no legal capacity or authority to enter: 1524994 Ontario Ltd. v. Canada, 2007 FCA 74 at paragraph 18.

Commissioners for HM Revenue and Customs v. Secret Hotels2 Ltd., [2014] UKSC 16

terms reflected agent's dominance

The appellant ("Med"), which marketed hotel accommodation in the Mediterranean and the Caribbean through a website, required a customer to pay the whole of the agreed sum before arriving at the hotel, and Med only paid the hotel a lower sum for the holiday after it had ended pursuant to an accommodation agreement in which it was styled as agent. Med was required to charge U.K VAT on the sums collected by it unless it acted solely as an "intermediary," which the court found to be essentially the same as an agent.

Before concluding that Med was not required to collect VAT, Lord Neuberger found that Med was providing accommodation as an agent for the hotels, notwithstanding that Med:

  • failed to account to the hoteliers for cancellation charges and interest on the amounts deposited (which Lord Neuberger stated, at para. 44, might represent a breach of the agency agreement or reflect Med's relative bargaining position)
  • dealt with matters of complaint and compensation in its own name and without reference to the hotelier (but with any compensation ultimately recovered from the hotelier)
  • treated the deposits as its own money
  • reserved rooms in advance of sales (although the related payments were recoverable against the next season's revenues if the current season's bookings were insufficient)
Locations of other summaries Wordcount
Tax Topics - General Concepts - Substance characterize before attaching label 269

9101-2310 Québec Inc. v. The Queen, 2013 DTC 1136 [at 711], 2012 TCC 365, rev'd 2013 FCA 241

mandatary follows instructions
rev'd on other grounds 2013 FCA 241

iArchambault J found that s. 160(1) did not apply to the transfer of funds to the taxpayer by a friend of its shareholder as they had a mandator-mandatary relationship.

Although it was unnecessary to decide whether the parties were at arm's length, Archambault J suggested that they were. The friendship was likely not enough to constitute a non-arm's length relationship given the mandatary relationship. Archambault J stated ( at para. 83):

Under such circumstances, there is no reason to be concerned with the concept of non-arm's length relationship because, by definition, a mandatary must always follow his mandator's instructions and because, for income tax purposes, no transfer has been made between the mandator and the mandatary.

SoftSim Technologies Inc. v. The Queen, 2012 DTC 1187 [at 3473], 2012 TCC 181

consent of counsel binding

The taxpayers' former counsel had reached a settlement agreement with the Minister under s. 169(3), which provides that the Minister may reassess a taxpayer with the taxpayer's written consent. After dismissing the taxpayers' argument that they had not authorized counsel to reach a settlement, D'Auray J. dismissed the taxpayer's alternative argument that, because s. 169(3) requires written consent from the taxpayer, and the Minister only received written consent from counsel, the settlement could not be enforced under s. 169(3). D'Auray J. stated (at para. 76):

In my view, the consent in writing can be given by the counsel of record.

Velcro Canada Inc. v. The Queen, 2012 DTC 1100 [at 2966], 2012 TCC 57

alleged agent had discretion and no power to bind

The taxpayer paid royalties under a sub-licensing agreement with an affiliated Netherlands corporation ("VHBV") which, in turn, had been licensed the intellectual property by the holder, which was VHBV's Netherlands parent ("VIBV"). Under the licensing agreement, VHBV paid 90% of the royalty fees earned by it from the taxpayer to VIBV.

After finding that VHBV was, under Article 12 of the Canada-Netherlands Convention, the "beneficial owner" of the royalties paid to it, Rossiter A.C.J. rejected the Minister's further argument that VHBV collected the royalty fees as an agent of VIBV. Evidence showed that, legally and practically, VHBV had considerable discretion in how to spend its share of the royalties and when to send VIBV's share. Moreover, there was no evidence that VHBV had the power to alter VIBV's legal position in any respect.

Locations of other summaries Wordcount
Tax Topics - Treaties - Articles of Treaties - Article 12 264

Fourney v. The Queen, 2012 DTC 1019 [at 2575], 2011 TCC 520

Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included in the taxpayer's income a taxable capital gain from her transfers to the corporations, and gross negligence penalties.

Hogan J. found that the taxpayer had retained beneficial ownership of the properties, and that the corporations held the properties under an implied agency agreement. Following the transfer, the taxpayer continued to operate the business properties in a personal capacity. All invoices for repairs and renovations, and all rent cheques were addressed to her personally, and all income and expenses went into or came from her personal bank accounts. She also held the mortgage obligations in 2003 and 2004. She transferred the mortgages to one of the corporations in 2005 but became a guarantor. The corporations held themselves out as owning the property in limited instances, but in totality the taxpayer's and corporations' conduct supported finding an agency relationship.

SLM Direct Marketing Ltd. v. The Queen, 2007 TCC 415 (Informal Procedure)

The appellant, which provided bulk mail processing services, was found to have purchased postage and mailed materials with its clients' authority, so that it did so on their behalf. Accordingly, the postage paid by it was 0-rated consideration.

Y S I's Yacht Sales International Ltd v. The Queen, 2007 TCC 306

Woods, J. accepted that an agreement pursuant to which the appellant ("YSI") agreed to contract with suppliers in connection with refurbishing a yacht and to charge the other party to the contract ("Platinum") a 5% mark-up on some of the purchases, did not establish an agency relationship between YSI and Platinum. Woods, J. noted (at para. 35) that whether YSI acquired goods and services on its own behalf on depended on the parties' mutual intention and that, accordingly, the essential question was whether Platinum agreed to be bound by YSI's agreements with suppliers.

Arpeg Holdings Ltd v. The Queen, 2007 DTC 131, 2006 TCC 593

The taxpayer was unsuccessful in establishing that its vice president did not have authority to sign a waiver on its behalf. He had the ostensible authority to do so given that the taxpayer had allowed him to represent himself as the person in charge of tax-related matters, and he also had the implied authority to sign given that he was one of the two people who ran the business and was the one who had chief responsibility for corporate administrative and tax matters.

Royal Winnipeg Ballet v. Canada (Minister of National Revenue), 2006 DTC 6323, 2006 FCA 87

Before going on to find that dancers engaged by the Royal Winnipeg Ballet should be viewed as self-employed rather than employees given that it was the understanding of the parties that the dancers were independent contractors, Sharlow J.A. referred to Montreal v. Montreal Locomotive Works Ltd., [1947] 1 DLR 161 (PC) as a case in which a determination as to whether a manufacturer was agent for the Crown was determined by a search for the common intention of the parties.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) 95

Calce Holdings Ltd. v. The Queen, 2005 DTC 959, 2005 TCC 335

The taxpayer unsuccessfully contended that there was a secret verbal contract between it and a related individual to whom it sold shares that he would hold such shares as nominee for it, so that a gain on a subsequent sale of those shares was realized by it rather than him. The fact that he received and included in his taxable income a dividend paid on the shares immediately before the sale to the third parties, and a representation contained in the notice of objection of the taxpayer, were inconsistent with this contention.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Price Adjustment Clause 55

Key Property Management Corporation v. The Queen, 2004 TCC 210

maintenance employees working for indeterminate group companies were not hired as agent for those companies

The Appellant (“Key”) provided the services of its employees to 30 or more affiliated owners of rental properties and remitted all the source deductions on their salaries. In accepting that the various apartment superintendents were employed directly by the owner companies, Bowie J. accepted that the arrangements had intended to be structured in this manner and noted (at p[ara. 8) that although they received letters of confirmation of employment on Key’s letterhead:

An agent may contract on behalf of a principal whose existence is not revealed to the other party.

However, Key directly employed the maintenance workers:

[N]either the agent nor the principals could say with any certainty at the beginning of any given week which company would employ the worker during that week, or when, or for how long. There is simply too much uncertainty about all of these matters to characterize the relationship between the workers and the various owners as thirty or more separate contracts of employment. (para. 13).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service - Paragraph (c) maintenance employees working for indeterminate group companies were not their employees 247
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(4) documentary requirements mandatory 95

Drug Trading Company Ltd. v. The Queen, [2001] GSTC 48 (TCC) (Informal Procedure)

The registrant was a wholesaler of products to independent retail pharmacies operating under the "I.D.A." name, and also provided franchisor-like services to them. One such service was to negotiate favourable terms with various banks for credit and debit card services. When a customer made a purchase from an IDA member, the bank would deposit the amount (which it debited to the customer's account) into the registrant's bank account, and the registrant would transfer the full amount of the funds to the member's bank account. However, as the bank charged its "discount fees" to the registrant's account, the registrant in turn debited the members for these amounts - which Bowie J found represented a reimbursement for such fees which it had incurred as the members' agent.

Bowie, J. found (at para. 12) that in paying such charges and so debiting the members, the registrant "acted as the agent of the members for the purpose of making the payments on their behalf to the banks."

Skylink Voyages Inc. v. The Queen, [1999] GSTC 119 (TCC)

The registrant served retail travel agencies by booking and purchasing airline tickets for the agencies' customers, which resulted in the receipt by it of commissions from the airlines. Where the retail agencies had no agreement with the issuer of the customer's credit card, the registrant would act as the "merchant" insofar as the credit card issuer was concerned, so that the voucher amount for the ticket was advanced to it, with that amount being used by the registrant towards the cost of the ticket. In those situations, the registrant charged $15 per ticket to the retail agency to cover the charge of 2% to 3% by which the credit card issuer discounted the amounts which it paid to the registrant.

Before finding that this $15 charge was consideration for a financial service, Archambault J rejected (at para. 22) a submission of the registrant that it claimed payment from the credit card issuers as mandatary of the retail agencies:

It was not established that Skylink had agreed with the retail agencies that it would act as their mandatary by requesting payment from the issuers. Nor is there any evidence that Skylink informed the issuers that it was acting as the retail agencies' mandatary.

Continental Bank of Canada v. The Queen, 94 DTC 1858 (TCC), aff'd at 98 DTC 6501 (SCC) after being, rev'd 96 DTC 6355 (FCA)

compelling evidence required to consider one company as agent for another
aff'd at 98 DTC 6501 (SCC) after being rev'd on other grounds 96 DTC 6355 (FCA)

The taxpayer's subsidiary ("CBL") transferred leasing assets to a partnership between CBL and two subsidiaries of a third party that was interested in acquiring those assets ("CCM" and "693396") in consideration for a partnership interest, an election was filed under s. 97(2), the taxpayer acquired the partnership interest of CBL on a winding-up of CBL pursuant to s. 88(1) and the taxpayer sold the partnership interest to 693396 and an affiliate of 693396.

In rejecting a Crown submission that the taxpayer was an agent of CBL for the purpose of transferring the leasing assets to the third party of its subsidiaries, Bowman TCJ. stated (at p. 1869):

"Generally speaking, it requires extremely compelling evidence for one company - even a subsidiary - to be regarded as an agent of another ... . It is even more difficult to regard a parent as its subsidiary's agent."

C&E Commissioners v. Music and Video Exchange Ltd., [1992] BTC 5028 (Q.B.)

A dealer was found to acquire musical equipment from members of the public for resale as their agent in accordance with the description of the arrangement as an agency one in the relevant agreement notwithstanding that the dealer had the power to effect all necessary repairs to the equipment before sale.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Tax Avoidance tax minimization acceptable 72

Ingram v. MNR, 91 DTC 939 (TCC)

The taxpayer, who received and exercised stock options as a "nominee" for a partnership, was held to be their agent rather than a trustee.

T. Eaton Co. v. Minister of Revenue, [1989] 1 CTC 269 (Ont CA)

"I find it extraordinary that the respondent Minister would contend, through counsel, that Eaton's, as a statutory agent, would have a higher obligation to its principal than as an agent under the usual principal and agent agreement. Eaton's, as a vendor, is obligated by statute to collect and remit the sales tax but, after exhausting all reasonable means to recompense itself, I can see no reason why it, as the agent, should bear the loss rather than its principal, the respondent Minister."

Hill & Anor. v. C. & E. Cmners., [1988] BTC 5139 (QBD)

A commercial gallery successfully argued that it was selling pottery as agent for some potters, rather than as principal. Anything which the potters were paid by the gallery prior to a sale was successfully characterized in the agreement as "remittances prior to sale", i.e., pre-payment deposits, rather than as sale proceeds. Deficiencies of an administrative character in the agreement were not crucial.

Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 64 OR (2d) 65 (Ont CA)

agency aspect predominated in bare trust

A contract entered into by a corporation which held lands as "bare nominee and trustee" for six "beneficiaries" gave rise to liability for those beneficiaries.

Although "a trustee, who is acting as a trustee...cannot subject the beneficiaries to liability" (p. 75), here, as the corporation was acting under a duty of obedience to the beneficiaries, it was a bare trustee, so that the principles of agency rather than of trust predominated respecting the question of the liability of the beneficiaries. Morden JA quoted (at pp. 73-74) with approval a statement in Scott, The Law of Trusts, 4th ed., at 95 (1987):

A person may be both agent of and trustee for another. If he undertakes to act on behalf of the other and [be] subject to his control he is an agent; but if he is vested with the title to property that he holds for his principal, he is also a trustee. In such a case, however, it is the agency relation that predominates, and the principles of agency, rather than the principles of trust, are applicable....

Customs and Excise Commissioners v. Tarmac Roadstone Holdings Ltd., [1987] BTC 5074 (C.A.)

In finding that employees of a parent corporation whose services were provided to a subsidiary had not been retained by the parent as agent for the subsidiary, Slade L.J. noted that only the parent was entitled to enforce the relevant service contracts because the employees had never agreed to serve the subsidiary.

Administrative Policy

18 October 2017 Ruling 173963r

a provincial professional association did not collect fees from members as agent for the national professional association

A provincial professional association (the “Association”) was itself a member of a national professional association (the “Society”). CRA found that member fees paid to the Association were not exempted under ETA Sched. V, Pt VI, s. 18 since membership in the Association is required to maintain a professional status recognized by statute. It noted that persons could offer similar services in the province in question without being a member of the Association.

In rejecting the Association’s submission that it collected its fees as Society membership dues as agent for the Society notwithstanding a statement in the Society’s by-laws that: “On behalf of the Society membership, […] [Districts, such as the Association,] shall pay to the Society an annual fee based on a per capita rate for each of its […] Members,” CRA confirmed its statements in a previous ruling letter to the Association that:

[T]he bylaws of the [Society] provide no liability to the individual members to pay membership dues to [Society]. In particular, pursuant to section […] of the [Society]’s bylaws, the [District] organizations have the obligation to pay an annual fee to the [Society]. Although the amount of this fee is calculated based on the number of individual members, the individual members are not liable to pay this fee to the [Society]. … Therefore, the value of the consideration for [the Association]’s supplies of memberships is the entire amount charged by [the Association] to the individual members.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 18 members of the profession did not require membership in the Association to provide their services 218

25 February 2016 CBA Roundtable, Q. 7

dentist handles source deductions and payroll as agent for colleagues

A group of dentists, who are not in partnership, wish to share the costs of staff such as receptionists and bookkeepers and also are shared employers of the staff, so that all of the staff remuneration paid by each dentist is exempted from GST/HST as a result of being paid qua employer. CRA indicated that it can accept such an arrangement as being valid notwithstanding that all of the source deductions are handled on the payroll account of only one of the dentists, who does the remittances, and source deduction and T4 reporting, as agent for the other dentists as well as on her own behalf – and also pays the staff remuneration as agent and is reimbursed on a pro rata basis by the other dentists.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 96 arrangement for sharing employees not a partnership in Quebec or ROC 234
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) joint responsibility of joint employers 434
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service dentists jointly employ staff so as to avoid GST 296
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Taxable Supply dentists jointly employ staff so as to avoid GST 203

14 October 2016 Interpretation 170549

co-owners required to report pro rata portions of sale made by their agent

ACo and BCo, which were co-tenants of a property in construction held through a Nominee, signed an agency agreement in which Nominee was designated as the agent of ACo and BCo and which provided that the Nominee was the authorized agent and representative of ACo and BCo including for the claiming of input tax credits – and the Nominee made such claims prior to the end of the period of administrative tolerance expressed in GST/HST Notice 284. In rejecting this approach, CRA stated:

[I]t is the principal who is entitled to claim any input tax credits on the supplies acquired by the agent on behalf of the principal. … The statement in the agency agreement stating that the Nominee will claim ITCs on inputs purchased in its capacity as agent does not extinguish ACo and BCo’s potential right to claim the ITCs under the ETA, nor does it result in the Nominee being entitled to claim ITCs.

Respecting a proposed sale of the property by the Nominee, ACo and BCo would each be required to report their pro rata portion of the GST/HJST collectible on the sale in accordance with the same agency principles.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 273 - Subsection 273(1) Westcan test for JV, co-tenancy was JV 93
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(3) - Paragraph 240(3)(a) nominee accepted as registrant 156
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) agent could not claim ITCs 157

GST/HST Notice 284 "Bare Trusts, Nominee Corporations and Joint Ventures" February 2014

acquisitions of agent those of principal

After noting that "a trustee of a bare trust, for example, a nominee corporation, may act as an agent of the participants in a joint venture by performing certain activities on their behalf," CRA stated:

Generally, an agent is considered to be an extension of the principal and makes or acquires supplies on behalf of the principal who for GST/HST purposes is considered to have made or acquired the supplies. Therefore, it is the principal that is generally required to charge and account for the tax on the supplies made by the agent…[and] who is entitled to claim any input tax credits on the supplies acquired by the agent on behalf of the principal.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 177 - Subsection 177(1.1) agent not entitled to ITCs 113
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(3) - Paragraph 240(3)(a) taxable supply of nominee services 63
Tax Topics - Excise Tax Act - Section 273 - Subsection 273(1) administrative tolerance for nominee operators 197

3 January 2014 External T.I. 2013-0507541E5 F - Crowdfunding

whether a crowdfunding contribution is on-paid to a charity as agent for the contributor

The correspondent indicated that where a crowdfunding arrangement represent a gift by the contributor, there was an agency relationship between the contributor and the business soliciting the funds, with the latter acting as an intermediary between the contributor and the recipient of the funds raised and suggested that if the recipient of the funds was a registered charity, the contributor could receive a credit under s. 118.1(3). CRA responded:

[T]he CRA is willing to recognize an agency relationship for tax purposes to the extent that certain conditions are met, which are:

1. the relationship between the parties is legally that of principal-agent; this implies, inter alia, that the transactions relating to the agency are effective and complete in legal terms;

2. this relationship stems from a prior formal agreement and does not constitute an ex post facto arrangement;

3. this relationship does not contravene any legislation;

4. this relationship is not a sham;

5. this relationship is disclosed to the CRA and the relevant documents are forwarded to the CRA at the appropriate time;

6. the facts relating to a given situation corroborate the existence of the principal-agent relationship between the persons concerned.

15 May 2012 Ruling Case No. 142436

parent bearing payroll and source deductions for itself and subs

A parent corporation, which for source deduction purposes was treated as the employer of employees, was accepted for GST purposes as incurring part of the payroll as agent for subsidiaries, so that reimbursement payments received by it from the subsidiaries were not consideration for taxable supplies.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service - Paragraph (c) employees with one source-deduction account with parent treated as jointly-employed for GST purposes 244
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply employees with one source-deduction account with parent treated as jointly-employed for GST purposes 181

Interpretation Revenu Québec TVQ. 16-30/R1 "Nominee Agreements" 9 December 2011

2. A nominee agreement is a mandate by which the mandatary acts on behalf of the mandator, but gives the appearance of acting in the mandatary's own name. A nominee agreement is a lawful form of the contract of mandate.

3. Any person may hold property for another under a nominee agreement. To be valid, the agreement must have been entered into on or before the acquisition of the property and must comply with the mandate provisions of the C.C.Q. Furthermore, in order for a nominee agreement to be recognized for tax purposes, the mandator and the mandatary must disclose the existence of the agreement and reveal its content to Revenu Québec.

11. Where a nominee is entrusted with the management of an immovable by its owner and empowered to represent the owner for the purposes of entering into leases and collecting rents, which are juridical acts,

supplies of immovables made by way of lease through the nominee are considered to have been made by the owner of the immovable.

GST/HST Info Sheet GI-012, Agents, November 2005

Essential qualities of agency

The three essential qualities are:

  • consent of both the principal and the agent;
  • authority of the agent to affect the principal's legal position; and
  • the principal's control of the agent's actions. …

Authority of agent to bind principal

When a person is acting as agent in making a transaction on behalf of a principal, the principal will generally authorize the agent to do something on the principal's behalf. …

When a person is acting as agent in making a transaction on behalf of a principal, the agent will have the ability to affect the principal's legal position. The most common example of this is where the agent is authorized to enter into contracts with third parties on the principal's behalf. …

[G]iving authority to a person to bind another person in a contract could indicate that a person is acting as agent in making a transaction on behalf of a principal. If the authority to bind another person is not mentioned, this authority may be implied from the presence of the two other essential qualities.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 177 - Subsection 177(1) 237

25 February 2005 Ruling Case No. 51031

Ruling that a company was acting as agent for the non-registrant estates in making estate sales, so that it was required to collect GST on the goods sold.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 177 - Subsection 177(1) 28

10 January 2001 External T.I. 2000-0056135

source deductions made by agent on employer's behalf

A third-party service provider was accepted as making benefits payments to relocated employees on behalf of the employer (the Government of Canada) so that the source deductions made by it (where the GOC itself did not report and remit the surce deductions) fulfilled the GOC's obligations.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) agent may fulfill employer's source deduction obligations 139

16 April 1997 Memorandum 970571

Discussion of criteria for determining whether a corporation is the beneficial owner of property or holds the property as an agent.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership 21

4 April 1995 External T.I. 5-950698 -

"Except for unusual circumstances, the Department recognizes that for purposes of the Income Tax Act, all the transactions of an agent made on behalf of a principal are the transactions of the principal where there is an agency relationship under the common or civil law and the agency relationship, the agent and the principal are disclosed to the Department."

GST/HST Technical Information Bulletin B-068 "Bare Trusts" Amended 10 January 2005

....if a trustee performs functions in addition to holding bare legal title, but does so strictly on the instructions of the beneficial owners without any discretionary powers and is acting as an agent, the trust may still be a bare trust. For example, the bare trustee may perform property management functions such as leasing commercial property to tenants specified by and for the account of the beneficial owner.

On the other hand, where a person acts under a duty to manage and/or dispose of the trust property, and the person has independent or discretionary power or responsibility to do so, the Department considers this person to be acting as a trustee of the trust and not as an agent of the beneficial owner.

...[I]t is necessary to examine the nature of the duties contemplated by the trust to determine whether the principles of agency rather than the principles of trust apply....Where no [trust] documents exist, but property is nevertheless held in trust, the Department will generally take the view that the principles of trust rather than agency apply. However, it will consider surrounding circumstances....

[T]he Department considers that a trust and agency relationship may co-exist in certain situations. Consequently, some duties of the trustee may be performed as trustee, others as agent.

P-182R - "Agency" July 2003-016 - "Acting as an Agent", dated 3 April 1992

The essential qualities of an agency relationship are as follows:

1. Consent of both the principal and the agent; 2. Authority of the agent to affect the principal's legal position; and 3. The principal's control of the agent's actions....

"In considering whether a relationship is an agency relationship, it should be evident that the purported agent is arranging transactions for the principal and is not trading on its own account;" and conversely, it should be evident that the principal has empowered the agent to act or enter into contracts on its behalf. In some instances, the principal's control of the agent's actions may be limited to ensuring that the agent remains within the scope of the mandate and acts in a competent manner. An agent usually does not assume the risk of loss from a transaction with a third party. Remuneration of an agent generally takes the form of a set fee, commission or hourly fee.

IT-216 "Corporation Holding Property as Agent for Shareholder"

Articles

Emmanuel Sala, Judith Lemieux, "The Impact of Quebec Civil Law on the Recognition of Mandator-Mandatary Relationships by Quebec and Canadian Tax Authorities", Tax Topics (Wolters Kluwer), No. 2375, 14 November 2017, p. 1

Element of the acceptance of the Mandatary (p. 3)

The Quebec civil law notion of a mandate is described in the chapter on Mandates in the CCQ.

It is essential for the mandatary to accept his or her function as such. [F.n. 12: CCQ, s. 2130] This acceptance can be explicit or tacit, and can also be inferred from the facts, his or her conduct, or even his or her silence. [F.n. 13: CCQ, s. 2132]

Element of representation (p. 3)

Representation can be characterized by circumstances where "a person, the representative, performs an act in the name, in the place of and on behalf of another person, the represented person. [...] The effect of representation is to make the representative the creditor or debtor, as the case may be, of the third party with whom the representative has entered into a relationship" [unofficial translation]. [F.n. 14: Hubert Reid, "Représentation" in Dictionnaire de droit québécois et canadien (Wilson & Lafleur, 5th edition), 872.]

The concept of representation is at the very core of the mandate contract, since the purpose of this relationship is to enable the mandatary to act for and on behalf of the mandator. Thus, the power of representation implies that "the mandatary has the right and the power to create, modify or extinguish obligations for the mandator towards third parties". [F.n. 15: Canaque International construction inc. v. James Richardson International (Quebec) Ltd., 2000 CanLII 3786 at para 19 (QC CA).] Concretely, although it is the mandatary who is more active and who takes the steps necessary for the conclusion of juridical acts, it is nevertheless the mandator, with a rather passive role, who is bound by the actions of the latter. [F.n. 16: Pierre-Basile Mignault, Droit civil canadien, vol. 8, (Montreal: Wilson & Lafleur, 1909), 4.]

Representation allows for the distinction between a mandatary and a trustee, a manager, a liquidator, etc. These latter functions do not involve acting in the name of another individual to carry out their role.

Comparison of Criteria in P-182R with Tests for Mandate (p. 4)

The CRA's first criterion of consent is present in both the common law concept of agency and the civil law concept of mandate. The common law principles refer to the notion of consent, whereas the CCQ refers to the notion of acceptance. In the Statement, the CRA partly reproduces the wording of article 2130 of the CCQ, which provides that the mandate is formed by the mandatary's acceptance of his or her function.

The CRA's second criterion of authority to affect the legal position of the principal/mandator may be partially equated with the condition laid out in article 2130 of the CCQ, whereby the mandatary must represent the mandator in the performance of juridical acts with third parties.

The CRA's third essential criterion of control by the mandator, as well as the additional indicators relating to fiduciary relationship, remuneration, and best efforts, to name a few, are elements that are exclusive to the common law notion of agency and should not fall under the Quebec civil law concept of mandate.

Brent Murray, "Cost-Sharing, Agency & Resupply Agreements: the When and the Why", Canadian GST/HST Monitor (Wolters Kluwer), No. 329, February 2016, p.1

In-house insurance not exempted if not provided as agent for insurer (pp. 3-4)

With the exception of accident and sickness insurance, the supply of insurance is considered a financial service only in situations where the insurance is provided by an insurer. Accordingly, in situations where a non-licensed insurer is involved in providing or procuring insurance, the GST/HST implications may be different depending on whether the intermediary is acting as an agent of the insured or whether the intermediary is acting as principal in acquiring the insurance and resupplying the benefits of the insurance coverage to the insured….

Vanex Truck Service held that GST/HST was collectible on fleet insurance that was acquired from an insurer and provided by a trucking company to its independent truck drivers; whereas…Libra Transport…held that GST/HST was not collectible as…the trucking company was acting as agent for its subcontractors in obtaining insurance. In a GST/HST Interpretation letter dated August 28, 2003… amounts charged by an automobile leasing company to a lessee for optional life insurance [were] subject to GST HST unless the lessor was acting as agent for the lessee in obtaining the insurance.

Potential loss of ITCs where s. 150 election and where premises are subleased by FI to commercial-activities sub rather than provided as agent of 3rd-party (p.4)

[I]n situations where GST/HST is paid on third party expenses that are going to be resupplied would have been entitled to claim an ITC, there can be additional GST/HST costs resulting from the [s.150] election for example, if a bank leases office space that it will be subleasing to a closely related asset manager, unrecoverable GST/HST will be paid by the bank on the portion of the premises that are being used by the asset manager in a commercial activity. This GST/HST expense could be eliminated by having the bank act as agent of the asset manager when it contracts with third party supplies including the landlord as an agency arrangement will result in the asset manager being the recipient of the supplies that are made by the landlord.

Documenting that parent has incurred GST to supply management services to sub (p. 4)

[I]n order to support the parent corporation's entitlement to claim ITCs on expenses that are incurred in relation to the operations of the underlying operating entities and the provision of management and administrative services to the operating entities, it is beneficial for the parties to enter into a Master Services Agreement to document the fact that the parent corporation is in fact providing various services to the underlying entities for consideration including management services and advisory services.

Bare trustee acquiring services as agent for JV participants including operator (p.4)

[T]he participants in a number of real estate projects may not want to disclose the identity of any of the participants including the participant that has been designated as the [s. 273] operator.…[H]aving the operator appoint the bare trustee as its agent to enter into contracts to procure property and services at the direction of the operator has become fairly common.

Employing as agent to avoid interco GST (pp. 4-5)34

As [per]… Key Property…a person may act as the agent of another person in remunerating employees so as to result in GST/HST not being payable on the reimbursement of employee salaries….[I]n…142436… CRA confirmed that various employees may be jointly employed by three related corporations so as to result in no GST/HST being collectible on the reimbursement of salaries.

A joint employment arrangement is an agency type of arrangement where one person agrees to act as principal and as agent for the other employers with respect to employing and remunerating various employees. Such arrangements are more common in situations where the respective employers are involved in exempt activities (e.g., owners of residential apartment buildings and suppliers of healthcare services) and they cannot make the section 150 election.

Preservation of exempt status of MFT redemption charge where paid to manager as agent for redeeming unitholder (p. 5)

Paragraph (q) of the definition of a "financial service" has the general effect of imposing tax on most payments from an investment plan [etc.]…to a person that provides management or administrative services to the investment plan. In situations where an investor redeems units in a mutual fund, the investor is sometimes liable to pay an exempt redemption fee to the asset manager. Instead of having the investors receive the entire proceeds that are earned from the disposition of their units and separately paying the manager the applicable redemption fees, the two payments are generally short-circuited, with the mutual fund paying the redemption fee directly to the manager on behalf of the investor. In situations where the fund is paying the redemption fees as agent for the investor, the exempt status of the redemption fee is preserved.

Provision of out-sourced services on government’s behalf (p. 5)

[I]f the person providing the [out-sourced government] service is providing the service as agent for a public sector body then the exemptions may apply so as to result in no GST/HST being collectible on the service provided to the customer. In this arrangement, however, the service provider would generally be considered to be providing a taxable management service to the government entity that it is providing the services on behalf of [as] for example [in]…Thompson Trailbreakers Snowmobile Club.. and… Meadow Lake Swimming Pool… .

John G. Bassindale, Robert G. Kreklewetz, "Undisclosed Agency Questioned", Canadian Tax Highlights", Vol. 22, No.7, July 2014, p.4

[T]he SCC has said that generally in contracts with third parties, the undisclosed principal "has the same rights and liabilities under the contract whether he or she was disclosed to the third party and despite the fact that his or her name did not appear on the face of the contract" (Friedmann Equity Developments Inc. v. Final Note Ltd., 2000 SCC 34).

Ewens, "Risk of Challenge Based on Allegation of Agency", Corporate Structures and Groups, Vol. IV, No. 1, 1996, p. 184.

Bies, "Agency and Canadian Income Tax Law", 1982 Conference Report, p. 927.

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