Cases
Kufsky v. Canada, 2022 FCA 66
A shareholder loan balance that was owing by the taxpayer was eliminated through dividend declarations backdated to the three preceding years and paid by way of set-off. CRA accepted amendments to the taxpayers’ returns to those years to add the dividend amounts, so that she thereby avoided income inclusions (and higher interest assessments) pursuant to s. 15(2).
Webb JA found that the taxpayer was estopped from now arguing that the amounts that she had treated as dividends in fact were not dividends (so that s. 160 did not apply to their payment) - because the appropriate procedures for the declaration and payment of the amounts as dividends were not followed and because s. 38(3) of the OBCA prohibited the payment of a dividend by an insolvent corporation – on the basis of the application of the principle that:
[A] taxpayer who has benefited from having an amount included in his or her income as a dividend in a particular taxation year (and who has not objected to the assessment of tax based on having received this dividend) is estopped from claiming in any subsequent appeal related to the application of section 160 of the Act, that the previous filing position was wrong. (para. 62)
In her minority concurring reasons, Monaghan JA was “not certain” that estoppel applied to preclude the taxpayer from arguing that she had not received dividends, and instead found that s. 160 applied on the basis that the taxpayer had not made out a prima facie case that the dividends had not been paid - and noted (at para. 82) that “[w]hile a breach of the solvency test may be unwise, and have consequences for the directors, shareholders or corporation, that does not mean a dividend was not declared and paid.”
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) | per majority, taxpayer estopped from arguing that she had not received a dividend when she had already pocketed at tax benefit from submitting the contrary | 552 |
Tax Topics - General Concepts - Fair Market Value - Other | property transfer amount not determined net of income taxes | 76 |
Tax Topics - General Concepts - Estoppel | a taxpayer received dividends for s. 160 purposes where she was estopped from arguing otherwise or because the corporate insolvency did not matter | 307 |
Tax Topics - General Concepts - Onus | prima facie case requires a balance of probabilities | 237 |
Tax Topics - General Concepts - Payment & Receipt | dividend was paid by way of retroactive set-off against shareholder loan account | 174 |
Canada v. Raposo, 2019 FCA 208
The taxpayer and the three other members of the “Raposo clan” were involved in the sale of cocaine in the Gatineau area. The taxpayer ultimately pleaded guilty to trafficking charges but, in connection with sentencing, asserted that his involvement was quite limited and that he did not share in the profits.
In this subsequent GST action, the Crown took the position that, as a member of a partnership, the taxpayer was solidarily liable under ETA s. 272.1(5) for uncollected GST on the cocaine sales. It took the position that in order for there to be a partnership, it was sufficient for the elements of the definition of a contract of partnership in Art. 2186 of the Civil Code to be satisfied, and that it did not matter that Art. 1413 provided: “A contract whose object is prohibited by law or contrary to public order is null."
In rejecting this position, Montigny JA stated (at paras. 36-37, TaxInterpretations translation):
[A] contract whose object is contrary to public order is not only unenforceable, it is legally nonexistent…. . [I]t is difficult to see how the requirement for a lawful object, as set out in Articles 1413 to 1422 of the CCQ, could not be considered to be an essential condition for any contract, including a contract of partnership. …
[T]he contention of the appellant could lead to absurd consequences. Consider the situation where the tax authorities have assessed a taxpayer solidarily for the entirety of a tax debt resulting from the commercial activities of a criminal organization to which the taxpayer belonged. Everything suggests that, given the illegality of those activities, the taxpayer would not have any recourse in such a case to reclaiming, from the co-debtors, their respective portion of the total debt before a civil court.
In also rejecting a submission of the Crown that principles of tax equity and neutrality overrode the principle of “complementarity” set out in s. 8.1, so that Art. 1413 of the CCQ should not apply for purposes of s. 272.1(5) of the federal statute, Montigny JA noted that under s. 3(1) of the Interpretation Act, a “contrary intention” was all that was required to oust the general interpretive rules of that Act. S. 8.1, by contrast, referred to ouster only “by law.” However, in contrast to a broadly drafted provision such as ITA s. 160 or ETA s. 325, which through using the broad term “transfer” rather than “sale,” “the legislator was assured that any activity, lawful or not, was covered” it “did not do the same in section 272.1” (para. 56).
Similarly, he stated (at para. 55):
[T]here is no doubt that broad expressions such as “taxable supply” and “commercial activity” … must be interpreted irrespective of considerations of lawfulness, public order or morality. That among other things is the reason that income derived from prostitution or the sale of drugs are taxable … .
Locations of other summaries | Wordcount | |
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Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 | presumption of complementarity in s. 8.1 must be overridden by expansive wording in the ETA provision in question | 296 |
Tax Topics - Excise Tax Act - Section 272.1 - Subsection 272.1(5) | s. 272.1(5) did not apply to debt of a partnership that was void for carrying on an illicit activity | 332 |
Tax Topics - Income Tax Act - Section 96 | Civil Code and common law elements of partnership are similar | 96 |
Le Groupe PPP Ltée v. The Queen, 2017 TCC 2, briefly aff'd 2018 FCA 123
A Quebec company (“PPP”) through car dealers offered motor vehicle replacement “warranties,” which, in the event of the loss of the vehicle through accident or theft, would cover the difference between the depreciated value of the vehicle (which was covered by the regular insurer) and the cost of a new replacement vehicle.
PPP was unsuccessful in its contention that it was entitled to input tax credits under s. 175.1 in respect of the ‘warranty” claims paid by it. Among other considerations, after October 1, 2010, anyone in Quebec wishing to issue an insurance product was required to hold an insurer's licence. In rejecting a PPP argument that its not being licensed established that the warranty was not an insurance policy (so that the stated exclusion in s. 175.1 for an insurance policy did not apply), Tardif J stated (at para. 43, TaxInterpretations translation):
[I]t is not a permit, licence or accreditation which defines the nature of the work executed, but rather the facts and tangible acts and actual performance. …
[I]n civil law, it is quite possible to have an insurance contract without having a qualified or accredited insurer. The nature and purpose of the contract is in no way affected.
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Section 175.1 | “warranties” funding the incremental cost of a new vehicle after complete loss of old vehicle likely were insurance policies and were not re quality, fitness or performance | 345 |
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) | payer of auto “warranty” claim did not benefit from the auto supply | 277 |
Durocher v. Canada, 2016 CAF 299
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. Noël CJ affirmed the finding of Rip J below that a mere option did not violate such Act. The effect of finding the option to be valid is that the Opco did not qualify as a Canadian-controlled private corporation, so that capital gains deductions claimed at a higher level in the structure were properly denied.
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. The Queen, 2016 TCC 137, paras. 7-21 where the TCC was confronted with a similar problem in the context of litigation arising in a common law province… .)
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b) | option valid notwthstanding that its exercise in full by holder would be illegal | 333 |
Tax Topics - Statutory Interpretation - Interpretation Act - Section 8.1 | Tax Court can review validity of contract in reviewing assessment | 137 |
Hôpital Santa Cabrini v. Canada, 2016 FCA 207
The appellant (the “Hospital”), which had a shortage of nurses on staff and contracted with three independent personnel-services agencies (the “Agencies”) for the services of nurses employed by them, sought a refund of the GST and QST charged by the Agencies on the ground that such services were for the supply of nursing services under Sched. V, Pt II, s. 6. Before instead finding that the Agencies were providing taxable placement services rather than (patient) nursing care, Boivin JA noted (at para. 22, TaxInterpretations translation) that under the Quebec Occupational Health and Safety Act “a hospital cannot delegate the control of care services to a placement agency… .”
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Schedules - Schedule V - Part II - Section 6 | a hospital which contracted for the services of nurses employed by a personnel-services agency was receiving a taxable supply | 231 |
Tax Topics - Income Tax Act - Section 180 - Subsection 180(3) | contractual interpretation question subject to Housen standard | 60 |
Livent Inc. v. Deloitte & Touche, 128 OR (3d) 225, 2016 ONCA 11, rev'd in part 2017 SCC 63
Deloitte was unsuccessful in arguing that it was not liable to the receiver for a public company (Livent), for failure to detect the fraudulent misstatement of Livent’s financial statements, because it was the most senior management of Livent who were proactively engaged in the fraud, so that effectively Livent was suing Deloitte for Livent’s own fraud. Blair JA quoted with approval a statement by Lord Mance in Stone Rolls Ltd., [2009] UKHL 39 (at para. 241) that “[i]t would lame the very concept of an audit” if the auditor could “defeat a claim for breach of duty in failing to detect managerial fraud at the company’s highest level by attributing to the company the very fraud which the auditor should have detected.”
Locations of other summaries | Wordcount | |
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Tax Topics - General Concepts - Negligence, Fiduciary Duty and Fault | auditors liable for failure to detect the company’s own fraud effected through its senior management | 245 |
Hedges v. Canada, 2016 FCA 19
The zero-rating of controlled drugs in Sched. VI, Part I, s. 2(d) would apply to dried marihuana if it is viewed as a drug which may only be sold to a consumer under an "exemption" from Health Canada. After noting the Crown’s concession that marihuana is a “drug,” Rennie JA found that "Authorizations to Possess" (ATPs) issued by Health Canada were not such exemptions, so that marihuana did not come within this carve-out for drugs which could be sold only with an exemption.
The appellant before him was an unlicensed and illegal producer. Before so concluding that its sales were not exempted, he stated (at para. 24):
It would be illogical to tax a drug that may be lawfully sold to a consumer, (i.e., all the drugs captured by the carve out) but to exempt from taxation a drug that is not lawfully sold.
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part I - Section 2 | authorizations to possess marihuana were not sale exemptions | 232 |
Tax Topics - Statutory Interpretation - Headings | heading did not contemplate illegal drugs | 100 |
Envision Credit Union v. Canada, 2013 DTC 5144 [at at 6275], 2013 SCC 48, [2013] 3 S.C.R. 191
The taxpayer ("Envision") was formed on the amalgamation under the Credit Union Incorporation Act (B.C.) (the "CUIA") of two credit unions. S. 23(b) thereof provided that "the amalgamated credit union is seized of and holds and possesses all the property ... and is subject to all the debts ... of each amalgamating credit union."
The taxpayer sought to avoid having this qualify as an amalgamation described in s. 87(1) of the Act (which required that all property of the predecessors, other than intercompany shares or debts, become property of the amalgamated corporation). To this end, a beneficial interest in some "surplus" real estate was conveyed to a numbered corporation subsidiary at the exact stipulated time for the amalgamation in the amalgamation agreement.
In finding that the taxpayers had failed to avoid the application of s. 87(1), Rothstein J stated (at para. 56):
Although there is extrinsic evidence that the predecessors intended to prevent Envision from being seized of the surplus properties, such an arrangement would be in violation of s. 23(b) of the CUIA. When a contract may be construed in two ways, a lawful interpretation ought to be preferred over an unlawful one: G. McMeel, The Construction of Contracts: Interpretation, Implication, and Rectification (2nd ed. 2011), at para. 7.31. Accordingly, the words of the contract (as opposed to the intention of the parties with respect to tax consequences) are best interpreted as merely ensuring that the surplus properties were sold at the time of the amalgamation. This interpretation is consistent with s. 23(b) of the CUIA. As a result, the amalgamation agreement is not invalid.
Locations of other summaries | Wordcount | |
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Tax Topics - General Concepts - Separate Existence | shareholders do not own the corporation's assets | 135 |
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) | all predecessors' property became Amalco property, and purported conveyance of only some of their property to Amalco was legally impossible | 415 |
Richstone v. MNR, 72 DTC 6232, [1972] CTC 265 (FCTD), briefly aff'd 74 DTC 6129 (FCA)
In rejecting an argument that a payment for a non-compete covenant was not taxable under what now is s. 6(3)(d) because the covenant was unforceable, Collier J. stated (at p. 6238):
"That, however, does not solve the problem for the purposes of the section of the Income Tax Act in question. The covenant is a subsisting one: no one has yet challenged it and until that is done it is binding on the parties."
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) - Paragraph 6(3)(e) | 72 | |
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) | 210 |
Continental Bank Leasing Corp. v. Canada, 98 DTC 6505, [1998] 2 S.C.R. 298, [1998] 4 CTC 119
There was no dispute that the participation by the taxpayer, as a partner, in a partnership for a four-day period resulted in a breach by its parent (a bank) of s. 174(2)(i) of the Bank Act, which prohibited the direct or indirect investment or participation in a partnership by a bank. The majority found that the unlawfulness of the investment by the bank and the taxpayer did not affect the legality of the partnership's business or of the taxpayer's participation in the partnership. Furthermore, considerations of public policy required that breaches of the Bank Act not lead to the invalidation of contracts and other transactions because "to unravel commercial transactions on the basis that a corporate actor breached a statute is to introduce uncertainty into the affairs of individuals and businesses" (p. 6509) and, furthermore, s. 20(1) of the Bank Act (which stated that no act of a bank was invalid by reason only that the act was contrary to the Act) supported the view that Parliament never intended breaches of the Bank Act to render bank transactions null and void.
Locations of other summaries | Wordcount | |
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Tax Topics - General Concepts - Substance | question of constructing the genuinely-reflective documents | 204 |
Tax Topics - Income Tax Act - Section 96 | 5 day partnership with tax motivation | 165 |
Tax Topics - General Concepts - Purpose/Intention | ancillary profit-producing and sharing intention was sufficient to establish partnership | 47 |
Bow River Pipe Lines Ltd. v. R., 97 DTC 5385, [1997] 3 C.T.C. 397 (FCA)
A wholly-owned subsidiary ("Lone Rock") of the taxpayer held a 99.9% limited partnership interest in a partnership between Lone Rock and a subsidiary of Lone Rock ("Newco"). Lone Rock assigned its limited partnership interest in the partnership to the taxpayer, the taxpayer on the same day caused Lone Rock to be wound up, and the following day Newco and the taxpayer signed a distribution agreement whereby the partnership assigned all its assets to the taxpayer.
The taxpayer was found not to have become a member of the partnership because the assignment of Lone Rock's limited partnership interest had not complied with provisions of the partnership agreement that required: the assignee of the interest to agree in writing to be bound by the terms of the agreement; the execution by the assignor to be guaranteed by a Canadian chartered bank; and all requisite filings as required by the Partnership Act (Alberta) to be made. There could be no finding of an implicit consent of the parties to these breaches because the partnership agreement also provided that no amendment thereto would be effective unless it had been approved by an extraordinary resolution.
Locations of other summaries | Wordcount | |
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Tax Topics - General Concepts - Transitional Provisions and Policies | 64 | |
Tax Topics - Income Tax Act - Section 96 | mere assignee of partnership interest was not a partner | 195 |
Cooper v. The Queen, 88 DTC 6525, [1989] 1 CTC 66 (FCTD)
In finding that the making of an interest-free loan by executors in breach of their duties under provincial law did not give rise to a benefit to the recipient, Rouleau, J. stated: "A well established principle of income tax law states that the illegality (if any) of actions of the taxpayer, in this case the payment to the Plaintiff in relation to the terms of the trust, is irrelevant in the assessment of tax liability."
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) | interest-free loan recognized as obligation rather than benefit | 103 |
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | interest-free loan | 114 |
Curlett v. MNR, 61 DTC 1210 (Ex Ct), briefly aff'd 62 DTC 1320, [1967] CTC 62, [1967] S.C.R. 280
The taxpayer regularly made mortgage loans at a discount and then sold them for their face amount to his company. In dealing with a submission that the mortgage discounts were not income to the taxpayer because he had an obligation, as a director of his company, to account to that company for the profits, Dumoulin J. noted that the taxpayer "had not evinced discernible signs of being prompted by any lurking urge to discharge such a belatedly invoked obligation to refund the" company. His profits were taxable.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Debt/ receivables | 52 |
See Also
Fiducie Historia v. The King, 2024 CCI 76
A discretionary family trust, whose beneficiaries included the family patriarch (LR) and his two sons (the Rémillard Brothers), was a shareholder of a family corporation (Maybach) along with LR and the Rémillard Brothers. The proceeds of an asset sale were used by Maybach to redeem the shares held by LR and the Rémillard Brothers. However, since the trustees of the trust would thereafter all be unrelated individuals, this would have caused an acquisition of control of Maybach-group companies and an extinguishing of losses. To avoid this result, the trustees entered into an agreement with the Rémillard Brothers providing:
The Trustees hereby undertake to exercise their powers … according to the directives provided by the Brothers and to make no decision regarding the Historia Trust without first obtaining the agreement of the Rémillard Brothers. …
If the Trustees or any of them disagree with the directives received from the Rémillard Brothers, they must then resign … .
The trust then paid distributions of over $50 million to LR that were authorized by the Rémillard Brothers.
Article 1275 of the Civil Code of Quebec (the CCQ) provided:
The … beneficiary may be a trustee but he shall act jointly with a trustee who is neither the settlor nor a beneficiary.
CRA considered that the above agreement had the effect of constituting the Rémillard Brothers as de facto trustees of the trust, contrary to the trust deed and Art. 1275, so that the determinations to make the distributions pursuant to such unlawful agreement were a nullity, with the result that the distribution amounts were not “payable” as required by s. 104(6).
Smith J found (at paras. 83, 104, TaxInterpretations translation), in light of the testimony, that the independent trustees, although consulting with the Rémillard Brothers, had in fact been making the trust decisions:
Even if clauses 2.1 and 2.2 of the Agreement were contrary to the trust deed and Article 1275 of the CCQ … the Court concludes based on the preponderance of the evidence submitted that the Rémillard brothers did not act as trustees or “de facto trustees.” …
[D]espite the Agreement, the Rémillard brothers did not, in fact, usurp the trustees' powers.
Accordingly, the distributions were not unlawful, and had been payable.
Smith J went on to find that, even if there had been a contravention of Art. 1275, this rendered the distributions only voidable (“nullité relative”) and not void, so that the Minister had no standing to challenge their validity.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) - Paragraph 104(6)(b) | trust distributions were lawful and deductible even though on paper the trustees had improperly delegated their powers | 554 |
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) | amounts that in fact had been paid were not deemed to have been payable notwithstanding any illegality | 152 |
Raposo v. The Queen, 2018 CCI 81, aff'd 2019 CAF 208
The taxpayer and the three other members of the “Raposo clan” were involved in the sale of cocaine in the Gatineau area. The Crown took the position that, as a member of a partnership, the taxpayer was solidarily liable under ETA s. 272.1(5) for uncollected GST on the cocaine sales.
In rejecting this position, Paris J referred to Article 1417 of the Civil Code (“A contract is absolutely null where the condition of formation sanctioned by its nullity is necessary for the protection of the general interest”), and stated (at paras. 26, 34, TaxInterpretations translation):
On numerous occasions, the jurisprudence has reiterated that a purpose which is contrary to the public order and which contravenes a penal provision, in the current case, of the Criminal Code, engages the absolute nullity of the contract in accordance with Article 1417 … .
It therefore follows that under Quebec law the Raposo clan did not constitute a partnership.
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Section 272.1 - Subsection 272.1(5) | alleged partnership was void as having an illegal purpose contrary to public policy | 153 |
Tax Topics - Income Tax Act - Section 96 | illegality of partnership business voided the partnership | 137 |
Uber Canada Inc. v. ARQ, 2016 QCCS 2158, aff'd 2016 QCCA 1303
The ARQ obtained a search warrant for searching an Uber Canada office in Montreal. In order to be granted the search warrant, the ARQ employee laying the information was required to have reasonable grounds to believe that Uber Canada was committing an offence. The search warrant was granted inter alia on what were found to be reasonable grounds that Uber Canada was aiding the drivers in committing the offence of wilfully evading the collection of QST by virtue of its system for collecting the customer fares through the customers’ credit cards not treating those fares as being subject to QST (or GST).
Cournoyer JCS, in his capacity of judge reviewing the validity of the search warrant after it had been granted and executed, rejected an Uber Canada challenge to this ground, on the basis of the failure of the information to disclose to the granting judge that many of the drivers could be small suppliers. Under s. 407.1 of the Quebec Sales Tax Act (similar to s. 240(1.1) of the ETA), a small supplier who carried on a taxi business was required to register, and the Quebec Act respecting transportation services by taxi required the registration of the Uber drivers’ cars as taxis. He stated (at para. 207, TI translation):
One cannot claim that one escapes the application of a law on the basis of one’s own delinquence.
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1.1) | Uber drivers, as operators of “taxi” businesses, likely were required to register for QST | 284 |
Tax Topics - Income Tax Act - Section 231.3 - Subsection 231.3(3) | it was reasonable for ARQ on a search to seize smart phones and laptops to make subsequent complete copies | 440 |
Tax Topics - Other Legislation/Constitution - Charter (Constitution Act, 1982) - Section 8 | seizure of computers containing personal information was the only practicable approach | 142 |
Durocher v. The Queen, 2016 DTC 1013 [at 2584], 2015 TCC 297, aff'd 2016 CFA 299
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 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 or related persons acquiring greater than a 20% stake in the company. Rip J found that the option itself did not violate the statute and that, even if it did, a provision in the Civil Code apparently stipulating nullity of an illegal contract should not be applied where a regulatory body (here, the AMF) was accorded responsibility for sanctioning breaches of the statute - and, in any event, Quebec jurisprudence indicated that the absolute nullity sanction should be applied “with restraint and diligence.”
As the option was valid, the corporation in question was not a CCPC, so that subsequent sale of shares in a grandparent corporation by individuals did not qualify for the capital gains exemption.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Canadian-Controlled Private Corporation | potential illegality of an option to acquire control of a private corporation did not nullify the option, so that the corporation was not a CCPC | 447 |
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Small Business Corporation Share | potential illegality of 3rd-party option to acquire control of a subsidiary corporation did not nullify the option, so that the subsidiary was not a CCPC | 201 |
McLarty v. The Queen, 2014 DTC 1162 [at 3556], 2014 TCC 30
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 (totaling 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 | |
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Tax Topics - General Concepts - Agency | participations contrary to agreement were disregarded | 111 |
Tax Topics - General Concepts - Sham | sham cannot apply to just part of transaction | 145 |
Tax Topics - General Concepts - Tax Avoidance | sham cannot apply to just part of transaction | 145 |
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | revenues 10% of interest | 186 |
Tax Topics - Income Tax Act - Section 67 | leveraged purchase of seismic data at arm's length was presumptively reasonable | 296 |
Coicou v. M.N.R., 2008 TCC 628
Archambault J relied on Art. 1413 of the Civil Code was relied upon to find that Quebec employment contracts with immigrants without the legal right to work in Canada were invalid and not “contracts of employment” for the purpose of EI eligibility (so that the appellant was not entitled to EI benefits), stating (at para. 45):
Although this sanction might appear excessive or disproportionate in relation to the consequences of working in Canada without a work permit (which Mr. Coicou could easily have obtained) it is not within the courts' power to amend the Civil Code in order to adopt a scheme of sanctions different from the one enacted by the legislator. It is clear that the courts in common law provinces have the necessary latitude to adopt fairer sanctions, for there, contrary to the situation in Quebec, the doctrine of illegality is a creature of the judiciary, not a creature of the legislator. Since the provisions of the Civil Code clearly set out the consequences that stem from the absence of one of the essential conditions for the existence of a contract, that is to say, an object that is neither prohibited by law nor contrary to public order, this Court has no choice but to find that the sanction decided by the legislator, namely the nullity of the contract, must apply.
Richter & Associates Inc v. The Queen, 2005 TCC 92
In rejecting a submission that the trustee for a bankrupt company was not authorized by the Bankruptcy and Insolvency Act to engage in a "litigation support business" of providing assistance to most of the creditors in connection with their action sounding in negligence against company's former auditors, C&L for $800 million in damages, Archambault J stated (at paras. 33-4):
[T]he Trustee, acting as agent for the Estate, was legally entitled to carry on the undertaking in question. … In any event, I would add that the Act is not to be applied to transactions that ought to have taken place, nor is it to be applied only to transactions that could be legally carried out. In my view, the Act ought to be applied to what has actually taken place.
See summary under s. 141.01(2).
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Business | litigation support services provided by trustee for bankrupt financial institution were an "undertaking" | 289 |
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) | allocation between costs incurred by trustee in bankruptcy for bankrupt financial institution to provide litigation services to creditors, and costs incurred in connection with its action qua trustee | 392 |
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(5) | allocation between own suit and litigation support | 77 |
Tax Topics - Excise Tax Act - Section 141.1 - Subsection 141.1(3) - Paragraph 141.1(3)(b) | action brought by trustee for bankrupt financial institution deemed to be not in course of commercial activity | 200 |
Tax Topics - Excise Tax Act - Section 265 - Subsection 265(1) - Paragraph 265(1)(f) | trustee's own suit and litigation support activity were related | 295 |
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Business | litigation support services provided by trustee for bankrupt financial institution were an "undertaking" | 286 |
Canada v. Libra Transport (BC) Ltd., [2001] GSTC 57, aff’d 2002 FCA 347
In the course of finding that a trucking comapny was providing insurance to trucking operators as agent rather than on its own account, 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…
Locations of other summaries | Wordcount | |
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Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply | trucker presumed not to be an unlicensed insurer | 242 |
Tax Topics - General Concepts - Agency | trucker presumed not to be an unlicensed insurer | 187 |
Wallsten v. The Queen, 2001 DTC 215 (TCC) (Informal Procedure)
The taxpayer entered into a contract with Sun Life to provide sales services as an independent contractor. The taxpayer then agreed with a company owned by him and his family ("Lakeside") that Lakeside would receive all proceeds under the contract with Sun Life. Lakeside provided all equipment and supplies for the conduct of the sales business and paid salary to the taxpayer.
Before finding that none of the income earned under the contract with Sun Life was income of the taxpayer notwithstanding a clause in the contract with Sun Life indicating that no assignment of the benefits of the contract would be made by the taxpayer, and after noting judicial authorities that "'an attempted assignment of contractual rights in breach of a contractual prohibition is ineffective to transfer such contractual rights'", Bell TCJ indicated (at p. 217) that "the issue in this appeal has nothing to do with a contractual dispute with a third party".
Bernier v. The Queen, 97 DTC 317, [1997] 1 CTC 2028 (TCC)
The taxpayer's employer issued employee stock options to the taxpayer and others. Later in the same year, the Quebec Securities Commission notified the employer that the options did not comply with the Quebec Securities Act, and the employer responded by notifying the Commission that it would treat the options that had been awarded as null and void.
In finding that the taxpayer was not entitled to any deduction under s. 110(1)(d) in respect of a lump sum she received in the following year in consideration for the waiver of her rights under the stock option, Lamarre Proulx TCJ. found that the shares subject to the option could not be prescribed shares when they could never be issued or purchased.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) | 125 |
Cox v. The Queen, 96 DTC 1690 (TCC)
The fact that a transfer of property from the taxpayer's spouse to the taxpayer was void against the trustee in bankruptcy of the spouse did not prevent the application of s. 160(1) to the taxpayer given that the proper interpretation of the Bankruptcy Act was that the trustee had to do something to render the transaction void, which did not occur.
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Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) | 64 |
Lemoine v. The Queen, 96 DTC 1655 (TCC)
A loan made by a corporation to its individual shareholder was subject to s. 15(2) notwithstanding that the Companies Act (Quebec) prohibited a loan by a company to a shareholder.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 15 - Subsection 15(2) | 82 |
Samuel Wuslich v. Minister of National Revenue, 91 DTC 704, [1991] 1 CTC 2473 (TCC)
Because the Province of Saskatchewan did not permit the taxpayer to carry on the practice of orthodontics through a corporation, income which his corporation purportedly derived from that practice was his income instead.
Locations of other summaries | Wordcount | |
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Tax Topics - Treaties - Income Tax Conventions - Article 7 | 99 |
Administrative Policy
1 November 2016 Internal T.I. 2016-0663971I7 - 104(6)(b), whether amount became payable
A family trust paid income to the minor children in breach of a prohibition in the trust deed against making distributions to designated beneficiaries. In rejecting a submission based on the statement in Cooper that “the illegality (if any) of actions of the taxpayer, in this case the payment to the Plaintiff in relation to the terms of the trust, is irrelevant in the assessment of tax liability,” CRA stated:
[T]he comments in Cooper do not extend to provide that the illegality (if any) of actions of the taxpayer may be used to obtain a tax benefit or to claim a deduction from income where such a benefit or deduction does not meet the requirements under a plain reading of the Act.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) | income that is paid to a minor beneficiary in contravention of the trust deed is non-deductible under s. 104(6) | 190 |
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) | income distributions to minor beneficiaries contrary to trust deed included under s. 105(1) | 151 |
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) | prohibited distribution from trust | 76 |
9 November 2001 External T.I. 2001-0092495 - CTF ROUND TABLE-PROFESSIONAL CORPs
Notwithstanding the Wallsten decision, the CCRA will not accept that insurance agents or realtors can transfer their commission income to a corporation if they are legally prohibited from doing so by third parties.
Locations of other summaries | Wordcount | |
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Tax Topics - General Concepts - Tax Avoidance | 37 |
17 October 2011 External T.I. 2011-0423361E5 F - Loi sur le courtage immobilier
The Quebec Real Estate Brokerage Act (the “REBA”) requires that a real estate or mortgage broker carrying on brokerage activities on behalf of an agency carry on the brokerage activities through a corporation that the broker controls, in which case, the REBA provides that the remuneration for such services belongs to the corporation.
In confirming this treatment, CRA stated:
[I]f professionals are legally, whether contractually or by statute, precluded from assigning their commissions to a corporation, then the commission income must be reported by the professionals, and cannot be reported through a corporation, regardless of the documentation provided.
However … if the activities of a real estate or mortgage broker under the REBA … can be lawfully exercised through a corporation - which appears to be the case here - remuneration for the activities of the broker will be taxable in the hands of that corporation.
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Tax Topics - Income Tax Act - Section 9 - Nature of Income | Quebec real estate broker can generate commissions in a controlled corporation | 90 |
14 May 2002 External T.I. 2001-0105925 F - TOTALITE DES ACTIFS DE L'ENTREPRISE
A pharmacist transferred all the assets of his pharmaceutical business, including inventories of pharmaceuticals, but excluding goodwill, to a wholly-owned corporation, and subsequently transferred the goodwill to a separate new corporation (“Newco”). CCRA noted that in a study it had undertaken in 1996 regarding a similar situation, it had concluded that:
the drug inventories did not actually belong to the corporation but to the pharmacist for the following reasons:
- the Pharmacy Act [of Quebec] did not allow the corporation to purchase drugs, since the corporation was neither a drug wholesaler nor a pharmacy owner;
- invoices for drug purchases were always made out to the pharmacist;
- the inventory of drugs was probably kept in the pharmacist's dispensary at all times
However, subsequent amendments to the Pharmacy Act might possibly change this result.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(14) - Paragraph 110.6(14)(f) - Subparagraph 110.6(14)(f)(ii) - Clause 110.6(14)(f)(ii)(A) | unclear whether pharmaceuticals inventory could be transferred to a corporation owned by a pharmacist | 331 |
10 May 2001 Internal T.I. 2001-0065697 F - SOCIÉTÉ EXERCANT UNE PROFESSION LIBERALE
The Directorate referred inter alia to Wuslich as authority for its position in IT-189R2, para. 2 that:
If provincial law or the regulatory body for the profession precludes the practice of the profession by a corporation, income derived from the profession will normally be considered to be earned by the individual who rendered such professional services and not by a corporation.
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Tax Topics - Income Tax Act - Section 9 - Nature of Income | income earned by a professional corporation contrary to the professional rules is personal income of the professional | 66 |
3 April 1996 Internal T.I. 9522931I7 - RELEASE SURRENDER DISCLAIMER - INCOME INTEREST
Respecting a spousal trust that was not formally varied before assets were distributed to non-spousal beneficiaries, the Directorate indicated that the distribution could not be ignored for income tax purposes, whether or not it was made legally, i.e., a disposition should not be ignored even if the trustee had no authority to distribute.
21 March 1991 Memorandum (Tax Window, No. 1, p. 14, ¶1162)
Fishing income was earned by corporations to which fishermen had leased their fishing licences, rather than by the fishermen personally, notwithstanding that corporations are expressly prohibited by law from holding such licences. The profits from a business are the income of the person carrying on the business even if the business is being carried on illegally.
31 May 1990 T.I. (October 1990 Access Letter, ¶1489)
RC generally would be reluctant to give its assent to a transaction prohibited by the Quebec Companies Act.
Articles
Marshall Haughey, "Issuing Shares for a Promissory Note", 24 Can. Current Tax, May 2014, p. 85.
Prohibition by jurisdiction (pp. 85-6)
[I]n Saskatchewan, Manitoba, New Brunswick, and Newfoundland…a promissory note cannot be given as consideration for the issuance of shares under any circumstances.…
In Alberta, Ontario, and under the CBCA, the restriction only applies to promissory notes issued by the subscriber or a person who does not deal at arm's length with the subscriber… [A] subscriber could pay for shares with a promissory note issued by an arm's length party. …
[I]n British Columbia, the restriction only applies to "a record evidencing indebtedness of the person to whom shares are to be issued" (i.e., a promissory note issued by the subscriber)….
[N]ova Scotia and Prince Edward Island's corporate legislation contains no restriction… .
Consequences of breach: invalid share issuance (pp. 86-7)
The case law is divided on what results when shares are issued for less than adequate or no consideration. The two streams of cases can be described as the "Nullification Stream" and the "Contextual Stream" .[fn 13: For a more comprehensive discussion of the cases see Greg Johnson, "Recent Developments of Interest to Tax Practitioners", 2005 Prairie Provinces Tax Conference (Toronto: Canadian Tax Foundation, 2005), 18:1-27 at 18:4-8.] The genesis of the "Nullification Stream" can be traced to Professor Bruce Welling's commentary from his textbook Corporate Law in Canada, which was adopted by the Québec Superior Court in Javelin International Ltd. v. Hillier. [fn 15: [1988] Q.J. No. 928 (Qc. Sup. Ct.),,,] In Welling's view, the use of the phrase "shall not be issued" in s. 25(3) of the CBCA (and its provincial equivalents) means that inadequate consideration results in a nullity as between the issuer corporation and the registered holder. This was also the view of the Tax Court in Ball v. MNR [fn 16: …92 D.T.C. 2123…] …. . Nullification was used in the recent Federal Court of Appeal case St Arnaud v. The Queen [St Arnaud]. [fn 18: [2013] F.C.J. No. 338, 2013 FCA 88.]. …[T]he court found that the money paid for shares was either not received by the corporation or received simply as a conduit for the fraudster. The result was that the shares were not validly issued.
Consequences of breach: consequences in court's discretion (p. 87)
The Contextual Stream of cases posits that corporate legislation does not explicitly state what remedy is available when shares are issued without being fully paid for; thus, it is up to the courts to decide on the appropriate remedy. The result can then be nullification, director liability, or permitting the purported shareholder to pay the subscription price to validate the share issue. There are lines of cases out of British Columbia [fn 19: Davidson v. Davidson Manufacturing Co. (1977), [1978] B.C.J. No. 60 (B.C.S.C.); Oakley v. McDougall, [1987] B.C.J. No. 272, 17 B.C.L.R. (2d) 134 (B.C.C.A.); Re Lajoie Lake Holdings Ltd, [1991] B.C.J. No. 137 (B.C.S.C.).] and Ontario, [fn 20: See Dunham and Pollo Tours Ltd. (No. 1), [1978] O.J. No. 3380, 20 O.R. (2d) 3, (Ont. H.C.J.); Gillespie v. Retail Merchants' Assn. of Canada (Ontario) Inc., [1997] O.J. No. 956 (Ont. C.J.).] supporting this view. A more recent Alberta Court of Appeal case also adopts the contextual approach… [fn 21: Pearson Finance Group Ltd. v. Takla Star Resources Ltd., [2002] A.J. No. 422, 2002 ABCA 84, aff'g [2001] A.J. No. 917, 2001 ABQB 588 [Takla].]… .
Validation by curative provision (p. 88)
Interestingly, neither the Nullification Stream nor the Contextual Stream referred to subs. 16(3) of the CBCA or its provincial equivalents. [fn 24: ABCA, s. 17(3); SBCA, s. 16(3); MCA, s. 16(3); OBCA, s. 17(3); NBBCA, s. 14(3); NLCA, s. 29. Subsection 33(2) of the BCBCA is slightly narrower in that it only validates acts that are done contrary to the company's constating documents.] That provision states that "[n]o act of a corporation, including any transfer of property to or by a corporation, is invalid by reason only that the act or transfer is contrary to its articles or this Act". This wording is seemingly dispositive of the issue; yet, this is not entirely clear as ambiguity exists in the wording "by reason only"….
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Paid-Up Capital | 664 |