Words and Phrases - "in respect of"

The appellant, which operated a restaurant, paid “due-backs” to its servers representing the tips on sales processed on credit and debit cards (“electronic tips”) minus deductions made by it as a processing charge and amounts to be paid to kitchen staff, and further deductions based on the amount of cash sales collected by the servers. Monaghan JA indicated (at para. 52) that the question of whether a due-back constituted pensionable salary and wages for purposes of the Canada Pension Plan Act, or insurable earnings for purposes of the Employment Insurance Act, turned on the “question … whether, based on the relevant facts in the case, the amount in question is paid by the employer to the employee in respect of their employment.”

In confirming that the due-backs were amounts in respect of the servers’ employment, she referred to the broad meaning accorded to “in respect of in Nowegijick, and then stated (at paras. 25-26):

But for their employment with the appellant, the servers would not have received the due-backs from the appellant.

Moreover, nothing in the legislation suggests that, to qualify as an amount in respect of employment, the amount must be calculated in a particular way, or with reference to hours worked or sales or any other measurable factor. …

Furthermore, the due-backs were paid by the appellant to the servers (para. 37):

[T]here is no dispute the electronic tips came into possession of the appellant or that the appellant transferred the due-back, representing a portion of those electronic tips, to the servers.

The taxpayer (“Emergis”), a Canadian public company, financed its acquisition of an arm’s length U.S. operating company through a "tower structure" under which:

• Emergis made an interest-bearing loan (the “First Loan”) to a Delaware general partnership (“USGP”) of which it and a Canadian subsidiary were 99.9% and 0.1%, partners, respectively;
• USGP funded such interest payments out of dividends received from a wholly-owned Nova Scotia ULC (“NSULC”);
• NSULC, in turn, received dividends out of the exempt surplus of a wholly-owned LLC; and
• the LLC received interest on the acquisition-financing loan made to “US Holdco,” with that interest being recharacterized under s. 95(2)(a) as active business income.

Emergis’ 99.9% effective share of the interest deduction of USGP for the First Loan largely offset its interest income from the First Loan and, in addition, it claimed the s. 112(1) deduction for its effective share of the dividend income from NSULC. From a U.S. perspective, the interest on the First Loan was deductible interest paid by a U.S. corporation (USGP) to a Canadian resident (Emergis), and was subject to U.S. withholding tax. (In this regard, the structure differed from FLSmidth, where the partnership paid interest to an arm’s length lender, which was exempt from U.S. withholding tax.)

Before concluding that Emergis could not claim the s. 20(12) deduction for such withholding taxes, on the basis that they were “taxes … that can reasonably be regarded as having been paid by a corporation [Emergis] in respect of income from a share of the capital stock of a foreign affiliate of the corporation [the LLC],” Favreau J stated (at paras. 68, 74):

[T]he words “in respect of” are very broad … .

Given the flow of funds in this tower structure, there is some connection between the interest income paid by USGP and the dividends paid by LLC to USGP, which were reclaimed and reported by Emergis through its partnership interest in USGP.

After stating (at para. 81) that the s. 20(12) exclusion at issue was “intended to restrict the availability of foreign tax relief where the provisions that deal with foreign affiliates can be said to have provided sufficient relief,” he noted that additional connecting factors between the interest payments and the underlying dividend from the LLC included:

• the interest deduction on the First Loan was “dependent on a purpose of earning income which in this case is the dividend flowing from LLC and on from NSULC” (para. 83)
• “the only cross-border source of income recognized by the Act is the income from a share of LLC, which can reasonably be regarded as the income on which foreign tax was levied, since the interest income [itself] is seen as paid by a Canadian resident to another (para. 85)
• “99.9% of the interest received, Emergis’ foreign source of income can reasonably be regarded to be that of the LLC dividend, such that if any foreign tax was paid it must be regarded as having been paid in respect of that foreign source income. (para. 87)

The taxpayer was an Australian resident who was taxed at the 15% long-term U.S. capital gains rate on his gains on disposal of U.S. oil and gas drilling rights. For Australian purposes a 50% discount was applied to the capital gain before imposing tax at a rate of around 45% on it.

The Australian foreign tax credit (FITO) provision (s. 770-10) provided:

An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

In confirming the Commissioner’s denial of a FITO for (leaving aside the effect of complicating adjustments) half of the U.S. tax, and after stating (at para. 95) that "that ‘included’ is a word that in different contexts may receive different applications," McKerracher J stated (at para. 109) his agreement with the Commissioner’s position (summarized at para. 4) that “double taxation occurs where a person pays both foreign tax and Australian tax on the same amount” and “an amount not included in assessable income (namely, 50% of the capital gain) cannot, by definition, be doubly taxed,” and added (at para. 114) that “the words ‘in respect of an amount’ mean an amount which is itself assessable.”

In 1998 the Canadian taxpayer paid $14.3 million to non-resident service providers in the ordinary course of its forestry business. The Minister assessed it for failure to withhold under Reg. 105 on the following payments:

1. the portion of service fees allocated to services rendered outside of Canada according to estimates made by the service provider (with no supporting documentation being provided by them for such estimates);
2. reimbursements of non-residents' out-of-pocket costs and related items, including travel time and expenses; and
3. amounts paid as retainers in relation to services which the service provider expected to be rendered outside of Canada (again, without documentary support).

Bowie J. found (at paras. 6-10) that the purpose of the withholding obligations under s. 153(1)(g) and Reg. 105 was to ensure that, if a non-resident recipient of a payment is, after all the facts are known (i.e. when its annual Canadian tax returns are filed), liable to pay income tax in Canada, there will be funds available, in the form of the 15% withheld and remitted, to satisfy the obligation. He implicitly accepted that disbursements incurred by a non-resident service provider in providing its services might be “in respect of” those services. However, disbursements were not subject to Reg. 105 withholding since they are not “for” the non-resident's services, indicating (at para. 10) that the Reg. 105 wording may "properly be read as including only amounts that may be taxable in Canada in the hands of the recipient, which is to say 'income earned in Canada'." He stated (at para. 7):

[T]he appellant's obligation in respect of the disbursements is simply to repay that which the consultant has paid on the appellant's behalf in the course of rendering the service. To withhold 15% from that amount would not at all further the purpose of paragraph 153(1)(g)… . It is not difficult to foresee that if foreign service providers were to be reimbursed their expenses only to the extent of 85% until such time as they had filed a Canadian income tax return after the year end, and then waited for an assessment and a refund, that would create a considerable disincentive for them to offer their services to Canadian clients

As the expression “a fee, commission or other amount in respect of services rendered in Canada of any nature whatever” in Reg. 105 was capable of being narrowly interpreted so as to conform with what was authorized by ITA s. 153(1)(g), Reg. 105 was intra vires.

Respecting the lack of documentary support for the Canada/U.S. allocation estimates of the non-resident service providers, he stated (at para. 24, see also para. 27) that "there is no requirement at law that those be provided." A "retainer" was in reality a deposit so that it was "not a fee and not referable to any work" (para. 26). Finally, charges for time spent travelling to Canada for meetings were "not earned in Canada, and so [not] taxable in Canada" (para. 28).

The phrase "in respect of" in a section was given the meaning "with reference to", "in order to give sense and purpose to the section and avoid incongruous results ... . The fact that the Legislation chose to proceed by piecemeal amendments, resulting in an inelegant jumble of tax bases and internal inconsistencies, is no reason to frustrate the obvious intention of the Legislature"

A trustee in bankruptcy of a taxpayer was permitted to introduce testimony of two Revenue Canada officials in proceedings instituted in the New Brunswick Court of Queen's Bench for a declaration that certain assets registered in the name of the taxpayer's wife were held in trust for the taxpayer's estate. After noting (at p. 5447) that the phrase "relating to" in s. 241(3) had the same wide scope as "in respect of," Iacobucci, J. found that the proceedings related to the enforcement of the Act because their ultimate purpose was the payment of taxes owed to Revenue Canada, which was a preferred beneficiary of the estate. In addition, a contrary conclusion would result in the absurdity that confidential information obtained by Revenue Canada could not be disclosed in proceedings initiated by the trustee in bankruptcy, whereas if the trustee in bankruptcy refused to act and Revenue Canada then took the same proceedings under s. 38(1) of the Bankruptcy Act, such information could arguably be disclosed. Finally, as a policy matter, there was no valid reason why the Minister should be inhibited from recourse to the bankruptcy process, as opposed to being restricted to the administrative remedies set out in Part XV of the Act, such as that contained in s. 160.

Wages of an Indian residing on an Indian reserve that were paid to him by an employer also resident on the reserve fell within the exemption from taxation in respect of personal property situate on a reserve. The reserve was the situs of the wages paid to him, the wages were his personal property and income taxes would in reality be a tax on that property.