Words and Phrases - "subject to tax"
Canada v. Alta Energy Luxembourg S.A.R.L., 2021 SCC 49, [2021] 3 S.C.R. 590
In considering whether there had been a treaty-shopping abuse of the Canada-Luxembourg Treaty by virtue of the taxpayer, which had its legal seat in Luxembourg, but was a “conduit entity” without a substantial economic connection to Luxembourg, accessing a Treaty exemption for a capital gain on its disposition of a Canadian resource company, Côté J stated (at paras. 53-54-56, 58):
[T[he use of the word “means” in this provision indicates that the definition should be “construed as comprehending that which is specifically described or defined” and thus as setting out all requirements that must be met to be considered a resident under the Treaty … .
In the context of corporations, the “liable to tax” requirement is met under the Treaty where the domestic law of a contracting state exposes the corporation to full tax liability on its worldwide income because it has its residence in that state … . The “liable to tax” requirement ... is not concerned with whether the person claiming benefits is in fact subject to taxation. Being liable to tax is better understood as being “liable to be liable to tax”, meaning that taxes are a possibility, regardless of whether the person actually pays any … . Therefore, corporate residents enjoying certain tax holidays, for example on capital gains, do not automatically lose their resident status under the Treaty because they are not subject to every possible form of taxation … . This can be contrasted with fiscally transparent vehicles like partnerships that are not exempted from taxation but, rather, are not exposed to tax at all … .
[A]rt. 4(1) … expressly states that residence is to be defined by the laws of the contracting state of which the person claims to be a resident. …
[T]his preference for leaving the meaning of residence to domestic law is totally consistent with the scheme of the Treaty. …
It is worth noting that the words “sufficient substantive economic connections” are conspicuous by their absence in the text of both arts. 1 and 4. Although the GAAR invites courts to go beyond the text to understand the object, spirit, and purpose of the provisions, there are limits to this exercise, especially when attempting to discern the intent of bilateral treaty partners.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | Treaty shopping to avoid capital gains tax on Canadian resource assets was contemplated, and not a Treaty abuse | 660 |
| Tax Topics - Treaties - Income Tax Conventions - Article 13 | utilization of the business property exemption by a Luxembourg conduit accorded with the bargain negotiated by Canada, which was to encourage investment by such investors | 605 |
| Tax Topics - Treaties - Income Tax Conventions | subsequent OECD Treaty commentary not followed | 198 |
| Tax Topics - Statutory Interpretation - Treaties | additional consideration in Treaty context of giving effect to the contractual bargain | 237 |
Cristofaro v. Agence du revenu du Québec, 2020 QCCQ 1461, rev'd 2021 QCCA 1025
In 2003-0026827, CRA applied Oceanspan to find that a non-resident student who has no Canadian sources of income is precluded from transferring her unutilized tuition credits to her resident father under ITA s. 118.9 because:
an individual who is not resident in Canada and who has no Canadian source income would not be entitled to the tuition and education tax credits. The individual is not liable to pay tax in Canada, and therefore has no need to utilize the provisions permitting the tax credits.
Although this federal position does not appear to have been mentioned to him, Cameron JCQ rejected a similar position advanced by the ARQ to justify the denial of a tuition credit transfer (under the Quebec equivalent of s. 118.9) by a daughter studying in Scotland, who was resident in Ontario and had no Quebec sources of income, to her father, also an Ontario resident, who had Quebec professional income allocated to him by a cross-country professional firm. Cameron JCQ stated:
The legislation does not suggest that in any year where a Quebec resident who is a student does not have liability for tax pursuant to articles 22 or 25 TA, she would not be able to transfer the unusable credit to a parent. To interpret the law as implying that would be a direct contradiction of the purpose of the legislation, that of permitting a taxpaying parent to reduce tax liability because of the support of the child for education.
He went on to indicate (at para. 49) that in any event, the daughter could be considered to be “subject to tax” (or “liable for tax” to use his preferred translation, and also essentially the phrase considered in Crown Forest):
… The income tax legislation … applies to all Canadian residents … because they may, in one year or another, earn business income in Quebec… . In that sense, the daughter is “subject to the tax” to use Revenu Québec’s phrase, because she could, potentially, depending on circumstances, get some business income generated in Quebec even without being a resident here.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 118.9 | a non-resident with no sources of income in Quebec nonetheless could transfer a tax credit to a Quebec taxpayer | 434 |