Words and Phrases - "in respect of"


1455257 Ontario Inc. v. Canada, 2021 FCA 142

The validity of a s. 160 assessment of the taxpayer turned in part on whether the affiliate from which the taxpayer had received a transfer of property in 2003 should be regarded as having had its taxable income for 2000 reduced by a portion of its non-capital loss for 2002 that the affiliate had not claimed because the taxpayer and the affiliate had not found out about that additional loss until 2011, when the taxpayer made an ATIP request following the s. 160 assessment of it.

The taxable income of the affiliate for 2000 had arisen as a result of a 2005 settlement which had reduced a 2001 non-capital loss (and, thus, reduced the loss carryback to 2000), thereby leaving 2000 unsheltered. Noël C.J. confirmed the finding below that the affiliate had failed to request the carryback of the 2002 loss on a timely basis to the 2000 year.

Noël C.J. also agreed with the Tax Court’s rejection of the taxpayer’s submission that given that the word “pour” used in the French version of s. 160(1)(e)(ii) was narrower than “in respect of” used in the English version, s. 160 did not extend to interest that had accrued on the tax payable by the affiliate subsequent to the 2003 transfer date, stating (at paras. 46-47):

The phrase “in respect of” is broad and all encompassing … and the word “pour” in the French text can have a similarly broad meaning. …

It can be seen that both texts can be read so as to capture interest that accrues on the transferor’s liability from the year of the transfer onwards. This aligns with the purpose of subsection 160(1) which is to allow for the collection of “the total of all amounts” that the transferor is liable to pay under the Act without any distinction as to the makeup of these amounts … and without any time limitation. …

Words and Phrases
in respect of
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(i) CRA has no arbitrary discretion to reject an s. 152(4)(b)(i) extension request 315
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) carrybacks must be requested by the taxpayer 232

Emergis Inc. v. The Queen, 2021 TCC 23

U.S. withholding tax applicable to a tower structure did not generate a s. 20(12) deduction

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)
Words and Phrases
in respect of

Burton v Commissioner of Taxation, [2019] FCAFC 141

“income” was the full U.S. gain, but FTC to be calculated based on Australian (1/2 recognition) principles

An Australian-resident individual was taxed at the 15% long-term U.S. capital gains rate on his gains on the 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 provided a credit for foreign income tax “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.” The Commissioner successfully took the position that as only half of the U.S. gain had been included in the individual’s income, he was entitled to the FITO for only half of the U.S. tax.

Art. 22(2) of the Australia-U.S. Convention provided:

… United States tax paid under the law of the United States and in accordance with this Convention … in respect of income derived from sources in the United States by …a resident of Australia shall be allowed as a credit against Australian tax payable in respect of the income. … Subject to these general principles, the credit shall be in accordance with the provisions and subject to the limitations of the law of Australia as that law may be in force from time to time.

In concurring with Steward J that the Commissioner’s approach accorded with Art. 22(2), Jackson J stated (at paras. 166, 168-169):

The general principle expressed in the first sentence of Art 22(2) is that if a person who is an Australian resident for the purposes of Australian taxation law pays United States tax in respect of income (including a gain) derived from sources in the United States, the Australian government must allow a credit against Australian tax payable in respect of that income. …

The requirement that the amount of income be the same in the case of each of the United States tax paid and the Australian tax payable emerges from the syntax of Art 22(2). But it does not follow that this amount of income must be all the income derived from a given source in the United States that is also subject to taxation in Australia. The term that is used to indicate a connection between the relevant amount of income, whatever that may be, and each of the United States tax and the Australian tax is 'in respect of'. That is indeterminate. No doubt, in each case the connection cannot be a distant, arbitrary or illogical one. But to the extent that it is necessary to identify the connection more precisely, that must be done in accordance with the provisions of the law of Australia. That is what the third sentence of Art 22(2) requires.

In considering the present case, it does not stretch the language of the article to read 'Australian tax payable in respect of the income' as referring to capital gains tax payable in Australia on assessable income being an amount equal to only 50% of the gain. So reading 'the income' as referring to 50% of the gain derived in the United States is consistent with the general principle in the first sentence of Art 22(2) (acknowledging there will also be differences, such as treatment of capital losses, in the way the laws of different countries calculate the gain).

Words and Phrases
income in respect of
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 91 - Subsection 91(4) credit “in respect of” income only included the taxable ½ of capital gain 212

Burton v Commissioner of Taxation, [2018] FCA 1857, aff'd [2019] FCAFC 141

a foreign tax credit was reduced by ½ when only ½ of a capital gain was brought into income

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.”

Words and Phrases
in respect of included
Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 24 foreign tax credit was not required to be accorded to all the US tax on the gain 361

Commissioner of Inland Revenue v. Lin, [2018] NZCA 38

Chinese tax spared on Chinese CFC income and attributed under CFC regime to New Zealand shareholder was not “in respect of” income derived by that shareholder from China

As a result of having a 30% interest between 2005 and 2009 in four companies which were resident in China, the taxpayer had the active business income of those companies of $4.6 million attributed to her in New Zealand under the New Zealand controlled foreign companies (CFC) regime. The New Zealand income tax payable by her on that income was reduced by the Chinese tax actually paid by those companies, but not by approximately $0.6 million of tax that the Chinese companies were spared from paying due to tax concessions granted to them under Chinese domestic law. Art. 23 of the China- New Zealand Double Taxation Agreement (the “DTA”) provided in relevant part:

2. In the case of New Zealand, double taxation shall be avoided as follows:

(a) … Chinese tax paid under the laws of the People’s Republic of China and consistently with this Agreement, whether directly or by deduction, in respect of income derived by a resident of New Zealand from sources in the People’s Republic of China (excluding, in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) shall be allowed as a credit against New Zealand tax payable in respect of that income; …

3. For the purposes of paragraph 2 (a), tax payable in the People’s Republic of China by a resident of New Zealand shall be deemed to include any amount which would have been payable as Chinese tax for any year but for an exemption from, or reduction of tax granted for that year or any part thereof under any of the following provisions of Chinese law … .

In finding that Art. 23 did not require the Commissioner to grant a foreign tax credit for the spared Chinese tax, Harrison J stated (at paras. 29-30, 33):

The phrase “in respect of” is amorphous and can lead to linguistic uncertainty and confusion. …

We are satisfied that the phrase “in respect of” is used synonymously with “on” in all three places in art 23(2)(a). Its meaning should be consistent throughout. Contrary to the Judge’s view, we are satisfied that art 23(2)(a) requires the tax to have been paid by a New Zealand resident on income derived by him or her in China, not by a third party CFC; that is the essential precondition to a credit in New Zealand. …

In our judgment art 23(2)(a) relieves solely against juridical double taxation. Mr Clews’s argument [for the taxpayer] requires us to disregard the legal nature of the relationship between Ms Lin and the Chinese CFCs to focus instead on the substantive source of “the income derived”. The fact that the ultimate source is income attributed to Ms Lin from the Chinese CFCs does not justify treating the two income streams, earned separately by the CFCs and Ms Lin, as one for revenue purposes, and ignoring the plain foundation of art 23(2)(a) on the source of “the income derived by a resident of New Zealand”, Ms Lin.

Words and Phrases
in respect of

Weyerhaeuser Company Limited v. The Queen, 2007 TCC 65

no withholding on reimbursements for disbursements/no requirement for documentary support for allocations in NRs' invoices/travel time to Canada not re Cdn services

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).

Words and Phrases
for in respect of retainer fee
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation narrow construction of Reg. so as to be intra vires 212
Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 "in respect of" in Regulation read narrowly to conform with "for" in statute 169

4 June 2014 External T.I. 2013-0513761E5 - Meaning of "cost" in determining "equity amount"

Generally, … the "cost" of property …include[s] the amount laid down to acquire such property. … The Queen v. Canada Trustco Mortgage Company (2005 DTC 5523),…stated…that ‘[t]extually, the CCA provisions use ‘cost' in the well-established sense of the amount paid to acquire the assets….'…[T]he term "cost" for the purposes of the definition of "equity amount" in subsection 18(5)… means the original acquisition cost of a property. As a result, in the case of depreciable property, any amortization claimed in respect of the property should not, in our view, be taken into account in determining the "cost" of such property… .

Words and Phrases
cost in respect of

Attorney General of British Columbia v. Canada Trust Co. et al., [1980] 2 S.C.R. 466, [1980] CTC 338

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"

Words and Phrases
in respect of

The Queen v. Savage, 83 DTC 5409, [1983] CTC 393, [1983] 2 S.C.R. 428

$300 received by an employee of a life insurance company pursuant to its policy of paying such amounts to all of its employees who passed the difficult Life Office Management Association courses would, in the absence of s. 56(1)(n), have been taxable as falling within the broad words of s. 6(1)(a). Although to be taxable under s. 6(1)(a) a payment must be received in one's capacity as employee, there is no requirement that "the payment must partake of the character of remuneration for services".

Words and Phrases
in respect of
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(n) 83
Tax Topics - Statutory Interpretation - Redundancy/reading in words exclusion in specific provision extended to general provision to avoid redundancy 34

Slattery (Trustee of) v. Slattery, 93 DTC 5443, [1993] 3 S.C.R. 430, [1993] 2 CTC 243

proceedings by trustee in bankruptcy that would help CRA recover a preferred claim "related to" ITA enforcement

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.

Words and Phrases
relating to in respect of

Markevich v. Canada, 2003 DTC 5185, 2003 SCC 9, [2003] 1 S.C.R. 94

Section 32 of the Crown Liability and Proceedings Act applied to prohibit the taking of collection action against the taxpayer six years after a cause of action against him arose, namely, the expiry of the 90-day period after the mailing of a notice of assessment to him. There was no authority to support the proposition that the Income Tax Act was complete code that could not be informed by laws of general application such as s. 32, the ordinary meaning of the phrase "proceedings ... in respect of a cause of action" encompassed statutory collection procedures, and respecting arguments that the French word "poursuite" referred only to court proceedings, there was no reason to infer that Parliament intended for the application of section 32 to turn solely upon the technicality of whether the relevant proceedings took place in court.

Words and Phrases
proceedings in respect of

Nowegijick v. The Queen, 83 DTC 5041, [1983] CTC 20, [1983] 1 S.C.R. 29

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.

Words and Phrases
in respect of

Attorney General of British Columbia v. Canada Trust Co. et al., [1980] 2 S.C.R. 466, [1980] CTC 338

S.6A of the Succession Duty Act (BC), which provided that "where property of a deceased was situated outside the Province at the time of the death of the deceased, and the beneficiary of any of the property of the deceased was a resident at the time of the death of the deceased, duty under this Act shall be paid by the beneficiary in respect of that property of which he is the beneficiary", was intra vires the Province in that it imposed a tax on persons within the Province (i.e., resident beneficiaries), rather than being a tax on property or on the transmission of property (notwithstanding that s. 6A did not expressly state that the beneficiary is "subject to duty"). Dickson J. stated (at p. 352):

"I read the wording 'duty under this Act shall be paid by the beneficiary' in s. 6A as designating the beneficiary as the subject-matter, as well as the payer, of the tax, and the words 'in respect of that property' in the sense of 'as related to', or 'on the basis of', the property of which he is the beneficiary."

Words and Phrases
in respect of