Words and Phrases - "taxpayer"
Marino v. The Queen, 2020 TCC 50 (Informal Procedure), aff'd 2022 FCA 115
An individual with no connection to Canada paid a lot in tuition fees while in attendance at U.S. universities prior to 2012 then, on immigrating to Canada, claimed his purported unused tuition tax credits as a deduction from Canadian tax. Given that the tax credit provisions referred to an individual’s “taxation year,” the Crown successfully argued the Oceanspan principle that “a non-resident with no source of income in Canada, was not a ‘taxpayer’ and therefore did not have a taxation year” (para. 29). Monaghan J rejected the taxpayer’s position that s. 250.1 had the effect of deeming any non-resident to have a taxation year - and instead indicated (at para. 38) that this provision only “applies where a non-resident must have a taxation year if a provision of the Act is to operate as it is intended to operate, including in respect of another taxpayer,” for example, respecting a non-resident trust with a resident beneficiary recognizing income under s. 104(13) based on when that trust has a taxation year end.
She also found against the taxpayer on the ground that the tuition tax credit provision (s. 118.5(1)(b)) “applies for one purpose only: ‘for the purpose of computing the tax payable by an individual for a taxation year.’,” so that (para. 53):
[A] person will not be an individual for purposes of section 118.5 in a particular year unless that individual is a taxpayer in that year because the individual is described in subsection 2(1) or 2(3) and is potentially liable to tax in Canada under Part I.
The taxpayer was described in neither s. 2(1) nor (3) prior to 2012.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 118.5 - Subsection 118.5(1) - Paragraph 118.5(1)(b) | tuition paid prior to becoming subject to tax under Part I was not to be recognized under s. 118.5(1)(b) | 455 |
| Tax Topics - Income Tax Act - Section 250.1 - Paragraph 250.1(a) | s. 250.1 applies only to persons who would not be taxpayers under Oceanspan | 276 |
Byron Beswick, "Transfer Pricing and Transactions Between Foreign Entities", Canadian Tax Journal, (2019) 67:1, 187-208
Overview (p. 188)
[A] textual, contextual, and purposive analysis of section 247 and other Canadian transfer-pricing provisions, in particular subsections 69(1) and 17(1), suggests that, contrary to [2017-0691191C6], Canada's transfer-pricing rules apply to a transaction between two parties that are non-residents of Canada only to the extent that at least one of the parties carries on business in Canada or disposes of taxable Canadian property, and only where the transfer-pricing analysis is relevant to one of those activities or transactions….
Judicial limitation of “taxpayer” (pp. 190-194)
Since none of the … definitions of “taxpayer," "person," or "partnership' differentiates between resident and non-resident entities, one may presuppose that these terms may include both a domestic and a foreign entity in every context.
However,…the term must be interpreted in context. … Office Overload … held that the vendor was not a "person” for the purposes of section 85D, on the basis that the provision was intended to apply only to persons who "fall to be taxed or otherwise dealt with under the provisions of the Canadian Income Tax Act and who report to the Canadian Government the income arising from the operation of the business…
Holiday Luggage … held that a corporation referred to in section 256 did not include a non-resident corporation that did not carry on business in Canada.
Lea-Don Canada … held that
… It is clear that s. 20(4) is concerned with taxpayers entitled to a deduction, not with persons who are not subject to assessment under Part I. A non-resident not carrying on business in Canada is not a person entitled to such a deduction and therefore s. 20(4) cannot properly be said to be "applicable" to him.
Oceanspan … stated:
[A] non-resident without income from Canadian sources can never be liable to pay tax under the Act on its foreign income. It is not, therefore, a corporation contemplated by the definition of "taxpayer" in the Act….
Merali … held that the respondent had been a "taxpayer" during the non-resident period because he had been subject to Canadian tax during that period under subsection 216(1) and had previous "taxation years" under paragraph 111(1)(a),…
From the foregoing cases, it may be stated as a general proposition that a person is not a "taxpayer" unless the person comes within the charging provisions of the Act—that is, the person is resident in Canada, carries on business in Canada, or disposes of taxable Canadian property….
Change to “taxpayer” from “carrying on business” in s. 247 (p. 198-199)
Subsections 69(2) and (3) were repealed with the enactment of section 247 in 1998. The reference to a "taxpayer carrying on business in Canada" in subsections 69(2) and (3) was replaced by a reference to only a "taxpayer" in section 247. …[A]nalysis of contemporaneous external sources suggests that there was no intent to expand the scope of the parties to which the transfer-pricing rules apply. …
Relevance of s. 95(2)(f) (pp. 201-202)
The significance of the change [in 2009] from the computation of income “as though the affiliate were resident in Canada” in the predecessor to current paragraph 95(2)(f), to the deemed Canadian residence of an affiliate in the current version, is not clear. …
[T]he stronger argument, particularly in light of the history of the transfer-pricing rules and paragraph 95(2)(f) described above, is that current paragraph 95(2)(f) should not be taken into account in applying section 247. Irreconcilable legislative inconsistencies remain where an attempt is made to apply the two provisions together. For example, in the context of a transaction between a foreign affiliate and a Canadian taxpayer that gives rise to FAPI, if paragraph 95(2)(f) is taken into account for the purposes of section 247 to deem the foreign affiliate to be resident in Canada, paradoxically section 247 cannot apply because there will then be no "non-resident person" for the purposes of section 247. …
Problems under the more expansive interpretation of “taxpayer” (p. 206)
A number of problematic interpretive issues arise if section 247 or subsection 69(1) is applied to transactions between non-resident persons with no Canadian tax nexus….
[A] transfer-pricing adjustment can arise only for the "taxpayer" and not for the non-resident person. Further, the penalty provisions in subsection 247(3) and the contemporaneous documentation requirements in subsection 247(4) apply only in respect of the "taxpayer." …
[W]here both parties are non-resident and neither has Canadian tax nexus, there is nothing in the text of subsection 247 that indicates which party is the “taxpayer” to which the provision applies. …
[T]he contemporaneous documentation requirements in subsection 247(4) were not designed to cover transactions between two non-residents with no Canadian tax nexus. …
[W]here a foreign affiliate has earnings from an active business and the affiliate is required under the tax law of its country of residence, or the tax law of the country in which the business is carried on, to compute income, the affiliate's earnings are computed in accordance with that foreign law. Such earnings computed under foreign law are then adjusted in accordance with the items listed in regulation 5907(2), none of which relate to transfer-pricing adjustments under Canadian law. If subsection 247(2) could apply to interaffiliate transactions, it appears that earnings and surplus adjustments could be made only in respect of earnings of the foreign affiliate computed under Canadian tax rules, and not, for example, in respect of active business earnings computed under foreign law. It is not apparent why a transfer-pricing adjustment under subsection 247(2) should affect the computation of surplus in the former circumstance but not the latter.
Oceanspan Carriers Ltd. v. The Queen, 87 DTC 5102, [1987] 1 CTC 210 (FCA)
"Taxpayer" "refers to resident individuals or corporations who may be liable to pay tax at some time whether or not they are, at any given time, liable therefor." A corporation with no Canadian-source income accordingly was not a "taxpayer" for purposes of s. 111(8)(b), and non-capital losses which it incurred while not a resident corporation could not be carried forward to be deducted from income earned while the corporation was resident in Canada.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) | 62 | |
| Tax Topics - Income Tax Act - Section 2 - Subsection 2(1) | 77 |