In a recent case the Canada Revenue Agency (CRA) was taken to task for delaying assessments (and refunds) against taxpayers who had participated in a tax shelter scheme. The case is another recent example of the CRA unsuccessfully using its administration or enforcement powers to try to shape taxpayers' behaviour by 'chilling' participation in transactions of which it does not approve.
The Federal Court of Appeal has held that the minister of national revenue could not use her authority to demand information for the primary purpose of 'chilling' a business. The minister was held to have acted improperly by using audit powers primarily for "sending a message to the industry" rather than for a valid audit purpose, and for failing to provide full and frank disclosure to the court.
A recent Supreme Court decision provides important guidance on the factors that taxpayers - and tax authorities and judges - can or should consider in determining appropriate transfer prices in non-arm's-length transactions. The decision in GlaxoSmithKline is expected to have a major influence on the interpretation and application of Canada's transfer pricing rules.
The Federal Court of Appeal has issued its latest decision under the general anti-avoidance rule (GAAR) in Triad Gestco Ltd v The Queen. The taxpayer's capital loss was denied under the GAAR on the basis that there was no economic loss. Although the legislation does not expressly state that a taxpayer must suffer an economic loss, the court read this requirement into the tax provisions that allow for a capital loss.
Canadian tax authorities are aggressive in challenging taxpayers on transfer pricing. The Canada Revenue Agency and Professionals Consultation Group recently hosted a seminar at which a panel discussed what to expect from a transfer pricing audit and how best to manage the process and achieve a favourable outcome. The panel also discussed the new mandatory arbitration rules in the Canada-US Income Tax Convention.
Rectification has emerged as an important remedy for taxpayers faced with unintended tax consequences of transactions. A recent British Columbia Supreme Court decision discusses the precise nature of the tax intent required in order to support a successful rectification application and the standard of proof placed on a taxpayer seeking an order of rectification.
In Copthorne the Supreme Court of Canada addressed anticipatory tax planning under the general-anti avoidance rule (GAAR). In its decision the Supreme Court reaffirmed the test to be met before GAAR can apply, and reiterated that GAAR does not allow the minister simply to recharacterise transactions that he dislikes.