The Federal Court of Appeal recently overturned a Tax Court decision which had found that a number of transactions undertaken by the Univar corporate group constituted abusive tax avoidance under the General Anti-avoidance Rule (GAAR). The judgment contains several important points concerning the analysis and application of the GAAR and will undoubtedly be relied on by taxpayers in future.
The minister of national revenue recently sought to compel 25 people to attend oral examinations as part of a transfer pricing audit. The minister applied to the Federal Court for a compliance order, arguing that the Income Tax Act provides the authority to compel such examinations. However, the court disagreed. Its analysis highlights the problematic nature of the minister's position.
The Tax Court recently rejected the Canada Revenue Agency (CRA) administrative concession that orthodontists can claim input tax credits (ITCs) on a periodic basis, concluding that orthodontic treatment consists of only a single supply, which is exempt and results in no tax charged to the patient and no entitlement to claim ITCs. The decision serves as a cautionary example to taxpayers that CRA administrative concessions which are not supported by the law may be ignored.
Taking questions under advisement is common practice in examinations for discovery in tax disputes; it indicates that counsel has not decided whether the question will be answered or refused and will advise at a later date. In a recent judgment, the Tax Court denounced the practice of taking questions under advisement during examinations for discovery and warned that there may be cost consequences to doing so.
The Department of Finance recently released its consultation policy paper on the taxation of private corporations first announced in Budget 2017, along with proposed legislation on some of the topics addressed. The most dramatic proposals seek to equate the tax treatment of self-employed incorporated business owners with that of individual salaried employees without acknowledgement of their fundamental non-tax differences, including the inherent risk in starting and operating a small business.
Rectification has been a popular topic in tax law since last year's Supreme Court decisions limiting its availability for tax planning errors. In a brief judgment, the Federal Court of Appeal disagreed with the Tax Court and held that foreign rectification orders are not necessarily dispositive or binding on a tax assessment, but must be taken as facts at trial even in the absence of domestic recognition through homologation.
The Canada Revenue Agency (CRA) recently announced that it would not seek leave to appeal the Federal Court of Appeal decision in BP Canada to the Supreme Court of Canada. The Federal Court of Appeal had previously imposed important restrictions on the use of Section 231.1(1) audit powers by the CRA. For some taxpayers, the risk that information gathering by the CRA might result in a criminal evasion investigation or prosecution has now increased.
The Federal Court of Appeal recently considered the authority to conduct the inspection of books and records given by Section 231.1(1) of the Income Tax Act and, on the basis of a contextual interpretation of this section, imposed significant restrictions on the limits of the minister of national revenue's authority.
In an ambitious, complicated, lengthy and controversial decision, a court recently held that advisory common interest privilege has "incorrectly [been] accepted in both the United States and Canada". The judgment, which is an upheaval of law, presents serious issues for lawyers who advise clients on commercial transactions and for clients that instruct and receive advice from lawyers on such transactions.
Almost since tax-free savings accounts (TFSAs) were first introduced in 2009, the Canada Revenue Agency (CRA) has been clamping down on what it views as inappropriate activities undertaken within TFSAs. One issue in particular has raised the ire of the CRA and given rise to numerous assessments – namely, the frequent trading of publicly-traded securities within a TFSA.
The anti-surplus stripping rule in Section 84.1 of the Income Tax Act can apply where an individual taxpayer transfers shares of a corporation to another corporation with which the taxpayer does not deal at arm's length. In a recent case, two taxpayers attempted to use their capital gains exemptions to access corporate surplus by selling their shares to an arm's-length party. Interestingly, only one of the taxpayers succeeded in court.
Canada's Budget 2016 proposes to repeal the existing eligible capital property regime in favour of a new class of depreciable capital property in respect of which capital cost allowance may be claimed. This leaves a relatively narrow window in which to take advantage of deferral opportunities under the existing regime, which will be lost once the new rules come into effect.
Two recent Supreme Court of Canada decisions illustrate that although tax law may be different for some purposes, its objectives do not justify the circumvention or restriction of the law of solicitor-client privilege as this has been consistently developed by the court over the past two decades.