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In an August 16, 2017 Tax Court of Canada case (Radelet vs. H.M.Q., 2015-2089(IT)G), at issue was whether  a waiver  (Form T2029) signed by  the  taxpayer  was  enforceable  such  that  CRA  could  assess  the taxpayer  beyond  the  normal  reassessment  period.  The  taxpayer asserted that the  waiver  was executed under duress  and/or coercion and that the taxpayer failed to understand that the normal reassessment period was extended by the waiver.

Due to the taxpayer’s travels (he spent the winter in Mexico and was very difficult to contact) and health conditions, CRA offered an extension to provide documents  in  exchange  for  a  signed  waiver.Without  a  signed  waiver,  CRA  would  issue  a reassessment  which  was  not  favourable  (and included  gross negligence penalties) to the taxpayer.

Taxpayer loses: The Court opined that the waiver was enforceable. The taxpayer was not unduly ressured, misled or unduly influenced to an extent which would nullify the waiver. Further, the Court found that the taxpayer did not lack the mental capacity to understand the nature of the waiver and that he intended to waive the normal reassessment limitation period described in the waiver. The Court also noted that there was no situational or physical intimidation; inclusion of gross negligence in the proposal letter was not unreasonable; and documented communication indicated a cordial, normal and considered tone.

Comments-A  waiver  extends  the  normal  reassessment  period  indefinitely.  As such, practitioners should consider  submitting a Notice of Revocation Waiver  (Form T652) to limit the reassessment period.  The revocation is effective  6  months  after  the  day  it  is  filed,  essentially  limiting  the waiver period to 6 months.Also, practitioners should ensure that the waiver clearly indicates the specific issues to which it applies.  The taxpayer need not sign a waiver for the entirety of the return. Once a reassessment has been issued, the taxpayer is permitted to file a Notice of Objection in respect of any issues, regardless of whether they were included in the waiver.The waiver only permits CRA to reassess after the statute-barred date which would have otherwise applied and only for the issues specified in the waiver.

VOLUNTARY DISCLOSURES

On August 8, 2017, the  Joint Committee on Taxation  of The Canadian Bar  Association  and  CPA  Canada  submitted  their  comments  to  the Minister  of  National  Revenue,  Diane  Lebouthillier,  on  the  proposed changes  to  the  Voluntary  Disclosures  program.  The  document highlights  a  number  of  concerns  with  the  proposals  that  practitioners should be aware of. For example, it noted that certain taxpayers may be prohibited from acceptance into the program, where in the old program they may have been accepted.  It also provides a comparison of different types  of  relief  that  may  be  available  to  different  types  of  taxpayers (General vs. Limited program).

For a detailed discussion of the proposals, which aim to be effective on January  1,  2018,  see  VTN  431(9).  The  proposals  are  expected  to  be finalized in the fall of 2017.

Comments-Practitioners  should  review  scenarios  where,  under  the  proposed program, taxpayers may not receive relief as currently provided(either  due  to  not  being  accepted  into  the  proposed program at all or being accepted into only the Limited program).  For example, income from the proceeds of crime will no longer be  accepted.  As well, there may only be  limited  relief  where  large  amounts  are  involved,  the  taxpayer  is sophisticated, or there are multiple years of non-compliance.  Practitioners may consider submitting applications before 2018 in cases where future relief may be limited

SPECIFIC LEGISLATION VS. PARLIAMENT’S INTENT

In a November 4, 2016 Tax Court of Canada case (Athabasca  University  vs.  H.M.Q.,  2014-1301(GST)G), at issue was whether books supplied to students as part of their distance learning course would  be  taxable  supplies  (require  a  GST/HST charge) or not.

Of  particular  interest,  however,  was  whether  the specific legislation  or  Parliament’s intent behind the  legislation  should  be  used  to  determine  whether  Parliament’s intent was relevant in the application of the law in this matter.

The  Court  opined  that  where  the  legislation  is  clear  and unambiguous, the  parliamentary intent is  irrelevant.  The legislation indicated that the books would be considered part of one supply  –  the provision of educational services.  As such services are considered exempt, the provision of books would not be taxable.

Comments In  other  words,  it  is  Parliament’s  responsibility  to  ensure  the  intent matches the legislation. Only where unclarity or ambiguity exist should parliamentary intention be used.

BANKRUPTCY – CRA TRUST FUNDSIn a July 27, 2017  Federal Court of Appeal  case (H.M.Q. vs. Callidus Capital Corporation, A-400-15), at issue was  whether CRA could  collecttrust funds (GST/HST received but not remitted) from a taxpayer’screditor upon bankruptcy. Just prior to bankruptcy, when GST/HST was owed,  the  taxpayer  transferred  assets  to  one  of  its  other  creditors (CreditCo).  This  case relates  to  CRA’s  attempt  to  obtain  assets  from CreditCo.

Creditor losesThe Court opined that since the assets were not held by the taxpayer upon bankruptcy, Subsection 222(1.1) of the Excise Tax Act (which releases a taxpayer’s trust debt upon bankruptcy) would not absolve the taxpayer’s GST/HST  liability.  Therefore,  CRA  was  entitled  to  pursue unremitted GST/HST from CreditCo that had been paid prior to bankruptcy.

INTEREST  PAYABLE  ON  REFUND  –  REVERSED JEOPARDY ORDER

An August 9, 2017 Federal Court of Appeal  case (Grenon vs. H.M.Q., A-239-16) overturned a May 11, 2016,  Tax Court of Canada case  (Grenon vs. H.M.Q., T-1013-15, see VTN 421(9)) which found that interest was not required  to be paid by CRA on $12.75 million  obtained  by CRA  as aresult of a  Jeopardy Order,  but then fully refunded to the taxpayer.

Taxpayer wins-The FCA determined that the original decision  was  neither reasonable nor  correct.  This  was  primarily  because  the  FCA  determined  that the Minister is not relieved from paying interest due to a Jeopardy Order in the case where an Order is cancelled or set aside.

Interest on the amount was ordered to be paid (Subsection 164(3)).

2017 T1 TAX FILING STATISTICS

CRA has released its filing statistics for the 2017 personal tax-filing season covering the period from February 13, 2017 to August 7, 2017.

CRA also noted that 68% of the refunds  were issued by  direct deposit.

A July 25, 2017 New York Times article (Canada Debates Whether Gift of Leibowitz Photos Is Also a Tax Dodge, by Sopan Deb and Colin Moynihan) discussed the acquisition  of 2,070  photographs  by American portrait  photographer  Annie  Liebovitz  and  their  donation  to  the  Art Gallery of Nova Scotia.

Since  the  2013  transactions,  the  Canadian Cultural  Property  Export  Review  Board  has ruled  on three applications  and is in the midst of  the  fourth.  The article notes that  one concern appears  to  be  the  valuation  of  the  collection, appraised  at  $20  million,  compared  to  the $4.75  million  for  which  they  were  acquired  by  the  donor  from  the photographer. The Board has granted status  to 762  of the prints, at a value of $1.6 million. The Board’s determinations are based on factors including  artistic  value,  aesthetic  qualities,  and  the  work’s association with Canadian history.

Comments-The  donor  would  typically be entitled to a donation receipt for the full value of the donated works, although this can be restricted for tax shelter gifting arrangements (Subsections 248(35) through (38)). Donations of Canadian  Cultural  Property  permit  tax  on  any  capital  gains  on  the property to be avoided (Subparagraph 39(1)(a)(i.1)) and reduce exposure to  the  “gifting  arrangement”  provisions  (Paragraph  248(37)(c)).  The Canadian Cultural Property Export Review Board determines whether the property is Canadian Cultural Property and also determines its value as a donation.

GIFT OF A LIFE INSURANCE POLICY

In  a  May  18,  2017  Technical  Interpretation  (2017-0692361C6, Johnstone, Alexander), CRA opined that the adjusted cost basis of an interest in a life insurance policy  is generally a  reasonable proxy  for the  “cost”  of  an  interest  in  the  policy  for  the  specific  purpose  of determining the fair market value of a donated life insurance policy (Subsection 248(35) and (36)) where the property is acquired less than three years before the gift is made.

In a June 9, 2017  Tax Court of Canada  case (Gingras vs. H.M.Q., 2013-4696(IT)G), at issue was whether an ABIL could be claimed in respect of the  loan  from  a  taxpayer  to  his  daughter’s  start-up  company.Within approximately two years, operations had ceased and the daughter had claimed personal bankruptcy.
One of the conditions required to claim an ABIL is that the  loan  was  advanced  to  earn  income(Subparagraph  40(2)(g)(i)).  The  loan  agreement stipulated that  interest at 6%  was to be charged, but payments would not commence until 2009, which, as it  would  turn  out,  was  after  the  business eventually ceased.  The  Minister  argued  that  no  interest  was charged, and therefore, there was no intent to earn income.  This  was  partially  based  on  accounting records  of  the  daughter’s  company  which  were inconsistent in their reflection of accruing the interest.

Taxpayer wins Despite the conflicting records the Court opined that the interest rate included in the agreement was legitimate and that there was an  intent to earn income. The ABIL was allowed.

PRINCIPAL  RESIDENCE  EXEMPTION  (PRE)  –DESTROYED PROPERTY In  a  July  13,  2017  Technical  Interpretation  (2017-0702001E5, Robinson, Katie), at issue was the applicability of the principal residence exemption  to  the  sale  of  the  land  remaining  after  the  principal residence that was previously located on it was destroyed by fire.

CRA opined that for calendar years subsequent to fire, the conditions  for designation  as  a  principal  residence  (Section  54)  would  not  be  met.Presumably, CRA was referring to the requirement that the property be ordinarily inhabited  in the year.  However, it was noted that the full gain could be eliminated by the “+1” rule in the formula if the land were sold in  the  subsequent  year  to  the  fire,  and  the  property  eligible  for designation in all prior years.

SETTLEMENT OF FORWARD CONTRACTS –  INCOME OR CAPITAL In an August 8, 2017  Tax Court of Canada  case (MacDonald vs. H.M.Q., 2013-4032(IT)G), an individual entered into a  forward contract  (FC) to speculate against a short-term increase in the trading price of Bank of Nova Scotia (BNS) shares. Although the taxpayer also held actual BNS shares, the FC was to be settled in cash with no exchange of shares. As the stock value increased, the taxpayer suffered $9.9 million in lossesrelated  to  the  FC.  At  issue  was  whether  the  loss  was  on  account  of income or capital.

Taxpayer wins CRA  argued  that  the  contract  was  obtained  to  hedge  against  the taxpayer’s capital investments in BNS shares and was, therefore,  capital in nature.  However, the taxpayer argued that the FC was not a hedge, the  intent  was  to  profit  in  the  short-term,  that  it  was  pure speculation, and simply an adventure in the nature of trade.

The Court found the taxpayer to be a credible witness. Also, it examined the taxpayer’s  investment  history, including the  quantum and timing of transactions, but found  insufficient evidence  to tie the FC to the BNS shares as a hedge. As such, the loss was determined to be on account of income

In a May 18, 2017  Technical Interpretation  (2017-0690311C6, Danis, Sylvie), CRA considered the addition to the capital dividend account(CDA)  where  two  corporations  were  the  beneficiaries  of  a corporately-owned life insurance policy. 

Generally, the addition to the CDA is equal to the amount by which the proceeds  of a life insurance policy  exceed  the  adjusted cost basis  (ACB) immediately  before the death of a policyholder’s interest (Paragraph (d) of the definition of capital dividend account in Subsection 89(1)).

Where  there  are multiple  corporate  beneficiaries designated under a policy, it is CRA’s view that eachbeneficiary  must apply  the  above calculation to its CDA  independently.  In other words, the portion of the death benefit  received by each beneficiary must be reduced by the full ACB.  The legislation does not provide for a proration of the ACB in cases of multiple beneficiaries.

For  example,  where  the  death  benefit  of  a  corporately-owned  life insurance policy is $1 million, and the cost base is $200K, the addition to the  CDA  for  each  of  the  two  corporate  beneficiaries  would  be  $300K ($500K proceeds per corporation less total ACB of $200K).

COMMISSION EARNED BY CORPORATION

In  a  July  11,  2017  Technical  Interpretation  (2017-0693761E5, Robinson, Katie), CRA opined that whether a corporation  is  carrying on a business and earning commission income is a question of fact and requires more than a mere assignment of income.

The question was asked as Income Tax Technical News 22 noted that “if insurance  agents,  realtors,  mutual  fund  salespersons,  or  other professionals are legally… precluded from assigning their commissions to a  corporation,  then  the  commission  income  must  be  reported  by  the individuals, and cannot be reported through a corporation, regardless of the documentation provided”.

In  a  2017  Advance  Income  Tax  Ruling  (2016-0675881R3),  CRA  ruled  that  the  related  party exemption  (Paragraph  55(3)(a))  would  apply  to  a proposed  internal  reorganization,  such  that Subsection  55(2)  would  not  reclassify  a  deemed dividend into a capital gain. The series of transactions effectively  split  up  a  real  estate  corporation  into two new corporations,  each  respectively  owned  by a sibling.  However,  the  parents  retained  voting  control  of  the  two new corporations, rendering them related for the purposes of Paragraph 55(3)(a).

In a supplemental Advance Income Tax Ruling (2017-0704351R3), CRA  opined  that,  provided  the  beneficial  owners  of  the  property remain  unchanged, a change in legal title of the property would not alter their opinion that the related party exception would apply.

In  an August 22, 2017  Release  (2017JTT0137-001468) it  was noted that $1,500 grants  were being offered to help resume operations  for those affected  by  BC  wildfires.   Eligible  organizations  include  small businesses, First Nations, and  non-profits  located in certain areas. For  further  details  on  qualification,  or  to  apply  for  a  grant,  visit redcross.ca. Applicants have until October 31, 2017 to apply.

ONTARIO  BASIC  INCOME  PILOT  –  SOCIAL ASSISTANCE

The  Ontario  Basic  Income  Pilot,  lasting  3  years,  will  include  lower income participants chosen at random from certain areas in Ontario (Hamilton,  Thunder  Bay,  and  Lindsay),  and  will  be  restricted  to  those between the  ages of 18 and 64. Monthly basic income payments will be responsive  to  changes  in  one’s  income,  family  composition,  and disability status. In a June 26, 2017 Technical Interpretation (2017-0704801E5, Wirag, Eric), CRA noted that the payments are based on an income  test,  and  therefore  constitute  social  assistance  payments(Paragraph 56(1)(u)). Social assistance payments are generally required to be included in an income tax return, however, may also be deductible (Paragraph 110(1)(f)).

CANADA/U.S. BORDER TRACKING

In an August 31, 2017 Canadian Press article (Ottawa sharing info with U.S. Homeland security on all Americans entering Canada, Jim Bronskill) it was noted that  data will be shared between Canada and the U.S.which includes a traveller’s name,  nationality,  date of birth, gender, the country that issued the travel document, and  date and time of crossing.

The first phase of the project did not include the exchange of information on citizens of either country (only permanent residents, foreign nationals etc.). As an interim step, an agreement was signed which now allows Canada  to supply information to the U.S. regarding American citizens. The Bill to permit the U.S. to share information on Canadian citizens  is currently at second reading in the Senate.

In  an  April  28,  2017  Technical Interpretation  (2017-0699741I7,  Waugh, Phyllis),  CRA  was  asked  whether  a reimbursement  for  tax  advisory  services obtained as a result of an employer payroll error  would be a taxable benefit.  The errors in question arose from the Phoenix pay system used  for  public service  employees  (see  VTN 422(10)).

The  Interpretation  noted  that  receipts  were  required  from  the employee, and only  costs  directly related  to the payroll  error  would be reimbursed.  CRA  indicated  that  compensation  for  a  financial  loss resulting from the  employer’s error  would not be an economic benefit to the  employee,  so  such  a  reimbursement  would  not  be  a  taxable benefit.

STOCK OPTIONS – SALE ARRANGEMENTS

In a July 14, 2017 Federal Court of Appeal case (Montminy et al. vs. H.M.Q.,  A-180-16),  at  issue  was  whether  the  taxpayers  could  claim  a 50% deduction of the benefit on the exercise of their stock options

(Paragraph 110(1)(d)).  The taxpayers exercised their stock options due to the sale of all assets of the employer corporation.  The options were exercised  and then the shares  sold  to the parent  of the employer company  the  same  day.  See  Tax  Court  decision  in  VTN  419(3) (Montminy et al. vs. H.M.Q., 2012-2142(IT)G).

The exercise and sale of shares were undertaken in conjunction with the sale of the assets of the employer corporation to an unrelated third party. The option terms originally provided for exercise of the shares on the  sale  of  the  corporation’s  shares  but  not  the  assets.  However,  the terms were amended to permit the options to be exercised in this case, in the interest of fairness to the employees.

The taxpayers reported a taxable benefit being the difference between the exercise price and the value of the shares sold to the parent.  They also claimed a deduction of 50% of the taxable benefit.

The Tax Court opined that as the employees  were required  to sell the shares to the parent corporation on the date of issuance, there was no doubt that such a sale would occur, and therefore, the share would not be a prescribed share  (defined in Regulation 6204(1)).  As a result, the deduction was denied.Among other criteria, this deduction is not permitted if the issuer of the  share,  or  certain  related  parties,  is  reasonably  expected  to redeem, acquire or cancel the share within two years  of its issuance to the employee (Regulation 6204(1)(b)).

The Tax Court also noted that an exception  which disregards the twoyear test (Regulation 6204(2)(c)) should not be applied due to the Tax Court’s statutory interpretation of the law. The Federal Court of Appeal analyzed this exception in detail.

Taxpayers win

The Court noted that the two-year test is ignored where they meet the following conditions (Regulation 6204(2)(c)):

(i)                  the  employee  to  whom  the  share  is  issued  was  dealing  at arm’s length with the employer when it was issued;

(ii)                the right or obligation is provided for in an agreement or terms and conditions of the share, and it is reasonably considered that:

1. the  principal  purpose  of providing the right or obligation is  to  protect  the  employee  against  any  loss  in  the value  of  the  share,  and  the  amount  payable  to  the employee under the right or obligation will not exceed the adjusted cost base of the share to the holder immediately before the acquisition (in other words, the value of the shares when issued to the employee); or
2. the  principal purpose  of providing the right or obligation is to provide the employee with a  market for the shareand the amount payable  for the share will not exceed fair market value of the share at the time; and

(iii)               it can be  reasonably considered  that the  amount payable  for the  share  is  not  directly  determined  by  the  profits  of  the corporation,  or  a  non-arm’s  length  corporation,  for  the  period from  issuance  of  the  option  to  disposal  of  the  shares  (an exception allows use of profits in a formula for computing the fair market value of the shares)

As all three conditions were  satisfied, the exception was met and the two-year  rule  was  disregarded,  such  that  the  shares  in  question  were prescribed shares, eligible for the deduction.

Further, the Court noted that it is not the imposition of a holding period of the  shares  that  ensures  a  risk  element  but,  rather,  the  particular characteristics of the share and minimum price at which the option must be exercised. The Court found that the Tax Court neglected to consider the  risk  the  taxpayers  bore  for the more than five years that they  heldthe  options  where the value of  the corporation could have fluctuated.  As such, providing the deduction (Paragraph 110(1)(d)) was  consistent  with the broader purpose of the stock option rules.

In  a  June  6,  2017  French  Technical Interpretation  (2015-0617331E5, Roy, Louise), CRA  considered  whether  the  transfer  of  a deceased’s TFSA to their spouse could constitute an  exempt  contribution.  To  the  extent  the payment  is  made  in  accordance  to  the  will, CRA opined that the payment is made as a result of the individual’s death.  The amount may still qualify as an exempt contribution regardless of  whether  it  is  paid  directly  to  the  deceased’s  spouse,  or  first  to  the estate, and then the deceased’s spouse.CRA also opined that the payment could be an exempt contribution where it  related  to  a  debt  due  to  the  division  of  family  property,  the dissolution  of  the  matrimonial  regime,  a  gift  made  by  marriage contract,  or  a  post-mortem  support  obligation.  An  exempt  amount must be paid during the rollover period (must occur by the end of the calendar year following the death), and the amounts must be  distributed as a consequence of the individual’s death.An  exempt  contribution  allows  for  an  addition  to  one’s  TFSA  account without reducing the available contribution room.

TESTAMENTARY  TRUST  AS  A  BENEFICIARY  OF  AN ESTATE

Where an estate, trust or beneficiary acquires a right or thing upon a taxpayer’s death, several tax consequences may arise, as follows:

• the  value  may  be  included  in  the  deceased  taxpayer’s  final income tax return (Subsection 70(1));
• the  value  may  be  reported  in  a  separate  elective  return(Subsection 70(2)); or
• the  value  may  be  taxed  when  ultimately  received  by  the beneficiary who inherits it (Subsection 70(3)).

The  beneficiary  will  be  taxable  where  a  right  or  thing  has  been transferred  or distributed  to a beneficiary  within the prescribed  time limit, no later than one year after the date of death or 90 days after the date of mailing of any notice of assessment or reassessment in respect of the year of death, whichever is later.  Where this requirement is met, the tax  liability  arises when the beneficiary  realizes  or disposes of the right or thing.  See  Interpretation Bulletin IT-212R3, Income of Deceased Persons – Rights or Things, for more information on these items.

In a June 28, 2017 French  Technical Interpretation  (2016-0653921E5, Allaire, Lucie), CRA was asked whether a testamentary trust  could be a beneficiary  of an estate  or a person beneficially interested in an estate for these purposes.

A deceased artist had previously made an election to value their artistic inventory at nil (Subsection 10(6)), allowing the individual to deduct the costs associated with the inventory in the year incurred rather than when the inventory is sold.  The artwork is considered a right or thing.  Upon the individual’s death, the artwork was bequeathed to a testamentary trust.

CRA opined that the testamentary trust could be a beneficiary of an estate or a person beneficially interested in an estate.  Therefore, if  no election  were  made  to  report  the  deceased’s  rights  or  things  in  a separate  return  (Subsection  70(2)),  the  income  inclusion  could  be deferred until when the artwork was disposed of by the testamentary trust.

CPP  SURVIVOR  BENEFIT  –  TIMELY  FILING  OF APPLICATION

In  a  May  30,  2017  Federal  Court  case  (Flaig  vs.  Attorney  General of Canada, T-538-16),  at issue was whether the taxpayer could  obtain CPP survivor  benefits  retroactive  to  the  date  of  her  husband’s  death  in 2007. The taxpayer made the application for the CPP survivor benefit in 2012.  Benefits were provided back to 2011, not the requested date in 2007.

Taxpayer loses The Court opined that as the taxpayer did not demonstrate that she was incapable of forming or expressing an intention to make an application for survivor  benefits  before  she  actually  made  the  application,  she  was unable  to  go  back  beyond  the  standard  1-year  retroactive  look back period for the benefits.

TIMING  OF  CPP  COLLECTION  –  GENDER CONSIDERATIONS

An August 10, 2017 Globe and Mail article (Why women (especially) should delay taking CPP,  by Bonnie-Jeanne MacDonald) discussed the merits of deferring application for CPP until age 70. This increasesthe monthly benefits by 42% over collecting at age 65.The article noted that a 65 year old woman  today can expect to live for 22 years, three years longer than a male. Deferring CPP to age 70 will result in total benefits about 9.7% greater than collecting at age 65.For a male, the increase would be about 6.1%.

The  article  also  noted  further  reasons  to  draw  extra  funds from an RRSP from age 65 to age 70 and defer CPP application, including the following:

1.  reduced investment risk  as the funds to be withdrawn from the RRSP would presumably be held in low-risk assets;
2. inflation protection as CPP is fully indexed;
3.  reduced risk of outliving one’s retirement income, as CPP is guaranteed for life;
4. less stress from managing investments; and
5. reduced  exposure  to  fraud  –  and  to  pressure  from  relatives seeking loans – by reducing accessible savings.

The article noted that women  tend to be more  risk-averse, leading to a preference  for  the  guaranteed  income  provided  by  CPP.  It  also  noted many other considerations  which may suggest  collecting CPP earlier, such as an expectation of a shorter lifespan.

Finally,  the  article  suggested  that  women  expecting  to  be  eligible  for Guaranteed Income Supplement  (GIS) payments should  apply  for  CPP at age 60 as CPP will erode their GIS eligibility. As well, lower income seniors tend to have shorter lifespans.

FINANCE RELEASES  ( www.canada.ca/en/department- finance.html )

1.  September  5,  2017  –  Finance Minister  Bill  Morneau  and  Minister  of Small Business and Tourism, Bardish Chagger,  are  undertaking  a  cross country  listening tour  with respect to  the  proposed  changes  to  the CCPC taxation.

2. October  3,  2017  –  Late  Breaking:  As  the  consultation  period regarding taxation of private corporations comes to an end, those proving submissions were thanked. The next steps will be based on  the  following  key  principles:  keeping  taxes  low  for  small businesses;  avoiding  unnecessary  red  tape;  ensuring  that  the transfer  of  a  family  business  to  the  next  generation  is  not affected; and conducting a gender-based analysis. No specific step or timeline was provided.

CRA RELEASES  ( www.canada.ca/en/services/taxes/income – tax.html )

1.  September  1,  2017  –  A  CRA  news  release  announced  that  an office  will  be  opened  up  in  Whitehorse,  Yukon,  to  support residents with their filing obligations.  The centre will also focus on providing  specialized  support  to  businesses  and  individuals  in context  of  northern  resident  issues  (such  as  the  northern resident deduction).

2.  August  21,  2017  –  CRA  announced  that  it  has  begun  making automated courtesy calls  notifying registered charities  that the  due  date  for  filing  their  completed  information  return  is approaching.  A charity’s status may be revoked if it doesn’t file.3.  August 9, 2017  –  A CRA news release commented on schemes that claim that taxes don’t have to be paid. Discussed were the “tax protester” and “natural person” movements.

4.  August 2017 –  CRA announced that a  webinar  information session for  employers  who  have  questions  on  the  small  business deduction will be held on October 18, 2017.

Taxpayer wins – mostly :The  taxpayer  must  use  reasonable  procedures  to verify  that  suppliers  are  valid  registrants,  their registration  numbers  actually  exist  and  are  in  the name  of  that  person.  The  Court  held  that  the taxpayer’s  procedures  (reviewing  the  suppliers’ registrations,  stamped  by  Revenue  Quebec)  were generally  sufficient  to  meet  the  documentation requirements  (Excise Tax Act Subsection 169(4)).  It was  not  relevant  that  some  suppliers  did  not  have scrapyards  and/or  vehicles  to  carry  on  scrap  businesses,  nor  that payment  was often made  in cash, making it difficult to verify the suppliers’ revenues.  The taxpayer could not be expected to query government officialsto ensure that GST registrations were properly issued.However, in respect of one supplier, the facts showed that the taxpayer had been  sloppy  to the point of  gross negligence  in accepting evidence of registration where it was clear that the  registered supplier  was not acting on their own account. Those ITCs were properly denied, and the related gross negligence penalty upheld.As  well,  one  purchase  was  made  on  the  date  the  supplier’s registration was cancelled, so the supplier was not a registrant on that date, and the  ITC  was properly denied.  However, the related  gross negligence  penalty  was  reversed,  based  on  the  due  diligence undertaken in respect of the supplier previously.

Finally, the Court held that a  rebate for  GST/HST paid in error  (Excise Tax Act Subsection 261(19)) does not apply where the error arises due to the taxpayer’s negligence, or because the payment is made to a nonregistrant, including a supplier whose registration has been cancelled.The  purpose  of  the  rebate  is  not  to  allow  the  taxpayer  to  recover GST/HST from the Crown when the erroneous payment to the supplier results from taxpayer’s failure to exercise proper care and attention.

SINGLE SUPPLY – SERVICES PROVIDED INSIDE AND OUTSIDE OF CANADA

In  a July 11, 2017  Federal Court of Appeal  case (Club Intrawest vs. H.M.Q.,  A-249-16),  at  issue  was  what  portion  of  resort  fees  paid  by members of the Intrawest program would be  subject to GST.  Fees  paid provided access  to resorts in Canada, the U.S., and Mexico.  The fees were  used  primarily  to  administer  the  program,  maintain  the properties, and build a  reserve fund.  The taxpayer had argued that the portion of the fee related to the properties outside of Canada should not be  subject to GST/HST  according to the place of supply rules  in Section 142 of the Excise Tax Act.

In the original Tax Court of Canada case (Intrawest vs. H.M.Q., 2012-3401(GST)G), the Court found that the fees were for a single supply of service,  and  that  part  of  the  service  was  provided  in  Canada, therefore GST/HST was applicable to the entire fee.

Taxpayer wins-Generally, once it has been determined that there is a single supply, the entire charge  is either subject to  GST/HST or not.  The Federal Court of Appeal  determined,  that  even  though  the  service  was  paid  in  a  single payment,  an  alternative  approach  was  required  to  recognize  that ultimately the services  were distinct:  services provided inside Canada and those provided outside. These were two separate supplies, so the single supply provisions did not apply.

The  Federal  Court  of  Appeal  agreed  that  the  taxpayer’s  original proposal  to charge GST/HST based on the proportion of costs in Canada to  the  total  membership  costs  would  more  fairly  and  reasonably reflect the nature of the supply.

AGENCY AGREEMENT In a June 9, 2017 Tax Court of Canada case (572256 Ontario Ltd. vs. H.M.Q.,  2015-4326(GST)I),  the  Court  reviewed  whether  an  entity’s management  contract  to  maintain  real  property  of  the  taxpayer constituted an  agency agreement.  If it did, the taxpayer was eligible to claim input tax credits  for purchases made by the management entity.

Taxpayer wins The  management  agreement  identified  the  property  manager  as an agent of the property owners. This status was questioned because the manager  had  acquired  the  parking  area  related  to  the  other  real estate.  Although  no  written  documentation  existed  to  support  the relationship,  the  Court  concluded  that  the  parking  area  was  held  as  a bare  trustee,  and  the  manager  acted  as  agent  in  respect  of  that property  as  well.  The  taxpayer  was,  therefore,  entitled  to  input  tax credits.