Ahmar v R, 2020 FCA 65, reminds us that a director is not duly diligent if he fails to remit HST in the hope that he can turn around the corporation’s business. This is true even where the director is an honest, hard-working business owner who injects his own money into the corporation to keep it afloat. The Court wrote:
 Insofar as this latter submission is concerned, this Court held in [R v. Buckingham, 2011 FCA 142] that a director’s conduct should be evaluated as of the time that he or she became aware that the company was entering a period of financial difficulties: above at para. 46. Moreover, the focus of the due diligence defence is “to prevent the failure to remit, not to cure failures to do so” Buckingham, above at paras. 31, 33 and 53. In [Balthazard v R, 2011 FCA 331], this Court found that “it is important for directors to quickly make the necessary decisions if they wish to successfully mount a due diligence defence”: above at para. 50. The Court further observed that quick decisions are important because the farther a business falls behind in its taxes, the more difficult it becomes to argue that the business is not using Crown remittances to operate: Balthazard, above at para. 50.
 As this Court observed in Buckingham, where a company is facing financial difficulties “it may be tempting to divert these Crown remittances in order to pay other creditors and thus ensure the continuation of the operations of the corporation”. The Court held, however, that this was precisely the mischief that section 323 of the Excise Tax Act sought to avoid. This Court went on in Buckingham to state that the defence under section 323 “should not be used to encourage such failures by allowing a due diligence defence for directors who finance the activities of their corporation with Crown monies on the expectation that the failures to remit could eventually be cured”: both quotes from para. 49.
A taxpayer cannot bring an application for a court order preventing the CRA from exercising its power to demand records and information even where the taxpayer believes that the CRA would be estopped from issuing an assessment for a matter to which the records and information relate. Continue reading
The BC courts continue to do their part to revive rectification as an important tool for fixing tax mistakes (or, more properly, delineate better the circumstances in which the tool can be used). See 5551928 Manitoba Ltd. (Re), 2018 BCSC 1482, aff’d 2019 BCCA 376. In Manitoba, the corporate taxpayer had declared an excess capital dividend because of a (very common) misunderstanding on the part of the accountant about when the gain from a disposition of eligible capital property was to be included in the taxpayer’s capital dividend account. The BC Court of Appeal distinguished Fairmont Hotels, 2016 SCC 56, on the basis that rectification to reduce the amount of the dividend to the balance of the corporation’s capital dividend account simply accomplished the directors’ original intention.
Rami Pandher “Rectification Is Back—Is Rescission Next?” 20:1 Tax for the Owner-Manager (January 2020).
[In] Wise v R, 2019 TCC 196, … a shareholder successfully argued that tenant improvements made by a related corporation did not confer an immediate benefit for the purposes of subsection 15(1) due to the provisions of the specific legal agreements between the landlord and the tenant.
The legal agreements in question included a five-year commercial lease with an option to renew for another five years.
Robert A. Neilson and Ashvin R. Singh “Are Tenant Improvements a Shareholder Benefit?” 20:1 Tax for the Owner-Manager (January 2020).
The CRA has reversed a long-standing (and questionable) position on whether a deemed dividend arising under paragraph 84.1(1)(b) of the Income Tax Act (Canada) gives rise to a dividend refund in the purchaser corporation. The CRA apparently now accepts that an 84.1(1)(b) deemed dividend is a dividend for these purposes, which reverses the position taken in technical interpretation 9729855 (January 19, 1998).
The reversal revives a planning opportunity from the late 90s, which is described in Aasim Hirji and Kenneth Keung “Planning Possibilities Resulting from CRA Policy Reversal on Section 84.1” 20:1 Tax for the Owner-Manager (January 2020).
Will GAAR apply to the taxpayer who uses the revived technique? Only time will tell, as Kent Brockman would say, but one wonders whether the CRA’s success with GAAR over the last decade or so led it to abandon what was anyway a questionable administrative position.
In A.G. Stedman “Intercorporate Dividend Planning: More Complexity” 20:1 Tax for the Owner-Manager (January 2020), the author outlines factors to consider when a private corporation proposes to pay a dividend to another private corporation as follows:
- When a subsidiary corporation has NERDTOH, ERDTOH, or GRIP balances, careful planning is necessary to ensure that dividends from the subsidiary result in additions to the same pools in the parent company.
- For any inter-corporate dividend, section 55 and the safe income on hand of the payer must be considered.
- Care must be taken to ensure that the corporate beneficiary of a trust that receives a dividend from another corpration is connected with the other corporation for Part IV tax purposes.
- Staggered year-ends are particularly problematic. The recipient might be required to file its tax return before the payer corporation can determine its ERDTOH and NERDTOH balances.
In technical interpretation 2017-0732681E5 (September 12, 2019), the CRA took the position that the distribution of an actuarial surplus from an individual pension plan to a US-resident taxpayer would not qualify for US treaty relief. The CRA stated that the surplus was a lump-sum amount rather than a “periodic pension payment” contemplated by section 5 of the Income Tax Conventions Interpretation Act. The CRA also found that commutation payments and minimum amount payments (made to comply with subsection 8503(26) of the Income Tax Regulations) would not qualify as “periodic”.
Marlene Cepparo, “No Reduced Withholding Tax for Pension Payout to US Resident” 27:12 Tax for the Owner-Manager (December 2019)
Steve Suarez, “FCA To Hear Atlas Tube Appeal” 27:12 Tax for the Owner-Manager (December 2019), discusses Canada (National Revenue) v. Atlas Tube Canada ULC, 2018 FC 1086. The Federal Court held that an accounting firm’s due diligence report on the tax attributes and exposures of a target corporation was not privileged and was subject to disclosure to the CRA. The taxpayer has appealed the decision. The author argues that the Federal Court judge made a number of errors of law in arriving at its decision.
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