In Kathryn Walker, “The Services Carve-Out from TOSI” Canadian Tax Focus 4:4 (May 2018), the author considers the meaning of business income from the “provision of services” in the definition of excluded shares in s 120.4(1). She notes that the Income Tax Act uses the phrase in only a few other places and provides no guidance on its meaning. The few cases that refer to the phrase do not provide any guidance either. The author speculates about the meaning to be ascribed to the phrase and concludes that “[t]his review of what “provision of services” might mean shows that large sections of the economy could be vulnerable to the new TOSI.”
In Gauthier, 2017 FC 1173, the taxpayer made a voluntary disclosure for 2005-2014 for income earned from funds he had transferred offshore in 1978. The CRA accepted the VD, waived penalties and cancelled interest for those years but then reassessed for 1980 to 2004 to impose tax, interest and penalties (for failing to file a T1135).
The taxpayer’s application for judicial review was dismissed.
The FC disagreed with the taxpayer because there was no evidence suggesting that the CRA had agreed not to undertake reassessments for earlier taxation years. Furthermore, judicial review focuses on the reasonableness of the CRrA’s decision and grants relief when there are procedural defects. Because there was no evidence of unreasonableness or procedural defects, the [Court] found no merit in preventing the Minister from exercising her discretion to reassess. The [Court] also pointed out that the orderly application of the law takes precedence over the financial and other inconveniences a taxpayer may be facing.
Priscila Padilla, “Voluntary Disclosures: Penalties Applied for Prior Years” Canadian Tax Focus 4:4 (May 2018).
The CRA accepts that a business carried on by a corporation as a member of a partnership is not a specified investment business if the partnership employs more than five full-time employees. The authors suggest that a corporation could earn ABI from rental properties “by creating a pooled ownership of multiple properties, or multiple interests in one large property” where the pooling is through a partnership that employs more than five full-time employees. A joint venture, however, will likely be less effective for this purpose because of Lerric Investments Corp. v Canada, 2001 FCA 14.
Jeanne Cheng and Tom Qubti, “Rental Income and ABI: Structuring Around the Five-Employee Test” Canadian Tax Focus 4:4 (May 2018).
From Jason Pisesky, “Incentive Effects of the New SBD Clawback” Canadian Tax Focus 4:4 (May 2018):
[Where a corporation earns ABI equal to its business limit] an extra $1,000 of rental income creates $1,307 of immediate tax in Alberta, as well as cash flow issues in certain situations. Changes in investment portfolios may be appropriate.
This harsh result is ameliorated by paying dividends, but that can be problematic because of the new split RDTOH rules.
Corporations might consider investing in less risky assets to generate less investment income or investing in growth assets to control better when returns are realized.
The taxpayer was not personally liable as a director of a corporation for unremitted HST and source deductions. She had signed the articles of the relevant corporation. But she had not signed an incorporation agreement, as required by BC law, and she had never consented to being a director or signed any other document indicating that she was a director. She had signed a “partnership” agreement that had contemplated the incorporation of a corporation, but the Court found that this did not constitute an incorporation agreement.
She was not liable as a de facto director either. She had never held herself out to be a director, and she had never performed any management functions.
Le v R, 2018 TCC 65 (informal procedure)
An employee derives a benefit from free parking unless the employee must use the space “regularly” to perform his or her employment duties (ie for business purposes). Parking “to facilitate working irregular or extended hours is [not] parking for business purposes.” CRA technical interpretation dated January 24, 2018 (2016-0645911E5), translated and summarized at taxinterpretations.com here.
Update July 21, 2018 For a discussion of this technical interpretation, see Georgina Tollstam, “After-Hours Parking Spot Is Taxable Benefit” 26:6 Canadian Tax Highlights (June 2018). She points out that the CRA position is contrary to the Tax Court decision in Chow v R, 2001 DTC 164 (informal procedure).
In Bauer, 2018 FCA 62, the CRA commenced an investigation into whether the taxpayer had evaded taxes. The CRA investigator issued requirements to several banks under section 231.2 to obtain information on the taxpayer. The CRA then used that information to prepare net worth assessments. The taxpayer’s notice of appeal from the assessments alleged that the information from the banks was inadmissible in the Tax Court proceedings because it had been obtained in a manner that violated his section 8 Charter rights. The Tax Court struck the allegation as having no reasonable prospect of success, even if true. The Federal Court upheld the Tax Court decision. Mr Justice Webb wrote the following for a unanimous court:
 In my view, even though an investigation had commenced that could lead to charges being laid under section 239 of the ITA, this does not preclude the CRA from using requirements to obtain information or documents that could be used only in relation to the reassessments. Both the reassessments and any charges under section 239 of the ITA ultimately relate to the underlying tax liability of the taxpayer. Therefore, there is a common element in both matters—the determination of the unreported income of the taxpayer for a particular year. Common facts will be needed for both the administrative reassessment and the penal charges under section 239 of the ITA.
 While using requirements under section 231.2 of the ITA to obtain information or documents after an investigation has commenced may result in that information or those documents not being admissible in a proceeding related to the prosecution of offences under section 239 of the ITA, it does not preclude that information or documents from being admissible in a Tax Court of Canada proceeding where the issue is the validity of an assessment issued under the ITA. It is the use of the information or documents that is relevant, not who at CRA issued the requirement for information or documents.
 In Piersanti the issue was the admissibility of certain documents in a hearing before the Tax Court of Canada in relation to Mr. Piersanti’s liability under the Excise Tax Act, R.S.C. 1985, c. E-15. The documents had been obtained as a result of requirements that had been issued under that Act while the CRA was investigating Mr. Piersanti to determine if criminal charges should be laid. In confirming the admissibility of such documents this Court noted, at paragraph 5, that ““[a] taxpayer’s Charter rights are engaged when an audit becomes a criminal investigation””. Since these Charter rights are engaged when this criminal investigation commences, these Charter rights, that could affect the admissibility of documents in court proceedings, must relate to proceedings arising from this criminal investigation and not to proceedings that do not relate to the commission of a criminal offence under the ITA or the Excise Tax Act.
 In relation to the appeal of his reassessment, Mr. Bauer is in the same position as any other taxpayer appealing a net worth assessment that is based on documents received following the issuance of a requirement under section 231.2 of the ITA. He should not be in a better position simply because he was also under investigation in relation to section 239 of the ITA.
Subsection 227.1(2) of the Income Tax Act (Canada) provides that a director is not personally liable for unremitted source deductions unless
(a) a certificate for the amount of the corporation’s liability referred to in that subsection has been registered in the Federal Court under section 223 and execution for that amount has been returned unsatisfied in whole or in part;
(b) the corporation has commenced liquidation or dissolution proceedings or has been dissolved and a claim for the amount of the corporation’s liability referred to in that subsection has been proved within six months after the earlier of the date of commencement of the proceedings and the date of dissolution; or
(c) the corporation has made an assignment or a bankruptcy order has been made against it under the Bankruptcy and Insolvency Act and a claim for the amount of the corporation’s liability referred to in that subsection has been proved within six months after the date of the assignment or bankruptcy order.
The onus is on the Crown to prove compliance with paragraph (a) above, and a failure to meet that onus is fatal to a claim that a taxpayer is liable under s 227.1(1) even where the taxpayer fails to raise the issue in his or her pleadings. Custodio c R, 2018 CCI 47, relying in part on Walsh v R, 2009 TCC 557, paras. 27-29.
See also Savoy v R, 2011 TCC 35.
It appears the CRA has backed off its employment expenses project. A colleague of mine sent a release he received from CRA Audit, which read in part as follows:
Effective immediately, the Agency will stop reviewing and disallowing “other employment expenses” claimed on line 229 of the T1 Individual Income Tax and Benefits Return by shareholder-employees. We will also reverse those reassessments specific to line 229 already issued during the review period September 1, 2017 to February 10, 2018. Specifically, taxpayers who were major shareholder and owners of a corporation and received a letter from the Special Assessment Program of the Canada Revenue Agency dated between September 1, 2017 and February 10, 2018 indicating that they were reviewed for “other employment expenses” claimed on line 229 of the T1 Individual Income Tax and Benefits Return.
Taxpayers involved in these reviews will be contacted by letter to inform them of this decision.
Consultation will be undertaken with stakeholders in the tax professional community to clarify the requirement of employer certification under Subsection 8(10) of the Income Tax Act as it relates to shareholder-employees. It is expected that clarification will be issued to take effect in the 2019 tax year.
The Agency will issue guidance products on this issue well in advance of any future reviews to allow taxpayers, and their representatives, reasonable time to adjust to their tax filing requirements.
I have not been able to find a copy of the foregoing on the CRA website.
We all know that section 56.4 of the Income Tax Act (Canada) is a hot mess. A recent CRA technical interpretation (2017-0688301I7) (TI) illustrates well one of the reasons why. Continue reading