Donald Cherniawsky, in “Are Dividend Refund Claims by Dividend-Paying Corporations Elective?” 17:4 Tax for the Owner-Manager (October 2017), refers to CRA technical interpretation 2016-0649841E5. The TI states that a dividend payer could elect not to claim a dividend refund in a taxation year. This would be helpful in a butterfly where the dreaded circularity problem might otherwise arise. Mr Cherniawsky notes, however, that there are practical problems to the approach, not the least of which is CRA audit hostility to the “election” and T2 software, which won’t allow overriding the dividend refund claim.
Kathryn Walker, “Employee Discounts for Merchandise: The Law” Canadian Tax Focus 7:4 (November, 2017) argues that the CRA’s new policy in Income Tax Folio S2-F3-C2, “Benefits and Allowances Received from Employment” on employee discounts simply reflected a change in the jurisprudence. She refers to R v Spence, 2011 FCA 200, Steam Whistle Brewing Inc. v MNR, 2012 CarswellNat 2772, and Anthony v R, 2010 TCC 533, aff’d 2011 FCA 336.
The Trudeau government was quick to blame bureaucrats for the change and to promise a reversal. Will the change take the form of legislation to overturn the cases referred to above?
In 101139810 Saskatchewan Ltd. v R, 2017 TCC 3, an individual owned all of the shares of DC, which held some shares of Targetco. The individual undertook a series of transactions that ended with the sale of Targetco shares to an arm’s length purchaser. The series included a divisive reorganization in which DC spun-off its shares in Targetco to TC1 and TC2, both of which were wholly-owned by the individual. The individual then sold TC1 and TC2 to the arm’s length purchaser. The CRA reassessed the dividends received by TC1 and TC2 as capital gains under 55(2). The court dismissed the appeal. 55(2) applied even though the individual realized a gain on the sale of the TC1 and TC2 shares equal to the deemed gain under 55(2). This was not double taxation because the same taxpayers were not subject to tax twice on the same capital gain. Kenneth Keung “Capital Gains Taxed Twice” Tax for the Owner-Manager 17:2 (April 2017)
In Dino Infanti “Employee Stock Option Rules and Legally Binding Agreements” Tax for the Owner-Manager 17:2 (April 2017), the author summarizes CRA technical interpretation 2016-0641841I7 (September 19, 2016). The technical interpretation, in light of Transalta Corporation v R, 2012 TCC 86, states that s 7 and s 110(1)(d) of the Income Tax Act (Canada) apply only if there is a legally binding agreement to issue shares. Continue reading
The CRA has concluded that the s 162(7) penalty for late-filing a T1135 applies automatically. Answer to question 14 at the APFF Roundtable on October 6, 2017.
Tax Interpretations reports that the CRA believes it is possible to rollover property to a common-law spouse under section 73 of the ITA or the RRSP rollover rules pursuant to a written separation agreement. This is true, the CRA thinks, even though the common-law spouses might not have rights to an equalization of property. This is summarizing the answer to question 1 at the APFF Roundtable on October 6, 2017.
Let’s see what the harassed tax adviser (or front-line CRA auditor) must do to answer basic client questions about the new tax-on-split-income (TOSI) rules. Continue reading
Regarding de facto control, proposed subsection 256(5.11) overturns McGillivray Restaurant Ltd. (2016 FCA 99). The proposed subsection reads as follows:
(5.11) Factual control—Interpretation. For the purposes of this Act, the determination of whether a taxpayer has, in respect of a corporation, any direct or indirect influence that, if exercised, would result in control in fact of the corporation
(a) shall take into consideration all factors that are relevant in the circumstances; and
(b) shall not be limited to, and the relevant factors to be considered in making the determination need not include, whether the taxpayer has a legally enforceable right or ability to effect a change in the board of directors of the corporation, or the board’s powers, or to exercise influence over the shareholder or shareholders who have that right or ability.
For more commentary, see Philip Friedlan and Adam Friedlan, “Aeronautic Development Corporation and De Facto Control”, Tax for the Owner-Manager 17:3 (July 2017).
John Sorensen, “Credibility and an Assessment’s Mailing”, Canadian Tax Highlights 25:1 (January 2017) comments on Mpamugo (2016 TCC 215). The case summarizes four steps for dealing with disputes over whether and when a notice was mailed:
- The taxpayer must assert that the assessment was not sent or not sent to the proper address.
- The minister must lead sufficient evidence to prove on a balance of probabilities that the assessment was sent and sent to the proper address.
- If the minister can prove that the assessment was sent, the sending date is presumed to have been the date that appears on the face of the assessment; however, the presumption may be rebutted if the taxpayer can prove that the assessment was sent on a different date.
- When the sending date is established, the assessment is not only deemed sent on that date but also deemed received on the same date; the deemed receipt is not rebuttable.
The Court in Mpamugo held that the taxpayer’s credibility became relevant only after the Minister had met the onus imposed by the taxpayer’s assertion in step 1 above.