The TOSI rules don’t just apply to dividends from Canadian private corporations. The rules can apply to dividends from foreign private corporations as well, and the tax results are potentially horrendous.
Stan Shadrin, Manu Kakkar and Alex Ghani, “FAPI and TOSI Overlap: 107 Percent Tax Is Not Fair” (January 2020) 20:1 Tax for the Owner-Manager
In a technical interpretation (TI 2019-0814181E5, August 19, 2019), the CRA confirmed that the five-year test to qualify for the “excluded business” exception under the TOSI (tax on split income) rules should take into account all taxation years in which a taxpayer is involved in a business, regardless of whether the business was previously carried on in another form.
What happens where Opco A and Opco B amalgamate, Amalco carries on the businesses carried on by each of the predecessors but a spouse (“spouse B”) was involved in only one of the businesses?
In that case, Amalco must maintain separate books and records for each business, and the taxpayer must maintain documentation adequate to allow the tracing of funds from each business to the payment of dividends to determine whether the dividend is an excluded amount for spouse B.
Good luck with that.
Dino Infanti, “The ‘Excluded Business’ Exception to TOSI: Reorganized Businesses” (January 2020) 20:1 Tax for the Owner-Manager
The draft foreign affiliate dumping rules can create a deemed dividend to a non-resident discretionary beneficiary of the estate of an owner of a private Canco that holds shares in a foreign affiliate.
Henry Shaw, “Foreign Affiliate Dumping and Estates with Non-Resident Beneficiaries” (February 2020) 10:1 Canadian Tax Focus
In Landbouwbedrijf Backx BV v Canada, 2019 FCA 310, the Court agreed that a Dutch company was resident in Canada because the central mind and management of the company was in Canada. The Court found the following facts to be determinative:
- the Dutch director had no prior experience in the business of the corporation (the operation of a dairy farm);
- the director merely accepted instructions from shareholders regarding the payment of bills and the execution of documents without participating in the decision-making process; and
- the director did not participate in certain e-mail exchanges between the shareholders and the advisers to address tax-planning issues.
The Court remitted the matter back to the Tax Court because it had not adequately analyzed section 128.1 of the Income Tax Act (Canada) or the effect of the Dutch treaty.
Shaira Nanji, “Corporate Residency: Landbouwbedrijf Saga Continues” (February 2020) 10:1 Canadian Tax Focus
Gergely Hegedus, “SCC on Standards of Judicial Review” (February 2020) 10:1 Canadian Tax Focus, draws the following lessons from Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, Bell Canada v Canada (Attorney General), 2019 SCC 66, and Canada Post Corp. v Canadian Union of Postal Workers, 2019 SCC 67:
- A reviewing court might be more likely not to remit a matter where the outcome is inevitable.
- The standard of review generally remains reasonableness.
- Decisions are presumed to be reasonable even when they depended on matters of statutory interpretation.
- The standard is not reasonableness where the relevant legislation says otherwise or “the rule of law requires the standard of correctness to apply.”
The trend in Tax Court jurisprudence is to require specificity in contracts to permit a commissioned employee to deduct an expense. The contract must contemplate the particular expense in question before it will be deductible under paragraph 8(1)(f) of the Income Tax Act (Canada). The author argues that this trend gets the policy wrong because “commission-based employment is entrepreneurial.”
James Alvarez, “The Contractual Requirement Rule for Commission Employees’ Deductions” (February 2020) 10:1 Canadian Tax
In Moose Factory Restaurant Properties Ltd. v R, 2019 TCC 156, the taxpayer claimed an ABIL in respect of a debt of a third party that the taxpayer had guaranteed. The third party went bankrupt leaving the taxpayer exposed under the guarantee, but the taxpayer hadn’t made any payments to the lender pursuant to the guarantee by the end of the taxation year in which it claimed the ABIL. Owen TCJ held that a debt hadn’t arisen by the year end (the taxpayer hadn’t acquired a right to contribution on account of a payment under the guarantee) and, even if there had been a debt, the taxpayer had no cost in it because it hadn’t (yet) laid anything out in respect of the debt.
Shaira Nanji and Kristina Djogovic-Morgan, “ABIL Denied: Design of Financing Structure Faulted” 9:4 Canadian Tax Focus (November 2019)
In Silver Wheaton Corp. v R, 2019 TCC 170, the Court held that the implied undertaking rule prevented third parties from obtaining the production of documents and information produced by the taxpayer in a Tax Court appeal.
Bhuvana Sankaranarayanan, “Third Parties Are Not Entitled to Taxpayers’ Document Disclosure” 9:4 Canadian Tax Focus (November 2019)
US federal and state estate taxes are eligible for a tax credit in Canada only because of the Canada-United State Income Tax Convention (1980). The treaty, however, does not bind Canada’s provinces. Ontario and BC, unlike other provinces, have not enacted legislation to provide a provincial tax credit for US estate taxes.
Kailey McLeod and Nadia Pulla, “Misalignment of Federal and Provincial Tax Credits” 9:4 Canadian Tax Focus (November 2019)