A taxpayer fails to meet the 90-day deadline for filing an appeal to the Tax Court apparently because he was badly advised by a professional about procedural matters. Should the Court grant his application to late-file the appeal? The Federal Court of Appeal said ‘yes’ in Bygrave v R, 2017 FCA 124. Continue reading
I wrote here about the effect that ASPE could have on the retained earnings of a private corporation. An appraisal increment could render retained earnings a very poor indicator of safe income. The CRA is now saying that such an increment could also increase the capital of a corporation for the purposes of Part I.3 tax. See technical interpretation 2016-0663781E5.
I have another translation: the government needs to invoke GAAR to cooper up its (relatively) recent and detailed amendments to an already complex set of anti-avoidance rules because it refuses to accept that the regime for taxing (or maybe not taxing) inter-corporate dividends in Canada is broken and needs a radical overhaul.
The Federal Court of Appeal has affirmed the Tax Court’s finding that an employee-controlled buyco acted as an “accommodation party” that allowed a key shareholder to use the capital gain exemption to strip out corporate surplus. As a result, section 84.1 applied to the sale instead. Turgeon v R, 2017 CAF 103, aff’g Poulin v R, 2016 TCC 154.
In R & S Industries Inc. v R, 2017 TCC 75, both the CRA and the taxpayer agreed that they were bound by the elected amount shown on a T2059. That amount cannot be altered unless the CRA permits the filing of an amended election. The Court, however, held that that does not mean the elected amount won’t be altered if it can be shown by either the CRA or the taxpayer that the “key facts” (eg the amount of boot) were other than as recorded on the form. The “key facts” are not determined by what is recorded on the form, and the “key facts” engage the deeming rules in s 85, which can apply to alter the elected amount. The Court wrote:
 The Minister is bound by the agreed amount because it is something that the parties have elected. The Minister is not bound by the key facts because the facts are the facts. They exist independently from the election. So, if the Minister is not bound by the key facts stated in the election, why would the parties to the transaction be bound by them?
 There is no question that a taxpayer would face an uphill battle in court trying to prove that a key fact that both parties to the transaction certified in the T2059 election to be true is, in fact, not true. However, that does not mean that the taxpayer is not free to try to do so. More importantly, it does not mean that the Court lacks jurisdiction to hear such an appeal.
Interestingly, one of the “key facts” according to the Court is the allocation of the consideration among the transferred properties (¶11). Lawyers be aware: what you show in an agreement in this regard appears to be at least as important as what appears on the election form.
Neil Armstrong notes that the CRA believes that WIP under contingent fee arrangements is not income for the purposes of the Income Tax Act until the client receives amounts under a settlement or court order (when the liability of the client for fees is actually triggered).
Mr Armstrong writes:
There can be arrangements under which the fees of professionals respecting an acquisition or sale, financing, or reorganization contingent on lenders’ or shareholders’ approval, cannot be rendered until the closing, with an indeterminate “haircut” to be negotiated for a failed transaction. These may be contingent-fee arrangements.
I just posted a brief introduction to shareholder loans, which introduction you can find here.
Michael Welters “Results Test in Subsection 55(2)” Canadian Tax Highlights 25:3 (March 2017) discusses 101139810 Saskatchewan Ltd. v R, 2017 TCC 3. The court applied 55(2) to intercorporate dividends paid to two holdcos even though the individual who owned them also paid tax on the same economic gain (this was not double taxation). The judge found that the results test was met so that 55(2) applied simply because the dividend recipients would have paid tax on a sale of the shares that were redeemed instead. According to the author:
Many practitioners have feared that the results test in subsection 55(2) meant that the deemed dividend from a share redemption was converted into a capital gain, unless there was sufficient safe income or an exception applied. Prudent practice avoided the risk unless there was reassurance that safe income or a subsection 55(3) exemption was available. This case affirms the prudence of that approach.
Ken Griffin and Marc Vanasse, “Income Tax Objection Process” Canadian Tax Highlights 25:3 (March 2017), summarizes the Auditor General’s report on the CRA objection process. Not surprisingly, the report found the process lacking in a number of ways. Objections take too long. The CRA does not learn effectively from the results of objections. In addition, the CRA does not have any standards for resolving objections in a timely manner. Continue reading
I wrote previously about Rosenberg v Canada (National Revenue), 2016 FC 1376. Kathryn Walker and Robert G. Kreklewetz “Deals with the CRA” Canadian Tax Highlights 25:3 (March 2017) discusses the cases.
After discussing Rosenberg, the authors argue that Galway v Minister of National Revenue,  1 FC 593, is often misapplied. The authors contend that the case stands for the proposition that the Minister cannot assess $75 when the Income Tax Act imposes a $100 tax liability. The Department of Justice, however, can conclude such a settlement because it has the authority to conduct tax litigation under paragraph 5(d) of the Department of Justice Act, RSC 1985, c J-2.