These days, in so many aspects of our lives, we are the product (as the saying goes). Retailers, for example, offer loyalty programs because, among other things, they allow our spending habits to be tracked. It turns out that the retailers aren’t the only entities interested in our spending habits, however. The CRA could use these programs to determine whether we have unreported income (eg by obtaining information about our cash purchases from a retailer). See Steven Raphael and Robert G. Kreklewetz, “Loyalty Program Data May Assist the CRA” 25:10 Canadian Tax Highlights (October 2017), which discusses Rona Inc. c Canada (Revenu national), 2017 CAF 118.
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.
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.
Neal Armstrong reports that the Quebec Court of Appeal, in Emballages Starflex Inc. v Agence du revenu du Québec, 2016 QCCA 1856, has held that a corporation cannot deduct a gift to a charity as a business or promotional expense. The Court of Appeal cited Symes v Canada,  4 SCR 695, 1993 CanLII 55, as authority for the proposition that an amount should not be deductible under general principles as a business expense “in the face of a specific and complete regime” (here, presumably, for the deduction of charitable gifts).
Roy Berg, in “Tax Dispute Resolution: Watch for US Issues” Canadian Tax Highlights 24:2 (February 2016), outlines some issues to consider when representing a US taxpayer who has a dispute with the CRA. He writes:
The practitioner [handling the dispute] may be tempted to settle (or even concede) a dispute with the CRA in Canadian dollars and hope to recoup some of the loss by claiming a refund of previously paid (and substantially appreciated) US dollars, but the US refund may be denied if appropriate procedures are not followed.
What are the “appropriate procedures”?
A claim for a [US tax] credit for Canadian taxes paid requires that the taxpayer show (1) that the tax has been determined in a manner consistent with a reasonable interpretation and application of the substantive and procedural provisions of Canadian law (including the treaty); and (2) that the taxpayer has exhausted all effective and practical remedies, including the “invocation of the competent authority procedures” (Treas. reg. section 1.901-2(e)(5)(i)).
John Sorenson, in “Jeopardy Order Overturned” Canadian Tax Highlights 24:2 (February 2016), discusses Canada (National Revenue) v Grenon, 2015 FC 1050. In this case, the taxpayer applied to the court to overturn a jeopardy collection order made under section 225.2 of the Income Tax Act (Canada). Sorenson notes three key points discussed in the case:
- The Minister need only show reasonable grounds to believe that a stay would jeopardize the collection of some or all of the debt. This is a lesser onus than is typically applicable in civil proceedings (the balance of probabilities).
- The initial application for the order is made ex parte. Accordingly, the Crown “must apply to the FC in good faith and make full and frank disclosure that is reasonable in the circumstances.” The Crown must present all relevant facts to the court, provide all relevant case law and set out foreseeable weaknesses in the Crown’s case.
- A taxpayer may apply to the Federal Court to have a jeopardy order overturned. The case law is unsettled regarding the onus on the Crown in such an application. In Grenon, the court concluded that “the relevant provisions do not support a higher onus on the minister on review and that a higher onus should be established by statute rather than by judicial innovation.”
From Justice Bocock, in Robertson v R, 2015 TCC 246, we read the following regarding whether a mistake of law amounts to a negligent misrepresentation:
[a] wise and prudent person is, generally by definition, not unknowledgeable of the law. However, a wise and prudent person is also not all-knowing. He or she may be ignorant of specific legislative provisions—section 7 of the Act, for example. The question to be asked is this: was it reasonable for a wise and prudent person to remain ignorant, in the circumstances, at the time the misrepresentation was made? In the present case, the answer to this question is no. A wise and prudent person in Mr. Robertson’s situation should have at least raised the issue of the taxation of the Options in his own mind or with his accountant or another professional advisor.
When can a taxpayer rely on an accountant’s error to avoid a reassessment outside the normal reassessment period? Justice Bocock summarized Aridi v R, 2013 TCC 74, as follows:
(1) the taxpayer submits all materials to the professional advisor; (2) a discussion is had between the advisor and the taxpayer touching upon the inclusion or exclusion from income of the item; (3) that discussion gives rise to a review of the facts related to the inclusion or exclusion; and (4) a clear, factual confirmation made by the professional advisor leads to the misrepresentation.
Discussed in Philip Friedlan and Adam Friedlan, “Reassessing a Statute-Barred Year and the ‘Wise and Prudent Person’ Test” Tax for the Owner-Manager 16:1 (January 2016).
A version of the following article appeared in the most recent edition of the HLA Journal.
An employee, for income tax purposes, cannot deduct many expenses that a person in business for him- or herself can. On the other hand, a CCPC that carries on an active business can claim the small business deduction in respect of income from that business. Assuming that a worker does not wish to be treated as an employee, can he or she get the tax benefits of a self-employed person and the small business deduction by providing services through a corporation? The answer is “no”, if the personal service business (“PSB”) rules apply. Continue reading
Filing an amended return will not cure a negligent misrepresentation made in the original return, and so the CRA will still be able to reassess beyond the normal reassessment period in respect of the misrepresentation. Georgina Tollstam, “Deceased’s Return Reassessed After Normal Period”, Canadian Tax Highlights 23:8 (August 2015) re Vine Estate v R, 2015 FCA 125.