October 2009 - Ed Kroft


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Assessing Current Trends & Current Cases

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October 2009 - Ed Kroft

  1. 1. INSTITUTE OF CHARTERED ACCOUNTANTS OF BC Assessing Current Trends and Current Cases Ed Kroft Q.C. October 14, 2009
  2. 2. CRA Assessing Issues
  3. 3. CRA Assessing Issues <ul><li>Income vs. Capital (real estate, stock trades) </li></ul><ul><li>Tax shelters / avoidance transactions / GAAR </li></ul><ul><li>Interprovincial planning </li></ul><ul><li>Leveraged Donations </li></ul><ul><li>Increased levy of gross negligence penalties and extension of normal reassessment period </li></ul>
  4. 4. CRA Assessing Issues <ul><li>Charity compliance </li></ul><ul><li>Demand for information </li></ul><ul><ul><li>Requirements </li></ul></ul><ul><ul><li>Tax accrual working papers and memos </li></ul></ul><ul><ul><li>Tax planning memos </li></ul></ul><ul><li>Ecommerce reporting </li></ul><ul><li>Valuation of Voting ­ non­participating (“skinny”) shares ( Lachterman , Dunstan , BC CTF Tax Conference) </li></ul><ul><li>Alberta Trusts (Questionnaires) </li></ul>
  5. 5. CRA Assessing Issues <ul><li>International Taxation </li></ul><ul><ul><li>Transfer pricing </li></ul></ul><ul><ul><li>Foreign affiliate surplus calculations </li></ul></ul><ul><ul><li>Inbound structures – permanent establishment of non-residents / Reg. 105 withholdings </li></ul></ul><ul><ul><li>Foreign trusts </li></ul></ul><ul><ul><li>Foreign Tax Credit Claims (sections 126 and 91) </li></ul></ul>
  6. 6. CRA Assessing Issues <ul><li>Small and medium enterprises audits </li></ul><ul><ul><li>Business Expenses / Income </li></ul></ul><ul><ul><ul><li>Timing issues (capital / current ? recognition) </li></ul></ul></ul><ul><ul><ul><li>Quality of payments (ECA, windfall, fully taxable) </li></ul></ul></ul><ul><ul><li>Payroll audits </li></ul></ul><ul><ul><ul><li>Employee benefits / deductions (travel allowance, disability payment, expenses) </li></ul></ul></ul><ul><ul><ul><li>Employee - independent contractors </li></ul></ul></ul><ul><ul><li>Associated Corporations </li></ul></ul><ul><ul><ul><li>Control in fact </li></ul></ul></ul><ul><ul><ul><li>Deemed association </li></ul></ul></ul><ul><ul><li>Interprovincial allocations of income </li></ul></ul>
  7. 7. CRA Assessing Issues <ul><li>Administrative Issues </li></ul><ul><ul><li>More T106 reporting </li></ul></ul><ul><ul><li>The CRA Audit Manual </li></ul></ul><ul><ul><li>Penalties for non­resident corps with no tax </li></ul></ul><ul><ul><li>Need for tax exempts to file T2 returns </li></ul></ul>
  8. 8. Interesting Cases <ul><li>Introduction </li></ul><ul><li>GAAR </li></ul><ul><li>Small Business Deduction/CCPC/Control </li></ul><ul><li>Income vs. Capital </li></ul><ul><li>Attribution Rules </li></ul><ul><li>REOP/Reasonable Expenses/Carrying on Business </li></ul><ul><li>Interest Deductibility/Financing Charges </li></ul><ul><li>Damages (Taxable/Deductible) </li></ul><ul><li>Accrued Expenditures – s.78 </li></ul><ul><li>10. Residence </li></ul><ul><li>11. Employee vs. Independent Contractor/Personal Services Business </li></ul>
  9. 9. Interesting Cases <ul><li>12. Medical Expenses/Disability Tax Credit </li></ul><ul><li>13. Taxable Benefits </li></ul><ul><li>14. International Developments </li></ul><ul><li>15. Tax Shelters/Contingent Liability/Cost </li></ul><ul><li>16. Demands for Information </li></ul><ul><li>17. Non-Arm’s Length Transfers of Property – s. 160(1) </li></ul><ul><li>18. Director’s Liability </li></ul><ul><li>19. Limitation Periods and Waiver </li></ul><ul><li>20. Determination of Partnership Losses </li></ul><ul><li>21. Fairness </li></ul><ul><li>22. Penalties/Misrepresentation/Late Filing </li></ul>
  10. 10. Interesting Cases <ul><li>23. Rectification </li></ul><ul><li>24. Security Interest – Source Deduction </li></ul><ul><li>25. Sham </li></ul><ul><li>26. Charities/Non-Profits </li></ul><ul><li>27. “Unjust Enrichment” </li></ul><ul><li>28. SR&ED & ITC </li></ul><ul><li>29. Part 1.3 LCT </li></ul><ul><li>30. Capital Cost Allowance </li></ul><ul><li>31. Reserves </li></ul><ul><li>Inventory </li></ul><ul><li>Moving Expenses </li></ul>
  11. 11. Interesting Cases <ul><li>Privilege </li></ul><ul><li>35. Affiliated Loss Rules </li></ul><ul><li>36. Foreign Exchange </li></ul><ul><li>37. Lifetime Capital Gains Exemption </li></ul><ul><li>38. ABILS </li></ul><ul><li>39. Accountant Working Papers </li></ul><ul><li>40. Section 80 </li></ul><ul><li>41. Objections – Extension of Time to File </li></ul><ul><li>42. Rollover in Reorganizations </li></ul><ul><li>Access to Information Request </li></ul><ul><li>Management Fees </li></ul>
  12. 12. Interesting Cases <ul><li>1. Introduction </li></ul><ul><ul><li>General Trends in Assessing Practices/Court Cases </li></ul></ul><ul><ul><ul><li>Certain areas growing in frequency (international (including transfer pricing), capital vs. income (trading cases, damages), demands for information (tax shelters) </li></ul></ul></ul><ul><ul><ul><li>Tougher for taxpayers to win in the FCA </li></ul></ul></ul><ul><ul><ul><li>No assurance of victory even after Tax Court success </li></ul></ul></ul><ul><ul><ul><li>More taxpayers seeking SCC leave in tax cases – few are allowed </li></ul></ul></ul><ul><ul><ul><li>Usual areas of audit scrutiny exist </li></ul></ul></ul>
  13. 13. Interesting Cases <ul><li>1. Introduction (cont’d) </li></ul><ul><ul><ul><li>Certain areas of audit seem to draw more acrimony & hardball (e.g. transfer pricing, valuations) </li></ul></ul></ul><ul><ul><ul><li>Courts seem to be using a “text, context and purpose” approach more consistently </li></ul></ul></ul><ul><ul><ul><li>Future Trends </li></ul></ul></ul><ul><ul><ul><li>Emerging differing philosophies in the SCC (LeBel vs. Rothstein) </li></ul></ul></ul><ul><ul><ul><li>Retirement of experienced CRA personnel in the audit and appeals area </li></ul></ul></ul>
  14. 14. Interesting Cases <ul><li>2. GAAR </li></ul><ul><ul><li>Lipson (SCC) – 4 to 3 for Crown – abuse of attribution rules; interest expense ok </li></ul></ul><ul><ul><li>MacKay (FCA) – leave to SCC denied – “avoidance transaction” </li></ul></ul><ul><ul><li>Landrus (FCA) - affiliated loss rules – “bright line” test and GAAR </li></ul></ul><ul><ul><li>Remai (TCC) – appealed to FCA – denial of charitable donation </li></ul></ul><ul><ul><li>Lehigh Cement (TCC) – appealed to FCA – non-resident withholding tax </li></ul></ul><ul><ul><li>Collins & Aikman Products (TCC) appealed to FCA – surplus stripping – taxpayer wins </li></ul></ul><ul><ul><li>Garron (TCC) – Barbados trusts/estate freeze/use of treaty – GAAR not applicable but trusts resident in Canada </li></ul></ul><ul><ul><li>Antle (TCC) – Capital gains step-up plan using Barbados Treaty – GAAR applicable to ignore transfer to Barbados trust </li></ul></ul>
  15. 15. Interesting Cases <ul><ul><li>2. GAAR Cont’d </li></ul></ul><ul><ul><li>Copthorne Holdings Ltd. (FCA) – leave to appeal to SCC sought by taxpayer – PUC duplication </li></ul></ul><ul><ul><li>OGT Holdings ( Quebec Court of Appeal) – leave to appeal to SCC denied – “Quebec shuffle” – avoidance of Quebec tax </li></ul></ul><ul><ul><li>Pending GAAR decisions from TCC and cases to be heard this fall/winter or in 2010 </li></ul></ul><ul><ul><ul><li>Kossow – g ifting & leveraged donations </li></ul></ul></ul><ul><ul><ul><li>Skinner – foreign tax credit usage </li></ul></ul></ul>
  16. 16. GAAR: the Significance of Lipson – General Comments <ul><li>Impact of Lipson on the Duke of Westminster Principle </li></ul><ul><ul><li>LeBel, J. (para. 21) – principle remains but not absolute </li></ul></ul><ul><ul><li>Binnie, J. (para. 54) – how healthy? Principle tempered </li></ul></ul><ul><ul><li>Rothstein, J. (para. 100) - use words “arrange affairs” </li></ul></ul>
  17. 17. GAAR: The Significance of Lipson – General Comments <ul><li>Interest Deductibility, Interpretation Bulletin IT 533 and Singleton </li></ul><ul><ul><li>Singleton shuffle still alive? Yes </li></ul></ul><ul><ul><li>Binnie, J. refers to and endorses Singleton (paras. 56-60, 62, 81, 87) </li></ul></ul><ul><ul><li>Rothstein, J. endorses it in para. 100 </li></ul></ul><ul><ul><li>LeBel, J. (paras. 19, 20 and 52) says Singleton and tracing not dispositive or determinative of the appeal – no rejection of Singleton or tracing </li></ul></ul>
  18. 18. GAAR: The Significance of Lipson – General Comments <ul><ul><li>LeBel, J. refers to Singleton as an “otherwise valid transaction” </li></ul></ul><ul><ul><li>Are IT 533 comments still applicable? Should be, possibly with some new reference to GAAR in the IT </li></ul></ul><ul><ul><li>Will “tracing” immunize transactions from GAAR? – not entirely (para. 52) </li></ul></ul><ul><ul><li>Cash damming ok? – Should be OK </li></ul></ul>
  19. 19. GAAR: The Significance of Lipson – General Comments <ul><li>Impact on Tax Advice, Planning and Opinions </li></ul><ul><ul><li>Opinions will be given: Yet </li></ul></ul><ul><ul><li>Lipson will require comment </li></ul></ul><ul><ul><li>May result in qualifications </li></ul></ul><ul><ul><li>Some transactions may not be the subject of favourable opinions </li></ul></ul><ul><ul><li>“ Overall result” will be an area requiring comment </li></ul></ul><ul><ul><li>Will tax rulings be sought more frequently? </li></ul></ul>
  20. 20. GAAR: The Significance of Lipson – General Comments <ul><li>The CRA’s Possible Future Approach to Tax Audits and Tax Disputes </li></ul><ul><ul><li>Litigation risk exists for CRA and taxpayers </li></ul></ul><ul><ul><li>Prospects for settlement should get better </li></ul></ul><ul><ul><li>Crown lost many elements of the battle </li></ul></ul>
  21. 21. GAAR: The Significance of Lipson – General Comments <ul><ul><li>Both taxpayers and the Crown lost certainty </li></ul></ul><ul><ul><li>How aggressively will CRA apply the GAAR? </li></ul></ul><ul><ul><li>The justices warn against indiscriminate application </li></ul></ul><ul><ul><li>Specific anti-avoidance rules will be applied frequently – less defences and more certainty of result </li></ul></ul><ul><ul><li>GAAR is uncertain because not always obvious if the purpose of a provision is frustrated – Lipson shows this </li></ul></ul>
  22. 22. GAAR: The Significance of Lipson – General Comments <ul><li>Possible Impact of Lipson on the Lower Courts </li></ul><ul><ul><li>Lipson principles will be followed - YET </li></ul></ul><ul><ul><li>How will they be applied? (6 cases since) </li></ul></ul><ul><ul><li>Courts seem to be ignoring Lipson ( Garron, Copthorne ) limiting it to its facts ( Collins, Lehigh, Landrus ) or applying it ( Antle, Ogt ) </li></ul></ul><ul><ul><li>Will a “smell test” emerge under the guise of applying Canada Trustco ? </li></ul></ul>
  23. 23. The GAAR Scorecard 2005 to Sept. 2009 <ul><li>GAAR APPLIES </li></ul><ul><li>Kaulius (SCC) </li></ul><ul><li>Loss Transfer </li></ul><ul><li>Desmarais </li></ul><ul><li>Surplus Strip </li></ul><ul><li>Lipson ( SCC) </li></ul><ul><li>Reverse Attribution/Interest </li></ul><ul><li>CECO </li></ul><ul><li>Ptshp/Disguised Proceeds </li></ul><ul><li>OGT Holdings (QCA) </li></ul><ul><li>Quebec Shuffle </li></ul><ul><li>Copthorne (Leave Sought) </li></ul><ul><li>Duplication of PUC </li></ul><ul><li>MacKay (FCA) </li></ul><ul><li>Avoidance Transaction </li></ul><ul><li>Lehigh (TCC) (Under FCA Appeal) </li></ul><ul><li>Withholding Tax </li></ul><ul><li>Antle (TCC) </li></ul><ul><li>Capital gains step-up </li></ul><ul><li>Strategy Using Barbados trust </li></ul><ul><li>GAAR DOES NOT APPLY </li></ul><ul><li>Canada Trustco (SCC) </li></ul><ul><li>Cost & “Economic Substance” </li></ul><ul><li>Evans </li></ul><ul><li>Surplus Strip/Income Splitting </li></ul><ul><li>Overs </li></ul><ul><li>Reverse Attribution/Interest </li></ul><ul><li>MIL </li></ul><ul><li>Treaty Shopping </li></ul><ul><li>Univar </li></ul><ul><li>Tiered Financing </li></ul><ul><li>McMullan </li></ul><ul><li>Capital Gains Strip </li></ul><ul><li>Remai (under FCA appeal) </li></ul><ul><li>Charitable Donations </li></ul><ul><li>Landrus (FCA) </li></ul><ul><li>Terminal Loss Recognition </li></ul><ul><li>Collins & Aikman (under FCA Appeal) </li></ul><ul><li>Surplus Stripping </li></ul><ul><li>Garron (under FCA Appeal) </li></ul><ul><li>Barbados Trust Plan </li></ul>
  24. 24. GAAR Court Decisions Pending <ul><li>Marechaux – TCC – April 28, 2009 hearing (charitable donation) </li></ul>
  25. 25. GAAR Cases in Court Process <ul><li>Remai – FCA – October 8, 2009 hearing (charitable donation) </li></ul><ul><li>Skinner – TCC – 2009 hearing (FTC) </li></ul><ul><li>Schiesser – TCC – December 2009 hearing (RRSP strip) </li></ul><ul><li>Aventis – TCC – October 13, 2009 hearing (second tier finance/95(6)) </li></ul>
  26. 26. GAAR Cases in Court Process <ul><li>Approximately 32 lead cases before the Courts, GAAR primary in 15 </li></ul><ul><li>Some areas involve many taxpayers: </li></ul><ul><ul><li>RRSP strips </li></ul></ul><ul><ul><li>Barbados trusts </li></ul></ul><ul><ul><li>Leveraged donations </li></ul></ul><ul><ul><li>Capital loss creations </li></ul></ul><ul><ul><li>Kiddie Tax </li></ul></ul>
  27. 27. Types of GAAR Transactions in Court <ul><li>Capital loss creations through stock dividends or other means ( Enbridge, Global Equity Fund ) </li></ul><ul><li>Non-resident trusts ( Garron, Antle ) Duplication/creation of tax attributes ( Copthorne ) </li></ul><ul><li>Loss transfers </li></ul>
  28. 28. What Types of GAAR Transactions Are Before The Courts? <ul><li>Leveraged donations ( Gould, Fiorante, Kossow, Marechaux ) </li></ul><ul><li>Departure trades ( Walsh ) </li></ul><ul><li>Surplus strips involving 212.1, RCA’s ( McLeod, Borttazzoni ) </li></ul><ul><li>Broken amalgamations and credit unions ( Envision Credit Union, Interior Credit Union ) </li></ul>
  29. 29. What Types of GAAR Transactions Are Before The Courts? <ul><li>Debt settlements ( STB Holdings ) </li></ul><ul><li>Second tier finance companies ( Aventis ) </li></ul><ul><li>Interest deductibility/reverse attribution ( Swirsky ) </li></ul><ul><li>RRSP strips ( Schiesser ) </li></ul><ul><li>Kiddie tax avoidance ( McClarty, Doerksen ) </li></ul><ul><li>Capital leases ( Renasant ) </li></ul>
  30. 30. Some GAAR Areas Under Review <ul><li>Leveraged donations </li></ul><ul><li>RRSP strips </li></ul><ul><li>Tax attributes/value shifts/artificial capital losses </li></ul><ul><li>“ Hologram tax events” – positive tax attributes in Canada but transactions ignored/neutral in other jurisdictions (USLP/check the box) </li></ul><ul><li>Foreign tax credits </li></ul><ul><li>Provincial tax arrangements (Québec trusts, Ontario NRO, Québec year ends) </li></ul>
  31. 31. Interesting Cases <ul><li>3. Small Business Deduction/CCPC/Control </li></ul><ul><ul><li>489599 B.C. LTD (TCC) - meaning of “5 or more full-time employees” ­ CRA accepts decision </li></ul></ul><ul><ul><li>Ekamant Canada Inc. (TCC) ­ n o unanimous shareholder agreement for “control” </li></ul></ul><ul><ul><li>Robertson Engineering Ltd. (TCC) – personal service business argument rejected </li></ul></ul><ul><ul><li>Peter Cedar Products Ltd. (TCC) – personal service business argument rejected </li></ul></ul>
  32. 32. Interesting Cases <ul><li>4. Income vs. Capital </li></ul><ul><ul><li>Generally </li></ul></ul><ul><ul><ul><li>Laramee (FCA) – deductibility of losses for capitalizing a business </li></ul></ul></ul><ul><ul><ul><li>Wabash Iron Company Limited (TCC) – taxability of amounts paid by shareholders (importance of legal agreements) </li></ul></ul></ul><ul><ul><ul><li>Alberta Power (TCC) – no taxability of income under sections 9 or 12(1)(x) </li></ul></ul></ul><ul><ul><ul><li>Langille (TCC) – incorporation of commission income </li></ul></ul></ul>
  33. 33. Interesting Cases <ul><li>4. Income vs. Capital (cont’d) </li></ul><ul><ul><li>Current vs. Capital Expenditure </li></ul></ul><ul><ul><ul><li>Martin (TCC) ­ accountant buying customer list </li></ul></ul></ul><ul><ul><ul><li>Bishop (TCC) – repairs or maintenance? capital </li></ul></ul></ul><ul><ul><ul><li>Heron Bay Investments (TCC) – Loans to Sub (Bad Debts/Doubtful Accounts) </li></ul></ul></ul><ul><ul><ul><li>966838 Ontario Inc. (TCC) - Loans to Sub (Bad Debts/Doubtful Accounts) </li></ul></ul></ul><ul><li>5. Attribution Rules </li></ul><ul><ul><li>Lipson (SCC) – the role of subsection 74.5(11) and “reverse attribution” </li></ul></ul>
  34. 34. Interesting Cases <ul><li>6. R EOP/Reasonable Expenses/Carrying on Business </li></ul><ul><ul><li>Ngai (TCC) – selling furniture – some expenses unreasonable or unsubstantiated </li></ul></ul><ul><ul><li>Payette (TCC) – software development – no business </li></ul></ul><ul><ul><li>Langille (TCC) – winding up of farming business – expense deductible </li></ul></ul><ul><ul><li>Kaegi (TCC) – music activities a business </li></ul></ul><ul><ul><li>Serwatkewich (TCC) - no unreported income from selling marijuana </li></ul></ul>
  35. 35. Interesting Cases <ul><li>7. Interest Deductibility / Financing Charges </li></ul><ul><ul><li>Lipson (SCC) – interest expense deductible </li></ul></ul><ul><ul><li>Tembec (FCA) - 20(1)(f) deduction denied on convertible debentures – leave to appeal to SCC denied </li></ul></ul><ul><ul><li>Collins (TCC) – no liability to pay interest in years under appeal - appealed to FCA </li></ul></ul><ul><ul><li>Sherle (TCC) – swap of use of 2 properties and refinancing denies interest expense </li></ul></ul><ul><ul><li>Scragg (TCC) – no proof that borrowed funds spent on eligible use </li></ul></ul><ul><ul><li>Goulet (TCC) – interest accrual rules in subsection 12(4) and Reg. 7000 apply </li></ul></ul>
  36. 36. Interesting Cases <ul><li>8. Damages (Taxable/Deductible) </li></ul><ul><ul><li>Goff Construction (FCA) – leave sought to SCC – taxable damages in settlement of lawsuit </li></ul></ul><ul><ul><li>Nisker (FCA) – tort – leave to appeal to SCC denied </li></ul></ul><ul><ul><li>Eaton (FCA) – taxable if from a discrimination complaint </li></ul></ul><ul><ul><li>RCI Environment Inc. (FCA) - leave denied to SCC - compensation payment under non-compete clause </li></ul></ul><ul><ul><li>Tesainer et al (FCA) – leave sought to SCC -windfalls – withdrawal of partnership capital not taxable </li></ul></ul><ul><ul><li>Lavoie (TCC) – payment received in settlement of class action – appealed to FCA </li></ul></ul>
  37. 37. Interesting Cases <ul><li>9. Accrued Expenditures - s. 78 </li></ul><ul><ul><li>Dow Chemical (FCA) – leave to appeal to SCC denied </li></ul></ul><ul><li>10. Residence </li></ul><ul><ul><li>Mahmood (TCC) – resident of Guyana and not Canada </li></ul></ul><ul><ul><li>Lingle (TCC) – Tie Banker Rule in Treaty (habitual abode) </li></ul></ul><ul><ul><li>Smale (Sask QB) – provincial residence – Alberta or Saskatchewan? </li></ul></ul><ul><ul><li>Morris (FC) – Barbados trust and section 116 </li></ul></ul><ul><ul><li>Garron (TCC) – residence of foreign trust </li></ul></ul><ul><ul><li>Stubs (BCSC) – Prosecution Unsuccessful (BC vs. Alta) </li></ul></ul><ul><ul><li>1143132 Ontario – Barbados Corp not resident of Canada </li></ul></ul><ul><ul><li>Laerstate BV – UK corporate residence (central management and control) </li></ul></ul>
  38. 38. Interesting Cases <ul><li>Employee vs. Independent Contractor/ </li></ul><ul><li>Personal Services Business </li></ul><ul><ul><ul><li>Robertson (TCC) – independent and therefore not a PSB </li></ul></ul></ul><ul><ul><ul><li>Ganpaul (TCC) – independent contractor – consultant to a company </li></ul></ul></ul><ul><ul><ul><li>Kilbride (FCA) – employee not contractor – working for family company </li></ul></ul></ul><ul><ul><ul><li>Peter Cedar (TCC) – not a PSB even if Directors </li></ul></ul></ul>
  39. 39. Interesting Cases <ul><li>12. Medical Expenses/Disability Tax Credit </li></ul><ul><ul><ul><li>Chobotar (TCC) – rejection of renovation expenses </li></ul></ul></ul><ul><ul><ul><li>Scott (FCA) – tuition fee denied for learning disability children </li></ul></ul></ul><ul><ul><ul><li>Lang (TCC) – tuition fees for learning disabled children (tutoring expenses) </li></ul></ul></ul><ul><ul><ul><li>Fontaine (TCC) – denial of expenses – credibility </li></ul></ul></ul>
  40. 40. <ul><li>13. Taxable Benefits </li></ul><ul><ul><ul><li>Schroter (TCC) – parking </li></ul></ul></ul><ul><ul><ul><li>Bernier (TCC) ­ parking </li></ul></ul></ul><ul><ul><ul><li>DiMaria (FCA), Okonski (TCC) and Bentley (FCA) – scholarship to an employee’s child </li></ul></ul></ul><ul><ul><ul><li>Schutz (TCC) – employer provided housing </li></ul></ul></ul>Interesting Cases
  41. 41. Interesting Cases <ul><li>14. International Developments </li></ul><ul><ul><ul><li>“ Beneficial Ownership” ­ Withholding Tax </li></ul></ul></ul><ul><ul><ul><ul><li>Prevost Car (FCA) – treaty Benefits (difference in rates) </li></ul></ul></ul></ul><ul><ul><ul><li>Transfer Pricing </li></ul></ul></ul><ul><ul><ul><ul><li>Glaxo (TCC) – taxpayer loses - appealed to FCA – sale of inventory to Canadian subsidiary </li></ul></ul></ul></ul><ul><ul><ul><ul><li>GE Capital (TCC) – appeal heard June 2009 – guarantee fees </li></ul></ul></ul></ul><ul><ul><ul><ul><li>HSBC (TCC) – guarantee fees </li></ul></ul></ul></ul><ul><ul><ul><ul><li>1143132 Ontario (TCC) – transfer of inventory </li></ul></ul></ul></ul>
  42. 42. Interesting Cases <ul><li>14. International Developments (cont’d) </li></ul><ul><ul><ul><li>Recovery of Non-Resident Withholding Tax </li></ul></ul></ul><ul><ul><ul><ul><li>FMC Technologies (FCA) – Reg. 105 - wrong party asks for refund </li></ul></ul></ul></ul><ul><ul><ul><li>Section 216 Election & Part XIII Arrears Interest </li></ul></ul></ul><ul><ul><ul><ul><li>Pechet (TCC) – appealed to FCA – no tax but interest still running </li></ul></ul></ul></ul><ul><ul><ul><li>Loss on Loan to Foreign Subsidiary </li></ul></ul></ul><ul><ul><ul><ul><li>Valiant Cleaning Technology Inc. (TCC) – deductible as a business loss </li></ul></ul></ul></ul><ul><ul><ul><li>Liability for Withholding Tax </li></ul></ul></ul><ul><ul><ul><ul><li>Stora Enso Beteilgungen GmbH (TCC) – Reg. 105 – no doubling up of tax </li></ul></ul></ul></ul>
  43. 43. Interesting Cases <ul><li>15. Tax Shelters/Contingent Liability/Cost </li></ul><ul><ul><ul><li>Tolhoek (FCA) – 143.2 – applied to deny losses </li></ul></ul></ul><ul><ul><ul><li>Garret Madell (FCA) – applied to deny losses and no source of income </li></ul></ul></ul><ul><ul><ul><li>Sherman (FCA) – contingent liability/cost – taxpayer loses </li></ul></ul></ul><ul><ul><ul><li>General Motors (FCA) – contingent liability/cost – taxpayer loses </li></ul></ul></ul><ul><ul><ul><li>O’Dea (TCC) – 143.2 applied to deny loss </li></ul></ul></ul><ul><li>16. Demands for Information </li></ul><ul><ul><ul><li>Dropsy (FC) – failure to comply with a Court order </li></ul></ul></ul><ul><ul><ul><li>Whitewater Golf Club Inc. – names of club members </li></ul></ul></ul><ul><ul><ul><li>Brewer (N.B.) ­ prosecution of company and director for failure to produce a tax return </li></ul></ul></ul>
  44. 44. Interesting Cases <ul><li>17. Non-arm’s Length Transfers of Property – s.160(1) </li></ul><ul><ul><li>Rose (FCA) – broad application of section 160 </li></ul></ul><ul><ul><li>Yates (FCA) – broad application of section 160 </li></ul></ul><ul><ul><li>Neumann et al (TCC) – capital dividends subject to section 160 and no consideration given for the dividends </li></ul></ul><ul><ul><li>Vidamour (TCC) – constructive trust for property (no transfer) </li></ul></ul><ul><ul><li>Allen (TCC) – section 160 applies regardless of non intention </li></ul></ul><ul><ul><li>Woodland (TCC) – applied to beneficiary spouse of self-directed RRSP </li></ul></ul><ul><li>18. Director’s Liability </li></ul><ul><ul><li>Aujla (FCA) ­ director of dissolved (later restored) company not liable </li></ul></ul><ul><ul><li>Comparelli (TCC) ­ insider director liable </li></ul></ul>
  45. 45. Interesting Cases <ul><li>19. Limitation Periods and Waivers </li></ul><ul><ul><ul><li>McGonagle et al – waiver of rights effective </li></ul></ul></ul><ul><ul><ul><li>Leola Purdy, Sons Ltd. (TCC) – correction of errors and can recharacterize losses from statute barred years </li></ul></ul></ul><ul><ul><ul><li>Cummings (TCC) ­ 152 (1.4) and partnership determination </li></ul></ul></ul><ul><ul><ul><li>College Park Motors (TCC) ­ “accountant” defence not available for misrepresentation </li></ul></ul></ul><ul><ul><ul><li>Saindon (TCC) ­ no “accountant” defence </li></ul></ul></ul><ul><ul><ul><li>Blackburn Radio ­ 152(4)(b)(iii) narrow in application </li></ul></ul></ul><ul><ul><ul><li>1143132 Ontario (TCC) – 152(4)(b)(iii) applied </li></ul></ul></ul>
  46. 46. Interesting Cases <ul><li>Limitation Periods and Waivers (cont.) </li></ul><ul><ul><ul><li>Gestion Foret­Dale (TCC) – no “accountant” defence for Part IV tax </li></ul></ul></ul><ul><ul><ul><li>Mansour (TCC) – Crown fails to discharge burden </li></ul></ul></ul><ul><ul><ul><li>Dalphond (TCC) ­ LCGE denied even though year otherwise closed </li></ul></ul></ul><ul><ul><ul><li>O’Dea (TCC) – “tax shelter rules” (143.2) opens statute-barred years </li></ul></ul></ul><ul><li>20. Determination of Partnership Losses </li></ul><ul><ul><ul><li>Cummings (TCC) – determination may be statute barred </li></ul></ul></ul>
  47. 47. Interesting Cases <ul><li>21. Fairness </li></ul><ul><ul><ul><li>Telfer (FCA) ­ files left in Appeals don’t result in interest waiver – leave to appeal to SCC denied </li></ul></ul></ul><ul><li>22. Penalties/Misrepresentation/Late Filing </li></ul><ul><ul><ul><li>College Park Motors Ltd. and Joseph Alan Holdings Ltd. (TCC) / Saindon (TCC) / Gestion Foret (TCC) – returns prepared by accountant </li></ul></ul></ul><ul><ul><ul><li>Exida.com Limited Liability Company et al (TCC) / Goar, Allison & Associates Inc. (TCC) – late filing penalty for non-resident corps. with no tax </li></ul></ul></ul><ul><ul><ul><li>Home Depot (TCC) ­ GST and due diligence defence </li></ul></ul></ul>
  48. 48. Interesting Cases <ul><li>23. Rectification </li></ul><ul><ul><ul><li>Felix and Norton (Quebec S.C.) ­ capital dividend error corrected </li></ul></ul></ul><ul><ul><ul><li>Fraser Valley Refrigeration (BCSC) – Social Services tax avoided </li></ul></ul></ul><ul><ul><ul><li>Winclare Management Services (S.C.O.) – capital dividend error corrected </li></ul></ul></ul><ul><ul><ul><li>Aim Funds Management (S.C.O.) – standing for CRA in an application </li></ul></ul></ul><ul><li>24. Security Interest – Source Deduction </li></ul><ul><ul><ul><li>Caisse Populaire du bon Conseil (SCC) – priority of creditor claims </li></ul></ul></ul><ul><li>25. Sham </li></ul><ul><ul><ul><li>2530–1284 Québec Inc. and 2529-1915 Quebec Inc. (FCA) – daylight loans/circulation of funds – leave to appeal to SCC denied </li></ul></ul></ul>
  49. 49. Interesting Cases <ul><li>26. Charities/Non-Profits </li></ul><ul><ul><ul><li>Kossow (TCC) ­ charitable donations denied </li></ul></ul></ul><ul><ul><ul><li>Remai (TCC) – GAAR/charitable donations permitted – appealed to FCA </li></ul></ul></ul><ul><ul><ul><li>Hostelling International Canada (FCA) ­ revocation of charitable status </li></ul></ul></ul><ul><li>27. “Unjust Enrichment” </li></ul><ul><ul><ul><li>United Parcel Service (SCC) </li></ul></ul></ul><ul><li>SR&ED & ITC </li></ul><ul><ul><ul><li>Advanced Agricultural Testing Inc. (TCC) – activities not SRED </li></ul></ul></ul><ul><ul><ul><li>Albert (TCC) ­ dentistry not processing of “goods for sale” </li></ul></ul></ul>
  50. 50. Interesting Cases <ul><li>29. Part 1.3 LCT </li></ul><ul><ul><ul><li>ADP Canada Co. (FCA) – advances as “capital” </li></ul></ul></ul><ul><ul><ul><li>SNC Technologies Inc. ( TCC) – progress payments for reimbursement of expenses were capital </li></ul></ul></ul><ul><li>30. Capital Cost Allowance </li></ul><ul><ul><ul><li>Sherman (FCA) – no cost (contingent) in respect of software </li></ul></ul></ul><ul><li>31. Reserves </li></ul><ul><ul><ul><li>Doteasy Technology Inc. et al (TCC) ­ 20(1)(m) permitted </li></ul></ul></ul>
  51. 51. Interesting Cases <ul><li>32. Inventory </li></ul><ul><ul><li>CDSL Canada Limited et al (FCA) – TCC position overturned regarding taxability of WIP </li></ul></ul><ul><ul><li>Gestion Reynold Lavoie (TCC) – valuation of WIP in a television series </li></ul></ul><ul><li>33. Moving Expenses </li></ul><ul><ul><li>Gelinas (TCC) – interesting case – part time work goes to full time and can claim moving expenses </li></ul></ul><ul><li>34. Privilege </li></ul><ul><ul><li>1496956 Ontario Inc. - voluntary disclosure </li></ul></ul><ul><ul><li>Woodland – when “without prejudice” doesn’t help </li></ul></ul>
  52. 52. Interesting Cases <ul><li>35. Affiliated Loss Rules </li></ul><ul><ul><li>Cascades Inc. (FCA) – complex analysis of rules – TCC decision overturned </li></ul></ul><ul><li>36. Foreign Exchange </li></ul><ul><ul><li>Saskferco (FCA) – rejection of taxpayer position that gains should not be recognized </li></ul></ul><ul><li>37. Lifetime Capital Gains Exemption </li></ul><ul><ul><li>Dalphond (TCC) – not shares of a CCPC </li></ul></ul>
  53. 53. Interesting Cases <ul><li>38. ABILS </li></ul><ul><ul><ul><li>Longille (TCC) ­ corporation not an SBC </li></ul></ul></ul><ul><li>39. Accountant Working Papers </li></ul><ul><ul><ul><li>Textron (US Decision) – not privileged as litigation work product </li></ul></ul></ul><ul><ul><ul><li>CRA Position – May 2009 </li></ul></ul></ul><ul><li>40. Section 80 </li></ul><ul><ul><ul><li>Richer (TCC) ­ “settlement” of a debt and timing of the settlement </li></ul></ul></ul>
  54. 54. Interesting Cases <ul><li>41. Objections – Extension of Time to File </li></ul><ul><ul><li>Consultation Next Step (TCC) ­ no extension of time – constant changes of addresses </li></ul></ul><ul><li>42. Rollovers in Reorganization </li></ul><ul><ul><li>Stefanson Farms (TCC) ­ subsection 98(5) </li></ul></ul><ul><ul><li>Husky Oil (TCC) – denial of 87(4) rollover on amalgamation </li></ul></ul><ul><li>43. Access to Information Request </li></ul><ul><ul><li>Coastal Resources (FC) – pushing for complete disclosure </li></ul></ul><ul><li>44. Management Fees </li></ul><ul><ul><li>Les Enterprise Réjean Goyette (TCC) – no legal obligation to pay </li></ul></ul><ul><ul><li>Nielson Development (TCC) – Reasonable (criteria) </li></ul></ul>
  55. 55. Vancouver P.O. Box 10424, Pacific Centre Suite 1300 777 Dunsmuir Street Vancouver BC V7Y 1K2 Tel: 604-643-7100 Fax: 604-643-7900 Calgary Suite 3300 421 – 7th Avenue SW Calgary AB T2P 4K9 Tel: 403-260-3500 Fax: 403-260-3501 Toronto Box 48, Suite 4700 Toronto Dominion Bank Tower Toronto ON M5K 1E6 Tel: 416-362-1812 Fax: 416-868-0673 Ottawa The Chambers Suite 1400 40 Elgin Street Ottawa ON K1P 5K6 Tel: 613-238-2000 Fax: 613-563-9386 Montréal Suite 2500 1000 De La Gauchetière Street West Montréal QC H3B 0A2 Tel: 514-397-4100 Fax: 514-875-6246 Québec Le Complexe St-Amable 1150, rue de Claire-Fontaine, 7 e étage Québec QC G1R 5G4 Tel: 418-521-3000 Fax: 418-521-3099 United Kingdom & Europe 5 Old Bailey, 2nd Floor London, England EC4M 7BA Tel: +44 (0)20 7489 5700 Fax: +44 (0)20 7489 5777