The Niagara region seems to be doing its part to contribute to the law of rectification in the tax context. Juliar v. Canada (Attorney General), 1999 CanLII 15097 (ON S.C.) originated in the peninsula. Now comes QL Hotel Service Limited v. Ontario (Finance), 2008 CanLII 15226 (ON S.C.). In the latter case, one corporation incorporated another and then transferred intangible property to the other for one common share and tangible property for one million Class A Special Shares. The transferor then sold the shares of the transferee to an arm’s length purchaser.
Criminal investigations
I posted previously on the decision of the Federal Court of Appeal in Canada (Minister of National Revenue) v. Ellingson, 2006 FCA 202, which was decided in light of the Supreme Court of Canada’s decision in R v. Jarvis, [2002] 3 S.C.R. 757, 2002 SCC 73. The Ontario Court of Appeal has now weighed in on the subject in R. v. Tiffin, 2008 ONCA 306. In this case, the Court of Appeal considered a trial court finding that the CRA had abused its audit power in pursuit of a criminal investigation. The Court considered whether the evidence gathered using the audit power should be excluded. Ultimately, in a split decision, the Court decided that a significant portion of the evidence should not be excluded even though the trial judge concluded that the CRA personnel involved had acted in bad faith and dishonestly. The decision is also interesting for the insight it gives into the methods used by the CRA’s “Special Enforcement Program” and the distinction between an investigation and an audit.
Full-time Employees
To avoid being found to carry on a “personal services business” or a “specified investment business” under the Income Tax Act, a corporation must employ “more than five full-time employees”. The CRA, based on several tax court decisions, has stated…
Executors’ fees again
An executor who receives fees for acting as such must include the fees in income, usually as income from an office (employment income). Can this result be avoided if the fees are called a “legacy” in the will that provides for their payment? Not according to Messier v. The Queen, 2008 TCC 349.
Rectification
Tax practitioners will be familiar with the Juliar case, which allowed the parties to a transaction to amend it with retroactive effect in order to avoid adverse income tax consequences. According to the Ontario Court of Appeal decision in the case, it didn’t matter that the only purpose for the amendment was to avoid or postpone income taxes. What mattered was that the parties had a continuing, common intention to effect the transactions in a tax-deferred manner, which intention was thwarted by the form of the transaction.
The Ontario Superior Court came to a different conclusion in Binder v. Saffron Rouge Inc., 2008 CanLII 1662 because the parties did not have the requisite common intention.
Redeemer Unredeemed
The Supreme Court of Canada today issued its decision in Redeemer Foundation v. Canada (National Revenue), 2008 SCC 46. Four members of a seven-person panel rejected the charity’s appeal from the decision of the Federal Court of Appeal.
Not-for-profit
BBM Canada v. The Queen, 2008 TCC 341, is a surprise, not because of the result but because of the novel position advanced by the Crown in support of the assessment in question. The organization assessed had taken the position that it was exempt from tax under paragraph 149(1)(l) of the Income Tax Act because it was a not-for-profit. The CRA thought otherwise.
Foreign tax credits
In Marchan v. The Queen, 2008 TCC 158, the taxpayer received stock options from the U.S. parent of the Canadian subsidiary for which he worked in Canada. He exercised the options and sold the underlying securities, but the brokers handling the transactions withheld amounts from his proceeds, presumably on account of U.S. taxes. The taxpayer tried to claim a foreign tax credit.
Another loss
Another tax shelter case, another loss for the taxpayer: see Norton v. The Queen, 2008 TCC 91. It’s clear that the courts have little patience for these schemes, which is a real problem for those trying to promote legitimate shelters.…
Objection Held in Abeyance
In my post for June 17, I discussed a case allowing interest relief for court-related delay for a taxpayer whose objection was held in abeyance pending the outcome of the court case. In the June 5 Tax Topics, John Yuan points out a potential trap for a taxpayer whose objection is being held in abeyance.