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With all of the concerns that businesses engaged in the import/export of products in the United States and Canada face (increased global competition, currency fluctuations and product quality), one of the least considered but most important involves the often confusing world of customs compliance.

While it is inevitable that errors or omissions may occur in customs compliance, errors can be expensive. To avoid customs assessments, and attendant interest and penalties (not to mention potential prosecution), constant vigilance of one's customs obligations is required.

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Whenever a person imports commercial goods into Canada they are required to pay the GST at the border at the time of importation pursuant to Division III of Part IX of the Excise Tax Act (the “ETA”).   This GST rate is currently set at 5%. 

Those who are insufficiently familiar with Canada’s GST/HST system may find themselves treating this tax as a hard cost, or charging the GST/HST to Canadian customers and then keeping it as a form of reimbursement for the tax previously paid at the border.  Neither approach is correct.  

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In Masa Sushi Japanese Restaurant Inc. v. The Queen, 2017 TCC 239 (“Masa Sushi”), the Tax Court of Canada (“TCC”) confirmed that lawyers are the only representatives that are authorized to represent tax appellants in court under General Procedure tax appeals.

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If the CRA believes that taxpayers have knowingly failed to report income or remit GST and other taxes owing they will often bring concurrent criminal tax evasion charges in addition to simply re-assessing a taxpayer. In this scenario, the protections afforded to taxpayers in the criminal tax evasion matter – the burden of proof being on the Crown to prove the charges beyond a reasonable doubt – are not present in the tax appeals.  Similarly, unlike in the criminal context, the burden of proof in tax appeals is on the taxpayer, who must demolish the CRA’s assessment and any relevant assumptions of fact. 

Given the differing standards in criminal versus civil proceedings, criminal acquittals typically have little, if any, impact on a subsequent civil proceeding. The CRA is therefore often successful in tax appeals before the Tax Court of Canada (“TCC”) even after a taxpayer has been acquitted in a criminal prosecution based on the same fact pattern.

Samaroo v. The Queen, 2016 TCC 290 (“Samaroo”) is an exception to the general rule.

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Posted by on in Tax Law

Subsection 223(1)of the Excise Tax Act (ETA) requires registrants to disclose sufficient information to their customers in respect of their customers’ GST/HST liabilities by indicating on any invoices/receipts issued to customers the net-of-tax price and the GST/HST thereon or if prices are on a tax-included basis, noting this on invoices/receipts issued to customers. 

Where a sales contract is silent with respect to the obligation to pay the GST/HST, disputes often arise as to whether the quoted price is tax-extra or tax-included. 

A recent case is a good example of the general disposition of Courts to conclude that where contracts are silent, GST/HST will generally still be payable!

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Posted by on in Tax Law

Section 224 of the Excise Tax Act (ETA) allows a supplier who has remitted GST/HST collectible from, but as yet unpaid by, a recipient, to sue the recipient for the tax remitted as if it were a debt owed to the supplier.  

There has been little case law or helpful interpretative materials from the CRA on this provision.

A recent case seems to clarify that where a supplier fails to charge and collect the GST/HST initially, the two-year limitation period on such a claim runs from the time that the supplier pays same to the CRA when assessed for the unremitted GST/HST.

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A taxpayer who ceases to be GST/HST registrant can be hit with a hefty tax bill due to subsection 171(3) of the Excise Tax Act (the “ETA”), which in effect triggers a deemed disposition, which with other provisions in the ETA, forces the person ceasing to be a registrant to self-assess GST/HST on the fair market value of any remaining property.

This is an often over-looked consequence of the wind-up of commercial activities, and is aimed at putting such a business on the same footing as any other person acquiring property for non-commercial activities: to effectively have acquired that property on a fully GST/HST paid basis.

A recent case illustrates this concept, as well as the trouble that can come with pre-mature cancellation of one’s GST/HST registration number (which does not necessarily equate to ceasing to be a “registrant”).

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It is not uncommon for the CRA to issue administrative policies or directives that provide CRA auditors and members of the public with direction on how the Excise Tax Act (ETA) or Income Tax Act (ITA) should be applied to certain industries/situations. While many members of the public believe that by following these directives they will be complying with the law, the reality is that CRA policies and directives are simply the CRA’s opinion of how the law should be interpreted. As such, sometimes CRA administrative policies or directives are really just a source of false comfort that do not accurately reflect the actual state of the law. Such was the case in the recent Tax Court of Canada (TCC) decision of Dr. Brian Hurd Dentistry Professional Corporation v. The Queen, 2017 TCC 142 (Brian Hurd) where the Court found that “the CRA policy statement is simply wrong and more importantly misleading.”

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In Canada, legal costs are generally awarded to the successful litigant in a tax appeal (or in most civil cases for that matter) based on actual costs incurred, but are often a mere fraction of the actual costs that a litigant has incurred. As such, the first thing that many taxpayers contemplate when deciding whether to appeal a CRA assessment is whether or not it is worth it, particularly where it appears likely that the costs of a tax appeal will probably exceed the amount of tax in dispute.

While the decision on whether or not to appeal a tax assessment should be made on a case by case basis, the Tax Court of Canada (“TCC”) in Ike Enterprises Inc. v. The Queen, 2017 TCC 160(“Ike Enterprises”) recently confirmed that in appropriate circumstances, a taxpayer can be awarded legal costs that exceed the amount of tax in dispute. In fact, the CRA was ordered to pay costs equal to approximately 140% of the amount in dispute!

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Under section 323 of the Excise Tax Act (“ETA”), directors of a corporation are personally liable for a corporation’s unremitted GST/HST. There is no definition of “director” in the ETA, but section 323 has been found to apply to individuals who are formally registered as directors (i.e. de jure directors) and individuals who are not formally registered as directors but in effect carry out the same duties and make the very same decisions as directors (i.e. de facto directors).

The Canada Revenue Agency’s (“CRA”) formal policy on Directors’ Liability, including its position on de jure vs. de facto directors, is outlined in IC89-2R3. However, the ETA itself does not provide any guidance on when an individual who has formally resigned from de jure directorship ceases to be a de facto director for the purposes of section 323 liability. As such, whether or not a director who has resigned but continues to be involved in corporate activities can be deemed a de facto director of a corporation is a factually complicated issue that the Tax Court of Canada (“TCC”) has frequently been asked to answer.

The relatively recent decision in Koskocan c. La Reine, 2016 CCI 277 (“Koskocan”) stands for the proposition that it is possible for a former director to remain involved in a business (and even perform some tasks that one may associate with a de jure director) without rising to the level of a de facto director.  

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With US President Donald Trump hinting that he may withdraw his country from the North American Free Trade Agreement (“NAFTA”), many are starting to consider what the effects that such a withdrawal would have on goods and services crossing North American borders.

What has not been widely reported is the expected effect on business immigration (e.g., US and/or Mexican nationals seeking temporary entry into Canada for business or investment purposes).

Chapter 16 of NAFTA currently allows citizens of the US and Mexico (i.e. who are not Canadian residents) to enter Canada as a “business visitor” for temporary business or investment purposes, and stay in Canada for up to six months – all without a “work permit”. To qualify under these business visitor provisions, a traveller must be entering Canada for the purposes of engaging in qualifying activities (which include conferences, trade-shows, conventions, and business meetings for taking orders or negotiating contracts for goods or services for certain enterprises).  (For a complete list of permissible activities, click here).

So what happens if NAFTA disappears overnight?

Some other options would still be available for business travellers needing to enter Canada temporarily.

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During a tax appeal it is quite common for a tax appellant and the CRA to disclose information and to formally agree on certain facts. For example, at the outset of most tax appeal trials the parties often prepare a document commonly referred to as a “Statement of Agreed Facts” or “Partial Statement of Agreed Facts” that outlines the facts that the parties agree on. 

The Tax Court of Canada (“TCC”) decision in Athabasca University v. The Queen, 2016 TCC 252 (“Athabasca”) is a perfect example of why it is imperative that no concessions or agreement of facts be made without a careful analysis of the potential implications that this could have on the ultimate issues in dispute in the tax appeal.

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After the recent decision of the Federal Court of Appeal (“FCA”) in Canada v. Callidus Capital Corporation, 2017 FCA 162 (“Callidus”), any secured creditors dealing with debtors that also have CRA issues, should immediately seek professional advice about the implications of this case before acting on their security interests to seize funds or property.

The reason for this gratuitous advice follows!

Subject to a few narrow exceptions, there are special income tax and GST/HST provisions giving the CRA super-priority to certain tax amounts in the possession of a tax debtor.  Specifically, unremitted GST/HST and unremitted income tax withholdings are both subject to a “deemed trust” in the hands of the taxpayer under special provisions in Excise Tax Act (ETA) and the Income Tax Act (ITA).   When funds or property of a tax debtor are paid over or seized by a tax debtor’s secured creditors that deemed trust remains intact, and the CRA holds a “super-priority” over those funds and that property.

In the past, secured creditors took the position that these rules and the “super-priority” disappeared on the subsequent bankruptcy of a debtor.

However, the Federal Court of Appeal in Callidus held that a tax debtor’s bankruptcy does not extinguish the Crown’s deemed trust over assets that were received or obtained by a secured creditor prior to the tax debtor’s bankruptcy.   More importantly, the FCA confirmed that secured creditors in these situations remained personally liable to the CRA for the tax debtor’s unremitted GST/HST and unremitted source withholdings, up to the value of the assets received or realized upon.

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The recent Auditor General Report is not good news for the Canada Revenue Agency (CRA).

The CRA has nine call centres located across Canada that are supposed to provide taxpayers with timely and accurate information about their taxes, credits and benefits.

Based on the Auditor General of Canada’s report, however, a taxpayer calling the CRA is more likely to get blocked than to speak to a live agent, and when reaching a live agent, often has a fairly good chance of obtaining incorrect information.

Not good news at all, if you are the CRA.

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Posted by on in Tax Law

In a previous blog post titled “CRA coming for contractors?” we discussed the recent decision of the Federal Court of Appeal in Rona Inc. v. Canada (Minister of National Revenue), which seemed to suggest that CRA may have a special project on the go to target Canadian home improvement contractors that are currently operating in the underground economy.

An email and website post from PayPal to its users earlier this week seems to indicate that the CRA is now going after all Canadians that buy and sell online.

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In Canada, the CRA can often pursue a corporation’s directors for unpaid tax debts of the corporation.  But there are certain “pre-conditions” that must be met.

One of these, which rarely gets any attention at all is the requirement that “a certificate for the amount of the liability of the corporation [be] registered in the Federal Court… and execution for that amount [be] returned unsatisfied in whole or in part”:  see section 323(2)(a) of the Excise Tax Act (ETA) and section 227.1(2)(a) of the Income Tax Act (ITA).

Historically, the Courts have considered that these provisions do not impose an obligation upon the CRA to make reasonable efforts to search for assets of a corporate debtor; rather, all the CRA needs to do is “act in good faith”:  see Barrett (2012 FCA 33).

In Tjelta (2017 TCC 187), the Tax Court of Canada (TCC) was asked to determine what the FCA meant in respect of the CRA’s good faith requirement. 

Not much it seems!

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The Tax Court of Canada (TCC) recently considered how the GST/HST works in situations where individuals and businesses buy and sell used motor vehicles, and the case is instructive.

In Brian & Deborah Dewan Enterprises Ltd. v. The Queen (2017 TCC 135), the TCC dismissed the appeal of the appellant which failed to collect and remit the GST/HST on disposition of vehicles used in its commercial activities on the mistaken belief that the GST/HST was paid by the purchaser to the Ministry of Transportation (MTO) on registration of the vehicles. 

Businesses which fail to understand the possible interaction of the federal GST/HST and provincial sales tax in certain circumstances, for example, in this case, the Ontario Motor Vehicle Tax (MVT) on disposition of used vehicles, would be put in a disadvantageous position and suffer losses.

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On September 21, 2017 the Canadian-European Union "Comprehensive Economic and Trade Agreement" or "CETA" came into force.

Some businesses may erroneously believe that this means they can ship anything they want beween Canada and the EU without paying any duties. While the reality is a little more complicated, CETA still represents a tremendous achievement for Canada, and provides Canadians with greater access to the massive EU marketplace of 500 million people!

Read the Statement by the Canadian Minister of International Trade here.

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Over the past number of years the CRA has been taking an increasingly aggressive stance against Canadian taxpayers who don’t meet their tax obligations.  This approach has only intensified – and perhaps very rightly so – since the Panama Papers scandal broke.  Since then the Canadian government has earmarked an additional $444.4-million between 2016 and 2021 to help the CRA crackdown on tax evaders. 

In years past, tax evaders caught by the CRA could expect hefty fines and penalties, but would rarely face jail time. More recently however the CRA has been trying to put people engaged in tax fraud or tax evasion in jail.

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A common step in the Tax Court of Canada litigation process is the Examination for Discovery (“Discovery”).  A Discovery is where each side (the taxpayer and the Canada Revenue Agency or “CRA”) will have the opportunity to examine witnesses from the other side, under oath.  This is typically done with the assistance of a tax lawyer, and affords each side the opportunity to ask questions and request documents relevant to the issues in the tax appeal.  The Witnesses are under oath and must answer questions truthfully, with the Discovery recorded, and transcripts produced after-ward.

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