Tax & Trade Blog

The Canada Border Services Agency’s (“CBSA”) Administrative Monetary Penalty System (AMPS) imposes monetary penalties (“AMPs”) for non-compliance with trade rules. AMPs levied are proportionate to the type, severity, and frequency of the infraction. According to the government, the goal of the system is to create a level playing field for Canadian businesses by ensuring that there is a cost for non-compliance with trade rules.

A (fairly) recent announcement from the CBSA has indicated that the AMPs associated with 22 different contraventions related to commercial trade will be increased, effective April 1, 2019.

A recent audit initiative of the Canada Revenue Agency (CRA) has targeted financial service intermediaries – and in particular, member service providers (“MSPs”) that are engaged in business in the credit card/electronic payment industry.  These are the businesses that provide “point of sale” (POS) visa machines to merchants, for customers to use when paying for goods and services purchased in various retail establishments.

While seemingly providing goods and services to the retail merchants, in fact, the MSPs usually enter into contracts with credit card payment processing companies (“Members”), whereby they recruit retail merchants to contract with the Members for the retail merchants’ payment processing needs. The MSPs’ services include negotiating fees with the merchants on behalf of the Members and otherwise acting as the main point of contact for the merchants in respect of their credit card processing matters. The MSPs also provide services in relation to the installation and operation of the point-of-sale credit card processing equipment at the merchants’ retail locations.

Buying a home is usually the largest investment individuals will make in their lives. As such, it is extremely important that both buyers and sellers and builders are aware of the rules surrounding the collection and remitting of tax on real estate transactions, lest they be caught by the net cast by the CRA and are assessed penalties in addition to paying unremitted tax.

A recent announcement from the Minister of National Revenue spoke directly to this point.

The CRA has a number of rules, found in the Income Tax Act (“ITA”), and the Excise Tax Act (“ETA”) requiring taxpayers to keep books and records, and to keep them available for audit and inspection for up to seven years after the current year.

The CRA also has a number of quasi- criminal provisions that they can rely on when dealing with situations where taxpayers and their businesses attempt to use false or incomplete records to underreport revenues, income, or GST obligations.

It does not usually go well for the taxpayer when this is uncovered, and the taxpayer can face both criminal fines and civil assessments of taxes interest and penalty. In one recent case, the taxpayer ended up paying twice for this mistake!

This is an update of our May 2018 blog regarding Samaroo v. Canada Revenue Agency (2018 BCSC 324), a landmark decision for a successful claim against the Canada Revenue Agency (“CRA”) for malicious prosecution.  The underlying prosecution involved allegations that Tony and Helen Samaroo (the “Samaroos”) and their companies evaded income tax by not reporting income generated by their businesses.  The Samaroos were also charged criminally for tax evasion. After their acquittals of all the charges in the criminal trial, the Samaroos brought an action against the CRA for malicious prosecution.  The trial judge found the CRA liable principally because its investigator knew that the actus reus of the tax evasion offence could not be proven, misled others involved in the prosecution and, by abusing his office, acted with malice.  At the end, the trial judge ordered the CRA to pay approximately $1.7 million in damages to the Samaroos.

The Ontario Ministry of Finance is continuing to “lead the charge” against Ontario tobacco wholesalers – turning the industry upside down with assessments worth tens of millions of dollars for failure to collect the Ontario Provincial Tobacco Tax (PTT) on sales of cigars and other non-cigarette tobacco (loose tobacco, pipe tobacco chewing tobacco, snuff, etc.) to Status Indians on Federal Indian reserves.

For many wholesalers these assessments come as a complete surprise, and often years after the actual sales have been made, resulting in significant interest amounts owing on top of the penalty assessed.

When it comes to policing Canada’s voluntary tax compliance system (for income taxes and the GST/HST), the CRA has several effective enforcement weapons in its arsenal. One weapon that one does not often see employed is international extradition of individuals wanted for Canadian tax evasion and/or fraud.

One recent case made the headlines in Canada, when the CRA announced March 11, 2019 that a man living in Costa Rica has been successfully extradited to Canada under charges of tax fraud.

A recent decision of the Court of Appeal for Ontario (the “ONCA”) has created doubt as to the enforceability of certain arbitration clauses in independent contractor agreements – which will likely require all direct selling companies to want to review and retool their own clauses.

In Heller v. Uber Technologies Inc., 2019 ONCA 1 (“Heller”), an Ontario Uber driver commenced a proposed class action against Uber entities.  The Uber driver alleged that Ontario Uber drivers were improperly classified by Uber as independent contractors, when they were lawfully employees entitled to the protections of the Ontario Employment Standards Act, 2000 (the “ESA”). The class action sought a declaration that Uber had violated the provisions of the ESA and asked for $400 million in damages.

Should you really dispute the CRA’s finding that your supplies are taxable and not exempt?

Many of the “exempt” versus “taxable” cases that we see from the GST/HST perspective put the recipient (the one usually arguing for “exempt” treatment) and the supplier at odds.

Every business operating in Québec should already be aware that it is a French-speaking province and that given the population it would make sense to operate in French when carrying on business in the province.

We are frequently asked, however, about the requirements of the Charter of the French Language (the “CFL”), particularly about whether specific documents must be translated, and whether websites must be offered in French as well.  

The December 20, 2017 decision of the Québec Court of Appeal in 156158 Canada Inc. v. Attorney General of Québec, 2017 QCCA 2055 provides a useful summary of the major provisions of the Charter of the French Language and upholds the validity of all of them, including the relatively recent requirement for French language websites.

The recent decision of the Federal Court of Canada (the “FC”) in Canada v. Toronto Dominion Bank, 2018 FC 538, (“TD Bank”) could make it much more difficult for business owners to get personal loans and mortgages.

Subsection 141.01(2) of the Excise Tax Act (“ETA”) deems a property or service acquired for use in a business to be for use in commercial activities only to the extent that it is used in the making of taxable or zero-rated supplies. On the other hand, subsection 141.1(3) provides that any action of a person in connection with the acquisition, establishment, disposition, or termination of a commercial activity is deemed to occur in the course of commercial activities. An apparent conflict therefore exists where a property or service is acquired by a registrant in connection with the acquisition, establishment, disposition or termination of a commercial activity, but where taxable supplies have not yet been made or have ceased: a registrant is deemed to have incurred the property or service in the course of commercial activities by subsection 141.1(3), but also deemed to have incurred same in the course of non-commercial activities by subsection 141.01(2).

The Ontario Court of Appeal’s recent decision in Canada Life Insurance Company of Canada v. Canada (Attorney General) (2018 ONCA 562) seems to have put a final stake in the heart of equitable remedies in tax matters.  The case dealt with rescission, and has the effect – along with prior Supreme Court jurisprudence – of clarifying that the equitable remedies of rescission and rectification will not generally be available to taxpayers seeking to correct drafting or planning mistakes.

Recent experience suggests that the CRA may have an ongoing project (internal code for either tax evasion special investigations, or civil auditing of possible sham transactions – or both) in the Staffing Agency context.

While the following example is totally hypothetical, it does tend to follow the situations first identified in recent Quebec jurisprudence, where GST/HST non-compliance by staffing agencies first came to light:

Aco, a GST Registrant, acquires temporary workers through a third-party Staffing Agency, Bco.  The temporary workers are often undocumented, for whatever reason, and are unknown to Aco, other than through its relationship to Bco.  Bco charges Aco for the cost of the workers, plus a profit element, plus GST/HST.  Aco pays that, and takes an ITC for the GST/HST on the strength of the invoice from Bco.  Bco later absconds with the GST/HST (does not remit it to the CRA), and CRA finds reason to deny the ITCs in the hands of Aco (perhaps Bco was not validly registered for the GST/HST at the time that Aco was invoiced for it). 

Section 223(1) of the Excise Tax Act (“ETA”) requires a registered supplier to indicate clearly on its receipt or invoice to a purchaser/recipient of supply the consideration paid or payable by the purchaser and the GST/HST payable in respect of the taxable supply, or that the amount paid or payable by the purchaser includes the tax.  However, the section is silent as to when a supplier must give the tax disclosure to a purchaser.  The Ontario Court of Appeal (“ONCA”) was asked to determine if after-the-fact invoices could satisfy section 223(1) obligations in National Money Mart Company v. 24 Gold Group Ltd. (2018 ONCA 812).  The answer is yes!

A New Housing Rebate (“NHR”) is available under ss. 254(2) of the Excise Tax Act (“ETA”) to enable those who qualify to obtain a rebate of GST/HST paid on the purchase of a new residential property. To qualify para. 254(2)(b) says a “particular individual” must acquire a property for use as a primary place of residence of that individual or a family member.

In Cheema v. The Queen, 2016 TCC 251, the Tax Court of Canada (“TCC”) held that based on the general principle that a bare trust is considered a non-entity for tax purposes, a guarantor that signs an agreement of purchase and sale as a bare trustee for the beneficial owners was not a “particular individual”.

The TCC decision was recently overturned by the Federal Court of Appeal (“FCA”) in Cheema v. The Queen, 2018 FCA 45 (“Cheema”) where a 2-1 majority held that a bare trustee was a “particular individual”.

Canadian energy traders often misunderstand their tax collection obligations for the GST/HST and other sales taxes.

The issue may relate to a 2014 administrative decision by the CRA to begin to take a very restrictive approach to the application of section 144 of the Excise Tax Act (ETA), and a very broad approach to other deeming provisions in the ETA, which has arguably changed how the GST/HST applies to many Canadian energy transactions.

The Ontario Ministry of Finance continues to turn the Ontario tobacco industry upside down – continuing to assess companies for failure to collect the Ontario Provincial Tobacco Tax (PTT) on sales of cigars and other non-cigarette tobacco (loose tobacco, pipe tobacco, chewing tobacco, snuff, etc.) to Status Indians on Federal Indian reserves.

Section 182 of the Excise Tax Act (“ETA”) generally deems any payment made to a registrant as a consequence of a breach, modification, or cancellation of an agreement (other than as consideration for a supply), to be a taxable supply. This rule, in effect, means that where there is a breach of an agreement to supply property or services, a payment to the supplier by the recipient to compensate for that breach will generally be deemed to include GST/HST.

Unfortunately, section 182 is often overlooked by parties resolving legal disputes, as the recent Tax Court of Canada (“TCC”) decision in THD Inc. c. La Reine, 2018 CCI 147 demonstrates.

On October 29, 2018, Canada became fifth country to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the “CPTPP”), joining Mexico (June 28, 2018), Japan (July 6, 2018), Singapore (July 19, 2018), and New Zealand (October 25, 2018).

Canada’s ratification meant that only one other country needed to ratify the agreement to trigger implementation of the CPTPP. Fortunately, Canada did not have to wait very long because on October 30, 2018 Australia became the sixth country to ratify the CPTTP, triggering a 60-day countdown to the implementation of the agreement on December 30, 2018.