Tax & Trade Blog

Our tax system is complex, with many potential procedural pitfalls that taxpayers need to navigate.  One such issue is the jurisdictional boundaries between the Tax Court and the Federal Court for tax disputes.  Recent Supreme Court’s companion decisions in Dow Chemical Canada ULC v. Canada (“Dow Chemical”), and Iris Technologies Inc. v. Canada (“Iris”) provide clarifications on this issue.  However, these “clarifications” may result in a less streamlined and more costly process and thus may not be good news for taxpayers.

Part of our Customs, Trade & Indirect Tax Practice is dealing with matters arising out of Canada’s Anti-Money Laundering legislation (more formally, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act).

A recent case from the Federal Court of Appeal (“FCA”), dealing with an Administrative Monetary Penalty (“AMP”) issued under this legislation, got us thinking about the secrecy shrouding the old English Star Chamber, and whether the current government’s predilection for hiding unfavourable information has been slowly filtering down through Canada’s vast government administration, and potentially to our judicial system – and the huge detrimental effects that might entail for our country.

When it comes to a Direct Selling Company’s legal relationship with its Distributors, Canadian direct sellers are treated differently from those in the US, where IRS deeming rules operate to clarify that Distributors are independent contractors and not employees!

In Canada, there is no such special status, and the “common law” determines employee vs. independent contractor (“IC”) status, making this a perennial compliance issue.

As a tax lawyer assisting clients in defending themselves against the all-powerful CRA (and its equally powerful ally, the Department of Justice – Canada’s largest and best-equipped law firm), I welcome any judicial decisions that help to right that power imbalance. 

Justice Patrick Boyle’s recent decision in Frigorific Warehouse is an exceptional attempt at addressing an inherent problem with Canada’s GST/HST system, which lacks proper mechanisms to deal with tax rogues who gain access to the CRA’s registration system to charge, collect and abscond with GST/HST funds from unsuspecting Canadian businesses. The CRA’s traditional position has been to attempt to recover the lost GST/HST from these unsuspecting businesses (by denying them input tax credits – “ITCs”). Justice Boyle’s decision seems to put that ability into serious question!

As we wrote here, Canada’s rules taxing Vaping Products were first enacted in 2018, with the Tobacco and Vaping Products Act (“TVPA”), continue to involve, with a number of provinces and territories now getting into the taxing game.  While the TVPA sets out a regulatory framework for manufacturers, importers, retailers and any other business involved in the vaping industry, the provincial rules center largely on ensuring their allocation of the taxes from this new found source of tax income!

The Canada Revenue Agency (“CRA”) has recently released some new Guidance on how all of these taxes are supposed to work together, but the policy goal of this (i.e., taxing something that in many eyes is meant to be an alternative to an incredibly-bad-for-your-health smoking habit) remains suspect.

Businesses engaged exclusively in commercial activities get full input tax credits (“ITCs”) enabling them to recover all the GST/HST they pay in the course of their business activities.  Organizations engaged exclusively in “exempt” activities (financial services, healthcare, educational-related institutions) get no ITCs, meaning that GST/HST is a hard cost in their business. 

In between the two are businesses that carry on BOTH commercial and exempt activities, and in order to determine the ITCs these businesses are eligible to claim, a “fair and reasonable” allocation method has to be used.  A recent decision of the Tax Court of Canada (the “TCC”) in Marine Atlantic Inc. v. The King (2023 TCC 95) explores what that really means.

As announced in the Liberal-NDO Coalition Government’s 2024 Budget, and at a time when the government seems hard-pressed to increase taxation in Canada to deal with the massive spending over the last few years, the Canada Revenue Agency (“CRA”) has been given some brand new tax Audit powers – which to some respects are downright frightening.

As we initially described here, the Canada Revenue Agency (“CRA”) continues auditing and assessing individual home-owners who have either substantially re-built their homes or commissioned the construction of a new home for their own use on the resale value of those homes in a number of alarming instances.

As we wrote about here Canada’s carbon tax system is complicated and causing problems.

Recently, the Canada Revenue Agency (“CRA”) has been auditing and issuing assessments based on the technical requirements of the legislation.

Background

Canada’s carbon tax legislation is called the Greenhouse Gas Pollution Pricing Act – and we will refer to it as the Carbon Tax Act or “CTA”.  The CTA was enacted in 2018.  Part of it enacts a “fuel tax” (called a “Fuel Charge” for optics) which adds additional Canadian taxation points to all transactions involving combustive fossil fuels.  The Fuel Charge is levied under Part I of the CTA.

In a “bad news case” for unsecured creditors, the Federal Court has confirmed that the CRA’s deem trusts over things like unpaid GST/HST and income tax source deductions take precedence to prevent loan repayment to unsecured creditors.  This means that related and unrelated persons loaning money to Canadian small businesses on an unsecured basis (which is common - think about the loans being advanced by business partners, parents and spouses) are at risk when those businesses default on their tax obligations.

Quebec’s controversial Bill 96, officially titled “An Act respecting French, the official and common language of Quebec” (“Act”), was passed in 2022. Bill 96 amends the Charter of the French Language (“Charter”) to try and ensure that French remains the predominant language in commercial activities within Quebec. Practically speaking, Bill 96 has made things extremely complicated for any English-based Canadian or US business trying to operate in Quebec, including both Canadian and US Direct Sellers.

A recent Federal Court of Appeal (“FCA“) decision in Pillon v. Canada (2024 FCA 24) highlights the difficulties that Tax Debtors will face if trying to avoid GST and income tax debts.  Both the Excise Tax Act (“ETA”) and the Income Tax Act (“ITA”) have extremely powerful collections tools allowing the Canada Revenue Agency (“CRA”) to assess certain non-arm’s length persons (think spouses, children, relatives, close friends and associates) that have been transferred a Tax Debtor’s property for less than fair market value (“FMV”).  These rules can even apply to corporate shareholders receiving dividends from delinquent corporations.

Canada’s furniture industry was seemingly upturned in late 2020 with the Canada Border Services Agency (“CBSA”) investigation and then its Notice of Preliminary Determination that certain upholstered domestic seating (“UDS”) being imported to Canada from China and Vietnam was being dumped.  Almost overnight, it seemed, the cost of Canadian leather sofas and recliners skyrocketed (some under dumping and subsidy duties set as high as 188%) – with CBSA’s imposition of provisional and then final anti-dumping duties, levied under Canada’s Special Import Measures Act (“SIMA”), being to blame.   (Canadian industry might suggest NOT “to blame” BUT to “protect”, Canadian competitiveness that is).