Tax & Trade Blog

Last March 18th, the CRA announced the suspension of the vast majority of audit activities as a result of the COVID-19 pandemic. How quickly things change!

As a result of the COVID-19 pandemic, the Tax Court of Canada (the "TCC") has been closed with all hearings cancelled since March 16, 2020.

A recent Notice to the Public and Profession (the "Notice") issued by the TCC has indicated this cancellation of hearings will extend to July 17, 2020 (which would have been the last day of hearings before the TCC's previously scheduled 4-week summer recess).

The Notice also reveals that the TCC has been preparing to re-open.

Before 2010, Canadian direct selling companies were often organized as Unlimited Liability Companies ("ULCs"), for good reason.

The ULC structure could operate under the US "check-the-box" rules as a flow-through entity, which was often desirable from the perspective of the US corporate owner, which was usually structured as an S Corp or LLC.

Changes to the US-Canada Tax Treaty (the "Treaty") made effective in 2010 threw a wrench into these historically common structures – exposing some to a 25% unrecoverable tax under Part XIII of the Canadian Income Tax Act on any payments of dividends, interest, and royalties.

The recent decision in Canada v. Colitto (2020 FCA 70) has seen the FCA weigh in on a huge issue for so called “derivative assessment” of directors and other person potentially at risk for a corporate taxpayer’s tax liability. With the financial pressures of COVID 19, this may come as bad news for corporate directors!

A recent case highlights the fact that at law, an agency agreement can be implied to exist based on the conduct of the parties alone – without any explicit written or verbal references to “agency”.  This is often referred to as an “Implied Agency”.

The case of Lohas Farm Inc. v. the Queen (2019 TCC 197) cites a number of past cases and textbooks for the concept of implied agency, and serves as a useful resource for taxpayers and counsel making similar arguments.

A recent case has hopefully clarified a huge issue for so called "derivative assessment" of directors and other person potentially at risk for a corporate taxpayer's tax liability.

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.

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.

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). 

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.

Over the past several years, the CRA Audit Division has directed more attention to businesses that use Employment Agencies for their staffing needs. We understand that many businesses dealing with Employment Agencies, Temporary Labour, Staffing Agencies, or other similar entities, have already been contacted by CRA Auditors looking to confirm their eligibility for Input Tax Credits (ITCs).

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.

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.  

In the recent case of Club Intrawest v. Her Majesty the Queen (2017 FCA 151), the Federal Court of Appeal (the "FCA") was faced with a unique fact pattern not contemplated by the legislation. In dealing with this unusual situation, the FCA did what common law courts do best, and improvised a solution which it considered both fair and legally justifiable. In the process, the FCA has introduced a new gloss on the common law "single versus multiple supply analysis" and held that even where a recipient is only charged a single amount of consideration, a court may nevertheless find that there were two separate supplies, each with different tax treatment.

The Customs Act requires corrections of errors in import declarations – such as a tariff classification, country of origin, or value for duty.  Each correction requires the filing of a form B2 adjustment request, which can be an onerous task when multiple corrections are required. The CBSA has an administrative practice that streamlines the procedure for authorized importers by allowing them to file a single blanket adjustment request - a single form with an attached spreadsheet - to process multiple corrections with one form.  However, the CITT decision in Worldpac Canada (AP-2014-021) shows that administrative practice does not have the force of law and a taxpayer’s reliance thereon involves risk. 

In Fairmont Hotels Inc. (2016 SCC 56) and Jean Coutu Group (2016 SCC 55) the Supreme Court of Canada (the “SCC”) clarified the law of rectification.  The result might be disappointing for taxpayers and tax practitioners alike, yet the decisions bring Ontario back in line with the rest of Canada by establishing that an application for rectification refer to a detailed intention. 

Whether or not a supply is a financial service is a significant issue for suppliers because suppliers of financial services are unable to claim ITCs for the GST/HST they pay on their inputs. Accordingly, financial service providers scrutinize their own suppliers carefully to ensure they are only paying GST/HST where appropriate.

Liquefied Natural Gas (LNG) has been making the headlines for the past year as a result of significant interest in potential sales to energy-hungry Asian markets from the coast of British Columbia. There are at least 19 LNG proposals for British Columbia, but so far none of the proponents have commenced construction.

January 1, 2015 was a big day for changes in the General Preferential Tariff (the "GPT").  On that day, Canada removed 72 countries from the list of nations that benefited from the GPT.  Most notable among the list of countries removed from the GPT was China, an exporting superpower, but other significant countries on the list include Brazil, India, Russia, South Africa, and Turkey.  The full list is provided at the bottom of this page.