Tax & Trade Blog

Whether a notice of assessment was mailed or not has important legal consequences for taxpayers.  There is an irrebuttable presumption of receipt of the notice of assessment by a taxpayer once it is mailed by the Minister (S,248(7)(a) of the Income Tax Act (“ITA”)); a notice of objection must be served on the Minister within 90 days of the date on which the notice of assessment was mailed (s.165(1)); upon receipt of a notice objection, the Minister is obliged to reconsider the assessment and vacate, confirm or vary the assessment or reassess and to notify the taxpayer of its decision (s. 165(3)); and the taxpayer may appeal the assessment to the Tax Court of Canada (“TCC”) if the Minister has not vacated or confirmed the assessment or reassessed within 90 days of receiving the notice of objection (s. 169(1)). Parallel provisions are found in the Excise Tax Act.

Input Tax Credits (“ITCs”) are typically not available for “holding companies” that exist solely to hold shares or indebtedness of another company due to the fact that taxpayers are only entitled to ITCs in respect of tax paid on property or services acquired in the course of commercial activities. However, section 186(1) of the Excise Tax Act contains a special rule allowing a company to claim ITCs in respect of expenses “that can reasonably be regarded as having been so acquired for consumption or use in relation to shares of the capital stock, or indebtedness, of another corporation that is at that time related to” the company, in certain instances. 

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.

In Invesco Canada Ltd. v. The Queen (2014 TCC 375), CRA assessed the taxpayer for GST, arising out an arrangement designed to minimize income tax.  Specifically, at issue was a determination of the value of the consideration paid for the supply of management services provided to mutual fund trusts. 

GST/HST rules provide that a notice of objection has to be filed with the Minister within 90 days of the mailing of an assessment (section 301(1.1) of the Excise Tax Act (the “ETA”); the parallel provision in the ITA is section 165(1)).  However, as established in Le sage au piano v. The Queen (2014 TCC 319), the clock may not start ticking on the 90 day period if the CRA has left out important details of the taxpayer’s address on the notice of assessment—extending the previous doctrine from income tax cases that it is insufficient for the CRA to mail a notice of assessment to an incorrect address (The Queen v. 236130 British Columbia Ltd., 2006 FCA 352). The fact that litigation continues in this area also highlights the fact that there is no electronic means of determining whether a notice of assessment has been issued.

In Kraft Canada Inc. v. CBSA (appeal No. AP-2013-055), the Canadian International Trade Tribunal (CITT) reviewed the complicated rules for classifying goods for Canadian customs tariff classification purposes, where the goods are really a combination of two different goods.  In doing so, the CITT outlined how the “retail sets” rules for tariff classification purposes interact with the “essential character” rule, and the case stands as an excellent example of the intricacies of tariff classification when anything other than simple goods are imported.

Section 156 of the Excise Tax Act (the "ETA") provides GST/HST relief in the context of certain supplies between closely related corporations and partnerships, and is amongst the most important provisions in the GST/HST legislation. Recently enacted changes have created quite the buzz around this election, as among other things, it now needs to be filed with the CRA, and that filing needs to be done in early 2015 for it to be effective for 2015 supplies. Here are some helpful details.

With the New Year approaching, GST/HST registrants should be aware of a number of GST/HST compliance requirements for 2015, the more notable of which include as follows.

For years it was an open question as to whether or not a Canada Revenue Agency ("CRA") auditor owed a duty of care to a taxpayer under audit.  In the recent case of Leroux (2014 BCSC 720) the Supreme Court of British Columbia (BCSC) concluded that, on the facts, the CRA auditors owed a duty of care to the taxpayer.  But what is the appropriate standard of care a CRA auditor must meet to avoid a finding of negligence? 

In a recently released GST/HST ruling, CRA seems to place a high bar on the exempt treatment of administrative services acquired by an Insurance Company in operating its insurance business.  In RITS 154220 (Application of GST/HST to Insurance-related Administrative Services), the CRA effectively takes the view that virtually all administrative services acquired by an insurer are viewed by CRA as excluded from the financial services exemption, and therefore taxable for GST/HST purposes.

The Ontario Ministry of Finance has threatened to turn the Ontario cigar industry upside down, by beginning to assess vendors selling cigars and other non-cigarette tobacco to status indians on federal indian reserves, for Ontario provincial tobacco tax (PTT). Previously most industry insiders would have assumed - just from Ontario's acquiescence to wide-spread industry practice of exempting all sales of non-cigarette tobacco sold to Indians that sales of cigars, pipe tobacco and chewing tobacco to status Indians on federal Indian reserves was exempt of PTT.

Non-residents carrying on business in Canada must be cognizant of the potential to be involuntary registered for the GST/HST. 

Subsections 241(1.3) to (1.5) of the ETA (which came into effect in June 2014) empower the CRA to unilaterally register a person who has not registered for GST/HST but, in the CRA’s view, is required to do so. The budget states that these amendments will strengthen GST/HST registration compliance and help the CRA to combat the underground economy.

An undisclosed agency exists if an agent enters into a contract with a third party on behalf of a principal, but does not reveal to the third party either the identity of the principal or the fact that the agent is acting on behalf of any principal.

On October 18, 2013 the Prime Minister of Canada announced that Canada had reached an agreement in principle for a “Comprehensive Economic and Trade Agreement” (CETA) with the European Union. While not yet in force, and expected to take upwards of two years to be translated and ratified by all 28 EU member states and the European Parliament, the Agreement has generated a lot of excitement about the EU – already Canada’s second biggest trading partner behind the US.

What many businesspeople do not realize is that Canada already has a Free Trade Agreement with a group of European countries – The Canada-European Free Trade Association Free Trade Agreement (CEFTA).

Like many areas of law, in customs valuation there are cases that represent so-called high and low water marks – cases that represent the extremes of possible outcomes, given a set of facts. Every once in a while, a case comes along that moves these marks around – often surprising practitioners. The recent case of Skechers USA Canada Inc. v. CBSA is one of those cases, and the decision of the Canadian International Trade Tribunal (the “CITT”) has caught the attention of many practitioners.

The CRA's treatment of "bare trusts" has been problematic from the first days of the GST.

When the GST was first implemented in January 1991, the CRA was initially advising bare trustees of bare trusts (trusts that operating at the behest of their beneficiaries, and where the trustee has no independent authority other than following express directions of the beneficiaries) that it was the bare trustee that was viewed as the supplier for GST purposes, and the person required to register for GST purposes. This position was changed in mid-1992, when the CRA flipping its position, and now advising that bare trustees were not allowed to register, and that the beneficiaries of these bare trusts were the one's required to register.

Directors often ask about creditor-proofing personal assets when facing a possible assessments for "Director's Liability" under Canada's income tax and GST legislation. That question usually follows the director's first understanding that the Canada Revenue Agency (CRA) has special powers in both the Income Tax Act (ITA) and the Excise Tax Act (ETA) to assess a director where a corporation leaves behind unpaid income tax or GST debts, and to realize on (seize) a director's personal assets (e.g,, homes, cottages, cars, monetary savings) to satisfy those debts. (These rules are more specifically found in section 227.1 of the ITA and section 323 of the ETA, and is almost identical.)

Also surprising most directors are special rules in the ITA and ETA allowing the CRA to attack transfers of a director's personal assets to non-arm's-length parties (e.g. wives, children, siblings, parents, etc.) where the value paid by the relatives is less than the fair-market value of the property being transferred. (These rules are found in subsection 160(1) of the ITA and section 325 of the ETA, and are also fairly similar.)

Canada's new "Anti-Spam" Legislation will come into effect on July 1, 2014 (for simplicity, Canada's "ASL").

While a step forward for Canada in this legislative area, a more pessimistic view of it might position it as largely ineffectual when it comes to removing spam from my inbox and your inbox (because it does not contain any real measures aimed at enforcement on foreign owned computer systems or internet providers where much of Canadian spam actually originates), and the spam that it does effectively remove (Canadian-based spam) seems to be at a huge cost to legitimate Canadian businesses that seek to market their legitimate products and services to Canadians in the digital market-place).

A recent decision in the Federal Court ends up being a real good lesson for (mostly) all of the bad things that Canadian's can face when tempted to either non-report or undervalue their purchased goods when returning to Canada from abroad - all in the pursuit of saving a few dollars in duties or GST/HST. Indeed, what the CBSA was able to do to ferret out the non-reporting and under-valuation may be surprising to the average Canadian, and the facts of the case itself are probably a good heads up on what can face an importer when lying about his or her purchases.

The Canada Border Services Agency ("CBSA") recently issued Customs Notice N-13-011 ... well maybe not so recently ... in May ... but it sometimes takes that long to keep up to date with these pressing announcements :). 

The changes relate to CBSA”) administration of customs Administrative Monetary Penalties(“AMPs”) which may apply to the most basic of errors by Canada’s commercial importers, and can in some instances be as high as $500,000.  These penalties are often imposed in connection with CBSA customs verifications -- short terms of "audit" and are aimed at securing compliance with customs legislation.