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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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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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A recent tax case in the Federal Court of Appeal (FCA) involving the RONA home improvement chain (Rona Inc. v. Canada (Minister of National Revenue) seems 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.

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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.

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In a previous blog (click here) we wrote about the case of CBS Canada Holdings Co. v. The Queen (2016 TCC 85), and the limitations that decision placed on a lawyer acting as an advocate. In particular, the Tax Court of Canada (the "TCC") held that the law firm representing CBS had sworn an affidavit on a controversial issue, and in doing so had crossed the line between being an advocate for the client and inappropriately become involved in the facts of the case as a witness.

As we noted at the time, the decision was appealed to the Federal Court of Appeal (the "FCA"). The FCA has now issued its decision (2017 FCA 65), completely exonerating the lawyers for CBS!

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Given that financial services are exempt from GST/HST under Part VII of Schedule V of the Excise Tax Act, the “financial services” definition in section 123(1) is subject of regular litigation before the Tax Court. 

The definition is structured to delineate what constitutes a “financial service” in paragraphs 123(1)(a) to (m) and what a financial service “does not include” in paragraphs 123(1)(n) to (t)

In SLFI Group - Invesco Canada Ltd. (2017 TCC 78), the Tax Court of Canada recently had another opportunity to deal with these inclusions and exclusions in the financial services definition.  In doing so, the Tax Court applied an unexpectedly broad interpretation of the exclusion found in paragraph 123(1)(q), which deals with the supply of “management services”. 

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A director can defeat personal liability for his/her corporation’s tax debt by establishing that the director’s assessment was made more than two years after he/she has ceased to be a director of the corporation (section 325(5) of the Excise Tax Act (“ETA”); section 227.1(4) of the Income Tax Act).  What a director needs to do in order to demonstrate that there was an effective resignation? As discussed in the following cases, an objectively verifiable communication of a resignation to the corporation is required and that any mess up in the requirements of Ontario’s Business Corporations Act (“OBCA”) will affect the efficacy of the resignation.  When in doubt, it is advisable for directors to seek legal advice. 

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Most businesses will, at some point, have to deal with a situation where they have made advance payments for goods and services that never end up being provided.  The cause for this non-supply is often due to the fact that the supplier has become impecunious.  This results in obvious commercial headaches for the recipient, which can be exacerbated by corresponding GST implications. 

Typically in such situations, the recipient will pay GST to the supplier in respect of the advance payment and take a corresponding Input Tax Credit (“ITC”) in its next GST Return.  The supplier is required to remit that GST collected to the fisc.  Pursuant to subsections 232(1) and (3) of the ETA, where the supplier will not be making the supply (or, for other reasons, reduces the consideration owed for the supply), it can adjust, refund or credit the amount collected (including the GST collected), and issue a “credit note” to the recipient.  In turn, pursuant to paragraph 232(3)(b), the supplier can apply an adjustment in its next GST return to reduce its net tax by the GST amount in the credit note.  Correspondingly, pursuant to paragraph 232(3)(c) the recipient is required to apply an adjustment to increase its net tax by the same amount (to account for the portion of the ITC previously taken, but now credited). 

To the extent that the supplier is impecunious, the recipient will be left with a situation where it has had to increase its net tax, pursuant to a credit note received that will never actually be honoured.  This was exactly the situation in the TCC decision in North Shore Power Group Inc. (2017 TCC 1).

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The recent Tax Court decision in Persepolis Contracting (2017 TCC 89) is another example of how the concept of agency is so important in the GST context.  The case serves as a reminder that written documents will be central to the determination of whether an agency relationship exists, and suggests that it might be difficult to establish that written agreements constitute evidence of agency.

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In Thangarajah v. Her Majesty the Queen (2017 TCC 72), the applicant and her corporation (collectively, the “applicants”) were issued Notices of Assessment in November 2014 for unreported income under the Income Tax Act.  When the corporate applicant was audited by the CRA in early 2014, the applicant retained the services of an agent who held himself out to be a lawyer (the “agent”).  It was the applicant’s understanding that the agent would do whatever was required to deal with the Notices of Assessment.  In the months that followed, the applicant received calls from CRA Collections and the agent was informed and asked to take action.  It was unclear what the agent had actually accomplished for the applicants except that he sent a letter to a CRA Collection Officer dated September 10, 2015 advising, among others, that he would initiate the “appeal process” soon (the “Letter”).  The Collection Officer responded the following day indicating that the collection files had been updated with a further notation that an appeal had to be done as soon as possible.  CRA Collections eventually seized the applicant’s bank accounts, leading to the firing of the agent.  The applicants then found out that the agent was, in fact, a paralegal and that they suffered as a result of the agent’s failure to file the notices of objection.

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The TCC in Andrews (2017 TCC 23) distinguished between transportation services that transport vehicles by towing them and those that transport vehicles by driving them, subjecting only the latter to GST/HST. The TCC thus narrowed freight transportation services to mean only services that involve a mode of transportation that is separate from what is transported.

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