Tax & Trade Blog

Living Friends Case - In Living Friends Tree Farm (2016 TCC 116), the central issue was whether the taxpayer’s expenses in respect to preparation for a Christmas tree farm were incurred in relation to commercial activity.  The TCC held for the Minister, noting that it was impossible to determine how much of the alleged commercial venture was genuinely commercial and how much reflected the registrant’s personal lifestyle desires.

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.

An out-of-court statement is generally inadmissible as evidence in court to prove the truth of the statement’s contents – this is the general rule against hearsay.  There are a number of exceptions to this rule including an admission – where a party wishes to use a statement made by the opposing party against that opposing party.  An admission is admissible as evidence of the contents of that admission.  Where that opposing party’s agent makes such a statement, it is also admissible as evidence of the truth of its contents.  The recent decision in Spears et al. (2016 NSPC 20) stands for the proposition that a taxpayer’s accountant’s statement to CRA can be admitted as evidence for the truth of its contents.  This is an important case for business-owners who rely on their accountants to deal with the CRA on behalf of the business.

There has been significant jurisprudence on the extent to which recipients are entitled to ITCs in respect of GST paid to so called “rogue suppliers” – suppliers who collect but fail to remit GST to the fisc.  The CRA has often taken the position that where the recipient fails to make efforts to confirm the identity of its supplliers or where the recipient is wilfully blind to the bona fides of its suppliers, the recipient will not be entitled to ITCs. The recent decision of SNF LP (2016 TCC 12) adds another layer to this analysis.  Although the TCC makes a number of distinct findings, the most interesting aspect might be with respect to a briefly explained conclusion regarding a claim for a rebate of tax paid in error.

 The principle of solicitor-client privilege holds that communications between a client and his or her lawyer cannot be compelled to be disclosed without permission of the client.  Although this principle started as an evidentiary rule, it has developed into a principle of fundamental justice. 

Canadian tax legislation endows the CRA with various powers to compel individuals and businesses to disclose information and documentation in support of administering or enforcing that tax legislation.  Failure to comply with CRA’s requirements undert these rules can result in fines or imprisonment.  Solicitor-client privilege and these disclosure rules collide where CRA attempts to compel client-related information and documentation from lawyers.  The Supreme Court of Canada has recently dealt with this issue in Chambre des notaires du Québec (2016 SCC 20) and its companion case Thompson (2016 SCC 21).  The decisions make clear that solicitor-client privilege will be upheld in the face of these disclosure provisions.