Tax & Trade Blog

One of the messier areas in tax law tends to be the case where “civil” tax default meets potential “criminal” tax fraud – with the consequences to the taxpayer moving beyond tax assessments and interest, to fines and potential time sentenced in the ‘Crow Bar Hotel’.

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.

Section 231.1 of the Income Tax Act (“ITA”) provides the Canada Revenue Agency (“CRA”) with broad powers to examine records of taxpayers that may be relevant for audit and for the administration or enforcement of the legislation.   If a taxpayer fails to provide the required information, the CRA may seek a compliance order from the Federal Court (“FC”) pursuant to section 231.7(1).  (Parallel provisions in the Excise Tax Act are sections 288 and 289.1.) 

As section 231.1(a) says “any document of the taxpayer or of any other person that relates or may relate to the information that is or should be in the books or records of the taxpayer or to any amount payable by the taxpayer”, what is the legal test for relevance?  In The Minister of National Revenue v. Atlas Canada ULC (2018 FC 1086), the FC confirmed that the Minister is only required to meet the very low threshold for relevance in respect of production of documents.

As we blogged about here and here, the CRA has an often forgotten power to issue ‘Requirements for Information’ (“RFIs”) on third parties which can be used to compel them to hand over evidence in their possession to the CRA to be used to determine if another taxpayer has unremitted tax or undeclared income. The recent case in Minister (National Revenue) v Roofmart Ontario Inc (2019 FC 506) dealt with those RFI powers, in particular the CRA’s ability to issue an RFI when it did not know the identity of the taxpayer it ultimately wanted to investigate (the so-called ‘unnamed person requirement’).

That case was appealed to the Federal Court of Appeal (“FCA”), and the decision in favour of the CRA was released earlier this month.

Importers of goods have both current and ongoing responsibility and obligations under the Customs Act (the “Act”) and its Regulations. On a “current” basis (i.e., at time of importation), include reporting the goods for import, and proper declarations of value, tariff class and origin, and payment of applicable duties and other taxes. On an “ongoing basis”, the importer is required to correct errors in those declarations up to four years after the time of importation.

What if an “importer” is neither the owner nor purchaser of the goods?  Does that “importer” escape liability for the duties and GST imposed under the Act?

With the passage of the Canada United States Mexico Agreement’s (“CUSMA”) implementing legislation on March 13, 2020, the Canada Border Services Agency (“CBSA”) has released several new Customs Notices which outline the specific implementation steps for when the agreement comes into force (which is scheduled to be July 1^st, 2020).

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.

The Canada Border Services Agency (CBSA) is responsible for reviewing imports to ensure compliance with Canada’s trade laws. In doing so, the CBSA sometimes focuses on what it deems “audit priority” areas. These are tariff classification codes where the agency believes that there is significant risk for misclassified imports under the Customs Tariff, which leads to the unlawful evasion of duties on those goods.

The CBSA recently released a new round of 2020 Trade Compliance Verifications, which dealt with a number of these priority areas.

In the report, the following “audit priority” areas had updated enforcement information, leading to several million dollars in fines and penalties for importers who misclassified their goods.

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 International Chamber of Commerce’s (“ICC”) Incoterms® are relied on across the world by businesses to simplify and standardize the delivery of internationally shipped goods. The terms function so that the obligations on both buyers and sellers are clear, which eliminates surprises in the case of disputes. Use of the terms, in a manner consistent with the underlying international sales agreement, is critical to not only commercial obligations, but critical to the application of international taxes, including the Canadian GST/HST valued added tax.

The ICC updates Incoterms® periodically to stay up to date with modern realities in global trade and a new set of terms, to be called Incoterms® 2020, comes into effect on January 1, 2020.

Exporters of goods from Canada may be surprised to receive a Notice of Detention from the Canada Border Services Agency (CBSA), indicating that their goods have been detained on the way out of the country.

Under section 101 of the Customs Act, goods that are about to be exported may be detained by a border services officer “until he is satisfied that the goods have been appropriately dealt with in accordance with this Act, and any other Act of Parliament that prohibits, controls or regulates the importation or exportation of goods, and any regulations made thereunder”. 

There are a number of possible reasons for a “detention”, ranging from errors on export forms to exports contary to Canadian export controls.

A recent Ontario Court of Appeal case serves as a reminder that legal jurisdiction clauses (also referred to as "forum selection") must use express language if they intend to provide a forum with exclusive jurisdiction to hear contractual disputes.

An oft-forgotten power of the CRA is its ability to issue a Requirement for Information (“RFI”) which compels a third party to turn over evidence which the CRA can use to determine if another taxpayer has met its obligations under the Canada’s tax laws. This power also extends to “unnamed” persons, where the CRA does not know the exact identity of who may be in violation of the law but knows that the third party possesses information on that person. In this “unnamed” person situation, the CRA must obtain court approval before they issue the RFI.

A recent case before the Federal Court dealt with this very issue.

The Canada Border Services Agency (CBSA) is responsible for reviewing imports to ensure compliance with Canada’s trade laws. In doing so, the CBSA sometimes focuses on what it deems “audit priority” areas. These are tariff classification codes where the agency believes that there is significant risk for misclassified imports under the Customs Tariff, which leads to the unlawful evasion of duties on those goods.

The CBSA recently released its next round of 2019 Trade Compliance Verifications, which dealt with a number of these priority areas.

Canada has many rules which govern the import and export of property. However, importers and exporters are often not aware of the many supplementary laws which govern the trade of specific goods and services across international borders. One of these often-overlooked areas are the rules governing rare archeological/cultural artifacts.

A recent case from the United States has highlighted the pitfalls involved with importing and exporting rare cultural artifacts from Egypt.

When assessing a taxpayer’s income, the CRA has an often-overlooked auditing power that allows it to consider a taxpayer’s net worth at specific points in time and use it to calculate the taxpayer’s unreported income. This is called a ‘net-worth assessment’. This alternative audit methodology is often employed when the CRA finds that the books and records of the taxpayer are either incomplete or unreliable—and can result in assessments on undeclared income and unremitted GST/HST!