Tax & Trade Blog

The Ontario Court of Appeal’s recent decision in Canada Life Insurance Company of Canada v. Canada (Attorney General) (2018 ONCA 562) seems to have put a final stake in the heart of equitable remedies in tax matters.  The case dealt with rescission, and has the effect – along with prior Supreme Court jurisprudence – of clarifying that the equitable remedies of rescission and rectification will not generally be available to taxpayers seeking to correct drafting or planning mistakes.

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). 

Section 223(1) of the Excise Tax Act (“ETA”) requires a registered supplier to indicate clearly on its receipt or invoice to a purchaser/recipient of supply the consideration paid or payable by the purchaser and the GST/HST payable in respect of the taxable supply, or that the amount paid or payable by the purchaser includes the tax.  However, the section is silent as to when a supplier must give the tax disclosure to a purchaser.  The Ontario Court of Appeal (“ONCA”) was asked to determine if after-the-fact invoices could satisfy section 223(1) obligations in National Money Mart Company v. 24 Gold Group Ltd. (2018 ONCA 812).  The answer is yes!

A New Housing Rebate (“NHR”) is available under ss. 254(2) of the Excise Tax Act (“ETA”) to enable those who qualify to obtain a rebate of GST/HST paid on the purchase of a new residential property. To qualify para. 254(2)(b) says a “particular individual” must acquire a property for use as a primary place of residence of that individual or a family member.

In Cheema v. The Queen, 2016 TCC 251, the Tax Court of Canada (“TCC”) held that based on the general principle that a bare trust is considered a non-entity for tax purposes, a guarantor that signs an agreement of purchase and sale as a bare trustee for the beneficial owners was not a “particular individual”.

The TCC decision was recently overturned by the Federal Court of Appeal (“FCA”) in Cheema v. The Queen, 2018 FCA 45 (“Cheema”) where a 2-1 majority held that a bare trustee was a “particular individual”.

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.