Tax & Trade Blog

Quebec has special rules regarding the mandatory disclosure of “nominee agreements” (which are essentially the Quebec civil law equivalent of undisclosed agency agreements) where the agreement is made as part of a transaction or series of transactions that have “tax consequences”.

We previously blogged about a Tax Court of Canada (TCC) case on the tax status of credit card/payment processing services provided by Visa. In that case, the TCC held that Visa’s services constituted the supply of “administrative services” and were therefore excluded from the definition of a “financial service” in subsection 123(1) of the Excise Tax Act (ETA).

The Federal Court of Appeal (FCA) has now reversed the TCC decision, holding that Visa’s services were in fact exempt financial services.

On December 21, 2020, the CBSA initiated a dumping and subsidy investigation into certain upholstered domestic seating (“UDS”) from China and Vietnam under the Special Imports Measures Act (“SIMA”). In the Notice of Initiation of Investigations, the subject goods under investigation were described as follows:

In November 2020, the Canadian government introduced Bill C-11, the Digital Charter Implementation Act, 2020(DCIA). This long-awaited bill follows years of consultation and calls for reform and, if passed, would significantly overhaul Canada’s federal privacy laws.

Following the United Kingdom’s (“UK”) exit from the European Union earlier this year, Canada had agreed to allow its current free-trade agreement with the EU continue to apply to the UK.  That agreement is called the Comprehensive Economic and Trade Agreement (“CETA”), and Canada’s agreement to continue providing similar benefits to the UK was set to expire at the end of 2020.

Canada and the UK have now agreed on a new interim trade deal, titled the Canada-United Kingdom Trade Continuity Agreement (“TCA”).

One of the CRA’s latest projects appears to involve the scrap gold and telecommunications industries, which has been the subject of a number of recent CRA audits, culminating in a number of legal challenges in various contexts.

In the May 2020 case of Express Gold Refining Ltd. v. Canada, the taxpayer was in the business of buying scrap gold and other precious metals, and getting it refined for resale in a pure form.  It paid the GST/HST on its purchases, but did not collect this tax on its sales on the basis that sales of refined precious metals are not subject to GST/HST.  It generally filed credit returns, and the CRA began an audit – while delaying a GST refund of near $10 million.  While not identifying this as a “GST carousel” audit, the CRA did admit that the taxpayer’s GST return had initially been flagged by an automatic system for further screening, and that the CRA had identified the scrap gold business as “a high risk industry”.

In Iris Technologies Inc. v. Canada, a more recent “GST carousel” case released over the summer months – albeit in the telecommunications sector – the CRA did appear to accuse the taxpayer of participating in a “carousel scheme”, all the while attempting to deny ITCs of over $62 million!

In a prior blog, we had suggested that rectification, rescission, and other equitable remedies would likely no longer be available to correct most tax mistakes.  This conclusion stemmed from the Supreme Court of Canada (SCC) decision in Canada (Attorney General) v. Fairmont Hotels Inc. (2016 SCC 56) (“Fairmont”) and the subsequent Ontario Court of Appeal decision in Canada Life Insurance Company of Canada v. Canada (Attorney General) (2018 ONCA 562) (“Canada Life”). Both of these decisions highlighted the Courts’ concerns with taxpayers using equitable remedies to effect what might be considered “retroactive tax planning”.

However, in a recent decision, the British Columbia Court of Appeal (BCCA) has kept a window open for rescission in tax matters!

Unreported income discovered by the CRA may lead to consequences on the GST/HST component related to that income which, in turn, can sometimes result in personal liability to the director.

This situation arose in the recent case of Duque v. Canada, 2020 FCA 73.  Mr. Duque was the sole director of a corporation providing carpentry services, which was incorporated in 1996 and ceased to carry on business sometime before February 28, 2007.

As the world struggles with COVID-19, and small and medium businesses endure the worldwide economic slowdown, directors of Canadian corporations need to know about the long arm of the CRA when it comes to ensuring that GST net tax obligations and ITA source withholding requirements are met by corporations!

One particularly egregious collections power that the CRA has is its ability to issue so-called derivative assessments to relatives of taxpayers who have received money, property or dividends from the corporate tax debtor, at a time that the corporation or the director are liable for tax.

A “derivative assessment” refers to an assessment whereby the CRA collects from a third party an amount owing that it is unable to collect from the taxpayer.  Where a tax debtor transfers property to a non-arm’s length party for less than fair market value (FMV) consideration, section 325 of the Excise Tax Act (ETA) and section 160 of the Income Tax Act (ITA) may apply to allow the CRA to assess the transferee personally.

Many will remember the almost hysteric approach that some professional advisors took to “Y2K” (e.g., the one conference topic that burned deep into my brain was “The Commodity Tax Implications of Y2K”) – which ultimately proved to be either entirely alarmist, or just good marketing or both. 

While Y2K was a bit of a strawman in terms of “tax issues”, it appears that the economic realities of the COVID-19 pandemic have in fact already given rise potential indirect tax issues for those in the real estate sector.

Two areas of particular concern are commercial rent deferrals and conversions of short-term Airbnb accommodations into long-term residential rentals.

A sad and unfortunate situation for an online shopper in Australia highlights the importance of import and export permits and licenses in international trade.

While the purchaser in this particular situation was engaged in a B2C transaction, import and export permits and licenses are often required in B2B transactions, and can give rise to seizure and confiscation of goods being imported or exported from Canada in a variety of different contexts.

In this case, the purchaser was in Australia and paid over AUD $26,000 for an alligator-skin handbag – ordered online from a boutique in France.  When the handbag arrived in Australia, it was seized by customs officials and subsequently destroyed – all because it lacked the proper import permit!

In the current global business environment, increasingly many US companies are selling their goods into Canada, and using a variety of business structures to do so.  However, many companies continue to struggle with their tax and customs obligations on these transactions.  In particular, issues often arise with determining the proper value for duty of the goods at the border, and companies are often further confused between their Division II and Division III GST/HST obligations under Canada’s Excise Tax Act.

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 audit initiative of the Canada Revenue Agency (CRA) has targeted financial service intermediaries – and in particular, member service providers (“MSPs”) that are engaged in business in the credit card/electronic payment industry.  These are the businesses that provide “point of sale” (POS) visa machines to merchants, for customers to use when paying for goods and services purchased in various retail establishments.

While seemingly providing goods and services to the retail merchants, in fact, the MSPs usually enter into contracts with credit card payment processing companies (“Members”), whereby they recruit retail merchants to contract with the Members for the retail merchants’ payment processing needs. The MSPs’ services include negotiating fees with the merchants on behalf of the Members and otherwise acting as the main point of contact for the merchants in respect of their credit card processing matters. The MSPs also provide services in relation to the installation and operation of the point-of-sale credit card processing equipment at the merchants’ retail locations.

A recent decision of the Court of Appeal for Ontario (the “ONCA”) has created doubt as to the enforceability of certain arbitration clauses in independent contractor agreements – which will likely require all direct selling companies to want to review and retool their own clauses.

In Heller v. Uber Technologies Inc., 2019 ONCA 1 (“Heller”), an Ontario Uber driver commenced a proposed class action against Uber entities.  The Uber driver alleged that Ontario Uber drivers were improperly classified by Uber as independent contractors, when they were lawfully employees entitled to the protections of the Ontario Employment Standards Act, 2000 (the “ESA”). The class action sought a declaration that Uber had violated the provisions of the ESA and asked for $400 million in damages.

Should you really dispute the CRA’s finding that your supplies are taxable and not exempt?

Many of the “exempt” versus “taxable” cases that we see from the GST/HST perspective put the recipient (the one usually arguing for “exempt” treatment) and the supplier at odds.

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.

On October 23, 2018, the Conservative-led Government of Ontario announced Bill 47, Making Ontario Open for Business Act, 2018. If Bill 47 passes, it would make a number of significant changes to the Employment Standards Act, 2000 and the Labour Relations Act, 1995, including repeals of many of the workplace reforms made last year by the then-Liberal government.

Amendments to Canada’s federal privacy legislation, the Personal Information Protection and Electronic Documents Act (PIPEDA), are coming into force on November 1, 2018. These amendments impose upon organizations mandatory reporting, notification, and record-keeping requirements in the event of a privacy breach. The new rules are intended to ensure that Canadians receive sufficient information about privacy breaches regarding their personal information, to promote better data security practices by organizations, and to harmonize with the privacy laws in other jurisdictions (most notably with the European Union’s General Data Protection Regulation).