Tax & Trade Blog

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.

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!

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”. 

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. 

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).