Tax & Trade Blog

As a general rule, non-resident employers who send their employees to Canada to perform various tasks for them are required to withhold tax in respect of the employees earnings while in Canada, and remit same to the Canada Revenue Agency (CRA).  Employees, are then required to file Canadian income tax returns to recover those taxes, if meeting certain tax treaty tests for determining taxability of those earnings in Canada.

Perhaps not surprisingly, these rules have made sending US employees to Canada an extremely cumbersome process for US employers, with full technical compliance with these rules perhaps honored more in the breach that the observance.

Thankfully, the CRA has instituted a brand new program addressing this situation, aimed at certifying non-resident employers, and then allowing a stream-lined process for sending US employees to Canada.   The program will apply for all payments made to US employees after 2015, and offers possible relief from the withholding tax requirements referred to above, upon certification.

The discovery process allows litigating parties to collect and consider all pertinent facts, to use those facts to assess the strengths and weaknesses of their case and to otherwise prepare for trial.  A general exception to the requirement to disclose relevant documentation and information during the discovery process relates to documents or information that are “privileged”. 

The recent decision of the Chief Justice of the Tax Court of Canada in CIBC v. The Queen (2015 TCC 280) is an excellent review of the strict rules surrounding privilege in this context, and a cautionary tale for litigants taking an overly obstructionist approach to the principles of full and proper disclosure.

Rules regarding cost awards and settlement offers are important tools to promote settlement in the context of general civil litigation and are generally seen as an important tool to minimize use of scarce court resources. 

In tax cases, settlement offers have historically tended not to play as important a role, which is perhaps attributable to the fact that tax appeal outcomes tend to be mostly binary in nature (i.e. a complete success or complete failure).  This differs markedly from most other civil litigation where the quantum of damages is often the central contested issue.  Furthermore, Canada’s Tax Court Rules have historically only considered settlement offers as one of many factors to be considered when making a costs award, without setting out more definite implications of settlement offers for awarding costs.

This may be changing under new Tax Court Rules 147(3.1) and (3.2) which grant a party “substantial indemnity” costs after the date of its offer to settle (defined to be 80% of solicitor and client costs in Rule 147(3.5)), if judgment is as or more favourable than the offer. 

Although these rules have recently operated in favour of successful appellant taxpayers (see for example: Sunlife (2015 TCC 171) and Repsol Canada Ltd. (2015 TCC 154))  the TCC’s cost award in Standard Life (2015 TCC 138) serves as a warning to taxpayers that they may be liable for significant costs, where a settlement offer from the Crown has been rejected.

The issue of single versus multiple supplies in the context of the GST is the subject of frequent litigation.  This is likely attributable to the fairly fact-driven analysis employed by the courts in determining the existence of single or multiple supplies and the arguably subjective nature of the test applied to those facts. 

The recent Tele-Mobile decision (2015 TCC 197) will likely do little to reduce the frequency of this issue coming before the courts; however, it does provide some additional clarity on how the issue should be analyzed.

Litigating parties must consider cost implications at every stage in litigation, which generally requires a cost-benefit analysis of starting litigation in the first place, proceeding with litigation at any given stage, and negotiating towards settlement.  In tax litigation, the cost-benefit analysis is often the same, and can be a comparatively simple exercise, requiring an analysis of anticipated costs of litigation, chance of success at trial or on appeal, consideration of the assessed amount in dispute, and the effect of a judicial decision on the taxpayer’s position going forward.  Court costs have generally not factored into this analysis, since they have historically been negligible.

Things are changing.