Tax & Trade Blog

As we blogged on here, CRA has recently taken steps to reverse what was generally understood to have been their historical position on employer eligible ITCs in pension plan situations involving insurance segregated fund products.

In a recent Excise News Publication, CRA doubles-down on this position in a very public way, seemingly setting the stage for audits in this area to come.

The new year brings possible new tax reporting requirements for direct sales platform operators (“Direct Sellers”)!

These changes stem from amendments to the Income Tax Act (“ITA”) and mandate that digital platform operators throughout the online “gig” economy report income and certain other information about some of the sellers using their websites or apps to the Canada Revenue Agency (the “CRA”).  See our prior article for more technical information.

Those affected include certain Direct Sellers operating on a “buy-resale” model.  Filings for the 2024 year are due by January 31, 2025!

Which Direct Sellers Are Affected?

Beginning this year, digital platform operators should be aware of the new tax reporting requirements under section 292 of the Income Tax Act (“ITA”).  Many reportable digital platforms (including many online “gig” platforms) will now be required to file reports with the CRA providing information about the activities of their “reportable sellers”.  Filings for the 2024 year are due by January 31, 2025!

Which Platform Operators are Affected?

The new requirements target a subset of “platform operators”, which under section 282 of the ITA include websites or applications that contract with sellers to use all or part of a platform to connect with customers. 

Staffing agencies (as well as Employment Agencies, Temporary Labour, Placement Agencies and other similar entities – “Agencies”) play a growing role in connecting businesses with Canadian workers, but these models can come with unexpected tax “strings attached”.

For example, did you know that in some cases, Agencies hiring workers classified as independent contractors can still be required to make Canada Pension Plan (“CPP”) and Employment Insurance (“EI”) contributions (as if the workers were their employees)?  This tax quirk can be difficult to understand, especially when the Canada Revenue Agency (“CRA”) views one’s workers to be non-employees!

One thing that usually goes undiscussed when contemplating appeals to the Tax Court of Canada (“TCC”) is what happens if a taxpayer loses.

One thing that CAN happen is a “costs award” against the taxpayer, which is where a TCC judge orders the taxpayer to pay a portion of the Department of Justice (“DOJ”) costs in defending the appeal – which puts a significant premium on understanding one’s “chances of success” BEFORE filing the appeal!

Unexpected Costs

A T4A slip is an essential Canadian tax form that businesses must issue to contractors and other self-employed individuals when payments are made for services rendered within Canada.

For Direct Selling businesses, properly issuing T4A slips and understanding withholding requirements are crucial for ensuring smooth, efficient operations and compliance with the Canada Revenue Agency (“CRA”).

Over the past several years, the Canada Revenue Agency (the “CRA”) has been in the midst of a digital service transformation.  Like the CBSA’s “CARM” project, which we previously discussed here, this initiative appears to be a response to the Canadian government’s “digital first” policy, which aims to build digital delivery into government operations and services.

While the CRA now provides Notices of Assessment electronically through online portals including “My Account” and “My Business Account”, access to such documents remains difficult for many, especially non-Canadian residents who may be unfamiliar with the Canadian tax system.

When a specialty tax practice like our own, focussed on GST/HST and other indirect taxes, sees a plethora of inquiries from homeowners being either assessed by the Canada Revenue Agency (“CRA”) on the sale of their homes, or threatened with such assessments, we know that something is up!

As we have previously written, the CRA continues targeting residential homeowners. Specifically, those who have sold their home in a short period of time after: (1) substantially renovating; or (2) commissioning the construction of a new home for their own use.

As we wrote here, Canada’s rules taxing Vaping Products were first enacted in 2018, with the Tobacco and Vaping Products Act (“TVPA”), continue to involve, with a number of provinces and territories now getting into the taxing game.  While the TVPA sets out a regulatory framework for manufacturers, importers, retailers and any other business involved in the vaping industry, the provincial rules center largely on ensuring their allocation of the taxes from this new found source of tax income!

The Canada Revenue Agency (“CRA”) has recently released some new Guidance on how all of these taxes are supposed to work together, but the policy goal of this (i.e., taxing something that in many eyes is meant to be an alternative to an incredibly-bad-for-your-health smoking habit) remains suspect.

As we initially described here, the Canada Revenue Agency (“CRA”) continues auditing and assessing individual home-owners who have either substantially re-built their homes or commissioned the construction of a new home for their own use on the resale value of those homes in a number of alarming instances.

Direct Sellers and the distributor and representative businesses that work closely with them should be no stranger to oversight and scrutiny from all levels of government, no matter where they operate.

The Canada Revenue Agency (“CRA”) recently added one more headache for in-house Law Departments and other Compliance Professionals with Direct Selling Companies, issuing a warning exclaiming: “Watch out for tax schemes involving multilevel marketing businesses!” (the “Warning”).

Tax assessments are difficult to appeal in Canada because the Canada Revenue Agency (“CRA”) is allowed to make factual ‘assumptions’ which the taxpayer must disprove – or lose its case!

Two recent Federal Court of Appeal (FCA) decisions have seemingly expanded these powers to assumptions of “mixed fact and law” – although the second FCA seemingly walks back the first.

Whether a supply is taxable under the Excise Tax Act (“ETA”) can depend, in part, on how that supply is characterized. In normal commercial relations, businesses will often bundle many diverse services together – including both taxable and exempt services. Once bundled together, one must consider whether they remain multiple supplies, or whether they now constitute one single supply. If a single supply, one must then determine the character of that supply, which can impact whether it is taxable or exempt.

The courts’ approach to characterizing bundled supplies has evolved over the last few years. This was especially apparent in last year’s Federal Court of Canada (“FCA”) decision in Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 96 (“CIBC 2021”), which was recently denied leave to appeal to the Supreme Court of Canada (“SCC”) — making it the law of the land.

The recent Tax Court of Canada (“TCC”) decision in Canadian Imperial Bank of Commerce v. The Queen, 2022 TCC 83 (“CIBC 2022”), is an example of how the TCC is now applying the FCA’s text-focused approach to other GST/HST characterization cases.

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.

Before 2010, Canadian direct selling companies were often organized as Unlimited Liability Companies ("ULCs"), for good reason.

The ULC structure could operate under the US "check-the-box" rules as a flow-through entity, which was often desirable from the perspective of the US corporate owner, which was usually structured as an S Corp or LLC.

Changes to the US-Canada Tax Treaty (the "Treaty") made effective in 2010 threw a wrench into these historically common structures – exposing some to a 25% unrecoverable tax under Part XIII of the Canadian Income Tax Act on any payments of dividends, interest, and royalties.

Special rules in the Excise Tax Act (“ETA”) provide the Canada Revenue Agency (“CRA”) with tools to request or require information for verification and administrative purposes. The CRA can send out a “requirement to provide information” – known as RFI – relating to the enforcement of Part IX of the ETA to a registrant or third party (section 289). Where the person refuses to comply with an RFI, the Minister may make an application to the Federal Court and obtain a “compliance order” and, if the person still fails to comply with the compliance Order and provide the information as ordered, the person can be subject to contempt of court penalties (section 289.1). (Note that there are parallel provisions under the Income Tax Act (“ITA”): see section 231.2(1) and section 231.7 of the ITA).

As shown in the recent federal court decision, Minister of National Revenue v. Chi (2018 FC 897), contempt of court is a serious offence and failure to properly respond to a CRA RFI can lead to substantial fines and/or imprisonment.

Section 165 of the Excise Tax Act imposes GST/HST on taxable supplies "made in Canada". A supply is deemed to be made in Canada if “delivered or made available” to the supply’s recipient in Canada (para. 142(1)(a)), but deemed to be made outside Canada if “delivered or made available” outside Canada (para. 142(2)(a)). “Delivery” refers to physical delivery, and “made available” refers to constructive or “legal” delivery.

The recent decision of the Tax Court of Canada (“TCC”) in Jayco, Inc. v. The Queen, 2018 TCC 34(“Jayco”) is a good example of issues that can arise when a contract is silent as to the place of physical or legal delivery.

Under section 230 of the Income Tax Act (“ITA”) and section 286 of the Excise Tax Act (“ETA”) all taxpayers must keep records that are adequate to determine the amount of taxes owing. When these sections are complied with and a taxpayer maintains adequate records, the Canada Revenue Agency (“CRA”) will generally rely on those records when conducting an audit to determine the taxpayer’s tax obligations. However, if a taxpayer does not maintain adequate records, the CRA can use alternative assessment methodologies to assess a taxpayer under subsection 152(7) of the ITA and subsection 299(1) of the ETA.

In the recent decision of Truong v. Canada, 2018 FCA 6 (“Truong”), the Federal Court of Canada (“FCA”) confirmed that alternative assessment methodologies are permissible when the CRA is unable to audit a taxpayer using the traditional method.

In a recent blog, we introduced the ongoing tax saga of Tony and Helen Samaroo, a husband and wife that owned and operated a restaurant, a nightclub and a motel, who were charged with 21 counts of tax evasion.

The Samaroos were acquitted of all charges in a 2010 criminal trial where the trial judge found the Crown’s case “weak” and supported by “unreliable” and “highly uncertain” evidence which contained “significant flaws” and “discrepancies”.

Following their acquittals, the Samaroos sued the prosecutor and CRA for malicious prosecution. The claim against the prosecutor was dismissed; however, in a scathing 70 page decision Justice Punnett of the British Columbia Supreme Court found the CRA guilty of malicious prosecution and ordered the CRA to pay approximately $1.7 million in damages to the Samaroos.